Strategic risks We are exposed to a number of strategic risks, including: • The risk that our business model might become outdated, in particular through digitalisation • The risk that a new business model emerges in our industry, which we fail to grasp • The risk of changing consumer preferences both in terms of product preferences and in the way they acquire and experience products and experiences • The risk that there is a change in the way our customers and suppliers work with us • The risk posed by our competitors, existing ones as well as new market entrants. How we mitigate risks • We monitor the competitive landscape • We regularly review our business model and strategy • We continually engage with our stakeholders, especially with customers and suppliers. How we turn risks into opportunities • We quickly adapt to fast changing environments thanks to our innovative capabilities • We expand or adjust our strategy to unlock new markets and business opportunities. The Group’s activities expose it to a variety of financial risks, including market risk (principally currency risk, inflation risk, interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management programme seeks to minimise potential adverse effects on the Group’s financial performance. How we mitigate risks • We have clearly defined policies in relation to the management of Financial Risks applicable to all Group companies • We operate centres of expertise at Group level to oversee the execution of the Financial Risk Management Policies • We maintain a broad network of financing sources, including bank financing as well as debt capital markets in different geographies • We have close collaboration within the various stakeholders with the Givaudan organisation to ensure the appropriate level of understanding and management of financial risks related to customers • We use financial derivatives to hedge the Group’s key financial risks, most notably Foreign Exchange and Interest Rate Risk. How we turn risks into opportunities • High level of visibility around financial risks facilitates informed and timely decision making • Investments in technology ensure efficient and well controlled processes in managing financial risks • Centralised management of financial risks creates the opportunity to assign dedicated expertise in these areas. READ MORE 2021 Governance, Compensation and Financial Report ▸ pages 57–67 ▸ Financial risk management Climate change / W ater scarcity Climate change may lead to a number of effects which in turn impact our ability to operate or incur increased costs. These may include water scarcity at one or more of our production sites or issues with our supply, in particular the availability of our key natural resources, or the application of GHG taxes. Sustainability risks Managing risks and opportunities We group risks into clusters that can be consolidated into five main categories. In the following overview we describe the main risks in each category, our risk mitigation approach and how we use our strengths to turn these risks into opportunities. READ MORE Our risk categories and response can also be found on www.givaudan.com ▸ Our Company ▸ Corporate governance ▸ Risk management Financial risks How we mitigate risks • We are committed to excellence in climate action and have built our climate action agenda on ambitious GHG emission reduction targets • We involve our supply chain in efforts to reduce their GHG emissions • We find new ways of saving energy to create raw materials to reduce the risk of sufficient supply • We operate water stewardship programmes to ensure water risks are managed and monitored. How we turn risks into opportunities • We take action across our operations and beyond to decrease our negative impact and align on ambitious climate action agenda • Implementation of an internal carbon price Givaudan – 2021 Integrated Annual Report 30 Strategic value creation Tr ends, risks and opportunities