Clariant recognises that profits, sustainable growth and competitiveness are generated by successful risk taking and that risk should be managed and controlled appropriately. Risk Management is not designed to stop people from taking risks but rather to help them to optimise the level of risk taken and encourage entrepreneurial behaviour. Risk is inherent in all our activities and it is essential that best practice for Risk Management is embedded in our core business processes.
Risk is inherent in all our activities. To achieve Clariant’s strategic goals, risks need to be taken successfully and managed and controlled appropriately.
For particular sustainability risks, Clariant ensures that risk assessments are performed according to the Enterprise Risk Management framework.
Risk Management Framework
Clariant has defined Risk Clusters which basically follow the organizational structure. The Risk Management process (identification, assessment, management, monitoring and reporting) is adapted individually to the different Risk Clusters
• Business Units - Short Term risks
• Business Units - Long Term risks
• Service Units
• Large Projects
Workshops are held across the organisation and risks (both internal and external) that could potentially impact Clariant’s ability to meet its business objectives are identified and assessed. Appropriate treatment is taken. Material risks and respective proposed treatment including mitigation measures are reported to the next level and onward to the Executive Committee and Board of Directors.
Identified risks are entered into a risk inventory which is available to respective risk sponsors and action owners. The risk register is updated for emerging risks. Closed risks are deleted from the risk inventory.
Examples of the risk register are as follows.
1. Economic development
The shape of the global economy is of enormous importance for the success of Clariant. A slowdown of the global economy, major regions or specific end-user markets could have a significant effect on customer demand and thus the profitability of Clariant.
• Strategically spread business activities geographically and across market segments.
• Continue and even accelerate lean management and cost saving programs.
2. Public concern about human health and environment and tightening regulation and standards globally
Clariant is subject to many rules and regulations as well as compliance standards. These include chemical industry, country, government and customer requirements, as well as the European Union’s (EU) regulations on Registration, Evaluation, Authorization and Restriction of Chemicals (REACH). Clariant uses certain compounds, of which some are hazardous to the environment and health, in product development programs and manufacturing processes. The company may be exposed to risks of policy changes and market trends, unless these are properly anticipated and mitigating actions developed.
• High management attention. A clear and comprehensive management framework for Environment, Health and Safety as well as Product Stewardship.
• Proactive approach aiming to develop innovative processes and products to take the right steps to turn threats into opportunities. One example is the Clariant Portfolio Value Program, a sustainability program that drives continuous improvement of the product portfolio and allows to identify and strengthen opportunities for innovation and value chain collaboration.
3. Foreign exchange fluctuations
Clariant operates internationally and is exposed to foreign exchange risks arising from various currency exposures, primarily with respect to the euro and the US-dollar and to some extent the currencies of countries in emerging markets. Foreign exchange risks arise when transactions are denominated in a currency that is not the respective subsidiary’s functional currency.
• To manage the foreign exchange risk arising from commercial transactions and recognized assets and liabilities Clariant uses spot transactions, FX forward contracts, FX options and FX swaps according to the Group’s foreign exchange risk policy.
• Currency exposures arising from the net assets of the Group’s foreign operations are managed primarily through borrowings denominated in the relevant foreign currency.
1. Economic slowdown
The achievement of corporate targets depends on the economic development, which is continuously monitored in all markets. The global trade uncertainty arising from current conflicts around trade and tariffs could adversely affect economic development. Furthermore, development in Europe could be jeopardized by the exit of the United Kingdom from the European Union and the debt stretch of various governments.
• Adjustment of organization where markets do not develop in line with expectations.
• Utilization of global production networks to optimize manufacturing and sales flow for best access to market.
2. Consolidation of customers
Consolidation of the customer base in certain markets served by Clariant result in increasing pressure on prices.
• Clariant is further developing key account pricing strategies and speeding up its value proposition claim.
• Consequential and vigorous use of Clariant Innovation Excellence.
The chemical industry is lagging behind in digitalization compared with industries such as media, retail and telecommunication. This poses a risk to miss out on the business opportunities that digitization can create by offering new and innovative ways to meet customer needs.
• Putting digitalization as a focus for innovation and offering new solutions, for example, Chemberry™, an internet platform that enables customers to easily find chemical ingredients using intelligent search engines
• Anticipating digitalization in business processes.