Risk Management

Risk management

Risk management overview

The dynamic management of risk and opportunity is a fundamental element of our Business Resilience Framework and at the heart of our business planning and value creation processes. We have adopted a strategic enterprise-wide risk management approach that provides a common, integrated program to manage risks and leverage opportunities across the Group.

We believe that enterprise risk management is a strategic advantage for our company – we selectively seize opportunities because of our enhanced opportunity to exploit risks and removing barriers. We’re building enterprise risk management into our company’s culture and social fabric.

We continuously identify, assess, manage and escalate risks and opportunities, following a rigorous cyclical process that we evaluate against the risk universe in which we operate. We seek to minimise our exposure to unforeseen events and identified risks and create a stable environment for delivering on our strategic objectives.

In addition, we actively review our environment to identify emerging risks that may not be impacting our business now but have the potential to do so in the future. Identifying and evaluating emerging risks early enables us to make more informed decisions and to turn potentially negative events into opportunities.

Our risk management system

The key features of our enterprise-wide risk management system are:

  • Group statements on strategic direction, ethics and values
  • Clear business objectives and business principles
  • A formalised risk management policy
  • A clearly defined risk universe aligned to our strategic growth pillars:

1.   Leverage our unique 24/7 Portfolio
2.   Win in the marketplace
3.   Fuel Growth through Competitiveness and Investment
4.   Cultivate the Potential of Our People, and
5.   Earn our License to Operate

  • Integration of risk management into our business planning processes,
  • A structured and continuous process to identify and evaluate significant risks to the achievement of business objectives
  • Implementation and oversight of management processes to mitigate significant risks to ensure they remain within established tolerance levels
  • Implementation of strategies to further embed risk management into the cultural fabric of the business
  • Continual monitoring of our internal and external environment for factors that may change our risk profile
  • Identification, evaluation and monitoring of emerging risks
  • Integration of risk management into our third-party management processes, which includes a comprehensive due diligence process for compliance matters in connection with mergers, acquisitions, JVs, partnerships and other investments, aimed at reviewing policies and procedures, including relevant monitoring and enforcement activities, current and past, which the target entity has in place. This concerns any legislation relating to:
    • Anti-bribery and Corruption,
    • Sanctions and Export Controls,
    • Anti-money laundering,
    • Supply chain due diligence,
    • Human rights including modern slavery, human trafficking and child labour 
  • A regular review of both the type and the amount of external insurance we purchase and the role of our captive insurance entity, with reference to the availability of cover and cost (this is measured against the likelihood and magnitude of the identified risks)

Risk management process

Governance

Our robust risk framework is both top down and bottom up, ensuring that we identify, review and escalate, where appropriate, any risks arising from or impacting on our business activities.

The Board is ultimately responsible for the Group’s risk management and internal control systems, and for reviewing its effectiveness. The Audit & Risk Committee of the Board defines the Group’s risk appetite through establishing and the regular review of the Company’s risk appetite statement and supporting statements. These statements enable us to establish risk tolerance levels at the risk category and risk level for all risks in our risk universe.

The Audit & Risk Committee monitors risk exposure to ensure that the nature and extent of the significant risks facing the company are managed in alignment with our goals and objectives. The Committee also reviews the effectiveness of the risk management program via quarterly reports from the CRO and consideration of the outcomes of the annual internal audit of the risk management program.

While responsibility for overseeing these processes rests with the Audit & Risk Committee, the Board as a whole is regularly informed of outcomes and all significant issues.

The Group Chief Risk Officer (CRO), Mr. Steven Hather, has overall responsibility for leading the Group’s Business Resilience program that includes our risk management program. Mr. Hather reports to the General Counsel and maintains a wide angled view of all business streams and emerging risks and opportunities. Through regular reporting and discussions, the CRO ensures the ELT and the Audit & Risk Committee of the Board are kept aware of key risks to our business and the effectiveness of actions being taken to manage those risks and opportunities. The CRO also ensures knowledge sharing with the Board by providing education and awareness on key issues such as TCFD reporting and our response to climate change in quarterly updates with the Audit and Risk Committee.

The CRO is functionally independent from our business units and the Group functions that have responsibility for managing risks relating to their functional areas. An organisational chart for the Group Business Resilience Team can be found below.

Every year, the Internal Audit Team led by the Head of Internal Audit, conducts an audit of the Group Business Resilience program including the effectiveness of the Group’s risk management program. The audit also includes selected Business Units and Group Functions. The results of those audits are provided to the Audit & Risk Committee.

Process overview

Monthly risk discussions and reviews are an established part of senior leadership routines in all our Business Units (BU). Risk Coordinators in each BU facilitate a cross-functional assessment of the likelihood and impact of a broad range of risks, consider actions required to mitigate those risks and ensure appropriate resources are dedicated to their management. They also ensure the level of residual risk - which we define as the risk after mitigation actions have been established and evaluated, remains within tolerance levels that are set for each risk. The outcomes of these assessments are reviewed by the senior leadership team (SLT) each month as an established part of the SLT meetings.

The outcomes of these reviews are recorded in the BU risk registers. These registers are part of a central risk register that is maintained and reviewed by the Group Business Resilience Team. The Group Chief Risk Officer (CRO) regularly sits in on these BU monthly meetings to support the process and to ensure management teams are reviewing and assessing a sufficiently broad range of risks, including emerging risks and that established tolerance levels are not being exceeded.

Risks are aggregated and analysed by the Group Business Resilience Team and significant operational risks and actions as well as trends and emerging risks are discussed at bi-annual reviews conducted by the CRO with the Regional Directors and their teams.

In addition, the Group Business Resilience Team works closely with the business units and functional risk owners in the Group team to ensure risks that are out of tolerance – ie. the level of residual risk is higher than the set tolerance level, are brought into tolerance as quickly as possible through enhancing mitigation actions.

In addition, the CRO conducts regular risk reviews with Group function heads and their teams to update principal risks and identify and evaluate emerging risks. These are aggregated and discussed at quarterly meetings of our Group Risk and Compliance Committee (GRCC), our independent risk review forum and strategic think-tank on risk and compliance comprising senior leaders in the business. This ensures a cross-functional perspective on our risks.

It also ensures appropriate attention is given to the assessment and management of risks that may not have an immediate impact but may have a longer-term impact on our business including sustainability and climate change, human rights and modern slavery as well as consumer and commercial trends and emerging risks.

The outcome of the GRCC meetings are presented by the CRO in a biannual principal risk report to the Executive Leadership Team (ELT) and the Audit & Risk Committee.

A cross-functional approach to risk

The Group Risk and Compliance Committee is our risk think tank and independent risk review mechanism. Its members, recruited from the most senior business leaders across all Group functions, contribute their experience and insight to the evaluation of the company’s risk and opportunities.

Roles and responsibilities

Business Unit: identifies and evaluates risks and mitigation plans; monitors monthly as part of management meeting; updates risk register for Group Business Resilience review; evaluates and aligns risks to strategy and ensure level of residual risk remains within established tolerance levels.

Regions: Business Unit risks are aggregated and assessed and reviewed bi-annually by the Regional leadership teams with the Chief Risk Officer. This ensures independent assessment of country risks and mitigation plans.

Group Risk and Compliance Committee: meets quarterly; reviews aggregated and escalated risks against broader Group objectives and ensures effective risk mitigation strategies are in place; identifies and evaluates emerging risks, prepares a bi-annual risk and opportunity summary for ELT and the Audit & Risk Committee.

