Risk Management
Enterprise Risk Management (ERM) is the Group's structure that supports management in identifying, assessing and monitoring risks, as well as defining the most effective response strategies for their mitigation.
The approach adopted by ERM is based on the principles envisaged by the Enterprise Risk Management – Integrated Framework, international standard issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO Report).
Risk management is an annual basis process that involves both the entire Corporate perimeter and a plurality of corporate functions.
The Risk Management Model is characterized by a structured approach, based on international best practices and considering the guidelines of the Internal Control and Risk Management System, which is structured on three control levels:
The Risk management process takes a top-down and risk-based approach, starting from the definition of Cementir's Industrial Plan. It ensures that major risks are identified, assessed, managed and monitored while taking into account the individual operations, risk profiles and risk management systems of each business unit, to create a wholly integrated risk management process. Risks are assessed with quantitative and qualitative tools considering both the probability of occurrence and the impacts that would be generated in a given time horizon if the risk were to occur. It also ensures that all necessary measures are taken to control risks that could threaten the Group's assets, its ability to generate profits or achieve its objectives.
At an operational level, the risk owners, through the support of the Risk Management function, identify the risks under their responsibility and provide an indication of the actions necessary to mitigate them. The results of this activity are subsequently consolidated in order to identify risks at the Group level, allowing an integrated management.
Risks are defined in a "Risk Library" divided into five macro categories:
This library is updated periodically: the latest update has included specific risks on climate change issues.
The Cementir Group's Internal Control and Risk Management System is integrated with the Group's Sustainability Strategy. Starting from 2021 the Cementir Group has launched a project to implement the recommendations of the TCFD (Task Force on Climate-Related Financial Disclosure) committing to be transparent on risks and opportunities related to climate change. The identification, assessment and effective management of risks and opportunities related to climate change are fully integrated into the Group's risk management process. To promote and improve its climate change disclosure, in 2022, the Group engaged Standard & Poor's (S&P) to assess physical and transitional climate risks and develop scenario analyses to support the implementation of the TCFD guidelines. The analysis carried out by S&P showed that the Cementir Group scored 100% on the overall assessment of the eleven recommendations of the TCFD, which represents a complete and transparent level of disclosure achieved. Furthermore, the Group is integrating the guidelines published by the European Union “EU Taxonomy Regulation”, which together with the TCFD constitute the reference frameworks.
MAIN RISKS TO WHICH THE GROUP IS EXPOSED
The main types of risks and opportunities to which the Group is exposed are described below.
STRATEGIC RISKS
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Uncertain outlook
Description Impact Mitigation actions The Group's results are highly dependent on the economic conditions of the countries:
- Inflation is projected to moderate gradually in 2023 and 2024 but is expected to remain above central bank objectives in most economies. Headline inflation in the G20 economies is projected to ease to 6% in 2023 and 4.8% in 2024;
- Monetary policy needs to remain restrictive until clear signs emerge that underlying inflation pressures have durably abated;
- The economic slowdown in China poses a significant risk to global output growth;
- The US expansion is anticipated to be weak in 2024, and Europe is expected to experience modest growth.
Scenarios related to Russia's invasion of Ukraine are anticipated to remain unresolved at least until 2024, but with decreasing intensity. The rivalry between the United States and China is expected to persist as a significant source of geopolitical risk, shaping the strategies of global companies with regards to supply chains and markets. Furthermore, the emerging conflicts in the Middle East and in the Red Sea Area have the potential to further adversely impact economic growth.
Demand for construction materials is fundamentally driven by economic growth. These changes in underlying demand may impact sales volumes, prices, and industry structure.The Group estimated a potential reduction in sales volumes The Group, with the support of the relevant functions:
- Actively monitors the market conditions in order to anticipate any adverse scenario.
- Optimizes our portfolio for growth by increasing the profitable low-carbon solution.
- Maintains a strict cost discipline.
Keeps prices stable to maintain high contribution margin. - Establishes long-term contracts to secure favorable logistics and energy costs.
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Geopolitical risk
Description Impact Mitigation actions The Group operates on five continents and is exposed to global and local political risks. Geopolitical instability in the countries in which the Group operates (i.e. Türkiye, and Egypt) could impact business operations and demand.
The latest geopolitical tension took place on 12th January 2023 in Yemen, where the US and the UK launched multiple airstrikes at 60 Houthi Targets, following the Iran-backed group attacking commercial shipping in the Red Sea.
