The existing corporate risk management system is integrated into the Company’s business processes and enables effective risk-based decisions at various organisational levels to achieve strategic and operational goals.
Nornickel has set the following key risk management objectives:
Increase the likelihood of achieving the Company’s goals;
Improve resource allocation;
Boost Nornickel’s investment case and shareholder value.
The risk management system is based on the principles and requirements set forth in Russian and international laws, as well as professional standards, including the Corporate Governance Code recommended by the Bank of Russia, GOST R ISO 31000-2019 Risk Management. Principles and Guidelines, COSO Enterprise Risk Management – Integrating with Strategy and Performance, and Recommendations for Public Joint Stock Companies to Organise Risk Management, Internal Controls, Internal Auditing, and the Work of Auditing Committees under Boards of Directors (Supervisory Boards) (Appendix to the Bank of Russia’s Letter No. IN-06-28/143 dated 1 October 2020).
To manage production and infrastructure risks, Nornickel develops, approves, updates, and tests business continuity plans to maintain operations and take recovery steps in case of emergency.
Risk management system
In 2022, the Company completed the following projects to develop, improve and maintain the maturity of its risk management system:
Rolled out of a GRC-class system across the Group to automate risk management processes;
Ran an external follow-up review of key asset risks, including updates and verification;
Maintained regular activities of dedicated risk management committees;
Improved integration between risk management and budget planning processes through GRC-based automation tools;
Ran a quantitative assessment of the cumulative impact of key risks on the Company’s 2023 budget, as well as an analysis of the budget sensitivity to key risks, with follow-up risk management measures included in the budget;
Broke down the Company’s risk appetite into lower organisational levels, with relevant metrics, including ESG metrics, monitored via risk management committees;
Further improved quantitative assessment tools for operational risks;
Organised comprehensive employee training across divisions in risk management and continuity management;
Developed a professional competence model defining key roles within the risk management system;
Ran regular quantitative assessments of investment project risks;
Ran a self-assessment of the risk management system’s maturity to identify areas for improvement;
Launched a project to assess long-term climate-related risks in line with TCFDTask Force on Climate-related Financial Disclosures. requirements.
In line with risk management system improvement plans for 2023 and beyond, the following areas have been prioritised:
Further automating risk management processes and system functionality;
Introducing quantitative risk assessment in strategic and operational planning;
Enhancing the methodology to analyse, assess and manage various categories and types of risks;
Continuing the assessment of long-term climate-related risks in line with TCFD requirements.
Key strategic risks
The Company’s strategic risks were updated in 2022. Nornickel sees the following groups of risks as its key risks: lower demand for the Company’s products, lower productivity and disruptions of operations, as well as the mismatch between Nornickel’s financial position and its growing strategic development needs.
Insurance
Insurance is an essential tool used to manage risks while protecting the property interests of Nornickel and its shareholders against any unforeseen losses related to operations, including due to external effects.
Nornickel has centralised its insurance function to ensure the consistent implementation of its uniform insurance policy and standards. The Company annually approves a comprehensive programme that defines key parameters by insurance type, key business area and project. Nornickel has implemented a corporate insurance programme that covers assets, equipment failures and business interruptions across the Group as well as enterprises in the core production chain, all on the same terms. The directors’ and officers’ liability, freight, construction and installation, vehicle, and other types of liability insurance programmes of the Company are also centralised and promote continuity.
Nornickel underwrites insurance contracts by major Russian insurers.
Nornickel applies industry best practice and leverages insurance market trends to negotiate the best insurance and insured risk management terms.
Climate risks
The Company’s corporate risk management system takes into account climate risk factors. The Company reviews relevant risks on a quarterly basis.
Nornickel considers both physical risks associated with lasting climate changes and extreme weather, and transition risks arising from changes in the market, regulatory, technology, and political environment during the low-carbon transition.
Implementing a TCFD compliance roadmap helps embedding climate risk management approaches in the Company’s business processes.
The analysis of physical risks relies on public scenarios of the Intergovernmental Panel on Climate Change (SSP 1-2.6, SSP 2-4.5, SSP 5-8.5) localised for all regions of the Company’s operation. To analyse transition risks we rely on our own scenarios for global economy and climate change until 2050.
As part of permafrost thawing risk management, the Company further develops its building and structure monitoring system for continuous automated monitoring of permafrost foundation soil temperature and foundation deformations. The monitoring system is developed by the Buildings and Structures Monitoring Centre of the Norilsk Division, which is responsible for technical supervision and permafrost monitoring and serves as a centre of excellence in engineering geology.
Permafrost thawing (physical climate change risk)
Loss of bearing capacity by pile foundation beds may lead to deformation and collapse of buildings and structures.
Key risk factors
Climate change, average annual temperature increases over the last 15 to 20 years
Increased depth of seasonal permafrost thawing
Effect on Nornickel’s development objective and strategy
Efficient delivery of finished products (metals) in line with the production programme
Social responsibility: comfort and safety of people living in Nornickel’s regions of operation
Risk assessment
Effect on objectives: medium
Source of risk: external
Year-on-year change in risk: stable
Key mitigants
To manage this risk, Nornickel:
performs regular monitoring of soil condition under the foundations of buildings and structures
performs geodetic monitoring of the movement of buildings
uses satellite technology to monitor Nornickel’s assets and further analyse the data
regularly monitors the condition of Nornickel’s buildings and structures and subsequently processes the results to check for potential risks of Earth surface displacements
regularly monitors the condition of Nornickel’s buildings and structures by scaling the information and diagnostics system (in particular, by deploying automated observation points to monitor the key factors that affect the safe operation of buildings and structures)
monitors soil temperature in buildings’ foundations
takes corrective and adaptive actions to ensure that buildings and structures are technically operational.