Executive Leadership Team (ELT): has overall responsibility for enterprise risk management; assigns risks against our strategic pillars; assigns accountable risk owners against our risk universe.

Audit & Risk Committee of the Board: establishes risk appetite; oversees risk management systems, strategies and culture to ensure principal risks and opportunities are identified and managed; receives quarterly updates on principal and emerging risks; ensures all Board members are briefed on principal risks and opportunities and plans for managing those risks and opportunities.

This process ensures risks and opportunities are understood and visible across our business. The business context determines the level of acceptable risk and the controls required for management. We seek to continually improve by sharing best practice throughout the company, with The Coca‑Cola Company and other bottlers.

A Chief Information Security Officer has been appointed, reporting to the Chief Digital and Technology Officer, a member of the ELT, and responsible for establishing and maintaining the Group’s vision, strategy, and programme to ensure information assets, plants and technologies are adequately protected.


Principal risks and mitigations

Our strategic pillars - Leverage our unique 24/7 portfolio, Win in the marketplace, Fuel Growth through competitiveness & investment, Cultivate the potential of our people and Earn our license to operate - provide the context for guiding us in the management of the risks faced by our business.

We continuously validate our principal risks and update and report them regularly including in our Annual Report. This is achieved through our ongoing ability to aggregate and analyse risk, our functional collaboration and the think tank approach of the company's Group Risk and Compliance Committee.

We have grouped our principal risks into 4 areas:

Group A: Responding to upheavals in the macroeconomic and geopolitical environment,

Group B: Leveraging our unique 24/7 portfolio – and responding to change

Group C: Maintaining operational excellence in volatile markets

Group D: Managing climate change risk

Our principal risks for the period ending December 2022 are:

Group A: Responding to upheavals in the macroeconomic and geopolitical environment

Principal Risks:

·        Commodity Costs
·        Foreign Exchange Fluctuations
·        Economic Conditions
·        Geopolitical and Security Environment

In 2022, as general market conditions continued to improve with hotels, restaurants and cafes returning to normal business operations post Covid-19, the general macroeconomic and geopolitical environment exacerbated by the Russia/Ukraine crisis affected many of our principal risks.

Principal Risk: Commodity Costs                                                            

Link to material Issues: Economic impact, sustainable sourcing                    

Strategic Growth Pillar: Win in the marketplace, Fuel growth through competitiveness and investment

In 2022, we continued to see pricing fluctuations in key raw materials such as resin, sugar, and aluminium. Driven largely by the Russia/Ukraine crisis, increased pressure on gas and oil prices and market volatility led to an increase in utility costs.

Key Drivers

Consequences

Mitigation

·        Global macroeconomic conditions and inflationary pressures,

·        Ongoing geopolitical tensions, including Russia/Ukraine crisis,

·        Continuing supply chain volatility

·        Impact of climate change over the longer term

·  Increased raw materials and input costs putting pressure on margins

·       Clear accountability with Group Treasury and Group Procurement for monitoring drivers of commodity costs and developing appropriate mitigation actions.

·        Managed pricing volatility for hedge-able raw materials through hedging/fixing of forward prices,

·        Utilised established protocols under our Treasury & Procurement Policies.

·        Introduced hedgeable energy component in commodities contracts

·        Provided reporting and visibility; and sought advice from the Financial Risk Management Committee and the Audit and Risk Committee of the Board

Metrics and Targets

% of contracts hedged/fixed

Risk Tolerance:

Group Treasury and Group Procurement are required to continually monitor commodity risk and ensure there are effective mitigation plans in place, recognising many external factors are largely out of our control. To the extent possible, residual risk is to remain at or below our “moderate” rating.

Outlook and timelines:

Energy prices have eased in early 2023 but are expected to remain volatile as we get into Q3. Commodity market prices are expected to be mixed with continuing high prices of sugar and price of PET reducing, together with reducing ocean freight costs (short-medium term). We expect some key commodity costs to impacted by climate change over the longer term.

Focus for 2023:

Continue monitoring key indicators and manage volatility under our current policies and programmes.

 

Principal Risk: Foreign Exchange Fluctuations             

Link to material Issues: Economic impact                                                              

Strategic Growth Pillar: Win in the marketplace

In 2022, we continued to see foreign exchange volatility and rate fluctuations, particularly in the Russian rouble, Nigerian naira and Egyptian pound.

Key Drivers

Consequences

Mitigation

·        Macroeconomic conditions

·        National instability and government responses to global and domestic economic conditions, particularly in Russia, Nigeria and Egypt

·        Some possibility of global recession in 2023

· Financial losses and increased cost base

· Asset impairment

· Limitations on cash repatriation

·        Maintain our target of hedging 25% - 80% of rolling 12 month forecasted transactional foreign currency exposures as per treasury policy, endorsed by the Board

·        Use derivative financial instruments, where available, to reduce net exposure

·        Provide reporting and visibility; and sought advice from the Financial Risk Management Committee and the Audit and Risk Committee of the Board

Metrics and Targets

% of hedged foreign currency exposures, foreign exchange losses

Risk Tolerance:

Group Treasury is required to continually monitor foreign exchange risk and ensure there are effective mitigation plans in place, recognising many external factors are largely out of our control. To the extent possible, residual risk is to remain at or below our “moderate” rating.

Outlook and timeline:

We expect continuing short to medium term volatility in key markets, particularly Nigeria and Egypt. There continues to be some possibility of a global recession in 2023 as result of high inflation, high interest rates and lack of credit expansion.

Focus for 2023:

Continue monitoring key indicators and manage volatility under our current policies and programmes.  

 

Principal Risk: Marketplace economic conditions               

Link to material Issues: Economic impact                                                                         

Strategic Growth Pillar(s): Win in the marketplace, Fuel growth through competitiveness and investment

In 2022, we continued to see increases in inflation and interest rates across our markets. These conditions may reduce consumer purchasing power which may impact the affordability of our products. This is particularly relevant when input costs are increasing and, to maintain profitability, we need to increase prices.

Key Drivers

Consequences

Mitigation

·   Challenging economic conditions

·   Government and central bank responses including taxation and interest rates increases

·   Unemployment and underemployment rates

·   Aggressive discounting and/or pricing pressure from large retailers

·   Price elasticity

·   Volume and revenue decline

·   Reduced profitability

 

In 2022, we:

·   Use targeted actions to drive mix as critical tools to manage cost inflation

·   Carefully manage operational expense and maintain cost controls

·   Manage cash out flows

·   Coordinated and targeted plans with TCCC and other business partners on promotions and marketing initiatives

·   Continued monitoring of conditions and adjustment of action plans

Metrics and Targets

FX-neutral revenue growth, operating expenses, profitability

Risk Tolerance:

Group Finance is required to continually monitor economic conditions in collaboration with our business units and ensure that effective mitigation plans are in place, recognising many external factors are largely out of our control. To the extent possible, residual risk should remain at or below our “moderate” rating.

Outlook:

We expect challenging economic conditions to continue in the short term as central banks increase interest rates to manage inflation and the impact of the continuing Russia/Ukraine crisis. There is a possibility of global recession in 2023.

Focus for 2023:

Continue to monitor key economic indicators in each market and adjust plans as required.

 

Principal Risk: Geopolitical and security environment

Link to material Issues: Employee wellbeing and engagement             

Strategic Growth Pillars:
 Cultivate the potential of our people, Win in the marketplace.

