Emerging Risk Monitoring
Emerging Risk Monitoring
GC constantly evaluates risks that may derive from external factors by following the Early Warning System that utilizes the PESTEL Analysis Framework (Political, Economic, Social, Technological, Environmental and Legal)
which oftens captures the emerging risks that might have an affect to the company in short-term, middle-term and long-term. Therefore, the result from the Early Warning Systems would use as a proactive action to mitigate foreseable risks and to create growth opportunities to the business operations.
Emerging Risk with Risk Descriptions, Potential Impacts & Mitigations
GC is well aware of the impact of the emerging risks that may affect during the next 3-5 year period to ensure proactive protection from future risk trends.
In this regard, GC has analyzed the potential risk factors and impacts that can affect the company's business operations. GC has developed the effective risk mitigation measure and continually monitored the emerging risks in medium and long term. These allow GC to achieve the goals according to the strategic direction.
Extreme Weather Events due to Failure to Mitigate Climate Change
Description Cause and Consequence:
As a result of the failure of climate change management measures implemented by the government and the private sector, greenhouse gas levels continue to rise while the goal to limit global warming to 1.5 degrees Celsius and the efforts to reduce climate change may not be achieved. Consequently, this will exacerbate crises related to the environment, social well-being, and economic stability.
GC faces exposure to both physical and transition risks stemming from extreme weather events. Examples of physical risks include droughts (including wildfires) and floods, which could significantly disrupt GC's business operations. Transition risks, such as regulatory penalties and carbon pricing imposed on industries with high emissions, could also pose significant challenges. These risks may lead to unexpected financial losses for GC at a potentially severe level.
Reference: The Global Risks Report 2024
Category of Risk:
Environmental
Source of Risk:
Environmental Factor, and Socioeconomic Factors
Business Impact:
- The increasing severity of the climate crisis may impact raw material sources. The limitation of crude oil or other fossil fuel supply also affects the continuity of GC’s production processes.
- Ineffective greenhouse gas management affects image and reliability as well as investors’ interest.
- GC’s operating costs increase as a result of stricter environmental policies, carbon credit costs, and efforts to develop pollution reduction technology to cope with climate change and more stringent regulations.
- Increased environmental awareness among consumers leads to higher demand for eco-friendly and low-carbon products. Consequently, GC needs to develop products that are consistent with changing consumer needs.
- The global effort to reduce fossil fuel consumption may decrease the value of GC’s assets which are linked to traditional petrochemical processes
Scenario Analysis:
GC analyzes internal and external risk factors to identify key impacts on business operations from climate change using the Qualitative and Quantitative Climate-Related Scenario Analysis through models such as RCP 2.6, IEA 2DS, IEA B2DS, etc., including the Worst-case Scenario, to set assumptions, targets, business direction strategies that can appropriately adapt and respond to stakeholder expectations.
Timeframe:
Medium to Long Term 3-10 Years
Type of Impact:
Environmental Impact / Economic Impact
Mitigation and Opportunities:
- Collaborate with experts to assess the likelihood of future natural disasters and forecast impact on both GC’s assets and business operations to prepare for risks in potential disaster situations. This has been carried out in accordance with international standards under the IFRS S2 Climate-related Disclosures framework.
- Monitor the drought situation and manage water sustainably through the Water Management Taskforce by driving various projects to enhance water efficiency in production processes and locating alternative water sources to ensure sufficient water for existing operations as well as accommodate future projects.
- Conduct Business Continuity Plan drills based on different hypothetical scenarios.
- Monitor and evaluate impacts and opportunities from short-term and long-term climate change policies.
- Develop a greenhouse gas inventory to set guidelines on greenhouse gas management.
- Commit to operating in accordance with the established Decarbonization Roadmap to reduce impact and ecosystem
Biodiversity Loss and Ecosystem Collapse
Description Cause and Consequence:
Failure to mitigate and adapt to climate change leads to extreme weather conditions, threatens the environment, damages biodiversity and destroys the ecosystem, which will in turn affect natural capital, food and medicine security.
GC's economic growth is deeply intertwined with natural capital. GC has revenue from its Upstream unit, mainly related to petroleum production, which underscores the dependency on natural resources. Biodiversity and natural capital destruction pose severe threats, potentially disrupting the availability of essential resources for GC's main products. This potentially led to unforeseen increases in investment and operating costs necessary to develop technology and innovation to cope to build business resilience with biodiversity loss and ecosystem collapse.
Reference: The Global Risks Report 2024
Category of Risk:
Environmental
Source of Risk:
Environmental Factor, and Technological Factors
Business Impact:
- Ecosystem collapse and increasing severity of climate change may cause the risk of production process disruption.
- Ineffective environmental management may affect environmental quality, GC’s reliability and image among stakeholders, and investors’ interest.
- GC’s operating costs increase as a result of pursuing and applying technology and innovation to cope with ecosystem collapse in order to enable business continuity.
Scenario Analysis:
GC utilizes the World Wide Fund for Nature (WWF)’s Biodiversity Risk Filter (BRF) to estimate the potential of ecosystem dependency and impact of our existing and proposed future projects to assist the company in responding to biodiversity risks and opportunities, covering all activities across the value chain.
Timeframe:
Medium to Long Term 3-10 Years
Type of Impact:
Environmental Impact / Ecomomic Impact
Mitigation and Opportunities:
- Screen top biodiversity risks for all operating sites, including key suppliers and customers, using a systematic assessment process. Integrate biodiversity assessment and management through the Quality, Security, Safety, Occupational Health, Environment, and Business Continuity (QSHEB) Policy.
