Risk overview

In the model below our key risks are presented. These have the greatest risk factor, by negative impact, and the closer to the middle they are, the more probable. Other risks, such as insurance, reputation as well as product quality and liability cover all four areas. Our mitigating actions and opportunity per key risk is described on the following pages.

The Code of Conduct describes who we are as a company and what we stand for. It outlines the appropriate business conduct and expected behaviors we all must follow to live up to the high ethical standards and integrity we hold ourselves to. Financial results are important and a measurement of success, but just as important is how we achieve these results

For Epiroc, conducting business in a responsible manner is of great importance. Epiroc chooses to work with business partners who stand behind the quality of the goods and services they provide and act in accordance with high ethical standards and integrity

Key risks, risk mitigation and opportunities

Key risk and description	Risk mitigation	Opportunities

Strategic risks:

Geopolitical changes
Instability and geoeconomic confrontations affecting business could stem from change in government, military control, war, or tensions between countries that can lead to regulatory changes such as protectionist trade policies influencing Epiroc’s industry, supply chain and logistics, or Epiroc in geographical markets. Pandemics and resulting political regulations and restrictions could significantly impact Epiroc’s operations, for instance the production and supply of equipment and aftermarket services, as well as affecting customers and suppliers.	Regular discussions and updates on all business levels on geopolitical situations, footprint, targeted M&A, sales perspective, and responsive actions.	Planning for responding activities to identified geopolitical risks gives Epiroc a flexibility to adapt when circumstances change and improves Epiroc’s competitive position
Market and technology innovation
Demand for Epiroc’s equipment and services is affected by changes in customers’ investment plans and production levels. These could change due to economic downturn, geopolitical tensions and volatility in mineral commodity prices. Demand also relies on customers’ need of new technologies and consideration of sustainability-related risk	A significant aftermarket requirement over the equipment lifecycle creates a large and resilient service business. A flexible manufacturing setup with a large share of components purchased from suppliers.	Opportunity to further develop the aftermarket business and increasing customer satisfaction and retention. Lean initiatives in manufacturing enable a more agile setup with enhanced flexibility.
Climate adaptation and environment
Acute and chronic physical risks and changes in climate can lead to increased resource prices and decreased access to natural resources, such as energy, water and raw material impacting Epiroc’s operations, suppliers and customers.	Continuously monitoring environmental and climate risks that can impact operations and demand on management and divisional level. The Board performs an oversight of risks, including climate-related risks.	Maintain and develop mitigating activities including loss prevention activities for business continuity. Offering of climate-resilient solutions to customers.
Competition
The markets are highly competitive in terms of pricing, product design and service quality, the timing of development and introduction of new products, customer service, and financing terms and conditions. Intense competition from significant competitors and, to a lesser extent but still increasingly, companies operating with lower costs and margins. A consolidation of competitors in our markets, with fewer manufacturers, where Epiroc could fail to effectively participate in the consolidation could affect our market position.	Continuous analyses and monitoring of market external factors and customer preferences to compete successfully and anticipate and respond to changes in evolving market demands, including demand for new products including a corresponding mergers and acquisitions strategy.	Development of high-quality solutions that are in line with customer demands such as increased productivity, lower total cost of ownership and reduced environmental impact. Opportunities to continuously increase operational efficiency and lower costs of operations and improve competitive position.
Acquisitions and divestments
Failure to meet synergy effects as anticipated and failed integration affecting the business negatively	Clear process for mergers and acquisitions and focused project management for integration.	Integration process enhanced leading to speed and efficiency of integration and realization of synergies


Business risks:

