Monitoring potential risks and opportunities, managing them responsibly and factoring them into decision-making processes is an indispensable basis for sound corporate governance. Our opportunity and risk policy does precisely this and enables us to strategically further develop and profitably grow BLG LOGISTICS without exposing it to undue risks. With this in mind, we develop and integrate processes and tools that allow us to identify potential risks in good time and make reliable decisions to avoid or mitigate them.
Responsibilities in connection with risk management organization
Integrating sustainability into our risk management is an ongoing process. In 2023, we expanded our risk analysis to enable us to better identify and assess environmental and social risks. In the context of the German Supply Chain Due Diligence Act (LkSG), we thus carried out risk analyses in the reporting year with a focus on human rights and environmental protection-related risks in our own operating divisions and in the supply chain. In addition to our established risk analysis focusing on the risks for BLG LOGISTICS (outside-in perspective), we conduct our LkSG analysis to assess the abstract and concrete impacts of our business activities, including our supply chain, on people and the environment (inside-out perspective).
Perspectives of risk management
Principles of outside-in risk management
In line with our risk strategy, the basic elements of the risk management system are rolled out centrally to ensure clear risk accountability, and are described in the Group guideline on risk management. This allows systematic and comparable risk identification and documentation, risk analysis and assessment, risk control and monitoring as well as risk-related communication and reporting. We want to create a shared awareness and positive understanding – both at management level and among the entire workforce – in managing operating risks.
Overriding objective is to ensure the company’s risk- bearing capacity. The aim is to identify and assess risks, manage and monitor them efficiently through appropriate and effective measures, and ensure ongoing risk reporting as a basis for sound decision-making. In this way, risk management is intended to support the corporate strategy and contribute to achieving our corporate objectives.
Identified risks are addressed and followed up through local and central measures. As an integral part of corporate governance, risks and the corresponding measures are regularly presented and discussed in the respective management groups. Again in the reporting year, the resulting risk report was submitted to the Board of Management on a quarterly basis and to the Supervisory Board at each ordinary meeting in order to inform both bodies about the overall risk environment.
Objectives of risk management
- Identify risks early and prevent crises and insolven-cies (support continuity of the organization)
- Improve planning reliability and risk costs through optimal risk management
- Sound preparation of operating decisions with risk analyses to improve the company’s success
- Achieve sustainability-related corporate goals and monitor sustainability-related risks taking into ac-count the principle of dual materiality
Risk categories and risk outlook for BLG LOGISTICS
With regard to potential outside-in risks, Group risk management focuses in particular on those that would have a noticeable effect on the company’s financial position, financial performance and cash flows if they were to occur. We assign these risks to five defined risk categories (see graphic). Risks from the areas of Environment, Social and Governance (ESG, outside-in perspective) impact on all five categories. When considering the broad field of ESG, we see both risks and opportunities – the related topics can influence the entire risk situation, from financing to human resources (HR) policy and procurement.
Influence of ESG topics on corporate risks
Environmental risks
As a seaport and logistics service provider, we are very exposed to environmental and climate risks. Dealing with the effects of climate change on our operations is therefore a major challenge for us. Extreme weather events such as heat, flooding or storms can lead to disruptions in the supply chain, which can result in production downtimes and financial losses. The increasing frequency and intensity of such acute weather events combined with the longer-term chronic changes in the mean values and fluctuation ranges of various climate variables (e.g., temperature, precipitation, sea level) in particular pose an acute threat to our assets and business processes. To enable better assessment of these risks, various natural hazard scenarios for our property, plant and equipment and the potential operating downtimes associated with them were analyzed.
However, individual theoretical risks such as a storm surge cannot be fully insured. We address such risks as far as possible as part of our business continuity management (BCM). We also need to develop climate change adaptation strategies at potentially affected locations.
In response to the projected escalation of climate risks, BLG LOGISTICS actively promotes climate change action, and for example successfully implemented a number of projects in the reporting year designed to increase energy efficiency. In addition, optimizing the route planning of our transport operations helped to reduce the company’s impact on the environment and cut costs at the same time. A detailed description of the implemented measures is provided in the Climate Protection and Energy Management sections.
Our far-reaching efforts not only serve to mitigate environmental and climate risks, but also to strengthen our long-term competitiveness. By integrating environmental aspects into our risk management and responding proactively to these challenges, we are perceived as a reliable partner for our customers in this area.
Social risks
Our employees are the most important success factor for our company. Their wellbeing and development are therefore a top priority for us. Working conditions play a vital role when it comes to avoiding the risk of a culture with low motivation and high staff turnover, together with the ensuing reputational damage. Furthermore, demographic change and increasing automation risk creating a shortage of suitable employees in many areas. Not being able to fill positions when needed or with the right qualifications leads to a decline in productivity. At the same time, this puts additional strain on the workforce, possibly resulting in increased absenteeism and accidents, along with greater fluctuation. We are already noticing an increasing organizational overload on the back of various major projects, often with no redundancies available in critical functions. There is a risk that bottlenecks cannot be absorbed by external consultants, potentially leading to errors and putting excessive strain on employees.
To counter these risks, we are taking steps to enhance our employer attractiveness. This involves retaining employees through targeted employee development and remuneration in line with the market and at the same time increasing the effectiveness of our recruitment processes. In addition, we are continuing to expand our workforce in order to reduce the workload of individual employees. For more information about BLG LOGISTICS’ human resources strategy, please refer to the SOCIAL section of this report.
With a wide range of measures to improve working conditions, guarantee fair pay and promote the professional development of our employees, we are positioning ourselves as a trusted and popular employer in the region. Our human resources strategy actively contributes to retaining talent and winning the contest for new recruits.
Governance risks
Possible changes in interest rates in particular represent a material economic risk. When the European Central Bank raises its base rate to combat inflation this also increases banks’ refinancing costs, which they pass on to their customers. Banks have also increased their requirements in respect of creditworthiness and sustainability partly as a result of the European Green Deal, which could put further pressure on the interest margin. When designing our sustainability strategy, we actively incorporate the requirements of banks and insurance institutions. Thus, in the reporting year quantitative sustainability targets were communicated in all key areas of activity.
Information security remains a key ESG-related risk with respect to data breaches and system vulnerabilities. Protecting personal and company data is of crucial importance in order to minimize potential negative consequences in particular for livelihoods, mental health and safety. It is therefore essential to design and implement measures to guarantee information security, damage limitation, cyber insurance and continuous adaptation to new threats.
Further development: our inside-out risk management
We are aware that our commitment to sustainability is a process that requires a continuous effort. We will continue to drive change in risk management through interdisciplinary collaboration, innovation and joint action in order to increase transparency and create sustainable added value for all stakeholders. In so doing, we are also complying with the disclosure obligations under the German Supply Chain Due Diligence Act.
In line with the due diligence obligations set out there, we also enhanced our existing risk management methodology, for example by performing risk analyses in order to determine the human rights and environmental risks in our own areas of activity as well as those of our direct suppliers. In addition to internal evaluations and operational experience, the analyses drew on various indices relating to industry and country risks as well as on external expert opinions. A detailed description of the underlying process, the defined roles and accountabilities and the results of the human rights-related risk analyses can be found in our mandatory report under the German Supply Chain Due Diligence Act for the 2023 period.
Based on the experience gained in the reporting year, we will continue to develop our inside-out risk management in 2024. For more information on supply chain management, see the Sustainable Supply Chain section.