Annual Report 2013

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Managing sustainability risks

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

Electrolux divides risks into:

  • Operational risks for business operations - usually managed by each unit
  • Financial risks managed at Group level.

Electrolux applies a holistic approach. A number of Group functions are accountable for risk identification within their area of responsibility and report to Group Management on a regular basis. Each function is responsible for mitigating actions and ensuring that significant remaining risks are reported to Group Management for further review and decision-making. Sustainability Affairs, thereby, has responsibility for identifying business-relevant sustainability related risks and developing approaches to mitigate them.

Additionally, Electrolux audit function evaluates and improves the effectiveness of governance, internal control and risk management processes in a systematic way. Through a structured process of interviews and discussions with selected Group Functions and sector management, risks are identified and assessed, laying the foundation for prioritizing the auditing process and developing measures to manage the risks.

Integrating sustainability outlines approaches to managing and reducing sustainability-related non-financial risks.

Precautionary principle

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

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, human rights and compliance with the Workplace Code of Conduct. Electrolux uses 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.”

Early warning systems

Social, economic and environmental issues have the potential to become risks and are therefore reviewed regularly. Two approaches used by Sustainability Affairs for identifying and assessing issues are:

1. Materiality process

2. Value chain approach

Group financial risk management

Financial risks are managed at Group rather than functional level and are described in Risk management.

Blue risk assessment

Group Risk Management applies a group-wide benchmarking tool for qualitative and quantitative information about the situation of operations. This benchmarking is done among operations and key suppliers annually, and according to 25 risk categories and six areas. The process is known as Blue Risk Assessment and is used when an area is identified as a material short to medium-term risk to the business. It assesses the risks relating to safety, property damage and business interruption and is monitored by Group Risk Management.

Every year, a loss prevention survey is performed of all Electrolux production sites using the Electrolux Blue Risk benchmarking tool.

Key risks

Many of the issues identified in the materiality process are managed as risks, and discussed below. Sustainability risks considered most material from a business perspective include:

  • Climate change
  • Regulatory risk (e.g. standards)
  • Reputational risk (human rights, ethics)
  • Shift to low cost regions (new operations)
  • Raw materials
  • Water

Climate change

The IPCC stated in its 2013 report that limiting climate change will require substantial and sustained reductions of greenhouse gas emissions. The direct impact of climate change is long term. However, the indirect impacts emerging from changing requirements and expectations from stakeholders have already had an impact on the business.

Through active engagement in the climate agenda, Electrolux can contribute to positive change, reduce its negative impacts and at the same time generate business opportunities through the sale of energy-efficient products. Sustainability work and the Environmental Policy demonstrate how the Group manages the risks and opportunities associated with climate change.

Electrolux estimates that Group operations are not exposed short term to higher risks due to storms, drought, rising waters or changes in temperature. In its 2013 CDP report, Electrolux presents a estimate of the risks of production disruptions.

The Group’s biggest contribution to addressing climate change is to design energy-efficient products, resulting in less carbon emissions during use. The challenge is to meet the demand from a growing middle class with resource and cost efficient appliances, in particular in emerging economies. As a part of the carbon reduction target for 2020, Electrolux is focusing on energy efficiency in its product offering.

Regulatory risk

As of 2012, more stringent European Eco-Design energy-efficiency requirements mean refrigerators in energy class ‘A’ can no longer be placed on the market. Washing machines in energy Class ‘A’ and large dishwashers will no longer be made available for sale as of December 1, 2013. Electrolux supports developments to phase out inefficient appliances, along with better enforcement of efficiency standards. 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 have a material impact on Electrolux, presenting both risks and opportunities. The financial impacts of these risks are reported on at length in the Group's yearly reporting to the Carbon Disclosure Project.

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 to come into force in 2016). Future regulation is expected to include restrictions in the use of fluorinated gases such as foam-blowing agents and refrigerants presently used in some products, due to their global warming potential.

Legislation regarding the management of chemicals use and registration of the types of chemicals employed 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 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 and RoHS.

Reputational risk

The actions of any supplier, employee or operation have the potential to positively or negatively impact stakeholders’ perception of Electrolux. Group workplace management, particularly the health and safety of employees and the way the company demonstrates accountability can enhance the employee brand.

Reputational risk is addressed by means of a strong Electrolux values-based corporate culture, a commitment to openness and transparency in reporting on key challenges and risks, the Ethics at Electrolux program and forward-thinking supply chain management.

The Ethics Program and policies guide employees in ethical conduct, including topics such as anti-bribery and corruption, anti-trust, workplace conduct, environment and conflicts of interest. In 2012, Electrolux stepped up its human rights efforts. The Group conducted a corporate human rights risk assessment taking into account geographical and activity-related risks.

In 2013 work to update the Code of Conduct and the Workplace Standard was initiated to align with the UN Principles on Business and Human Rights.

During 2013 Electrolux introduced a global provider for ISO and OHSAS certification.The new approach improved governance and reporting, as well as securing greater harmonization across the Group.

Electrolux has several ways to ensure the Code of Conduct is fulfilled. Each one is described in detail in the Labor Practices section.

These initiatives are designed to manage risk in our operations, help reinforce a strong values-based culture and provide transparency to our customers.

In a climate of retailer consolidation, Electrolux has fewer, more powerful customers. Their expectations for transparency and sustainable product offerings are rising and exert a strong impact on the Group’s position as a preferred supplier.

Good relationships with customers are in part due 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

As the Group expands to new regions and developing markets, different challenges and risk factors arise in the supply chain. The financial implications of this are set out in Managing Risks.

Due diligence of potential acquisitions and supply chain monitoring that highlight environmental, human rights, labor practice and corruption non-compliance, help the Group better understand the risks of operating and sourcing in low-cost regions.

The objective of the Responsible Sourcing program is to ensure that all suppliers adhere to the same high environmental and labor standards as Electrolux. Compliance to the Workplace Standard is mandatory and is used in evaluating both existing and potential suppliers.

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

Raw materials

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

Water

Water risk is rising up the agenda globally, and Electrolux has conducted an in-depth water risk assessment for operations.

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