Cyber security and information
Epiroc could experience business interruptions caused by cybercrime, disruptions to critical IT services or other breaches of its information systems that could lead to loss of intellectual property. The increase in remote working during the last years has brought additional risk as it exposes more potential attack vectors. If breaches are not detected early and responded to effectively, they can harm Epiroc’s reputation and have an adverse effect on the financial results.	Quarterly updates from Group Information Security to Group Management and to the Audit Committee on a semi-annual basis. Epiroc has increased the resources in both the Information and IT Security teams. The cyber security program improves the handling of cyber security risks through e.g., targeted and general security awareness trainings directed to all employees, improved protection of Epiroc data to meet regulatory and legislative requirements and increased resilience, i.e., the capability to withstand or recover quickly from adverse events.	Improving cyber security and resilience goes hand-in-hand with increased customer demands on security and also improves Epiroc’s competitive position within, particularly, automation and digitalization.
Climate transition
The transition to a low-carbon economy comes with risk such as not meeting new product requirements and climate related legislation. Failing to develop, launch and market new products or respond to technological development and customer demand for sustainable products is another transition risk.	Continuously monitoring environmental and climate related legislation and establishing relevant mechanisms. Within innovation, improved environmental performance is always an important component. The Board performs an annual oversight of risks, including climate-related risks.	Meet increasing demand for sustainable equipment by developing products and services and/or expand offering with low emissions. Battery technologies and connected equipment can add value and help drive the transition to low-carbon solutions. Implementation of 2030 sustainability leads the organization towards halving CO2e emissions in Scope 1, 2 and 3.
Loss of freedom to operate
Risk for legal costs to protect intellectual property rights and loss of value of intellectual property as an asset or product revenues, because of legal findings of invalidity, unenforceability, or non-infringement, or challenges to title or ownership which could cause loss of freedom to operate.	An Epiroc Intellectual Property Rights process including relevant tools as Freedom to operate-search and training of employees.	Protection of intellectual property contributes to business stability and improves Epiroc’s competitive position.
Recruit and retain key personnel
Failure to attract and retain key teams and employees imposes a risk of losing the leading position on the market. If Epiroc fails to monitor its need for employees or if it fails to continue to attract and retain highly qualified management and other skilled employees on acceptable terms, the company may experience difficulties in sustaining or further developing parts of its business.	Mapping of competence and high-potential team members for development. Close co-operation between management and Human Resources via implemented Group Talent Acquisition for adaption to business strategies and priorities. Recruitment can take place both externally and internally. Internal recruitment and job rotation are facilitated by an internal job market. Epiroc strives to maintain good relationships with unions and universities. An employee survey is carried out every year and followed up actively.	Opportunity to set ambitious targets for employees and managers, aligned with business targets, with accountability for results and in an environment of trust and individual responsibility. Implementation of the 2030 sustainability goals leads the organization towards improved safety and increased diversity. When employees and the company need to adopt quickly to changing working conditions, such as in a pandemic, Epiroc provides the technical support to do so. Epiroc and its employees have become better at working remotely and cooperating virtually.
Supply-chain
Incorrect deliveries, failure to fulfill delivery obligations or inadequate capacity at suppliers could cause delays or failures in deliveries, which in turn may cause reduced sales and a decline in customer confidence. Supply disruptions could arise from shortages of raw materials, labor disputes, weather conditions, transportation disruptions or other factors beyond Epiroc’s control. Risk that Epiroc’s business partners do not share the same values as expressed in Epiroc Business Partner Code of Conduct. Risk that products contain components which are not sustainably produced, for instance the presence of conflict minerals in electronic components.	Select and evaluate business partners based on objective factors including quality, delivery, price, and reliability, as well as commitment to environmental and social performance. Screening of selected business partners. Inventory control and establishment of a global network of sub-suppliers, to prevent supplier dependency. Providing suppliers with timely and sufficient information to manage changes in volumes. Business partners to sign the Business Partner Code of Conduct. Continue the process to investigate and remove the potential presence of conflict minerals in the value chain.	Increase business agility and reduce costs by improving supplier inventory management in response to changes in demand. Continue to be a preferred business partner and promote efficiency, sustainability, and safety. Reducing the risk of corruption and conflicts by promoting human rights and work towards improving labor conditions. Opportunity to strengthen customer relationships by being ready to support customers that are impacted by the Dodd Frank legislation on conflict minerals. Implementation of the 2030 sustainability goals leads towards halving C02e emissions for relevant suppliers and ensuring compliance with the CoC.