In 2022, our concerns were clearly centred on the Russia/Ukraine crisis. In Ukraine our focus was and remains the safety of our people first, and the resumption of our production and distribution where it is safe to do so. In Russia, the decision by The Coca-Cola Company to cease operations and economic and other sanctions imposed by many countries, had a significant impact on our business. The security environment in Nigeria remains volatile in the lead up to national elections in early 2023. Tensions remain in the Balkans and Armenia and these led to incidents that had the potential to affect the safety of our people and disrupt our operations.

Key Drivers

Consequences

Mitigation

·   Russia/Ukraine crisis and potential for expansion into other countries

·   Continuing political unrest and social instability in several countries including Nigeria, the Balkans, Armenia

·   Social discontent driven by continuing tough economic conditions

·   Safety of our people

·   Financial impact of economic and other sanctions

·   Potential for business disruptions

·   Supply chain instability

·   Enhanced business resilience assessments to better inform security management plans

·   Emergency and contingency plans for all potentially affected markets

·   Continued IMCR development and training in business units and at Group and ELT level

Metrics and Targets

Reduced impact of security-related incidents, reduction in residual risk levels, quality and completion of resilience assessments, number of IMCR validations successfully completed

Risk Tolerance:

We have no appetite for knowingly exposing our employees to potentially dangerous situations without having effective plans in plans to reduce the risk to acceptable levels that are reviewed and tested regularly. Residual risk should remain at or below our “Low” rating.

Outlook:

We expect continuing volatility over the medium term. While the situation remains unpredictable, we do not expect a resolution of the Russia/Ukraine crisis in the short term. Continuing tough economic conditions in the short term will increase the risk of social discontent and political instability.

Focus for 2023:

Continuing development of our cross-functional business resilience programs, particularly in resilience assessments, capability development, risk driven security management plans and emergency/contingency planning.

Group B: Leveraging our unique 24/7 portfolio – and responding to change

Principal Risks:

·        Product relevance and acceptability
·        Strategic stakeholder relationships
·        Competing in the digital marketplace

To maintain true business resilience, we need to continue to evolve our portfolio of products and routes to market. To do that, we need to maintain strong relationships with our partners, constantly monitor and respond to changing consumer preferences, customer needs and the business and regulatory environment. In 2022 we faced significant challenges but adapted our business to respond to those challenges while keeping our long term objectives firmly in sight.

Principal Risk: Product relevance and acceptability              

Link to material Issues:   Corporate citizenship, responsible marketing, nutrition, economic impact

Strategic Growth Pillar: Leverage our unique 24/7 portfolio

In 2022, debates around sugar and sweeteners, as well as discussion on appropriate responses to key environmental, social and governance concerns increased the potential for regulatory change and imposition of additional taxes. Despite these concerns, ensuring we have highly relevant and high quality products that continue to delight consumers while balancing the ongoing and emerging health and environmental concerns, remains a significant opportunity for our business. This risk is closely linked with climate change risks, particularly the Cost and availability of sustainable packaging, Managing our carbon footprint and Impact of climate change on our reputation.

Key Drivers

Consequences

Mitigation

·  Changing consumer sentiment,

·  Actions of public health advocates and NGO’s

·  Government responses to health issues and climate change at EU and national levels

·  Discriminatory taxes

·  Brand and reputation damage

·  Financial Impact

·  Forced changes in product formulations and portfolio mix

· Very close collaboration with TCCC and other brand owners to understand and take ownership of the risk

·  Continued product innovation and expansion of our 24/7 portfolio to respond to consumer needs, including expansion of low calorie/no calorie beverages

·  Proactive approach in partnership with key stakeholders to better understand and address concerns,

·  Focused strategy on proactive advocacy with assets repository and BU support plans in place.

·  Developed and implemented group-wide assessment tool.

Metrics and Targets

ESG reputation scores, calorie reduction targets, Mission 2025 targets

Risk Tolerance:

All Business Units are required to continually monitor regulatory changes and potential new taxes in their countries, ensure all significant changes are reflected in their risk register and report potential changes to Group CA&S. Residual risk should remain at or below our “moderate rating.

Outlook:

Increasing risk of additional sugar/beverage/single use plastics taxes in the short term. Heightening concerns particularly around the impact of climate change into the medium to longer term.  The EU regulatory environment will increasingly focus on health and sustainability issues and new directives and regulations are likely. Enormous opportunity for growth in getting the balance right.

Focus for 2023:

Continuing proactive approach in partnership with key stakeholders to better understand and address concerns. Key sustainability projects such as the pack mix of the future and meeting our NetZeroby40 commitments.


Principal Risk: Strategic Stakeholder Relationships

Link to material issues:   Economic impact, corporate governance                             

Strategic Growth Pillar: Leverage our unique 24/7 portfolio

It is critical that we remain aligned with our key strategic partners such as The Coca-Cola Company, Monster Energy, Costa Coffee, and premium spirits manufacturers. In 2022, the Russia/Ukraine crisis resulted in The Coca-Cola Company making the decision to stop sales of its brands in Russia which had a significant impact on our business in Russia. Despite this, our relationship with all our strategic partners, including The Coca-Cola Company remains strong, reflected in the renewal of our bottling agreements during the year, strong marketing support across our territory and close collaboration on our sustainability initiatives. Our relationships with our key partners is important for our sustainability agenda and our response to climate change, particularly in new products and formulations and pack mix. This risk is closely linked with climate change risks, particularly Plastics and packaging waste and Impact of climate change on our reputation.

Key Drivers

Consequences

Mitigation

·  Potential for disagreements between independent businesses when strategic objectives are not aligned,

·  Different environments, including regulatory environments, in which our partners operate and broader global priorities,

·  The impact of climate change and need for collaboration on new formulations and pack mix

·  Financial impact

·  Damage to Coca-Cola system and brand reputation

 

·  Maintained established processes, routines and communication channels to manage strategic relationships at the most senior levels.

·  Closely monitored agreed business indicators defined during business planning and to analyse deviations so that corrective actions could be taken when needed.

Metrics and Targets

Organic revenue growth

Risk Tolerance:

Strong, positive relationships must be maintained with TCCC, Monster, Costa Coffee, premium spirits brand owners and other key business partners. Residual risk should remain at or below our “low rating.

Outlook:

Given the importance of our key partner relationships over the long term and a changing global environment may impact our independent businesses differently, we continue to focus on maintaining aligned strategic objectives for the long term.

Focus for 2023:

We will maintain our close working relationship with our strategic partners to ensure we remain aligned. We will continue to collaborate on our key sustainability initiatives particularly our packaging mix of the future project.


Principal Risk: Competing in the digital marketplace   

Link to material Issues: Economic impact                                                                         

Strategic Growth Pillars: Leverage our unique 24/7 portfolio, Win in the marketplace, Fuel growth through competitiveness and investment

In 2022, the digital marketplace continued to evolve and remained highly competitive with new and existing companies seeking to take advantage of e-Commerce growth. While online sales generally did not see the sort of growth rates that we saw during Covid-19, we did see 59% growth (year on year) in e-retail and food delivery service sales.

