Financial implications and other risks and opportunities due to climate change
Our Corporate Sustainability department regularly measures climate-related risks throughout the company. Risk management with regard to the risks and opportunities of climate change is reviewed by the Executive Board and the Supervisory Board every six months. Process-related risks, such as strategy, finance, supply chain, regulatory, innovation, sourcing, compliance, law, etc., are linked to market-related risks, such as trade/market, business/commercial and finance. The aim of this process is to identify and measure significant risks to ensure the positive business development of the Symrise Group.
All risks, including climate-related risks, are identified and evaluated at the regional level with the help of regional experts. They cover the entire range of climate-related issues (transitional and physical issues). Risks are assessed on a gross risk basis. Gross risk is defined as risk without mitigation controls. The risks are analyzed according to the criteria “EBIT effect” and “probability.”
The main criteria for setting priorities with regard to climate change-related opportunities are new business opportunities that address climate change through new technologies and products, which lead to possible new sales, selling points and an improved reputation. Opportunities typically require investments in facilities, R&D or M&A. To make each investment decision, we consider alignment with our business strategy (e.g., the strengthening of our core business), financial performance indicators like ROIs and the impact of our business on sustainability.
Our multidisciplinary, Group-wide risk management with regard to the risks and opportunities of climate change is reviewed by the Executive Board and the Supervisory Board every six months.
Madagascar supplies 80 % of vanilla used worldwide. The tropical cyclone Enawo hit Madagascar in 2017, damaging thousands of vanilla plants, which led to a worldwide price increase. The price for vanilla beans reached a record high of more than USD 600/kg. We assess this risk by multiplying the volume of vanilla purchased by an estimated price of even USD 900/kg. To estimate our total exposure, we must add the potential climate-related cost effects for all fruit exposed to such effects, calculated from purchasing amounts multiplied by an estimated price increase. This leads to an estimate of approximately € 50 million for our “raw material costs from climate risk.” You can find more information about our involvement in Madagascar here.
Currently 20 % of our sales are attributed to customers who are explicitly concerned about climate issues and ask us to participate in the CDP supply chain. This amounts to approximately € 600 million. Average sales growth of about 6 % is expected. In order to support the strategy of our customers, we must obtain access to their core lists, which also include sustainability criteria as minimum requirements. We assume that our efforts to meet these requirements will lead to a sales increase of 1.5 %. This will result in a total growth rate of 7.5 %, which will bring sales growth with climate-sensitive customers of about € 45 million.
You can find a more detailed description of our approach and additional information on risks and opportunities in our response to the CDP climate change questionnaire under C2. Risks and opportunities at www.cdp.net
Since 2018, Symrise has also been one of the 513 companies all over the world that supports the recommendations of the Task Force on Climate-related Financial Disclosure (TCFD). You can find a brief description of our activities in this area in the 2018 Corporate Report.