Understanding and managing sustainability risks

Reducing non-financial risks is an important part of operating the business. Electrolux applies many tools, including the sustainability strategy, sustainability codes and policies, training and monitoring, to help manage and transform these risks into opportunities.

Climate change

Through active engagement in the climate agenda, Electrolux can contribute to positive change, reduce its negative impacts while at the same time generate business opportunities through the sale of energy-efficient products. The sustainability strategy and Environmental Policy encapsulate the Group’s response to measuring the risks and opportunities associated with climate change.

For Electrolux, risks relating to climate change concern reducing the climate impact of manufacturing and operations, managing potential disruptions in production, and decoupling growth with carbon emissions as well as meeting increased legislation and energy pricing.

Impact to operations

Electrolux estimates that Group operations are not unusually exposed to storms, drought, rising waters or changes in temperature. In its 2011 CDP report, it presented a rough calculation of the risks of production disruptions.

Mitigating risks

The process to continuously assess the risks related to safety, property damage and business interruption is monitored by Group Risk Management. Every year, Group Risk Management performs a loss prevention survey of all Electrolux production sites, using the Electrolux Blue Risk benchmarking tool.

The survey measures the level of preparedness and risk management within the following risk areas:

  1. Business Continuity Management
  2. Construction and occupancy
  3. Loss Prevention
  4. Loss Control
  5. External exposures
  6. Security

Decoupling growth with carbon emissions

Climate change is a risk to society as a whole. As in all industries, climate change will require appliance manufacturers to rethink their production processes and their product offering.

The Group’s long-term challenge is to meet the exponential growth of the middle class while generating dramatically fewer carbon emissions and saving more resources. The Group’s biggest contribution to the solution is to design products that reduce total emissions, including in expanding markets such as Asia, Africa and Latin America.

Electrolux uses a materiality process to help measure priorities amongst stakeholders. Climate change and energy efficiency tops the issues most relevant to the business. Through dialog with stakeholders such as NGOs, academic institutions and thought-leaders, Electrolux better understands shifts in stakeholder demands and the latest developments.

Regulatory risk

Electrolux requires that its products fulfill or exceed all regulatory limits.

In Europe, minimum efficiency-performance standards (MEPS) and other environmental requirements were in effect as of 2011 for dishwashers and washing machines. Revised rules for energy labeling now apply in washing machines, dishwashers, refrigerators and freezers in the EU. Electrolux is also preparing for upcoming revisions in ENERGY STAR labeling and federal minimum efficiency standards in the United States.

These changes in legislation and the need to modify products could potentially have a material impact on Electrolux. However, their financial implications have not been quantitatively collated on Group level.

In the long term, Electrolux is preparing worldwide for more stringent rules for energy labeling and producer responsibility for the recycling of appliances (including a revised EU WEEE Directive). Future regulation may also include fluorinated gases used as foam-blowing agents and refrigerants presently used in some products, due to their global warming potential.

Legislation in regards to managing chemicals use and registration of the types of chemicals used in manufacturing is also increasing, led by EU legislation RoHS Directive (Restriction of Hazardous Substances) and REACH.

Electrolux annually revises its RML (Restricted Materials List) in order to stay ahead and better harmonize the response to chemicals legislation worldwide. REACH is an EU legislation on the registration, evaluation, authorization and restriction of chemicals. Electrolux sees REACH as a tool for ensuring safe products, safe production and environmental protection.

In 2007, Electrolux in Europe established a central chemical office to effectively manage chemicals regulation such as REACH, which continuously adds new chemicals to its list of targeted substances.

Reputational risk

The actions of any supplier, employee or operation have the potential to positively or negatively impact stakeholders’ perception of Electrolux. Moreover, company management of the workplace, particularly the health and safety of employees and a strong sense of personal and company accountability also boost morale and improve the employee brand.

A strong values-based corporate culture, an approach based on openness and transparency in reporting on key challenges and risks, the Ethics at Electrolux program and forward-thinking supply chain management are all designed to address reputational risk.

Electrolux has a Code of Ethics and many other policies related to ethical conduct on topics such as bribery and corruption, anti-trust, workplace conduct, environment and conflicts of interest.

Electrolux has four ways to ensure the Workplace Code of Conduct is fulfilled. Each one is described in detail in the Labor Practices section of this report. They are:

  • Code of Conduct Assessment (formerly known as ALFA)
  • Ethics program
  • Internal Code of Conduct audits
  • Values training

These all help reinforce a strong values-based culture. (See more at SO Management approach).

In an era of retailer consolidation, Electrolux has fewer and more powerful customers. Their expectations for transparency and sustainable product offerings are on the rise and have growing impact on the Group’s position as a preferred supplier. Strong relationships with customers can be in part contributed to the Group’s proactive environmental performance, social engagement and energy-smart products. There are an increasing number of retailers who request Code of Conduct audits of Electrolux facilities and the Group readily shares audit findings with customers.

Shift to low-cost regions

Due diligence and supply chain monitoring that highlight non-compliances for environmental, human rights, labor practice and corruption, help the Group better understand the risks of operating and sourcing in low-cost regions. A risk-based approach also informs training and monitoring activities in already ongoing operations.

During 2011, Electrolux finalized acquisitions of operations in the Ukraine, ten factories in Egypt and three factories in Chile and Argentina. Impact assessments were conducted preceding and following acquisition. See more under Management Approach: Labor practices and the case study, LA10-12, Olympic strength.

The restructuring strategy also has the potential to impact both individuals and local communities during closures. Managing closures by being transparent and inclusive is therefore key to strengthening the Group’s reputation for corporate citizenship. (See more under SO1, 9 and 10 Community).

Raw materials

From minerals to oil, raw materials will become an increasingly costly commodity. The first impact of increased demand is likely to be price increases, along with pressure for greater efficiency, materials substitution, greater recycling and reuse impacting product affordability. The Group’s exposure to raw materials comprises mainly steel, plastics, copper and aluminum.

Precautionary principle

As a signatory of the UN Global Compact, Electrolux endorses Principle seven: Business should support a precautionary approach to environmental challenges.

The Precautionary Principle is applied to tackling climate change and chemicals use. Through the Group's risk-based procedures, Electrolux applies a similar approach in responsible sourcing and compliance with the Workplace Code of Conduct. Electrolux applies the definition of the Precautionary Principle as stated in the 1998 Wingspread Statement: "When an activity raises threats of harm to human health or the environment, precautionary measures should be taken even if some cause and effect relationships are not fully established scientifically.