Key Drivers

Consequences

Mitigation

·  Dominance of large e-Commerce platforms

·  Proliferation of new and existing players with varying business models

·  Growing consumer preference for speed and convenience of online purchases

·  Significant opportunity to grow sales and market share through well developed and executed e-Commerce strategies

·  Potential to lose market share or fail to take full advantage of growing e-Commerce market

·  Potential for new business models and ventures to fail

·  Continue to build and invest in digital commerce capabilities and systems to enhance our B2B, e-retail, food service aggregator and direct to consumer pillars

·  continue to evolve our model for direct-to-consumer routes to market in selected countries

Metrics and Targets

% active eCustomer coverage, revenue & market share on leading e-commerce platforms, number of active customers on customer portal, revenue generated on B2B platforms, share of B2B orders generated digitally

Risk Tolerance:

Digital commerce is a relatively new and fast growing area. Business models are still evolving will not always be successful. We will take the approach of small investments to test our model, fail fast and learn before investing significant amounts in new operating models. While we will ensure thorough due diligence and the assessment and management of risk, residual risk should remain at or below our “moderate” rating.

Outlook and timelines

We expect the continued strong growth of B2B and B2C e-Commerce sales over the medium to long term.

Focus for 2023:

Drive active e-Customer coverage and enhance regular data sharing. Further strengthen relationships with leading e-Commerce platforms. Enhance our collection and analysis of data to accelerate our revenue and market share growth via data-based decisions. Accelerate systematic efforts to raise digital capabilities in our core business teams ensuring that digital transformation of our business model is keeping pace with the evolution of our market and competitive landscape.

Given the rapidly changing environment including the proliferation of new and existing players and evolving business models, we expect the risks and opportunities to remain significant for the foreseeable future. We consider Competing in the digital marketplace as an emerging risk.

Group C: Maintaining operational excellence in volatile markets

In 2022, the macroeconomic and geopolitical environment combined with regional and national issues created volatile operating conditions in our markets. The Russia/Ukraine crisis created safety risks for our people and disrupted established supply chains across our territory. Our people adapted quickly to these volatile conditions to manage safety challenges, maintain business operations to continue to serve our customers and achieve excellent results.

Principal Risks:

·        Health and Safety
·        Suppliers and sustainable sourcing
·        Cyber incidents
·        People retention
·        Ethics and compliance

Principal Risk: Health and Safety                                                 

Link to material Issues: Employee wellbeing and engagement                                   

Strategic Growth Pillar: Cultivate the potential of our people

In 2022, the risks associated with Covid-19 reduced as less severe strains became more dominant and governments continued to roll out vaccination programs, including booster shots. We noted a large spike in countries in the southern hemisphere of not only Covid-19 but also influenza during their winter season. We will continue to monitor Covid-19 and influenza rates during the European winter.

 

Key Drivers

Consequences

Mitigation

·  Possibility of new variants of Covid-19 or other pandemics

·  Impact of winter on Covid-19 and influenza cases

·  Vaccination rates, including booster programs in our markets

·  Non-compliance with or breaches of Health and Safety requirements

·  Fatalities and/or serious injury of employees, contractors, third parties, and members of the public

·  Potential for business interruption with higher than normal absentee rates in certain positions

·  refine our pandemic protocols based on learnings across the Group and remain ready to re-impose those protocols should case rates increase significantly,

·  Increase focus on mental well-being in our employee assistance program

·  Continued implementation of our Behavior Based Safety (BBS) program

·  Enhanced end to end contractor management process 

·  Involved Leaders on all levels in H&S observations and H&S conversations

·  Ensured compliance lifesaving rules incorporated in cross country verification program.

·  H&S management system certification

Metrics and Targets

Fatalities, lost time accident rate, absentee rates, Country Covid-19 reporting

Risk Tolerance:

We have no tolerance for failing to comply with workplace health and safety policies. Residual risk should remain at or below our “low rating.

Outlook:

We remain optimistic that Covid-19 and influenza cases will remain manageable over the short term but we remain vigilant and ready to reintroduce protocols if required.

Focus for 2023:

·  Closely monitor reported Covid-19 and influenza rates across our countries and continue to enhance our pandemic response protocols based on lessons from previous years and best practice sharing.

·  Continue to enhance our business continuity program which includes preparing for and responding to workplace incidents and pandemics.

·  Work closely with the leadership teams of business units with the highest LTA rates, putting a strong focus on refreshing behaviour-based safety programmes and strengthening the safety culture of our employees and contractors

 

Principal Risk: Suppliers and sustainable sourcing                                             

Link to material Issues: Sustainable sourcing, Economic impact                 

Strategic Growth Pillar: Win in the marketplace, Fuel growth through competitiveness and investment

In 2022, the macroeconomic environment, the Russia/Ukraine crisis, China’s Covid zero policy and supply-demand imbalances continued to create challenging conditions for securing supply of key ingredients, packaging and services at a reasonable cost. This risk is closely linked with climate change risks, particularly Cost and availability of sustainable packaging, the cost and availability of key ingredients and Impact of climate change on our reputation.

Key Drivers

Consequences

Mitigation

·  Global macroeconomic conditions and supply chain disruptions

·  Increased financial speculation on global commodities

·  Hard currency liquidity issues

·  Supply/demand imbalances and/or crop yields

·  Russia/Ukraine crisis and effects on European gas and oil prices flowing through to increased raw material costs

·  Impact of climate change over the longer term

·  Production disruptions

·  Failure to meet contractual obligations

·  Increased input costs and margin pressure

·  Energy availability and cost

·  Contracted volumes of key ingredients & packaging materials

·  Expand our supplier base and introduce new/alternative suppliers

·  Secure raw materials for suppliers to provide security of supply

·  Develop contingency plans with suppliers due to energy risks and risk mapping with our production areas

·  Investigate alternative and sustainable energy options for long-term availability and pricing stability

·  Work with our suppliers to have effective contingency plans in place.

·  Implement new risk management technologies to monitor drivers.

Metrics and Targets

Raw material cost per case, COGS per case

Risk Tolerance:

We will only deal with suppliers that demonstrate a capability for consistently delivering high quality products that meet our guiding principles. Residual risk should remain at or below our “low rating.

Outlook and timelines:

We expect continuing volatility in the short-medium term as a result of macroeconomic and geopolitical conditions and continuing supply-demand imbalances. Over the longer term we expect climate change and our supplier’s response to climate change to affect the cost of ingredients.

Focus for 2023:

Collaborating with our key suppliers to manage volatility and maintain continuity. Continuing discussions to better understand challenges to key ingredient supply as a result of climate change and ESG performance. Enhancing our risk monitoring in areas that may affect commodity availability and pricing.

Given the increasing requirements for supply chain transparency and consequent evolution of the regulatory environment such as the implementation of the EU Directive on corporate sustainability due diligence across our markets over the next 2 years, ESG risks in our supply chain is also an emerging risk.


Principal Risk: Cyber incidents                                                          

Link to material Issues: Economic impact                                                   

Strategic Growth Pillars: 
Win in the marketplace, Fuel growth through competitiveness and investment

In 2022, we saw continuing cyber-attacks against government operations and companies in many of our markets. Many of these incidents were linked to the Russia/Ukraine crisis, although several known actors continued to conduct high profile ransomware attacks. Organisations such as Europol and several US agencies continued to enhance their capabilities to investigate, prevent and respond to cybercrime which also helps to reduce risk to companies such as ours. 

Key Drivers

Consequences

Mitigation

·  Increasing use of cloud-based IT solutions and working from home increasing exposure

·  Increasing sophistication of malware and ransomware actors

·  Russia/Ukraine crisis

·  Operational disruptions and financial losses

·  Damage to corporate reputation

·  Potential for release of personal and customer data

·  Non-compliance with data protection legislation

·  Continue to strengthen our cloud security programs as well as implementing our plant network segmentation,

·  Enhance our privileged access management process and technologies,

·  Improve our ability to detect potential attacks through our Security Operations Centre monitoring,

·  Improve our capability to respond and recover from cyber incidents and attacks.