Product development and quality
Several markets are characterized by technological advances and changes in customer preferences. Failure to develop, launch and market new products in response to customer demands for productivity, circularity and sustainability. Product development is affected by legislation on matters such as emissions, noise, vibrations, pollution and recycling. This may increase the risk of competition in emerging markets where such legislation is sometimes less strict. Substitution of existing Epiroc products and services with lower-emission options from competitors. Any defective products will impose a risk of product liability and damage to third party property or causing bodily injury	Continuous investments in research and development to develop products in line with customer demand and expectations, even during economic downturns. Designing products with a lifecycle and circular perspective and measurable efficiency targets for the main product categories. Designing products with reduced emissions, vibrations or noise and increased recycling potential to meet legislative requirements. Ongoing standardization of process for quality control (test, verification and validation). Ensuring that supplier management has the same level of quality assurance on vendors and suppliers.	Substantial opportunities to strengthen competitive edge by innovating high quality, sustainable products and creating an integrated value proposition for customers as well as meeting external environmental risks. Implementation of the 2030 sustainability goals leads the organization towards halving CO2e emissions in operations, transport and use of products. Promote the integration of the Sustainable Development Goals in operations. Battery technologies and connected equipment are two prime areas where Epiroc can add value and help drive the transition to low-carbon solutions. Targeted activities contribute to limit Epiroc’s exposures. Furthermore, quality assured products can increase customer retention, improve reputation as well as people safety
Safety and health
Inadequate adherence to safety and health principles and regulations can lead to accidents causing harm to people, productivity and the Epiroc brand. Health and safety laws and regulations are becoming more complex. The cost of complying with, and the liabilities and the potential sanctions imposed pursuant to, health and safety laws and regulations could be significant	Assessing and managing safety and health risks in the operations is standard procedure. Necessary safety wear is provided to employees who need to be in production or in the field. All major units are certified in accordance with the ISO45001 standard. To develop a culture with safety first in mind is key and activities to highlight this, such as the “SafeStart-program”, “Live Work Elimination” and Epiroc Safety Day together with a strong Safety Management System, which are organized throughout the Group. Business partners are offered trainings in Epiroc’s policies including health and safety	Improved safety and health increases productivity and satisfaction of employees and business partners. Implementation of the 2030 sustainability goals lead the organization towards improved health and safety.
Diversity and Inclusion
Improper inclusion can lead to lack of innovation, poor efficiency, and loss of business opportunity. Also leading to safety and health issues and a bad reputation	Ensure that diverse talent is well represented in Epiroc and lead the strong culture towards a safety leadership. Epiroc’s whistleblowing function Speak Up and compliance processes support transparency in matters where advice is sought or concerns are raised about a potential ethical or legal violation by employees or business partners.	Epiroc encourages a culture where issues and concerns are discussed and trust is built, contributing to innovation and performance
Production
Epiroc’s entities can face disturbances caused by for example weather extremes, machinery breakdown or a major fire leading to interrupted business and loss of business income as well as reputational risks	Epiroc Loss Prevention Standard focusing on people safety and business continuity is implemented globally. Entities, including newly acquired companies, are measured against our standard. The outcome provides an overview of improvement areas and recommended actions together with a prioritization of the same.	Business continuity planning prepare managers and the Epiroc business on how to act on any disturbances and how to safeguard delivery to customers.


