Essity B 240.8 (-1.1 SEK) on 28-Feb-2024 17:29

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Risks and Risk Management

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Essity is exposed to a number of strategic, operational and financial business risks, which could have a negative impact on the Group’s operations. Accordingly, it is of major importance that the company has a systematic and effective process to identify, manage and mitigate the effects of these risks.

Processes for risk management

The responsibility for the management of business risks follows the company’s delegation scheme, from the Board of Directors to the President, and from the President to each Business Unit President. The delegation scheme involves business risks being managed primarily by Essity’s business units with clear central coordination and follow-up. Responsibility for certain specific risks, such as financial risks, insurable operational risks, information security, and ethics and human rights, is managed centrally.

Essity’s financial risk management is centralized. The Group’s internal bank handles financial risks and energy risks. The financial risks are managed in accordance with the Group’s Finance Policy, which is adopted by Essity’s Board of Directors. Together with Essity’s Energy Risk Policy, the Finance Policy constitutes a framework for financial risk management. The financial risks are compiled and continuously monitored. Responsibility for insurable operational risks is managed by the Group’s risk management department.

Identification of business risks and risk management are a key part of the annual strategy process. Identified risks are assessed according to the likelihood of these becoming a reality and the potential impact each risk could have on the Group. This process also includes specifying who is responsible for managing the respective risk, and measures for how these shall be mitigated and followed up. Development of the identified risks is monitored and assessed on an ongoing basis

Essity has an internal audit function, which ensures that the organization complies with the adopted policies.

Climate-related risks and opportunities

Climate change affects Essity and the company continuously maps the risks and opportunities this entails using, for example, scenario analyses. The purpose is to identify, manage and minimize the risks and to take strategic actions. Strengths and opportunities identified and agreed upon actions provide a basis for the company’s strategic priorities in the area of sustainability.

Strategy and governance

The identification and assessment of climate related risks and opportunities are part of Essity’s strategy process. Climate risks and opportunities are evaluated in each business unit and in a centrally coordinated internal expert group that represents key functional competencies for climate-related topics in Essity.

Responsibility for managing climate risks follows the company’s delegation scheme, which is described on page 40. Sustainability issues are discussed on an ongoing basis by Essity’s Executive Management Team and Board of Directors and has also in 2023 comprised a focus area in the work of the Board of Directors.

A steering committee has been appointed to ensure that Essity fulfills the company’s ambitious climate and environmental targets. The steering committee is led by members of Essity’s Executive Management Team and its tasks include preparing plans and strategies to deliver on all emission reductions targets for Scope 1, 2 and 3. Read more under Sustainability Governance on page 51.

Climate-risk analysis process

Essity’s climate-risk analysis is based on the recommendations of the framework of the Task Force on Climate-related Financial Disclosures (TCFD) and has been conducted every other year since 2020. In 2022, a more in-depth scenario analysis was also conducted based on two different climate scenarios. The purpose of analyzing climate-related risks and opportunities is to inform the strategy of the company. This is performed with a ten-year perspective to enable conclusions and identification of long-term strategic actions and priorities.

The climate risk and opportunities process used a scenario analysis of two key scenarios, valid both for the operations as well as for business continuity.

  • Scenario 1: Global warming of 1.5°C
  • Scenario 2: Global warming of 4°C

Within each scenario, key questions were defined to identify and understand risks and opportunities to Essity’s business related to climate change:

Scenario 1: Global warming of 1.5°C – “transition scenario”

  • Key legislative drivers impacting Essity’s business?
  • How will consumer/customer demand change and what are the underlying key drivers?
  • How can Essity differentiate, have the greatest impact and contribute the most to the green transformation?

Scenario 2: Global warming of 4°C – “physical climate scenario”

  • Where and how will Essity’s business be affected by physical climate change impact and degradation of nature, and what are the biggest threats?

Reporting is conducted based on the recommendations of the TCFD framework.