These attacks are a source of growing international concern around one of the main maritime routes.
This situation complements and is heightened by the previous conflict involving the tension occurred since 7 October 2023 when Palestinian militant groups led by Hamas launched a large-scale invasion and offensive against Israel from the Gaza Strip. Given the strategic locations of the conflicts, the impact on the global economy is very relevant and will bring:- Uncertainty on the markets
- Likely increases in freight and logistic costs, impacting both our sourcing and selling processes
- Global insecurity and instability
- Another spike in oil prices putting pressure on the Federal Reserve and other central banks to further raise interest rates
- An increase in oil prices that weighs on the global economy and increases inflation.
For the Cementir Group, the impacts could be related to an increase of logistic and freight costs, to a reduction in the volumes of some specific sales from our Egyptian subsidiary departing from the military port of Al Arish (close to the Gaza Strip).
The ongoing conflict and humanitarian crisis in Gaza have the potential to lead to an influx of refugees into neighboring regions or countries, such as Egypt, causing social instability and emergency restrictions.
Impact on the Group's economic/financial results Continuous monitoring of the environment, mainly focused on critical political amd institutional developments and regulatory aspects which can potentially affect the business, however geographical differentiation helps to limit exposure to any particular market and currency.
Alternative markets. -
Talent and retention management
Description Impact Mitigation actions Existing processes around people management, including attracting, retaining and developing people, leadership succession planning, fostering a diverse and inclusive workforce, and dealing with collective representation groups, may not deliver, inhibiting the Group from achieving its strategy. The Group operates in a labor-intensive industry and is currently grappling with a shortage of labor that is impacting certain positions. Failing to attract, manage, and retain workers, as well as plan for leadership succession, could impede the achievement of strategic objectives. The Group promotes its image among new talent and all employees through specific actions, such as international mobility and career development campaigns, for example the Talent Program and Graduate Program initiatives launched in 2022 and continuing in 2023 and in the following years.
In November 2022, the Global Survey "Your Voice" was initiated to evaluate staff engagement across the group, and corresponding action plans are currently in progress.
The Group maintains constructive relationships with Unions that represent certain employees under collective agreements: the Group has updated the collective agreement with the European Working Council for the next four years.
The Group continuously works on succession plans to ensure continuity after retirement.
FINANCIAL RISK
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Currency exchange risk
Description Impact Mitigation actions The Group operates with ten different currencies and movements in exchange rates could have an influence on the Group’s business, results of operations, and financial condition. The Turkish Lira and the Egyptian Pound are the principal currencies influenced by a significant depreciation over the last few years.
The Turkish Lira is the primary currency, experiencing a notable depreciation over the past few years, amounting to 80% compared to September 2022 (September 2022: €/TRY 18.14 - January 2024: €/TRY 32.93). The Turkish lira continued to depreciate, averaging a 30% decline following the election held in May 2023. In January 2024, the Turkish central bank raised its rate up to 40%, to prevent a further devaluation, marking a change in course, when at the election date, it was equal to 8.5%. Starting from April 2022, the Turkish economy is classified as hyperinflationary, as per the criteria outlined in "IAS 29 - Financial Reporting in Hyperinflationary Economies“.
The Egyptian Pound has significantly depreciated in value over the past year, weakening by 76% against the Euro compared to September 2022 (September 2022: €/EGP 19.19 – January 2024: €/EGP 33.8079). Additionally, after the presidential elections run in December 2023, there is potential for increased uncertainty (further devaluation) regarding actions that financial institutions might undertake, with a devaluation expected in the middle of 2024.
These adverse changes in the exchange rates used to covert these currencies into the reporting currency have impacted and will continue to impact consolidated results.
Adverse changes in the exchange rates may negatively affect Group’s profits. The Group carries out continuous currency monitoring in order to seize opportunities viahedging transactions.
To mitigate potential losses, the Group creates a balance between bank accounts in the local currency and bank accounts in hard currency.
OPERATIONAL RISKS
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Health & Safety
Description Impact Mitigation actions The Group’s businesses operate in an industry with inherent health and safety risks, including for instance operation of heavy vehicles, working at heights, working in confined spaces, energized equipment management, etc. Failure to ensure safe workplaces could result in a deterioration in the Group’s safety performance and related adverse regulatory action or legal liability. Health and safety incidents could significantly impact the Group’s operational and financial performance, as well as its reputation.
