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.
Climate Risk
Risk Description
Acute global climate change has increased the severity and frequency of natural disasters. Consequently, countries have united to establish the common goal to reduce greenhouse gas emissions. The Thai government has targeted to become carbon neutral by 2050 and achieve net zero emission by 2065. Accordingly, policies have been issued while relevant laws and regulations have been amended to resolve the intensifying environmental problems. In addition, concerns about environmental issues have also caused significant changes in consumer behavior as both consumers and entrepreneurs now direct their attention towards eco-friendly products.
More information is available at the Task Force on Climate-related Financial Disclosures (TCFD) Report.
Task Force on Climate-related Financial Disclosures:
TCFD 2022Category of Risk:
Environmental
Source of Risk:
Natural Factor
Business Impact:
- Without proper adjustments and adequate mitigations, natural disasters which have become more severe and more frequent may disrupt GC’s business and key activities as well as impact properties and employee safety.
- If the company lacks efficient water management planning, climate change may cause water shortage that will interrupt the production process and affect revenues as well as operational credibility.
- GC’s operating costs may rise as a consequence of our emissions reduction efforts and carbon credit costs in our bid to comply with more stringent rules. These regulatory changes have also led to an increasing demand for low-carbon products.
- GC turns risks into opportunities by expanding investment in low-carbon emission businesses by continuously increasing investment in low-carbon product development in tandem with caring for the environment in order to answer to consumer demands, maintain the company’s performance value, and create shared values with stakeholders in a sustainable manner.
Scenario Analysis:
GC analyzes both internal and external risk factors in order to identify the key impacts of climate change on business operations using the Qualitative and Quantitative Climate-related Scenario Analysis based on various climate scenarios, such as RCP 2.6, IEA 2DS, IEA B2DS, etc. The analysis results are then used to set assumptions, goals, business strategies and directions in order to appropriately adapt and respond to stakeholder expectations.
Timeframe:
Medium-to long-term (3-10 years)
Type of Impact:
Environmental Impact / Ecomomic Impact
Mitigation and Opportunities:
GC implements strategies alongside the management of climate change risks and opportunities which is in line with the guidelines of the Task Force on Climate-related Financial Disclosures (TCFD). Details of risk and opportunity management are as follows:
Physical Risks
- Formulate and conduct Business Continuity Plan drills using different hypothetical scenarios at corporate, business group, and subsidiaries levels to ensure the adequacy and practicality of measures or mitigation plans. Furthermore, the drills are aimed to enable relevant executives and staffs to acknowledge their roles and responsibilities that must be taken when an incident occurs as well as to make necessary improvements beforehand.
- Work with consultants to assess the likelihood of future natural disasters and forecast impacts on both properties and business operations as information in monitoring and making preparations to address potential disaster risk situations.
Transition Risks
- Policy and Legal
- Monitor and assess impacts and opportunities of short-term and long-term climate change policies. Follow up on performance and review greenhouse gas reduction target strategy to be in line with policies and regulations.
- Prepare a corporate greenhouse gas inventory, basing calculation methods on ISO 14064-1:2018, the Greenhouse Gas Protocol, American Petroleum Institute (API 2009), Intergovernmental Panel on Climate Change (IPCC 2006) and the Thailand Greenhouse Gas Management Organization (Public Organization), or TGO, to determine the company’s greenhouse gas management guidelines.
- Technology
- Enhance efficiency and streamline current production process using new technology and innovations to reduce greenhouse gas emissions.
- Study and explore technological investment opportunities with focus on new and cost competitive eco-friendly technologies.
- Market
- Reduce proportion of plastic resin production for single-use plastic while increasing the proportion of the resin for durable or semi-durable products.
- Adjust investment portfolio towards low-carbon businesses in response to changing customer demands, such as High Value Business (HVB), High Value Products (HVP), bioplastics and recycled plastics, etc.
- Reputation
- Provide knowledge, publicize, and create understanding through projects, such as Upcycling the Oceans, Thailand, ThinkCycle Bank, Thailand Public-Private Partnership for Plastic and Waste Management, GC Circular Living Symposium 2022, to emphasize on our image in sustainability leadership.
Opportunity
- Resource Efficiency and Energy Source
- Execute environmental projects, such as Maptaphut Integration (MTPi) and energy saving projects which can enhance performance efficiency, reduce resource and energy consumption, and lower greenhouse gas emissions and production costs.