Metrics and Targets

Cyber security maturity level, cyber-attacks detected and prevented

Risk Tolerance:

We are committed to establishing and maintaining strong internal controls related to cyber security across our business and incidents should be reported as per the Cyber IMCR protocols. Residual risk should remain at or below our “low” rating.

Outlook:

The number and sophistication of cyber incidents is expected to increase in the short-medium term. Stakeholder concerns about data privacy and requirements to protect it will continue to increase. Government agencies will continue to improve their capabilities to investigate and respond to cybercrime. The continuing evolution of artificial intelligence could increase the risk of cyber-attacks.

Focus for 2023:

Engage external experts to help us further identify cyber risks in critical infrastructure and implement strategy to enhance our defences. Continue implementation of security hardening standards. Improve plant security by design in alignment with IEC62443.

Given the continuing evolution of artificial intelligence and its potential impact on cyber security program, Artificial Intelligence is an emerging risk.


Principal Risk: People Retention                                                

Link to material Issues: Employee wellbeing & engagement; human rights, diversity & inclusion; Corporate citizenship                                                                 

Strategic Growth Pillar:
Cultivate the potential of our people.

In 2022, we saw vacancies in some specific areas although our overall turnover rates improved to 11.4% in 2022 from 13.1% in 2021. We continue to see challenges in the attractiveness of consumer-packaged goods companies as an employer of choice. The Covid-19 period has led to people reviewing their work situations and relationship with their employer and like many companies we have seen some resignations as we returned to a “new normal”, that included balanced home/office working arrangements, however our people have appreciated this flexibility and maintained their productivity and engagement. Our engagement score remained stable at 85%. We noted higher turnover rates for female employees and sought to understand the causes and address them. By the end of 2022, retention rates amongst women had stabilised in key markets.

Key Drivers

Consequences

Mitigation

·  Changing expectations for flexible working arrangements

·  Maintaining value proposition as an employer of choice

·  Development of technology and online tools to enhance team engagement

·  Failure to attract and retain people to meet our goals

·  ​High turnover in critical positions resulting in knowledge and productivity loss

·  Potential imbalance between male and female employees due to different retention rates

In 2022, we:

·  continued to leverage continuous listening to measure culture and engagement and address findings,

·  improved people management skills to enhance engagement and energise employees sustainably, including how to manage remote teams,

·  maintained our leadership development program and continued to foster our coaching and mentoring culture,

·  implemented action plans to improve retention of female employees.​

Metrics and Targets

Turnover rate, engagement score

Risk Tolerance:

We will strive to remain an employer of choice, provide effective career development programs and maintain high levels of employee engagement. Residual risk should remain at or below our “low” rating.

Outlook:

Talent retention will be an ongoing challenge over the short-medium term because of tight labour markets and adjustments are made to new ways of working.

Focus for 2023:

Carefully monitor productivity and engagement levels as we refine our flexible working arrangements.


Principal Risk: Ethics and Compliance    
                                        

Link to material Issues:   Corporate governance                                 

Strategic Growth Pillar: Earn our licence to operate

In 2022, a raft of economic and other sanctions imposed by many countries against Russia and Belarus increased the risk of inadvertent non-compliance. In response, we enhanced our screening processes, particularly for suppliers based in Russia, Belarus and Ukraine.  The risk of fraud against the company, non-compliance with Anti-bribery and corruption standards continued to be a focus area.

Key Drivers

Consequences

Mitigation

·  The Russia/Ukraine crisis and the international response

·  Potential for broadening of sanctions

·  Continuing levels of real and perceived corruption in some countries that we operate within

·  Tougher economic conditions that increase the risk of internal and external fraud

·  Damage to our reputation

·  Significant financial penalties

·  Increased management time and effort to resolve incidents

·  Financial loss

In 2022, we:

·  enhanced our monitoring of economic and other sanctions imposed against Russia and Belarus

·  enhanced our screening processes, particularly for suppliers in Russia, Belarus and Ukraine

·  revised our recusal policy to provide additional guidance to employees,

·  enhanced our code of business conduct and anti-bribery and corruption awareness and training programs,

·  monitored our Speak Up! Hotline and followed up,

·  internal audit team continued to focus on compliance and internal controls.

Metrics and Targets

% Employees trained, resolution of Speak Up! Reports, audit reports

Risk Tolerance:

We have no tolerance for knowingly breaching Group and BU ethics and compliance policies or international sanctions. Residual risk should remain at or below our “low” rating.

Outlook and timelines

We expect the international sanctions environment to remain complex in the short-medium term. Given we operate in a number of countries where the perception of corruption is high, we expect this risk to remain significant for the foreseeable future.

Focus for 2023:

Completing the Egypt compliance integration plan implementation, including introduction of a cross-functional joint task force. Continued strengthening of our code of business conduct and anti-bribery and corruption programmes.


Group D: Managing Climate Change Risk

Principal Risk: Cost and availability of sustainable packaging                                                           

Link to material Issues: Packaging and waste management, sustainable sourcing      

Strategic Growth Pillars: Earn our licence to operate, Leverage our unique 24/7 portfolio, Fuel growth through competitiveness and investment

Given the potential impact that significant changes to our packaging mix could have to longer term capital investment in production and distribution, and the influence that packaging has on our ability to meet our NetZeroby40 commitments – packaging represents 30% of our emissions, the management of risks associated with Plastics and packaging waste is intertwined with our future business strategy. It is closely linked with other Principal Risks, particularly Managing our Carbon Footprint. In 2022, we continued to work on our plans for the packaging mix of the future. Given the extensive capital investment required over a long period of time if major changes are made to our packaging mix, this remains a significant risk. The development of a profitable packaging strategy that reduces our environmental impact and addresses escalating stakeholder concerns relating to packaging waste also represents a significant opportunity for our business. In November 2022, the EU released draft regulations that provide minimum requirements for reusable and recycled packaging.

Key Drivers

Consequences

Mitigation

·  Price increases of recycle-friendly raw materials such as rPET and Aluminium.

·  Low collection rates in high plastic volume markets.

·  Low access to quality feedstock to enable shift to rPET at balanced prices

·  New EU regulations on Plastics & Packaging Waste

·  Impact of packaging on meeting our NetZeroby40 commitments

·  Consumers concerns on waste and its influence on perceptions of our  environmental performance

·  Impact on reputation and ultimately consumer base

·  Increased operating costs, taxes and Capex costs associated with changing packaging mix

·  Very significant opportunity associated with innovative, profitable solutions

·  Pack mix of the future project

·  Additional work on packageless and refillables

·  Continued implementation of World Without Waste initiatives

·  Use initiatives such as the Coca-Cola HBC Sustainability Challenge to fund innovative solutions for packaging

·  Meet Mission 2025 commitments including increasing percentage of recycled materials

·  Partner with regulatory authorities industry peers, start-ups and NGO’s to develop effective recovery systems

·  Identify new technologies and innovation, focusing on new and alternative packaging solutions such as packageless, refillable, recycling and improving packaging sustainability

Metrics and Targets

Mission 2025 targets relating to collection of packaging, use of recycled PET and % of packaging recyclable

Risk Tolerance:

Group CA&S and CA&S representatives in all business units are required to establish a process for monitoring regulatory changes relating to packaging. Residual risk should remain at or below our “moderate” rating.

Outlook:

We will continue to see heightened stakeholder concerns over the medium term and increased regulation across EU markets. The price of good quality recycled material will continue to rise over the medium term as industries focus on increasing recycled content.