Risk of incidents/accidents due to unsafe behaviors or conditions, which may cause health consequences for workers and/or problems in production processes.
In the last year, the main health and safety indicators have been improved as a result of the Road Map defined by the Group focused on increasing awareness and workers’ involvement and strengthening internal procedures.
Impacts:
• Economic
• Organisational
• Reputational
• Relations with local communities
• Workers’ healthImprovement of the Group's safety culture by sharing best practices and common rules across the Group (e.g. Golden Rules).
Regular risk assessment by all plants to eliminate/mitigate risks (annual action plans).
Group monitoring of H&S performance and effectiveness of corrective measures.
Periodic verification of the effectiveness of the main H&S processes for all plants (e.g. work permits, incident management, etc.).
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Cybersecurity
Description Impact Mitigation actions Cybersecurity is the practice of protecting computers, servers, mobile devices, electronic systems, networks and data from malicious attacks.
The growing use of IT systems increases the Company’s exposure to different types of internal and external IT risks. The most significant of these is the risk of cyberattacks which can be targeted or generic and which constitute a constant threat.
• Fraud
• Data loss
• GDPR (General Data Protection Regulation)
• Business interruption
• Reputational damage
- Strengthening of network infrastructure;
- Strengthening of protection systems;
- Constant updating of internal procedures;
- Continuous training for all staff to strengthen the corporate culture on cybersecurity issues.
COMPLIANCE RISKS
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Compliance
Description Impact Mitigation actions These are risks related to compliance with applicable regulations (antitrust, anti-corruption, GDPR, Legislative Decree 231/2001). Potential violations of laws and regulations In relation to these risks, the Legal Department implements targeted programs with guidelines, procedures and training to ensure compliance with the above regulations. The Organisation and Control Models required under Legislative Decree 231/2001 are periodically updated.
The Internal Audit function carries out specific audits on compliance with regulations.
CLIMATE CHANGE
The cement industry's ability to reduce its CO2 emissions and respond to climate change has become a focal point for investors. In 2021, the Cementir Group has launched a project to implement the recommendations of the TCFD (Task Force on Climate-Related Financial Disclosure) committing to be transparent on risks and opportunities related to climate change. Cementir is also committed to ensuring the transparency of its climate-related risks and opportunities in line with the taxonomy required by the European Union. The identification, assessment and effective management of risks and opportunities related to climate change are fully integrated into the Group's risk management process.
As suggested by the TCFD, the Group monitors the risks and opportunities arising from the evolution of transition scenarios and the evolution of physical variables.
Physical variables are divided into two categories of risk:
- Acute: related to the occurrence of extreme weather conditions such as cyclones, hurricanes or floods. Acute physical phenomena, in the various cases, are characterised by considerable intensity and a frequency of occurrence that is not high in the short term, but which, considering long-term scenarios, sees a clear upward trend;
- Chronic: refers to gradual and long-term changes in climate patterns (e.g., sustained high temperatures) that can cause sea-level rises or chronic heat waves.
With regard to the energy transition process, towards a progressive reduction of carbon emissions, there are risks and opportunities linked to changes in the regulatory, technological, market and reputational context.
The Group has decided to align itself to the TCFD framework to clearly represent the types of risks and opportunities by indicating how each of them should be managed. The effects were assessed over three time horizons: the short term (1-3 years), linked to the implementation of the Industrial Plan; the medium term until 2030, in which it will be possible to see the effects of the energy transition; the long term until 2050, by which the Group is committed to achieving net-zero emissions throughout its value chain. As the TCFD states, the process of disclosing risks and opportunities related to climate change will be gradual and incremental from year to year.
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Chronic and acute physical phenomena
The Group’s plants are located in locations with overall moderate levels of physical risk over the time horizon to 2050, as shown in the following table.
Strategically, the Group’s geographical diversification provides a high degree of resilience. The Group adopts business continuity management processes that ensure an adequate level of maintenance in order to limit and/or reduce damage to corporate assets and ensures the resilience of the business and the restoration of operations in the event of force majeure events.
In some areas (Belgium, Türkiye, Egypt) there is also significant exposure to water stress.
PHISICAL RISK - CHRONIC RISK Time horizon Description Impact Mitigation actions SDG's Medium Term Water stress due to global warming The Group operates in certain areas defined as under high water stress, with the risk of increased supply costs. As part of its climate commitments, the Group has established a water management policy. Prioritizing the maximization of reuse/recycling, minimizing withdrawals and consumption (including losses) and implementing efficient operating practices are key focus areas, beginning with regions facing the most severe water stress.
