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Operational risks

Operational risks can often be influenced, which is why they are normally regulated by policies, guidelines and instructions. Operational risks are part of Cloetta’s day-to-day work and are managed by the operating units. Operational risks include those related to the brand, relocation of production, insurable risks and environmental, health and safety-related risks and IT-related risks.

 

Risks
PROBABILITY
Management
IMPACT
Business ethics and brand risks Demand for Cloetta’s well-known brands is driven by consumers’ association of these brands with positive values. If Cloetta or any of the Group’s partners takes any measures that conflict with the values represented by the brands, the Cloetta brands could be damaged.

Cloetta takes a proactive approach by adhering to a Code of Conduct and a policy on anti-corruption and bribery, as well as responsible marketing.

A specific Supplier Code of Conduct developed in 2020 was implemented during 2021. It covers human and labour rights, business ethics and anti-corruption, health and safety, and environmental protection.

Social conditions in the supply chain

Cloetta uses some raw materials that originate from regions or countries with an increased risk of human rights violations and corrupt behaviour.

Further, political instability in places where raw materials are produced can have a negative impact on availability and costs.

Cloetta’s Supplier Code of Conduct is part of all supplier agreements.

Cloetta assesses the raw materials and prioritises involvement with suppliers and organisations for certain materials based on climate, social and human-rights related risks.

100% of all cocoa purchased is UTZ/Rainforest Alliance certified.

100% of all palm oil used in Cloetta branded products is RSPO Certified Segregated palm oil which is one of the highest standards to ensure deforestation free and sustainably farmed palm oil. Certification of Cloetta’s factories according to this standard has been upheld since 2019.

Since 2017 Cloetta has purchased sustainable and traceable shea butter from women cooperatives in Africa.

Since 2020, Cloetta has participated in a pilot initiative together with Rainforest Alliance to close the income gap for cocoa farmers in Africa.

Environmental and climate related risks

There is a risk that climate change will impact Cloetta. This may involve transition risks such as changing rules and taxation, as well as physical risks. Physical risks include changes that are both long-term and urgent in nature, for example extreme weather conditions and natural catastrophes that could impact Cloetta’s access to raw materials and disrupt business operations directly or indirectly.

Climate-related risks are becoming an ever growing concern among the investment community and new initiatives such as the Task Force on Climate-related Financial Disclosures are receiving more attention.

Cloetta is raising the ambition level to improve its total environmental footprint through the work in our sustainability agenda.

The climate crisis coincides with a biodiversity crisis and water crisis, which agriculture is directly impacted by. Agriculture is at the very heart of both the risks but also of the potential solutions.

The future of agricultural production is of course of utmost importance to the future of any food company. Therefore, Cloetta joined the Science Based Targets initiative to set targets and action plans to reduce our carbon footprint throughout our value chain, not only our own operations. We will cooperate with our customers and suppliers to find solutions that can tackle this enormous challenge.

Cloetta manages the environmental and climate impact of its business operations through systematic work within the scope of the company’s environmental management system.

Product safety risks Handling of food products places high demands on traceability, hygiene and safety. In a worst-case scenario, inadequate control can lead to contamination or allergic reactions. These types of deficiencies in the handling of food products can lead to lower trust in Cloetta and the Group’s brands. Cloetta works with first-class raw materials and in accordance with international quality standards. Analyses through chemical and physical tests are performed on both raw materials and finished products. Issues of importance for product safety are collated in special policies. Plans for information or product recalls in the event of deficiencies have been prepared.
Insurable risks Assets such as factories and production equipment can be seriously damaged, for example in the event of a fire or power outage. Product recalls can incur substantial costs, resulting in direct costs, claims for financial compensation and damage to Cloetta’s reputation. Cargo may be damaged in transit. Cloetta has an insurance programme for property and liability risks appropriate to Cloetta’s operations, and works systematically to limit the risk of incidents and to have robust contingency plans in place to limit the effects of any incidents.
Disruption and relocation of product manufacturing Disturbances and inefficiencies in the supply chain, as well as undesirable effects on and from the external environment, such as a fire, strikes, pandemics or extreme weather, could result in stoppages in production, operations and deliveries, and thus negatively affect the company’s business and reputation. To optimise efficiency, Cloetta continuously monitors capacity utilisation in manufacturing and evaluates the need to move manufacturing from one factory to another. This is however a complex process that can result in disruptions and delays in production, which can in turn also lead to delivery problems. Cloetta has a good monitoring process in place to anticipate short term disruption both in sourcing and delivery. In our factories we have clear protective protocols in place to reduce the risk, provide a safe workplace and limit the impact. Cloetta also has an experienced and efficient organisation with well-established routines for handling.
Access to the right expertise

To a large extent, Cloetta’s future is dependent on its capacity to recruit, retain and develop competent senior executives and other key staff.

Cloetta occasionally reorganises and streamlines its operations, which in the short term may have a negative impact on its performance.

Cloetta endeavours to continue to be an attractive employer. Employee development and follow-up plans, together with market-based and competitive compensation, enable Cloetta to recruit and retain employees.

Cloetta has a strong and experienced organisation that is well equipped to handle organisational changes.

IT Security Cloetta is highly dependent on having an efficient IT platform. Dis-ruptions or faults in critical systems can have a direct impact on both production, financial systems, and business processes. Over the years efforts have been made to harmonise and standardise the IT landscape by minimising the number of supported IT applications and continuously invest in IT infrastructure. Examples of risk mitigation in infrastructure is redundant network access, mirrored and physically separated environments for critical business applications. The IT Security is the defence to protect against potential loss or harm related to technical infrastructure, use of technology or reputation of our organisation. Cloetta operates under a centrally controlled IT governance and continuously mitigates against all dimensions of attacks by assessing its cyber risk profile, remediating where recommended and pro-actively managing and investing in its defences.