Focus for 2023:

Start “pack mix of the future” journey to accelerate decarbonization of our packaging while connecting these changes with revenue growth. Include a quantitative assessment* of the risk and opportunity of changing our pack mix under at least two different climate change scenarios.

Given the rapid changes in technology, increasing consumer concerns about plastic packaging, the evolution of the regulatory environment, and the significant impact that major changes in our packaging mix have for our continuing investments in production and distribution infrastructure, NetZeroby40 commitment and our future business strategy, cost and availability of sustainable packaging is also an emerging risk.


Principal Risk: Water availability and usage 
                                                       

Link to material Issues: Water stewardship, sustainable sourcing                

Strategic Growth Pillars: Earn our licence to operate, Fuel growth through competitiveness and investment

In 2021 we conducted a comprehensive quantitative assessment of our future water requirements under current conditions and under two different projected climate change scenarios up to 2040. In 2022, we updated that assessment based on revised data. That assessment did not identify any significant changes to our 2021 assessment. Availability and quality of clean water is fundamental to our business and for the local communities in which we operate.

Key Drivers

Consequences

Mitigation

·  7 countries and 19 plants (water priority locations) that are likely to come under increased water stress with climate change

·  Local community needs for clean water, particularly in areas of water stress

·  Increased regulatory pressure, including imposition of taxes and levies, designed to reduce water usage and/or fund additional infrastructure

·  Insufficient water to service our needs and the needs of the local community

·  Increased annual baseline water costs by up to 47% by 2040 and requirement for an additional €79m in capital expenditure over the next 18 years

·  Damage to our reputation

·  Continue to implement water usage reduction plans across our operations,

·  Implement water stewardship programs in water priority locations to mitigate shared water risks,

·  Update source vulnerability assessments for all plants and enhanced our plans, including identification of additional capital expenditure required for enhancing infrastructure.

Metrics and Targets

Reduce water usage by 20% by 2025, Number of water availability projects in water risk areas implemented (target = 19)

Risk Tolerance:

We have a low tolerance for conducting activities that have a significant negative impact on the environment. All business units are required to mitigate identified risks to ensure residual risk remains at or below our “low” rating. Business units with production facilities classified as water priority plants must establish plans for mitigating potential scarcity including identification of Capex requirements, in collaboration with Group QSE.

Outlook:

We expect that water stress in our water priority locations will continue to increase. The extent of that increase will depend both on our actions and on the global response to climate change. We expect that regulatory pressure will increase and that will flow through to additional operating costs associated with water that we have estimated in our assessment.

Focus for 2023:

In 2023 we will further implement innovations to reduce our water usage, particularly in water priority locations. We will complete the inclusion of water usage data for our Egyptian plants in our water risk assessment. We will implement additional community water projects to help secure water availability for local communities in an additional four locations.

 

Principal Risk: Managing our carbon footprint                                                          

Link to material Issues: Climate change, sustainable sourcing                     

Strategic Growth Pillar: Earn our licence to operate, Fuel growth through competitiveness and investment

In 2021, we announced our commitment to NetZeroby40 – the primary means by which we will manage our current Principal Risk: Manage our carbon footprint, to 2040. In 2022, we conducted a comprehensive quantitative assessment of the risks associated with managing our carbon footprint considering multiple climate scenarios including RCP1.9 and RCP4.5 as well as a number of transition scenarios including IEA 2 degrees scenario, IEA Below 2 Degrees scenario; and NGFS 2 degrees and below and NGFS above 2 degrees scenarios. While there are significant costs associated with carbon reductio initiatives, there are significant opportunities for our business in meeting or exceeding stakeholder expectations in managing our carbon footprint. We have assessed that an increase in perceptions of our environmental performance has a direct link to an increase in consumers intent to purchase and ultimately sales.

Key Drivers

Consequences

Mitigation

·  Increasing pressure for transparency on our emissions and actions to reduce those emissions on us and our suppliers and customers.

·  Increasing scrutiny on the use of offsets to meet Net Zero targets

·  Increasing use of carbon taxes and trading schemes to reduce carbon emissions

·  Costs of Scope 1 and 2 carbon emissions to increase to a peak of around €43m annually by 2030 reducing to €6m annually by 2040 under a Paris Ambition scenario (RCP 1.9); and around €21m annually by 2030, reducing to around €2m annually by 2040 under a RCP 4.5 scenario.

·  Costs associated to moving to low GHG emissions, low emissions coolers, vehicles, more sustainable packaging, low carbon fossil fuels

·  Impact on reputation – both positive and negative

·  2030 carbon targets validated and approved by Science Based Target initiative (SBTi);

·  Publicly committed net zero by 2040 ambition;

·  Areas of risk monitored by the QSE teams in the countries & specific tactical plans in place across the operations.

·  Strategic climate risk assessment using TCFD methodology, following as min 2 different climate scenarios, covering physical and transition risks & opportunities for entire value chain.

·  Physical risk analysis incl. financial quantification and stress testing.

·  Sustainable packaging workings aimed to design pack mix of the future and connect revenue growth management initiatives with carbon footprint.

·  Improve integration of climate related risks into strategic planning.

·  Contingency plans development to respond to limited or no natural gas.

·  Management control/ escalation process to switch the fuels and manage the carbon emissions

Metrics and Targets

Mission 2025 targets, NetZeroby40

Risk Tolerance:

All business units are expected to have country specific Carbon Emissions targets and roadmaps supported by decarbonization plans in place to contribute to the Company’s NetZeroby40 commitment, developed in collaboration with Group QSE. Residual risk should remain at or below our “low” rating.

Outlook and timelines:

We expect that carbon costs will increase significantly over the long term. Consumers will continue to increase their awareness of carbon reduction targets and this will impact sales of companies that do not meet expectations over the long term.

Focus for 2023:

In 2023 we will continue to refine our transition plans and invest in carbon reduction initiatives to adapt to a low carbon environment. We will continue our assessment on the impact of reducing our emissions with an additional focus on engaging with suppliers and customers in relation to our Scope 3 emissions.

Principal Risk: Managing the physical risks of climate change on our production and distribution                                                     

Link to material Issues: Climate change                 

Strategic Growth Pillar: Win in the marketplace, Fuel growth through competitiveness and investment

It is generally accepted that global warming has made significant changes to weather patterns. That means that the world is experiencing more frequent and more severe incidents such droughts and storms. We do not believe these changes have significantly impacted our business yet. We do have and have had for long periods of time, production facilities located close to water courses known to be susceptible to flooding. We have production facilities located in areas known as being at higher risk for droughts and wildfires. In 2022, we conducted a comprehensive assessment of the risks to our production and distribution as a result of climate change using multiple climate change scenarios. Our assessment was focused on climate scenarios RCP4.5 and RCP8.5 although we also considered RCP1.9 (Paris Ambition aimed at keeping global warming to 1.5 degrees or lower) and determined that it had no discernible impact. We identified 16 plants that may be impacted by climate change primarily wildfires, flooding and intense precipitation.

Key Drivers

Consequences

Mitigation

· Increasing instances of extreme weather caused by climate change

· Concerns in the insurance industry about covering facilities that may be impacted by climate change.

· We may have disruptions to our production or distribution which reduces our ability to supply our customers. This may impact our reputation as a reliable supplier and lead to financial losses if we do not have sufficient product to sell.

· Events such as extreme storms, flooding or wildfires may damage our production facilities or equipment leading to financial losses.

