Risk management

Novozymes’ management systems are set up to seek growth and development opportunities, while at the same time mitigating risk and ensuring compliance with rules and regulations in environmental, social and financial areas.

Risks can be mitigated to some extent by ensuring the right behavior internally, but as risks are often related to external factors, the process of identifying and managing risk is integrated into Novozymes’ management systems at all levels.

Identification of risks and opportunities

Novozymes defines risks as “events or trends that can prevent the company from achieving its overall targets – including financial and sustainability targets – or negatively affect our image or our future results and activities.” Novozymes strives to identify risks as early as possible. Once the risks are identified, we work to mitigate them to the extent possible and monitor them on an ongoing basis.

Throughout the value chain, Novozymes looks at its business surroundings with the aim of identifying trends and developments that could impact our business, whether positively or negatively. The purpose of this is to ensure Novozymes can respond to changes in the outside world by exploiting new opportunities or addressing risks in a timely manner.

Stakeholder engagement

One way of identifying risks, opportunities and new trends, while at the same time living up to Novozymes’ ambition of being open and transparent, is to engage with stakeholders. We give high priority to understanding and living up to our stakeholders’ expectations.

Through numerous meetings each year with our stakeholders, such as investors, policymakers, customers, neighbors, and NGOs, we become aware of relevant issues and trends that provide valuable input for our strategic development.

In our dialogue with stakeholders, we also promote our viewpoints, solutions, etc. We want to ensure this is done in a respectful way, protecting Novozymes’ reputation. Therefore, we have established principles for ethical ways to influence our stakeholders. For instance, we have a management standard defining good business practice for dealing with authorities, policymakers and political parties.

Our Sustainability Development Board (SDB) is an example of how we make systematic use of input from our stakeholders. Consisting of vice presidents from all key business functions, the SDB is responsible for developing our sustainable development strategy and targets aimed at ensuring that Novozymes is a leader in sustainability. To provide qualified support for strategic decision-making and pursue an ambitious sustainability strategy, the SDB is presented with systematic surveys identifying and assessing trends that may have a material business impact and are relevant to Novozymes’ stakeholders. The SDB uses these surveys to select key trends to act on, based on an assessment of their relevance and importance to Novozymes’ business strategies, looking at both opportunities and risks. The SDB reports directly to Novozymes’ Executive Management, which evaluates and endorses the sustainability targets and strategy for the Board of Directors' final approval.

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Risk assessments

Novozymes frequently performs risk assessments in various parts of the organization, often with external partners such as insurance companies, to maintain an up-to-date, balanced view of business-related risks. We also conduct assessments of our social and environmental impact at production sites, which are verified against third-party risk surveys and recent trends in sustainability risk assessment.

As part of these processes, we set targets to improve performance within the assessed areas. If risks or noncompliance are discovered, our systems ensure that further action is taken, as these shortfalls are included in management reviews at different levels depending on severity.

Long-term scenarios

Executive Management uses long-term scenarios as part of an annual evaluation of opportunities and barriers for future growth, conducted during the strategy process. This evaluation is based on reports on long-term scenarios for each of the business areas. The scenarios are also used to evaluate the impact of major decisions and to assess the potential impact of major risks. As the scenarios are used as input for strategic decisions, the reports are supplemented with in-depth descriptions, sensitivity analyses and risk descriptions. For expansion projects and major investment proposals, an estimate of the net present value of the investment is included as well.

Part of this scenario work involves identifying potential bottlenecks for future growth, such as the need to expand production capacity and the availability of resources such as water. Some of the scenarios presented to Executive Management arise from risks and opportunities identified by the enterprise risk management setup.

Enterprise risk management setup

In addition to the activities mentioned above to identify risks, Novozymes has a formal process to continually map, assess and mitigate risks. All business units and vice presidents systematically report new risks and any changes to previously defined risks. This process, which is headed by the Vice President of Corporate Financial Planning & Analysis, ensures that top management has a high level of risk awareness, with involvement and ownership throughout the organization.

Reported risks are collated and mapped on the basis of probability and possible consequences. Risks are assessed and classified on the basis of both financial and reputational impact, and the reporting covers both financial and nonfinancial risks.

The aim of risk management at Novozymes is to ensure proactive management of key risks, so that efforts to reduce both probability and unwanted consequences will be made where possible.

Every six months, risks are reported to Corporate Financial Planning & Analysis. These are then assessed, and a shortlist of approximately 30 risks judged to be the most significant is reported to Executive Management, and any appropriate mitigation actions are decided and implemented. Twice a year, around 15 of the most significant risks from a financial and image impact perspective are also presented to, and discussed with, the Board of Directors.

