Risk management

The Sandvik risk management processes support our business to manage and effectively mitigate critical risks.

The ability to effectively identify and manage risk is a vital element of business success for all parts of the Sandvik business. Risk management takes place in many different processes and operations throughout the Group.

The Group’s risk management approach follows our decentralized structure. Sandvik’s Board of Directors is ultimately responsible for the governance of risk management. Sandvik’s Group Executive Management ensures there is a common and efficient process in place.

All management teams in our different businesses are responsible for their own risk management. The teams must follow the minimum requirements outlined in The Sandvik Way where specific policies, procedures, assessment tools and other guiding material are made available.

Part of the Board’s requirements are clear and transparent information about Sandvik’s enterprise risks and mitigating activities from all parts of our business operations.

ERM - A part of our businesses strategic work

Sandvik has implemented an Enterprise Risk Management (ERM) program that covers all business areas and product areas within the Group. The management teams analyze risks in their operations and related to their strategic objectives at least annually. During 2017 a Sandvik specific risk universe was introduced to increase the risk awareness and enhanced transparency of risk. Read more about the risk universe

In 2017, two consolidated ERM reports were submitted to the Group Executive Management. A year-end ERM report summarizing key risks and mitigating activities across our business was provided to Sandvik's Board of Directors in December 2017.

Insurance as a risk management tool

Sandvik has tailored insurance programs that transfer the risks associated with the Group’s property and liability exposures. Insurable risks are continuously evaluated and actions are taken to reduce these insurable risks, as part of Sandvik's loss- prevention strategy. Supported by the Sandvik loss-prevention guidance, risk evaluations highlight opportunities to reduce the potential for significant losses and to ensure the Group’s ability to deliver to its customers. In order to ensure cost efficient and tailored insurance solutions selected risks are reinsured through the Group’s captive insurance company.

ERM process at Sandvik

Crisis management complements our risk management

The requirements for local management teams on how to act in a crisis situation is outlined in a global policy, which is rolled out to all business units in the Group. The overall purpose of Sandvik’s crisis management is to complement our proactive risk management work. Once a risk materializes, the priority of Sandvik's crisis management is to minimize harm to people, to the environment, and to minimize damage to Sandvik’s business, as well as ensuring a swift return to normal activities and safeguarding the company brands.

Internal audit and internal control in Sandvik's risk work

The internal audit function regularly follows up the implementation of different risk management programs such as ERM, business continuity, crisis management and the insurance programs. Sandvik also applies group-wide internal control activities to mitigate many of the most critical risks. Read more about the internal controls program at Sandvik.

Sandvik's risk universe

Sandvik's risk universe is based on risk categories that are organized in three main risk areas – strategic risks, business risks and financial risks. Each risk category can in one way or another significantly impact the Group's performance if not managed effectively. Read more about the main risk areas below. The detailed risk universe is outlined on Sandvik's risk universe.

Sandvik's risk universe was developed through analysis and stakeholder dialog of material risks for our industry, our different businesses, critical laws and regulations and critical operational, commercial, sustainability and financial requirements.

Strategic risks

Strategic risks are risks that can significantly impact the execution of our business strategies and our ability to achieve our objectives. At Sandvik we include external and emerging risks in this risk area, such as industry shifts, technological shifts and macroeconomic developments. These risks can all impact our business negatively long term but often also create business opportunities if managed well. Our approach to managing these risks differs from other categories as it includes evaluation of which strategic risks to take and improving the business ability to manage them by establishing risk tolerance, predicting the impact of possible risks and monitoring key risk indicators (KRIs).

Business risks

At Sandvik we include operational and commercial risks in the business risk area. These types of risks can often impact the financial performance of the business negatively or can have a negative reputational impact on the brands of the Group. Examples are sustainability risks, such as health and safety risks and compliance risks, and operational risks, such as IT failures, information and data protection, talent attraction and retention and more. The approach to managing these risks is through active prevention and by designing mitigation controls.

Financial risks

Through its complex and international operations, Sandvik is exposed to multiple financial risks such as currency risks, interest risks, liquidity and refinancing risk. Sandvik’s Group Treasury is functionally responsible for managing the greater part of the Group’s financial risks. The Board of Directors establishes the principles for the Group’s financial risk management, which comprises guidelines, objectives, and limits for financial management as well as the management of financial risks within the Group.

Operating entities within the Sandvik Group present reports on their financial performance and economic status on a regular basis in accordance with internal reporting rules and the accounting policies applied by Sandvik and the International Financial Reporting Standards (IFRS). The Group’s Finance function validates and analyzes the financial information as part of the quality control of financial reporting. More information is available in the Corporate Governance Report

For information about currency risks, interest risks, liquidity and refinancing risks, credit risks, raw material price risks and pension commitments, please see note 27. For information about sustainability risks such as supplier management, environmental demand/climate change effects, Sandvik values and ethics compliance, and more, see sustainability notes.