Compliance risks:

Compliance, data privacy, fraud and corruption
A violation of laws on anti-corruption, anti-money laundering, trade compliance, competition law compliance and data privacy may result in fines, claims for compensation and other financial damages as well as impair Epiroc's reputation. Inadequate internal controls could result in Epiroc becoming more vulnerable in relation to individual employees, either by mistake or intentionally, acting in breach of applicable legal framework. Deficiencies in internal control could also cause investors and other third parties to lose confidence in Epiroc’s reported financial information	Mandatory training in Epiroc CoC for all employees with requirement to sign a CoC statement, and advanced training for certain employee categories. In-house lawyers support entities with advice on corruption laws and regulations. Epiroc’s internal policies and guidelines are published in the Epiroc Way. Training and digital tools to ensure that Epiroc and its employees around the world have the right knowledge for correct decision making. The Compliance Board´s mission is to ensure that Epiroc’s CoC is implemented and complied with.	The CoC and Group policies for how companies should conduct business responsibly will help ensure the trust of our stakeholders. Complying with legal norms and laws minimizes costs. Implementation of the 2030 sustainability goals supports compliance with the CoC.


Financial risks:

Currency, financial reporting and trade receivables
Risk areas as currency, credit and counterparty, hedging, commodity price, tax reporting, and the risk of Epiroc encountering difficulties in repaying its debts and financing its operations. Reporting risks are risks that financial reports will not give a fair view of Epiroc´s financial position and results. There is also a risk that impairment of goodwill or other intangible assets will adversely affect the financial results	Epiroc policies are available on the Epiroc way. The Group manages the risks via Financial Risk Management Committee (FRMC) with a mandate given by the Board. Group Treasury has an operational responsibility for financial risk management in the Group and reports to FRMC who reports to the Audit Committee	A proven process for risk management for financial risks contributes to compliance with financial laws, agility and trust and hence strengthens the position for Epiroc as a trusted business partner


Other risks:

Insurance
Epiroc insurance policies may provide insufficient protection.	Global insurance programs, arranged for by Group Risk Management and Insurance, lead to adequacy and cost-efficiency via optimization of risk transfer levels	Cost-efficiency and control, enabling business and to meet customer and supplier commitments
Reputation
Harm to Epiroc’s reputation and negative impact on business results can be the result of various reasons; if customers lose confidence in the safety and quality of the products and services provided, if the quality of the products and services offered by Epiroc deteriorates, including timing of delivery or quality and availability of products, whether due to a mistake by Epiroc or a third party, if Epiroc fails including via business partners or customers to comply with laws, regulations, ethical, social, product, labor, health and safety, environmental or other standards, or related political considerations. Epiroc may be subject to complaints and lawsuits from customers, employees, suppliers and other third parties, alleging product damage, health, environmental, safety, data protection, antitrust, corruption, money laundering, export restrictions or operational concerns, nuisance, negligence or failure to comply with applicable laws and regulations.	All products are tested and quality assured. Monitoring of product labeling and regular communications training. Epiroc has a clear well-known brand. The Group actively engages in stakeholder dialogue. The mandatory CoC training includes annual signing of a CoC Compliance Statement. Reporting of ethical and legal violations via the whistleblower system (or functions), Speak Up, is encouraged via various communication channels including physical posters at our locations.	Stakeholder engagement can increase the awareness and credibility of Epiroc’s brand through collaboration and adoptability. Quality assured products improves customer satisfaction and promotes recurring business. Increased access to new and emerging markets. The CoC with principles for how companies should conduct business responsibly helps Epiroc to safeguard its reputation and the trust of stakeholders. A high social and environmental profile is particularly important since Epiroc is present in many regions where the impacts from climate change may be severe and resilience low. Implementation of the 2030 sustainability goals helps to ensure compliance with applicable legislation.
Product quality and product liability
Any defective products will impose a risk of product liability and damage to third party property or causing bodily injury	Ongoing standardization of process for quality control (test, verification and validation). Ensuring that supplier management has the same level of quality assurance on vendors and suppliers.	Targeted activities contribute to limit Epiroc’s exposures. Furthermore, quality assured products can increase customer retention, improve reputation as well as people safety.