This systematic and analytical approach to risk management provides Novozymes with a more transparent overview of risks and a stronger basis for making decisions about investing, resources and the necessary actions in relation to the risk profile.

SPOTTING OPPORTUNITY AND RISK

Managing risk is a continuous process at Novozymes. We look inward and outward to spot business opportunities and risks, and achieve maximum impact through a combination of investigation, analysis, constructive dialogue, balanced review of our options and timely response.

Novozymes mitigates risks in many different ways and at many different levels. Some risks can be mitigated through behavior and others through processes and procedures or specific actions.

Mitigation of risks

Novozymes mitigates risks in many different ways and at many different levels. Some risks can be mitigated through behavior and others through processes and procedures or specific actions.

Behavior

At the top of Novozymes’ management system, Touch the World sets out the company’s vision, company idea, commitment, and values. It outlines our philosophy and guides us in how we operate and behave as a responsible corporate citizen. By acting in accordance with these principles, we encourage the right behavior and thereby reduce the risk of misconduct. To ensure that the company lives up to the values in Touch the World, an organizational performance review is conducted annually to assess the impact of each business unit’s work to support and uphold the principles in Touch the World. Furthermore, Novozymes achieved its target for 2012 to measure the ability to live Touch the World throughout the organization.

Our business integrity principles are an example of how the desired behavior is encouraged in the organization through mandatory training. We also seek to implement these principles outside our organization, for example, our suppliers and agents, among others, are informed of the principles and encouraged to adopt them. Systems to evaluate partners’ performance against our principles are also in place, and we measure our progress through our long-term sustainability target of 100% supplier adherence to our supplier program for commercial, quality and sustainability performance.

Our business integrity principles can be found under Business Integrity at Novozymes.com.

Procedures

Risks can also be related to internal procedures, such as errors leading to the misstatement of information, malfunctioning of products, etc. Novozymes strives to minimize these procedural risks through the extensive use of quality management systems and ISO certifications. These systems include general policies and standards, as well as detailed control and action requirements covering both global procedures and specific requirements dependent on location, business area and function.

To ensure compliance with the requirements of quality management systems, a large number of internal quality audits are performed. The results of these audits are distributed to relevant management levels.

Timely and accurate reporting

Novozymes attaches great importance to timely, transparent and accurate reporting, as this is considered key to being a trustworthy company and an essential prerequisite for maintaining a balanced stakeholder dialogue.

Novozymes’ risk management and internal controls relating to financial reporting are designed to facilitate:

  • Presentation of management accounts that allow Novozymes’ performance to be measured, evaluated and monitored
  • Presentation of financial statements that provide a true and fair view without material misstatement, and comply with International Financial Reporting Standards, as adopted by the EU, and other additional disclosure requirements for the annual reports of listed companies

Novozymes’ internal controls and risk management systems are updated on an ongoing basis and have been designed with a view to discovering and eliminating errors and defects in the financial statements and procedures. However, as there is always a risk of misuse of assets, unexpected losses, etc., the internal controls and risk management systems can only provide reasonable and not absolute assurance that all material errors and defects are discovered and eliminated.

The environmental and social data presented in The Novozymes Report are also covered by internal controls and the risk management systems.

A more detailed description of Novozymes’ risk management and internal controls concerning the financial reporting process can be found in the statutory report on corporate governance fulfilling the requirements in Section 107b of the Danish Financial Statements Act.

The financial reporting process and the internal controls supporting it are monitored by the Audit Committee. As part of this monitoring, all cases of fraud and concerns raised either through the whistleblower system, Ethics Hotline, or directly by internal or external personnel, are reported to the Audit Committee. 

In 2012, 13 cases of fraud were discovered compared with four cases in 2011. All 13 cases led to dismissal of the involved employees, with five cases reported to the police. All cases were related to theft or misappropriation of Novozymes assets.

Specific actions

There will always be risks that cannot be avoided by the usual means, but where mitigating actions should be tailored and planned to achieve the greatest possible impact. These are usually risks that are either very special in their nature or significant in their scope and impact.

The following section describes the main risk factors for Novozymes, and what is being done to reduce these risks.

SPOTTING OPPORTUNITY AND RISK

Managing risk is a continuous process at Novozymes. We look inward and outward to spot business opportunities and risks, and achieve maximum impact through a combination of investigation, analysis, constructive dialogue, balanced review of our options and timely response.

Novozymes mitigates risks in many different ways and at many different levels. Some risks can be mitigated through behavior and others through processes and procedures or specific actions.

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