The Group has set targets for improving the specific consumption of water in cement production (‘water consumption (liters) / TCE (ton of cement equivalent)’) with a targeted reduction of 25% by 2030 in water-stress areas (compared to 2019 value) and a 20% reduction across all Group areas.
In 2022, by becoming a signatory of the WASH Pledge, the Group is committed to ensuring access to WASH (water, sanitation and hygiene) at an appropriate standard for all employees and contractors in all premises under our direct control, supporting partners across our value chains and communities. Compliance and progress on WASH action plans are periodically monitored.
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Transition risks and related opportunities
In recent years, the whole Group has been actively engaged in pursuing a transition to a low-carbon economy by defining a 10-year Roadmap. Related risks and opportunities are presented in the following table:
TECHNOLOGY Time horizon Description Impact Mitigation actions SDG's Medium – Long Term RISK / OPPORTUNITY
Carbon Capture “CCS”
Technology stands as the primary driver for significantly diminish the Company's CO2 footprint in the medium to long term. The adoption of breakthrough technology is essential to achieving the production of "net zero emissions" cement.
The Company places emphasis on the development and implementation of Carbon Capture and Storage (CCS) technology as a key component in achieving its CO2 emission reduction targets. Currently, the Group is exploring various opportunities, primarily in Denmark and Belgium.
.Continued support for research and innovation for the development of CCS and the use of CapEx/OpEx for the full industrialisation of these technologies. 
REPUTATION Time horizon Description Impact Mitigation actions SDG's Short Term RISK
Reputational risk
According to the Global Cement and Concrete Association, the cement industry accounts for around 7% of global CO2 emissions. The risk of being perceived as a large carbon emitter by public opinion could reduce the Company’s attractiveness to stakeholders.
In addition, increasing stakeholder expectations regarding climate targets need to be constantly monitored.
The Group is committed to achieving its ambition of becoming a net-zero business by 2050, setting an industry-leading target of a 36% (grey cement) reduction in absolute carbon emissions by 2030 (2020 baseline). Operational enhancements at plants, including the use of alternative fuels to reduce CO2 emissions, not only contribute to environmental goals but also yield financial efficiencies and support the circular economy.
Cementir actively engages with ESG rating agencies to ensure accurate evaluation and communication with stakeholders.
Cementir's Scope 1 and 2 GHG transition pathway is aligned with the 1.5 °C scenario defined in the Cement Sector guidance of the SBTi.
POLICY & REGULATION Time horizon Description Impact Mitigation actions SDG's Medium – Long Term RISK
Exposure to new CO2 emissions laws and regulations
Following the climate agreement reached at Paris COP21, signatory countries are mandated to commit to a reduction pathway.
The anticipated outcome is an increase in the number of CO2 regulations, subsequently raising the cost of emissions. Carbon prices linked to emissions trading schemes, carbon taxes, and other policies are expected to escalate in the future as governments implement measures to reduce greenhouse gas emissions in line with the Paris Agreement.
The speed and magnitude of the potential increase in carbon prices due to new regulations are uncertain and likely to vary across countries and regions.
This risk has been assessed according different price scenarios (high, medium, and low) based on the projected future carbon prices in each country, taking into account the introduction of Carbon Capture and Storage (CCS) technology starting in 2030.
The Group is minimizing its exposure to risks through the progressive decarbonization process. Cementir’s ambition is to reduce CO₂ emission intensity to achieve carbon neutrality along the value chain by 2050.
The strategy focused on the energy transition makes the Group resilient to the risk associated with the introduction of more ambitious policies for emission reductions and maximizes opportunities for the development of infrastructure and technologies.
POLICY & REGULATION Time horizon Description Impact Mitigation actions SDG's Medium – Long Term RISK
OPPORTUNITY
CBAM – Carbon Border Adjustment Mechanism and ETS reports
If initiatives such as the 'Carbon Border Adjustment Mechanism' (CBAM) are not sufficiently designed to protect EU competitiveness, the cement business may face pricing pressure due to imports from regions with less stringent CO2 regulations.
Conversely, the introduction of this tax could create a competitive advantage compared to other cement companies outside of the UE in terms of price. In the recent period, the quantities of cement imported have increased compared to previous years.
Monitoring of international bodies (European Union, FSB – Financial Stability Board, Government Authorities).
