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. Cloetta’s Supplier Code of Conduct 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, monitors suppliers for certain materials based on climate, social and human-rights related risks, and prioritises involvement with supporting organisations. 100 per cent of all cocoa purchased is Rainforest Alliance certified. With palm oil-based vegetables oils, Cloetta continues to source 100 per cent RSPO Certified Segregated palm oil, which is one of the highest standards to ensure that human rights are upheld in sourcing 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. Cloetta participated in a pilot initiative with Rainforest Alliance to close the income gap for cocoa farmers in Africa and will continue the collaboration on the Living Income Fund.
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. The climate crisis coincides with a biodiversity crisis and water-crisis, which agriculture is directly impacted by. Climate-related risks are becoming an ever-growing concern among the investment community and new initiatives are receiving more attention.	Cloetta is raising the ambition level to improve its total environmental footprint through the work in our sustainability agenda. We joined the Science Based Targets initiative to set targets and action plans to reduce our carbon footprint throughout our value chain and in cooperation with our stakeholders. In our efforts toward climate action, we have undertaken measures to reduce emissions, such as decreased energy consumption in our factories, incorporating vegan options into our candy portfolio, and transitioning to electric company cars. 100 per cent of all cocoa purchased is Rainforest Alliance certified. With palm oil-based vegetables oils, Cloetta continues to source 100 per cent 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. 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. We have also prepared certain scenarios for our plants in case of energy disruptions. 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. Disruptions 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, using SaaS, Software as a Service, for the business-critical solutions. 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 necessary and pro-actively managing and investing in its defences. End-users are frequently trained in information security to further increase the awareness.