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 the environmental, social and financial areas.

    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 its business, whether positively or negatively. The purpose of this is to ensure that 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 realizing Novozymes’ ambition of being open and transparent, is to engage with stakeholders. Therefore, a priority for Novozymes is to understand stakeholders and live up to their expectations. To do this, Novozymes engages with stakeholders across the value chain, from customers to suppliers to retailers, policymakers and investors. This enables Novozymes to spot trends that are relevant to its business and stakeholders, and to seek deeper engagement with those stakeholders most material to the business.

    Stakeholder engagement is about listening and influencing, which is why we have established ethical principles for relations with our stakeholders. For example, we have a management standard defining good business practice when dealing with authorities, policymakers and political parties.

    Our Sustainability Board (SB) is an example of how we make systematic use of input from our stakeholders. Consisting of vice presidents from all key business functions, the SB is responsible for driving the integration of sustainability across Novozymes and developing our sustainability strategy aimed at ensuring that Novozymes is a leader in sustainability. Novozymes analyzes the trends spotted to understand the related risks and opportunities for Novozymes’ business. We do so from both a corporate and a regional perspective. In this process, the Corporate Sustainability team selects key trends to present to the SB. The trend analyses are used to inform discussions and decisions related to Novozymes’ sustainability strategy, targets and project portfolio. The SB reports directly to the Executive Leadership Team, which evaluates and endorses the sustainability targets and strategy input for the Board of Directors' final approval.

    “Novozymes looks at its business surroundings with the aim of identifying trends and developments that could impact its business, whether positively or negatively.”

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    Sustainability materiality assessment

    Together with stakeholders, Novozymes spots trends and assesses the potential impact of those trends on Novozymes’ business and its stakeholders. The most material trends contribute to Novozymes’ strategy and targets.

    An overview of trends identified and an assessment of their materiality to Novozymes and its stakeholders are included in the Supplementary section and can be found at www.novozymes.com.

    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. People & Organization and Environmental Services also conduct assessments of the company’s social and environmental impact at production sites. These 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

    The Executive Leadership Team uses long-term scenarios as part of an annual evaluation of opportunities for and barriers to future growth, conducted during the strategy process. The scenarios are 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, risk descriptions and, for expansion projects and major investment proposals, an estimate of the net present value of the investment.

    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 the Executive Leadership Team arise from risks and opportunities identified by the enterprise risk management setup.

    “This systematic and analytical approach to risk management provides Novozymes with a more transparent overview of risks and a stronger basis for making decisions.”

    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 Finance, 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 are made where possible.

    Every six months, risks are reported to Risk Management & Controls. These are then assessed, and a shortlist of approximately 30 risks judged to be the most significant is reported to the Executive Leadership Team, and any appropriate mitigation actions are decided and implemented. Twice a year, around 10 of the most significant financial and reputational risks 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.

    Mitigation of risks

    Once identified, Novozymes mitigates the risks in many different ways and at many different levels. Some risks can be mitigated through behavior and others through processes and procedures, while some risks require 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. 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, such as our long-term sustainability target of 100% supplier adherence to our supplier program for commerciality, quality and sustainability.

    Our business integrity principles can be found at www.novozymes.com.

    “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.”

    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.

    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.