· Insurers may increase insurance premiums to cover increased property loss or business interruption risks associated with more frequent or more severe weather events. We have estimated these costs to be approximately €1.4m per annum by 2040.

· Established adaptation plans for 16 plants (including newly acquired plants in Egypt) that we assessed as being significantly impacted by climate change. These plants in total represent around 27% of our revenue. Our plans include changes and upgrades to stormwater systems, flood mitigation works and fire prevention and suppression systems. We have estimated the capital expenditure costs of these adaptation plans to be €29m over the next 5 years.

o   Note: A number of our plants are located in water-stressed areas and adaptation plans have also been developed to manage this risk. These plans are outlined under the Principal Risk: Water Availability and Usage

· Continue to engage closely with our insurers so they understand and support the work we are doing to mitigate the risk to our facilities from climate change and to take that into account in calculating future insurance premiums. 

Metrics and Targets

Adaptation plans are fully funded and implemented over the next 5 years

Risk Tolerance:

All business units with facilities that may be impacted by the physical risks of climate change are expected to have specific adaptation plans in place to manage this risk.  Residual risk should remain at or below our “low” rating.

Outlook and timelines:

We expect that the effects of climate change will increase over the long term, however we assess that the risks to our plants are low under a number of different climate scenarios (RCP1.9, RCP4.5 and RCP8.5).

Focus for 2023:

In 2023 we are enhancing our contingency planning across all plants but particularly those that may be impacted by climate change in order to better understand support needs in the event of disruptions to our production and distribution.


smart-risk-programme-2022 smart-risk-programme-2022

Emerging Risks

Understanding emerging risks and opportunities is a key element of our Business Resilience Strategy. That strategy is not just focused on assessing and managing risks that are, or could impact the business now, but also what may impact our business in the future. Positioning the business for change so that we not only survive major disruptions or crises but thrive is at the heart of our business resilience strategy.

One of the pillars that underpin our proactive approach to risk is that the earlier we identify and assess current and emerging risks, the higher the likelihood that we either prevent negative events from impacting us or, if we can’t prevent them, we can reduce the impact of the business. This proactive approach also enables us to turn risks with potentially negative outcomes into opportunities for our business. It is a key part of our IMCR program for example that, in developing a response strategy to a potential crisis, a key question is “what is the potential positive outcome?” There are no crises that do not have potential positive outcomes, but few companies in crisis choose to look for them, and even fewer choose to take advantage of them.

Emerging risks are those that may not be impacting the Company now but may have a significant impact in the future. They are broader and longer term in nature, likely to have a significant impact if in fact they do materialise and, because they are longer term risks, there is generally a lot of uncertainty and a lack of solid data to assess them in the way we normally assess risks.

Emerging risks and opportunities can also be impacting us now and be considered “Principal risks” but because the drivers of these risks are changing rapidly and there is a lot of uncertainty around them, we may also consider them emerging risks.

As there is a great deal of uncertainty about the nature, likelihood and impact of emerging risks and opportunities, we focus on identifying and monitoring the drivers of those risks and opportunities and identifying the triggers that might cause us to act faster or in a different way. This approach enables us to take sensible, well thought out steps over time to prevent the risk from negatively impacting us, or to take advantage of the opportunity presented by it faster and more effectively than our competitors.

As we continue to develop the emerging risk and opportunity program, we will increase the number and quality of discussions around emerging risks and opportunities as part of our well-established enterprise risk management program. That means business units are increasingly adding emerging risk conversations in their monthly risk reviews and Regional teams and Group functions are adding emerging risk conversations in their biannual Principal risk reviews. The outcomes of these discussions become part of our Annual Business Plans, Long Term Plans and strategic planning exercises.

Overview of Emerging Risks

We are constantly reviewing changes in our operating environment and looking for trends that may have a longer-term impact on our business. As a result, our emerging risks can and do change regularly as we gather more information and review their potential impact.

For reporting purposes, we revise our Emerging Risks biannually and report key emerging risks on our website and Integrated Annual Report annually.

Our key emerging risks as at May 2023 are:

1.     Development of Artificial Intelligence

Description of the risk

The application of artificial intelligence (AI) spans across several business processes and will support our acceleration of digital commerce and processes such as the automation of some of our beverage production, supplier ordering and customer fulfilment processes for example.

However, AI technology also poses various risks to our business due to a potential over reliance on the outputs of AI generated information, potential misuse by malicious actors and the potential of unintended consequences given many aspects of AI are not well known and there is little regulatory controls over its use.

We expect a number of business functions to start adopting some aspects of AI within their business processes in the near future. We expect AI to continue to advance and become increasingly complex and autonomous, presenting both risks and opportunities for our business.

Potential Impact

·        Errors in the algorithms and/or biased AI data (intentionally or unintentionally) could lead to faulty planning decisions during our S&OP process leading to either over production and subsequent additional warehousing costs or additional waste (including food waste); or under-production leading to an inability to supply our customers with beverage products.

·        Our use of AI could increase the “attack surface” available to malicious actors. Coupled with an enhanced ability of those actors to leverage AI to conduct attacks could lead to an increased risk of loss of proprietary or personal data and potential violations of rights to privacy of Coca-Cola HBC employees or customers and fines or regulatory actions resulting from non-compliance with privacy requirements, especially in our markets where the regulations are stricter.

·        Our supply ordering, production, distribution, and financial systems are heavily dependent on information technology. The leverage of AI by malicious actors in cyber-attacks could increase the severity of interruption to our systems reducing our ability to supply our customers with beverage products.

Mitigating the risk

·        We will establish a robust governance and operating model to ensure deployed AI technologies are secure, safe, ethical, and comply with internal corporate policies.

·        We will establish a cross-functional team comprising of representatives from business functions, legal, IT, cyber and privacy teams to ensure compliance by design.

·        We will establish and maintain a central inventory of all AI technologies that is mapped with specific business use cases.

·        Our governance processes will ensure decision-making processes are lawful, transparent, explainable and there is clear accountability in AI technologies.

·        We will take all appropriate actions to safeguard that personal data are collected, processed and used in a way that respects individuals’ privacy rights and freedoms.

·        We will develop and communicate organisational policies on the acceptable use of AI technologies. Execute awareness campaigns to achieve long-term lasting behavioural changes.

2.     The cost and availability of sustainable packaging

Description of the risk

Governments and non-government organisations are driving change through new regulations such as the EU Packaging and Packaging Waste Directive. We are not yet certain of what those regulations require of us.

We have publicly committed to a NetZeroby40 target however around 34% of our carbon emissions are generated by our use of packaging which means the packaging we use for our beverages in the future has a significant influence on our ability to meet our commitments.

In addition, major changes to our packaging require significant investments in new production lines and potential for redundancy in existing production lines and assets. It may require significant changes to our distribution systems and investments for our customers.

We have also identified a number of variables that, because of their longer-term nature, we don’t yet fully understand including the impact of significantly increased carbon prices flowing through to the price of PET, glass, and Aluminium.

Potential Impact

·        Decreased availability and increased costs of packaging materials as a result of increased carbon pricing or additional taxes on packaging materials such as new PET, recycled PET, glass and Aluminium that are currently a critical part of our business strategy.

·        The significant costs including capital expenditure, required in making major changes to our beverage production lines, including the purchase and installation of new lines and in redundancy of existing production equipment, to cater for different packaging.

·        Impact on our customers and their business: e.g., introducing more refillable packaging materials would increase the amount of collection, storage, and reverse logistics.

