Solar takes a structured approach to risk management

We have considerable experience in our business area

Solar operates in the B2B market and our business covers sourcing, services, training, integrated supply, sales and logistics – mostly within electrical, heating and plumbing, and ventilation technologies for installation and industry. Solar A/S has many years of experience in assessing and handling risks relating to this business area. Solar’s subsidiaries run similar activities, which are closely linked to the general activities. This allows us to establish uniform systems and procedures. As an international business, Solar is affected by global as well as local economic trends in the markets. Consequently, a number of areas are continuously monitored to avoid taking on preventable financial risks.

 

Risk management

Solar’s risk management system consists of policies and procedures approved by the Board of Directors. The overall purpose is to manage all major business risks and risk correlations across the organisation. Risk management is based on Enterprise Risk Management (ERM) and was established to enable Solar to run a robust business that is able to react quickly and flexibly when conditions change. The national management teams in our markets take a structured approach to risk management, which gives updated risk assessments at all times. This data is consolidated at group level and the findings are presented to the Board of Directors for approval. This means that we analyse and identify both specific risks faced by the individual subsidiaries as well as group-wide risks.

 

Anchoring

Solar’s risk management approach observes current corporate governance principles. The group’s risk management is based on the Board of Directors’ rules of procedure, which place the responsibility for risk management with the Executive Board. The Executive Board is responsible for ensuring that any necessary risk management policies and procedures are available, that efficient risk management systems have been established for all relevant areas and that these are improved continuously. The Executive Board regularly follows up with the subsidiaries.

 

Risk appetite and tolerance

Solar’s risk appetite and risk tolerance define and articulate the extent to which Solar is willing to take risks and the extent to which Solar is willing to accept risks in five overarching risk categories: Governance, Strategy & Planning, Operations/Infrastructure, Compliance and Reporting. Accordingly, the risk appetite outlines Solar’s strategic outlook towards risk and defines the degree to which Solar is risk seeking or risk avoiding, while the risk tolerance, as an indicative parameter, outlines the level of net risk that Solar is willing to accept for a given measure of reward. Risk appetite and risk tolerance are set by the Board of Directors and are reviewed annually.

 

Risk assessment

Solar evaluates the effect of a given risk based on a product of the probability of the risk materialising and the gross impact if the risk does materialise. The risks are then placed in a heat map. In detail, the probability of the risk is defined as the expected frequency with which the risk may occur, while the impact of the risk is divided into three dimensions: 1. Effect on earnings 2. Reputational damage 3. Compliance (licence to operate)

 

Process

Solar’s risk management efforts cover all subsidiaries with the exception of a few minor companies where only high level risks are assessed. The purpose of the risk management efforts is to assess, prioritise and report the most significant risks of Solar. As part of this process, Solar Group’s risk management function collaborates closely with the subsidiaries’ local risk managers in administrating the annual cycle of work. This is to ensure that the process is valid and addresses all relevant risk areas to identify all significant business risks. The individual risk owners are responsible for mitigating the risks to a level within Solar’s risk appetite and tolerance. Throughout the year, Solar Group’s risk management function and the local risk managers actively monitor the progress of this mitigation to ensure that risks are at an acceptable level by decreasing the probability of the risk materialising or lowering the impact if the risk does so.

 

Read this extract from our annual report on exposure to potential risks and mitigation