Risk management

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Novozymes’ management systems are set up to seek growth opportunities, while at the same time reducing risk and ensuring compliance with rules and regulations in the environmental, social, and financial areas.

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 process is conducted annually to assess the impact of each business unit’s work to support and uphold the principles in Touch the World. Furthermore, Novozymes has set a target for 2012 to measure our ability to live Touch the World throughout the organization.

Our business integrity principles are an example of how the desired behavior is encouraged in the organization. The principles will continue to evolve and adapt to a changing world, and in 2011 they were updated to ensure they remain at the forefront of best practice and to ensure compliance with the UK Bribery Act. Our business integrity principles can be found at www.novozymes.com.

Ensuring the right behavior internally is risk mitigating in itself, but as risks are often related to external factors, the process of identifying and managing risk is integrated into Novozymes’ management systems at all levels. We define risks as “events or tendencies that can prevent the company from achieving its overall targets – including financial, environmental, and social targets – or negatively affect our image or our future results and activities.” Novozymes strives to identify risks as early as possible and, once they have been identified, to act and follow up on them.

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.

"Ensuring the right behavior internally is risk mitigating in itself, but as risks are often related to external factors, the process of identifying and managing risk is integrated into Novozymes’ management systems at all levels."
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Timely and accurate reporting

Novozymes attaches great importance to timely, transparent, and accurate reporting, as this is considered key to being a trustworthy company.

Novozymes’ risk management and internal controls relating to financial reporting are designed to facilitate:

  • Presentation of management accounts that allow the Group’s performance to be measured, evaluated, and monitored
  • Presentation of financial statements that provide a true and fair view without material misstatement, and comply with International Financial Reporting Standards, as adopted by the EU, and other additional disclosure requirements for the annual reports of listed companies

Novozymes’ internal controls and risk management systems are updated on an ongoing basis and have been designed with a view to discovering and eliminating errors and defects in the financial statements and procedures. However, as there is always a risk of misuse of assets, unexpected losses, etc., the internal controls and risk management systems can only provide reasonable and not absolute assurance that all material errors and defects are discovered and eliminated.

The environmental and social data presented in The Novozymes Report are also covered by internal controls and the risk management systems.

A more detailed description of Novozymes’ risk management and internal controls concerning the financial reporting process can be found in the statutory report on corporate governance fulfilling the requirements in Section 107b of the Danish Financial Statements Act.

The financial reporting process and the internal controls supporting it are monitored by the Audit Committee. As part of this monitoring, all cases of fraud and concerns raised either through the whistleblower system or directly by internal or external personnel are reported to the Audit Committee. Four cases of fraud were reported in 2011. All cases led to the dismissal of employees, but none were reported to the police.

Fulfilling sustainability reporting requirements

Under Section 99a of the Danish Financial Statements Act, it is mandatory for large companies to report on corporate responsibility. As a member of the UN Global Compact, Novozymes prepares a Communication on Progress, which is published at www.novozymes.com under Sustainability, and aims to fulfill both the requirements for reporting on corporate responsibility and the Global Compact’s advanced reporting criteria. In addition, The Novozymes Report contains integrated financial, environmental, and social reporting.

Risks, opportunities, and stakeholder engagement

While Novozymes aims to do business in accordance with our values, we also have to stay in touch with the needs of society. One way of identifying risks, opportunities, and new trends, while at the same time living up to Novozymes’ ambition of being open and honest, is to engage with our stakeholders. We give high priority to understanding and living up to our stakeholders’ expectations, as we wish to maintain a good reputation.

In our dialogue with stakeholders we also promote our points of view, our solutions, etc. We want to ensure that this is done in a respectful way that does not create a risk of harming Novozymes’ reputation. Novozymes has therefore established principles for ethical ways to influence our stakeholders. In other words, we have a management standard defining good business practice for dealing with authorities, policymakers, and political parties.

To fulfill our commitment to society, Novozymes must always be up-to-date on the sustainability agenda relevant to our stakeholders and society at large. Through numerous annual meetings with our stakeholders, such as investors, politicians, customers, neighbors, and NGOs, we become aware of relevant issues and trends that provide valuable input for our strategic development – and have done so for many years. This helps capture market opportunities, discover risks, spur innovation, and consequently maintain our role as a leader in sustainability.

Our Sustainability Development Board (SDB), consisting of vice presidents from all key business functions, is responsible for developing our sustainable development strategy and targets. To provide qualified support for strategic decision-making and pursue an ambitious sustainability strategy, the SDB is presented with systematic surveys identifying and assessing trends that have a material business impact and are relevant to Novozymes’ stakeholders. The SDB uses these surveys to select key trends, assessing their relevance and importance to Novozymes’ business strategies. The SDB reports directly to Novozymes’ Executive Management, that evaluates and approves the sustainability targets and strategy before the Board of Directors' final approval.

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"We have a management standard defining good business practice for dealing with authorities, policymakers, and political parties."

Enterprise risk management setup

Long-term scenarios

Executive Management conducts an annual evaluation of opportunities and barriers for future growth. This evaluation is based on reports on long-term scenarios for each of the business areas. As the scenarios are used as input for strategic decisions, the reports are supplemented with in-depth descriptions, sensitivity analyses, and, for expansion projects and larger 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 Executive Management spring from risks and opportunities identified by the enterprise risk management setup.

Risk assessments

Novozymes frequently performs risk assessments in different parts of the organization, some of them together with external partners such as insurance companies. We also conduct assessments of our social and environmental impact at production sites, which are verified against third-party risk surveys and recent trends in sustainability risk assessment.

As part of these processes, targets are set 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.

In June 2011, the UN Human Rights Council endorsed the Guiding Principles on Business and Human Rights. Based on our human rights work, Novozymes is well prepared to fulfill these guidelines. This commitment is supported by an annual self-assessment process that documents the main issues in different regional contexts, the level of compliance with our minimum standards internally, and any shortfalls, including potential adverse impacts. A similar process is in place for screening suppliers.

Enterprise risk management setup

As well as 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 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 by Corporate Financial Planning & Analysis 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 will be made where possible.

Every six months, risks are reported to Corporate Financial Planning & Analysis. These are then assessed, and a shortlist of approximately 30 risks judged to be the most significant is reported to Executive Management, and any required corrections or actions are decided and implemented. Twice a year, the most significant risks are also presented to and discussed with the Board of Directors.

This systematic and analytical approach to risk management enables Novozymes to achieve greater transparency and gives a stronger basis for making decisions about investing resources. In addition, it provides Executive Management with the opportunity to discuss risks and undertake the necessary actions in relation to the Group’s risk profile.

"Based on our human rights work, Novozymes is well prepared to fulfill the UN Guiding Principles on Business and Human Rights."