·        The impact on our reputation, and ultimately sales of beverage products, if we are not able to deliver our products in packaging that is acceptable to consumers at a price they are willing to pay.

·        Potential opportunities for our business in leading the delivery of beverages in innovative, sustainable packaging.

Mitigating the risk

·        In 2022, we continued to work on the development of a profitable packaging strategy that reduces our environmental impact and addresses escalating stakeholder concerns relating to packaging waste.

·        In 2023, we expect to deliver our pack mix of the future project, including a comprehensive quantitative assessment of the risks and the financial impact in both operating expenses and capital expenditure associated with the various options including packageless and refillable SKUs. This will provide key long-term insights into our future packaging strategy and potential changes to our operating model that may be required over time, while remaining flexible enough to respond to changes over time.

3.     ESG Risks in our Supply Chain

Description of the Risk

There is an increasing demand for transparency in environmental, social and governance (ESG) performance as the potential impact of climate change becomes clearer and companies are increasingly held accountable to contribute to reducing the drivers of climate change.

The EU Corporate Sustainability Due Diligence Directive will go the EU Parliament and Commission and if adopted, it is expected that EU countries will transpose the Directive into national law over the next two years that we will need to comply with. There are rightly expectations that companies identify and take action to ensure human rights, including appropriate working conditions and living wages, are respected, and implemented throughout their value chains. We may increasingly be held responsible for the actions or lack of compliance of suppliers deeper in our supply chain where we currently have less visibility. In addition, we are expected to use our influence in the value chain of which we are part to drive change.

Potential Impact

·       We could be held responsible for suppliers involved in incidents of non-compliance which can lead to reputation risks, and fines as well as additional costs in finding alternative suppliers.

·       Additional due diligence requires additional management time and effort increasing our costs.

·       We may also have difficulty accessing ingredients that are impacted by climate change or we may have to pay more for those ingredients.

·       We may not meet our stated sustainability goals by 2025, and future sustainability goals as it relates to ingredient sourcing and climate change

Mitigating the risk

We are continuing to build our relationships with suppliers through initiatives such as our supplier sustainability forums as well as greater engagement to ensure more sustainable sourcing (e.g. training, joint initiatives, joint sustainable goal setting etc.).  Our buyers were retrained during the year on the sustainability risk assessment tools available for supplier selection and governance.  We continue to expand the use of the EcoVardis system to support our supplier ESG performance assessments for better, more objective supplier monitoring. This will increase our visibility deeper into our supply chain.

We are conducting deeper assessments into the potential impact of climate change on our suppliers and the implications for our business. We will continue working with our suppliers to support them in setting and delivering on their sustainability goals, including setting science-based carbon reduction targets.

4.     Cost and Availability of Water

Description of the risk

Water is fundamental to our business. It makes up the largest percentage of our products and is a key part of our production processes. It is also critical for our suppliers of agricultural ingredients, and for the local communities in which we operate. Maintaining high quality, reliable watersheds is not just critical for our business but also for our relationship with our communities and suppliers.

Climate change is expected to have a significant impact on watersheds around the world. According to the latest report from the Intergovernmental Panel on Climate Change (IPCC), more than half the world’s population faces water scarcity for at least one month every year and this will increase in the future.

During 2022, we updated our assessment of the potential impact of climate change on our business under two different climate scenarios (RCP4.5 and RCP8.5), including the availability (physical risk) and cost (physical and transition risk) of water by 2030 and 2040.

Our assessment indicated that climate change is not currently having a significant impact on the availability and cost of water but is likely to do so by 2030 in the climate scenarios that we considered. This is a result of an increase in the level of water stress particularly in areas that we have already determined are in water-stressed areas, which we refer to as “water priority” plants or locations. 

In addition, the management of water resources is a key concern for a range of our key stakeholders and ranks very high in our annual materiality assessment. We expect increasing attention to water security concerns driven by the outcomes of events such as the UN Water Conference and potential for increased reporting requirements and government and non-government organisation pressure to reduce water usage. 

Potential Impact

  • If water availability decreases due to climate change or significant water withdrawal from upstream users, it also will lead to disruption of the water supply to our operations and to communities in which we operate.
  • If we use significant amounts of water from the local watershed, it may reduce the availability of water for local communities and damaging our reputation.
  • We have assessed that climate change could increase our annual baseline water costs by up to 48% by 2030 and 39% by 2040.
  • We need to spend an additional €95.6 million in capital expenditure between now and 2040 to meet our water needs and to replenish watersheds for local communities in water priority areas
  • For our suppliers, the water risk could lead to decreased crop yield, disruption of their supply processes, issues with quality of ingredients, decreased income, while for us it would lead to increased cost of ingredients or production disruption due to ingredients or raw materials not being available in the quantity or quality we expect.

For more details on our water risk assessment, please see page 76 of our 2022 Integrated Annual Report (IAR).

Mitigating the risk

In 2022, we:

  • continued to implement water usage reduction plans across our operations;
  • implemented water stewardship programmes in water priority locations to mitigate shared water risks;
  • updated source vulnerability assessments for all plants and enhanced our plans, including identification of additional capital expenditure required for enhancing infrastructure.

In 2023, we will:

  • further implement innovations to reduce our water usage, particularly in water priority locations.
  • complete the inclusion of water usage data for our Egyptian plants in our water risk assessment.
  • implement additional community water projects to help secure water availability for local communities in an additional four locations.

5.     The impact of extreme weather on our production and distribution

Description of the risk

It is generally accepted that global warming has made significant changes to weather patterns. That means that the world is experiencing more frequent and more severe incidents such droughts and storms.

We do not believe these changes have significantly impacted our business yet. We do have and have had for long periods of time, production facilities located close to water courses known to be susceptible to flooding. We have production facilities located in areas known as being at higher risk for droughts and wildfires.

Depending on the global response to climate change, our production facilities and distribution networks may be impacted by extreme weather and its effects in the future. As there are so many variables, it is very difficult to accurately assess how climate change may impact us.

Potential Impact

·       We may have disruptions to our production or distribution which reduces our ability to supply our customers. This may impact our reputation as a reliable supplier and lead to financial losses if we do not have sufficient product to sell.

·       Events such as extreme storms, flooding or wildfires may damage our production facilities or equipment leading to financial losses

·       Insurers may increase insurance premiums to cover increased property loss or business interruption risks associated with more frequent or more severe weather events

Mitigating the risk

In 2022, we conducted a comprehensive assessment of the risks to our production and distribution as a result of climate change using multiple climate change scenarios. Our assessment was focused on climate scenarios RCP4.5 and RCP8.5 although we also considered RCP1.9 (Paris Ambition aimed at keeping global warming to 1.5 degrees or lower) and determined that it had no discernible impact.

We identified 16 plants that may be impacted by climate change primarily wildfires, flooding and intense precipitation. We are developing adaptation plans such as fire suppression and landscaping changes, flood mitigation works and stormwater upgrade systems. We estimate that the costs of these adaptation plans will amount to €29m over the next five years.

In 2023 we are enhancing our contingency planning across all plants but particularly those that may be impacted by climate change in order to better understand support needs in the event of disruptions to our production and distribution.

In addition, we estimate that if insurers were to apply an estimated increase of 30-40% in insurance premiums to production facilities that we have identified as being at higher risks as a result of climate change, we could see an increase in our insurance premiums of €1.5m annually. In order to mitigate the potential rise in insurance premiums, we will collaborate with our insurers to ensure they understand how we have assessed these risks and the adaptation plans we are developing to mitigate them.