Risk management forms part of our strategy process
Successful risk management relies on strategic long-term planning combined with internal and external communication. The Volvo Group manages risks centrally through a risk procedure within the strategy process. Risks can be regulatory, physical or related to other aspects such as trends and public opinion.
Risk assessment at a corporate and company level
Risk management and assessment are conducted both at the corporate level and for each company in the Group. Risks are analyzed and ranked based on likelihood of occurrence and potential consequences. We work to reduce the likelihood of risk-related events occurring. When that is not possible, we strive to minimize the consequences.
Risk assessments are reported to the Volvo Group's Board of Directors and serve as input for the business plan process and serve as a base for an audit plan.
There are three main categories of risks relevant to the Volvo Group:
- External-related risks – including economic cycles, competition and regulation.
- Financial risks – including currency fluctuations, share evaluations, credit risks and similar risks.
- Operational risks – related to the introduction of new products, suppliers, third-party complaints etc.
In this report we elaborate on some of the external-related risks and operational risks that relate to the topics of this report.
Annual internal audits
The Corporate Audit function consists of approximately 35 internal auditors globally. They perform audits and special assignments requested by management in accordance with the annual audit plan. They issue periodic reports to the Audit Committee and management. Audits aim to improve the effectiveness of risk management, control, and governance processes.
The Volvo Group has policies, routines and guidelines designed to help us secure safe workplaces in all our operating locations. The Volvo Group has a process for handling issues related to workplace safety such as fire protection, emergency evacuation and so forth.
Providing a workplace free from physical hazards is essential for ensuring the safety of our employees, their families, customers and visitors as well as of suppliers.
Volvo Blue Risk assessment is a key tool used during site inspections. This assessment is reviewed and supported by the Corporate Security Function and serves as an input to the insurance program.
Managers are responsible for keeping all workplaces free from potential risks and for ensuring that corrective action is promptly carried out whenever a risk is identified.
Forthcoming regulations on environmental issues related to our production sites are dealt with by the Environmental Committee.
All sites have been audited by the Environmental Manager for the Volvo Group in order to identify potential risks. Furthermore, all production sites in the Volvo Group have an environmental manager who is responsible for working preventively to mitigate the consequences of an accident if it were to occur.
All production plants must fulfil the Group’s requirements concerning for example:
- Use of chemicals
- Energy use
- Emissions to air and ground
- Waste management
- Organization of environmental work
- Work on continuous improvements
No major accidents occurred in 2011. Some 99% of employees work in certified systems in accordance with ISO 14001:2004. This means that risks are managed systematically and preventively.
Possible acquisitions are evaluated
When assessing possible mergers and acquisitions of companies and real estate, the audits cover environmental and social factors in addition to financial and legal aspects.
This information provides the basis for action plans, if these are needed to ensure that the companies acquired can meet the Volvo Group’s minimum requirements.
No operations in protected areas
The Volvo Group has no facilities in areas listed as sensitive or protected with regard to biodiversity. However, the material used in the Volvo Group’s products could have an indirect impact on biodiversity when extracting raw material.
An annual inventory is made of polluted land on our properties. Remedial operations were not conducted at any plant in 2011 and no spillages, major incidents or legal complaints were reported in 2011.
The Volvo Group has no facilities in areas listed as sensitive or protected with regard to biodiversity.
The nature of the commercial vehicles business is cyclical. Investments in infrastructure, major industrial projects, mining and housing projects all impact the Group’s operations as its products are central to these sectors. The cyclical demand for the Volvo Group’s products and services makes the financial results of the operations dependent on the Group’s ability to react to changes in demand, in particular to its ability to adapt production levels and production and operating expenses.
Extensive government regulation
A prerequisite for our presence in a global market is that our products meet increasingly stringent international, national and sometimes also regional environmental legislation.
Today, we are working on meeting the future Euro VI standard that will come into effect on January 1, 2014 in Europe. We continuously monitor the development of legislation, currently focusing on the upcoming Carbon Dioxide Emission/Fuel Consumption legislation in China, USA, EU and Japan.
Fossil fuel and peak-oil
Two important issues to address are the role of carbon dioxide emissions and the approach of peak oil, which can influence the fuel prices.
More than 95% of the energy consumption used in the transport sector today is crude oil-based, hence there is significant potential for developing commercially viable alternatives. Reducing dependency on fossil fuels such as oil, coal and natural gas by increasing the use of renewable fuels makes both business and environmental sense. Developing alternatives that are fuel-efficient and which can be operated using renewable fuels is therefore a priority and a valuable business opportunity for the Volvo Group.
Need for engineering expertise
As our products are getting more sophisticated more experts are needed. At the same time the interest for mathematics, science and technology in western countries decline.
A crucial factor for the implementation of the Group's vision and wanted position is input from employees, their skills and commitment. A related risk is our need for expertise and competent engineers to continue the development of environmentally-enhanced products. We meet this challenge by offering employees attractive work conditions and opportunities for development.
Reducing dependency on fossil fuels such as oil, coal and natural gas by increasing the use of renewable fuels makes both business and environmental sense.