- Product and Service
- Set up Customer Solution Center (CSC) to learn and answer to consumer demands through collaborations with customers and partners in designing and adding value to products from plastic waste in order to expand business opportunities.
- Build cooperation with tech startups and venture capitals (VC) worldwide to raise capability level in developing low-carbon, eco-friendly products that are safe for consumers
- Market
- Set target to increase the proportion of low carbon businesses to 35 percent of over all business portfolio in 2030 by investing in production technology with low carbon emissions, green products, recycled products, high-performance products and upcycled products to create shared values for stakeholders in accordance with the sustainability framework.
- Extend business towards sustainability by working with allnex team to drive growth and upgrade eco-friendly, high-tech innovations along with the pursuit of continuous growth in new markets and the determination to develop coating products that meet environmental requirements.
- Study and monitor emerging businesses as a result of the transitional trends towards low-carbon businesses to create sustainable business growth for the future.
- Resilience
- Encourage investment in high value business (HVB), focusing on product groups with high growth rate and profitability, low price volatility and low carbon emissions through merger and acquisition (M&A).
Consumer Trends Risk
Risk Description
The trend of environmental awareness among consumers combined with accelerated energy transition, advances in electric vehicle and battery technology, government policies and support for the development of low-carbon technology and circularity to maximize the efficiency of resource utilization and minimize environmental impact will lead to a decline in the demand for GC’s petroleum and petrochemical products, such as finished fuel oil and single-use plastic resins.
At the same time, this issue has also heightened stakeholders’ expectation for GC to play a leading role in the sustainable management and to disclose more details about our future sustainability action plans.
Category of Risk:
Societal
Source of Risk:
Environmental Factor and Natural Factor
Business Impact:
- Shifting in consumer demand from conventional commodity to environmental-friendly, including low-carbon, products reduce demand of GC’s petroleum and petrochemical products in the market, thus potentially reducing our ability to generate income.
- This pressure from changing demand will influence and enforce GC to adjust business portfolio to cover more sustainable and low-carbon products. This will consequently influence GC to pursue a higher investment cost from research and development of such products
- Additionally, changes in consumer behavior also affects GC’s image as a global leader in chemical production. The possibility of exposure on negative reputation risk that many investors and stakeholders might not support the corporate in terms of financial incentives and business cooperation.
Scenario Analysis:
Upon formulating our strategies and business plans, GC monitors and analyzes future demands for products, taking into account global megatrends and external factors, such as the tendency of transitioning from combustion vehicles to electric vehicles, peak oil demand as well as markets and demands for recycled products.
Timeframe:
Medium-to long-term (3-10 years)
Type of Impact:
Ecomomic Impact
Mitigation and Opportunities:
- Increase the proportion of plastic resin production for durable or semi-durable products to replace the production of resin for single-use plastic products.
- Create opportunities to expand into markets for recycled plastic products and eco-friendly products by establishing investment strategies in rPET and rHDPE businesses.
- Appoint a working group to study the feasibility of investing in green businesses in order to expand eco-friendly businesses and seize opportunities from the increasing demand for eco-friendly products.
- Adjust portfolio to focus more on low-carbon businesses, specifically high value business (HVB), high value products (HVP), bioplastics and recycled plastics.
- Explore the possibility of reducing the proportion of high-carbon businesses by considering business model adjustments and seeking partners with common interests.
- Build partnership with Tech Startups and Venture Capital (VC) around the world to seek investment opportunities with emphasis on innovative technologies that align with GC’s strategies as well as to create high growth business opportunities in accordance with megatrends.
Geoeconomic Confrontations
Risk Description
Competition and polarization between superpowers, global warming, limited natural resources, political tensions in different regions and the risk of potential international military conflicts have left countries to face more challenges in economic cooperation. This may affect economies and GC’s businesses in terms of decreased demand for goods due to economic conditions, supply bottlenecks, investment uncertainties, non-tariff trade barriers, or issues concerning the intervention of currency exchange rates.
Category of Risk:
Geopolitical
Source of Risk:
Geopolitical Factor and Macroeconomics Factor
Business Impact:
- Geopolitcal risks produce significant negative impact on overall economic and financial conditions, especially in developing economies, influencing consumer demands and spendings which may in turn affect GC’s returns.