- Adopt the Mitigation Hierarchy Principle to prevent, avoid, mitigate, restore, and offset environmental impacts on biodiversity throughout the value chain.
- Encourage current and future project implementations to create Net Positive Impact and maintain No Net Loss (NNL) target.
- Avoid conducting activities in the vicinity of biodiversity sensitive sites and fragile ecosystems, such as IUCN Red List, World Heritage Sites, wetlands, biosphere reserves, IUCN Category I-IV protected areas, etc.
- Commit to operating in accordance with the established Decarbonization Roadmap, drive Efficiency-driven goals, and adjust the company’s portfolio to reduce impact and create positive contributions on the environment and ecosystem
Changing Consumer Trend from Natural Resource Shortage and Regulatory
Description Cause and Consequence:
Consumers’ attentiveness and awareness towards the environment coupled with intensifying plastic reduction policies, the ban on single-use plastic, and the promotion of eco-friendly plastics to reduce carbon emissions, have caused consumer behaviour to change.
Reference: The Global Risks Report 2024
Category of Risk:
Social and Environmental
Source of Risk:
Environmental Factor, and Technological Factors
Business Impact:
- Government measures, such as No Single-use Plastic Policy, Plastic Tax, Carbon Border Adjustment Mechanism (CBAM), can raise operating costs as a result of investment to adjust technology and feedstock.
- Changing consumer needs have lowered the demand for petroleum and petrochemical products, which affects GC’s income generation capability.
- Managing sustainable packaging based on the Extended Producer Responsibility (EPR) principle has obliged GC to change our roles and expand our responsibilities in the production and disposal of petrochemical products as well as chemicals that may affect the environment.
- Possible impact on GC’s image and reputation as the world’s leading chemical producer.
- GC can create business opportunities and enhance competitiveness by developing eco-friendly products that meet consumer needs.
Scenario Analysis:
GC monitors and analyzes the future demand situation for products by taking into account megatrends, external factors, consumer behavior, and the Voice of Customer. We also develop innovation and technology to increase the efficiency of operations and product development. These are then adopted in the formulation of strategies and business plans that answer to customer needs.
Timeframe:
3-10 Years
Type of Impact:
Economic Impact
Mitigation and Opportunities:
- Implement the strategy to shift investment towards low-carbon businesses, define a clear project implementation plan, and require regular monitoring and control of project operations.
- Promote innovation to create products that are safe for the environment and consumer health in response to consumer needs.
- Conduct a feasibility study on reducing the proportion of high-emission businesses by taking into account the possibility of adjusting the business model and recruiting partners whose needs are consistent with GC’s objectives.
- Build partnerships with Tech Startups and Venture Capital (VC) around the world to seek investment opportunities with focus on new technologies that are consistent with strategic directions as well as to create business opportunities with high growth rates according to megatrends.
- Cooperate with the government, private sector, and civil society in the community continuously to drive and transition to a low-carbon economy
Geoeconomic Confrontations
Description Cause and Consequence:
The plastic industry faces pressure from numerous factors, such as the crisis of constantly rising energy and commodity prices, financial aid and measures from the government that lack stability, political tensions in various regions, and the use of economic barriers as tools to create political advantage. These factors have become a hardship of economic cooperations and result in shorter supply chains. This may affect the economic system and GC’s business operations in terms of decreased demand for products due to the economic situation, supply bottleneck problem, investment uncertainties, non-tariff trade barriers, or issues related to foreign exchange intervention.
Reference: The Global Risks Report 2023
More information on market outlook related to global geopolitical confrontations is available at: https://www.pttgcgroup.com/en/document/viewer/92296/analyst-meeting-q3-2023 page 38
For more detail:
Category of Risk:
Geopolitical
Source of Risk:
Geopolitical Factor, and Macroeconomics Factor
Business Impact:
- The fluctuation of plastic pellet prices in accordance with global crude oil prices due to geopolitical risks may occasionally affect production costs.
- Lower purchasing power due to increased inflation has prompted the population and consumers to exercise more caution in their spending. Meanwhile, manufacturers can hardly pass higher production costs through to downstream industries.
- Impact on GC’s supply chain in the areas of procurement, machinery, equipment, and essential chemicals leads to limitations and higher costs as well as volatile economic direction.
- Economic protection measures in many countries may cause GC to lose markets and competitiveness.
- The trend of government policy changes and the lack of economic flexibility lead to a delay in investment, generating potential impact on GC’s growth and investment plans.
Scenario Analysis:
GC conducts a scenario analysis of various raw material price situations to apply the information in evaluating the impact on business plans and long-term corporate strategies. This requires the monitoring, review and update of related situations and factors on a regular basis.
Timeframe:
Medium to Long Term 3-10 Years
Type of Impact:
Economic Impact
Mitigation and Opportunities:
- Closely and regularly monitor and analyze economic and political situations as well as announcements of product standards and foreign trade protection measures that may affect investment and performance in order to assess impact on business plans and long-term corporate strategies.
- Conduct scenario planning under different raw material price situations to be able to accommodate and reduce impact from future potential changes and uncertainties in a swift manner.
- Focus on setting flexibility and optionality measures in terms of markets and products to enable GC to flexibly adjust our business in situations of uncertainty in order to create stability in sales and profits.
- Execute efficient supply chain management by collaborating with suppliers to analyze situations and forecast risks, building relationships with key suppliers, and increasing the number of potential regional suppliers.