The Industrial Roadmap will support the Group in becoming a resilient business through a low-carbon economy.
MARKET Time horizon Description Impact Mitigations action SDG's Medium Term RISK
Strategic decarbonized material shortages
The procurement of alternative raw materials, such as fly ash and blast furnace slag, has become increasingly critical due to the declining steel production, resulting in lower slag availability, and the gradual closure of coal plants. As global demand for these materials continues to rise, there is a potential for shortages to emerge. In the medium term, starting from 2024 in Europe, the progressive shutting down of coal-fired power generation plants may lead to a shortage of fly ash.
Another strategic material for achieving the Group's objectives is calcined clay, which is essential for FUTURECEM® production and reducing the clinker ratio. Today there is a limited number of suppliers, which further increases the risk of performance. With the development of low-carbon products, the demand for these materials will grow, making the Group more dependent on their price and availability.
In order to reduce the shortage of these materials, the Group is securing its supply through long-term contracts; searching for new suppliers and partially replacing fly ash with similar materials available on the market (e.g. oxytone).
Another strategy implemented is to secure a clay quarry source for FUTURECEM® production.
MARKET Time horizon Description Impact Mitigation actions SDG's Short – Medium term OPPORTUNITY
Development of low emission impact products
Innovation is a key factor in the long-term success of the company developing low-carbon products. To meet market demand, Cementir Group has developed new types of Cement (e.g. FUTURECEM) that reduce CO2 emissions by 30% compared to traditional cement. The Group meets the needs of customers along the value chain by developing and delivering products, solutions and technologies that address the key challenges facing the construction industry.
The Group continuously develops and introduces new low emission products: increasing the use of decarbonised material (e.g. blast furnace slag); producing limestone cement or cement using fly ash.
In addition, the Group aims to reduce the clinker ratio by using FUTURECEM and other new products.
RESOURCE EFFICIENCY Time horizon Description Impact Mitigation actions SDG's Short – Medium term OPPORTUNITY
Recovery and purification of water used in quarry operations
Recovery and potabilization of water removed during the exploitation of our quarry of limestone in Belgium (Clypot and Gaurain) is a great opportunity because thanks to new infrastructures developed with the local water provider and the local authority, CCB recovers water to supply the local community allowing the local authority to close production wells and thus spare the aquifer in a high water-stress area.
This strategic move enhances the company's resilience to future regulatory changes, reduces the risk of conflicts with other stakeholders using the same aquifer (e.g., villagers, customers), and contributes to the sustainable management of water resources.
In Clypot, the entire system has been operational since March 2021, and during the 2021/2022 period, 1,800 megalitres of water were successfully recovered, treated, and delivered to the public distribution as potable water.
As for the Gaurain quarry, an agreement was signed with the local authority in 2022 to implement a similar water potabilization project, scheduled to commence in 2024. Upon completion of the project in Gaurain, an additional 2,000 megalitres of water per year can be recovered, contributing further to sustainable water management and community supply.
Increase the water deliveries up to 2,000,000 m3per year in Clypot.
New water deliveries up to 2,000,000 m3 per year in Gaurain (from 2024).
In collaboration with the local authority, CCB developed a new way of doing business minimizing the impact for the local community in the high-water stress area.
ENERGY SOURCE Time horizon Description Impact Mitigation actions SDG's Medium – Long Term OPPORTUNITY
Green Energy
As part of the Group's strategy to reduce Scope 2 emissions, it is planned to increase electricity from renewable sources, either by purchasing or producing it internally. The Group is assessing the feasibility of wind turbine and solar panel projects. Definition of a roadmap to increase the use of renewable energy throughout the Group, entering into purchase and/or own production agreements (for example solar panels or wind turbines).
in 2023 the Group signed agreements with Engie and EtherEnergy for the subsidiary in Belgium, CCB, reaching a maximum deliverable capacity, between wind and solar, of 25 MWh.
ENERGY SOURCE Time horizon Description Impact Mitigation actions SDG's Short – Medium term OPPORTUNITY
Increased supply of district heating in the city of Aalborg
The Aalborg plant recovers excess heat from cement production to provide district heating to the local residents. In 2023, Aalborg Portland delivered approximately 1,046,529 million GJ of energy to the municipality of Aalborg. According to the engineering project developed by the Group, the Aalborg plant could improve energy supply by a further one million GJ reaching 30,000 households. Negotiations are ongoing with the municipality of Aalborg to define the size and increase of the capacity of the heating supply.