- Conflicts between economic superpowers will result in the imposition of trade barriers and specific standards of each country in order to protect the domestic economy and gain trade advantages. This may bring about higher operating costs, loss of market and competitiveness, and the inability to generate returns for stakeholders in the long run.
- Economic volatility, changes in government policies, lack of economic flexibility, and economic attacks decrease investor confidence; thus, delaying investment and affecting GC’s investment directions.
- International conflicts may affect the GC’s supply chain in terms of procurement of feedstock, machinery, equipment, and key chemicals, as well as in the forms of restrictions, obstacles, duration, and cost in delivering products.
Scenario Analysis:
GC closely monitors and analyzes tensions from war, the likelihood of polarization of global economic and political systems, and other economic risk factors that may impact investment and performance. Consequently, four sub-scenarios have been analyzed and identified to assess impacts on the organization’s business plan and long-term strategies. Accordingly, follow-ups, reviews and updates of relevant situations and factors are required to be carried out on a regular basis.
Timeframe:
Medium-to long-term (3-10 years)
Type of Impact:
Ecomomic Impact
Mitigation and Opportunities:
- Monitor, process and analyze global megatrends, industrial/market trends, technological advancement, and relevant policies to make long-term forecasts on product prices, production and operating costs.
- Implement scenario planning in different feedstock price situations, support and reduce impact from potential future changes and uncertainties in a timely manner.
- Setting flexibility & optionality measures in terms of markets & products to enable GC to flexibly adjust business in situations of uncertainty and create stability in sales & profits.
- Collaborate with suppliers to analyze situations & forecast risks, built relationship with key suppliers, and make long-term contracts to ensure that GC will not face shortage of feedstocks or spare parts.
- Monitor announced product standards & trade barriers of other countries to establish mitigation approaches with the government & relevant sectors.
- Set plans to develop employee capacity to be on par with competition and rapid changes.
Debt crises
Risk Description
The World Economic Forum (WEF) predicts that the financial status of both the government and business sectors may be faced with risks from higher debt volume as a consequence of economic impacts during the COVID-19 outbreak. This may affect liquidity, the ability to pay debt and fund acquisition. It will also create a ripple effect on economic growth.
Category of Risk:
Economic
Source of Risk:
Macroeconomics Factor
Business Impact:
- Global economic slowdown has significantly lowered the price and demand for both petroleum and petrochemical products which affects the company’s returns in a direct and significant manner.
- Debt crises combined with global economic slowdown may impact the financial status of customers and suppliers as well as their ability to pay debt and deliver products and services to the company.
- Costs which have risen in accordance with product demand and supply may result in the loss of the ability to generate income and compete while also affecting stakeholder confidence.
- Higher debt ratio may increase the company’s financial costs and affect the ability to obtain funding and maintain credit rating at the investment grade level.
- Without any debt headroom, GC may not be able to invest according to established strategies nor meet project investment goals.
Scenario Analysis:
- Conduct Sensitivity Analysis and Stress Test on key risk factors that will influence corporate net profit. Accordingly, financial scenarios are implemented to contemplate the impacts of changes in key factors, such as foreign exchange rates, crude oil price and core product price, etc., on the company’s net profit in order to determine supporting measures to mitigate or minimize potential losses.
- Analyze and define four possible sub-scenarios to assess impacts on business plan and long-term strategies by requiring regular follow-ups, reviews and updates on relevant situations and factors.
Timeframe:
Medium term (3-5 years)
Type of Impact:
Ecomomic Impact
Mitigation and Opportunities:
- Define risk management measures covering three core aspects, namely Price Volatility Risk, Sale & Marketing Risk, and Counterparty Risk.
- Increase competitiveness by minimizing impact from economic factors and implementing measures covering six aspects, namely feedstock, production, sales, project investment, cost control, and communication.
- Expedite strategy to steer business portfolio towards performance products and explore opportunities to expand sales to other export markets in a bid to reduce impact from volatility and increase sales agility due to lack of economic mobility.
- Implement a process to review and inspect counterparty risks using the ESG Assessment and evaluate their financial status during the process of vendor list registration by conducting regular liquidity assessment and monitoring.
- Implement project prioritization process under various possible economic scenarios with focus on alternative financing options in order to prevent impact on credit rating and financial discipline.