Lack of water resources (physical climate change risk)
Water shortages in storage reservoirs of Nornickel’s hydropower facilities may result in failure to achieve required water pressures at HPP turbines, leading to lower power output and to drinking water shortages in Norilsk.
Key risk factors
Extreme weather events (droughts) caused by climate change
Effect on Nornickel’s development objective and strategy
Social responsibility: comfort and safety of people living in Nornickel’s regions of operation
Lower share of renewables in the Company’s energy mix
Risk assessment
Effect on objectives: medium
Source of risk: external
Year-on-year change in risk: stable
Key mitigants
To manage this risk, Nornickel:
implements a closed water circuit to reduce water withdrawal from external sources
carries out regular hydrological observations to forecast water levels in rivers and other water bodies
cooperates with the Federal Service for Hydrometeorology and Environmental Monitoring (Rosgidromet) on setting up permanent hydrological and meteorological monitoring stations in order to improve the accuracy of water level forecasts for major rivers across Nornickel’s regions of operation
dredges the Norilskaya River and prepares its production facilities for reducing their energy consumption in case of risk occurrence
refurbished one of its two hydropower plants to increase power output through improving the hydropower units’ performance.
Map of Nornickel’s material risks with year-on-year changes in 2022
A high-level map of Nornickel’s material risks leverages global best practices in risk management. The risk map ranks material risks by effect on the Group’s objectives and by source.
Changes in risk status in 2022 reflect changes in the external environment. Over the year, the Company faced multiple external factors, which triggered a reassessment of impacts from external risk factors.
In 2022, Kola MMC lost equipment (a risk that had been identified earlier) after a fire started at the extraction facility of the nickel tankhouse’s cobalt section.
Response measures included restoring the cobalt metal production chain and also preventing such incidents, including upgrades (repairs) of fire protection systems.
RISK MAP
RISK
Key risks
Nornickel’s risks are all inherent to its strategic and operational development and business continuity goals. Key risks have a varying degree of effect on Nornickel’s objectives.
Price risk
Potential decrease in sales revenues due to lower prices for Nornickel metals is subject to actual or potential changes in demand and supply in certain metals markets, global macroeconomic trends and the financial community’s appetite for speculative/investment transactions in the commodity markets.
Key risk factors
Lower demand for metals produced by Nornickel
A slowdown in the global economy in general and in the economies consuming Nornickel metals in particular
Supply and demand imbalance in metals markets
Effect on Nornickel’s development objective and strategy
Enhancing Nornickel’s leadership in the nickel and palladium markets
Risk assessment
Effect on objectives: medium
Source of risk: external
Year-on-year change in risk: stable
Key mitigants
Nornickel is consciously accepting the existing price risk for now. To manage this risk, Nornickel:
continuously monitors and forecasts supply and demand dynamics for key metals;
secures feedstock supplies for key consumers through long-term contracts to supply metals in fixed volumes;
as a member of the Nickel Institute and the International Platinum Group Metals Association, works with other nickel and PGM producers to maintain and expand the demand for these metals.
Should the risk materialise, Nornickel will consider cutting capital expenditures (revising the investment programme for projects that do not have a material effect on Nornickel’s development strategy) as part of the budgeting process.
Lower competitiveness of Nornickel products in the market may result in their lower liquidity, discounts to the market price and a decrease in Nornickel’s income.
Key risk factors
Foreign regulators imposing new foreign trade restrictions that impact the Company’s activities
Competition from producers of cheaper nickel
More aggressive transport electrification programmes
Replacement of metals produced by the Company with alternative materials
Stricter market requirements on product quality and ESG compliance
Effect on Nornickel’s development objective and strategy
Enhancing Nornickel’s leadership in the nickel and palladium markets
Risk assessment
Effect on objectives: high
Source of risk: mixed
Year-on-year change in risk: increased
Key mitigants
To manage this risk, Nornickel:
monitors and analyses changes in market demands for product quality and ESG compliance
stimulates the demand for its key metals
monitors evolution of vehicles by engine types
searches for new applications and uses for palladium
diversifies its metal product sales across industries and geographies
improves and diversifies its product range
cooperates with industry institutions to maintain access to relevant sales markets for its metals
cooperates with Russian ministries and agencies to prevent/mitigate negative impacts of local or international regulation
implements an ESG roadmap
seeks partnership opportunities with key producers of cathodes for lithium-ion batteries
maintains strategic partnerships with car makers based on guarantees of long-term palladium supplies.
Financial risks
This group includes FX, interest rate and liquidity risks, as well as other risks related to the financial security of the Company’s operations and investments.
Key risk factors
Increased debt financing costs
Deteriorating market conditions
Sharp rouble exchange rate fluctuations
Inability to raise debt financing due to deterioration in financial markets
Lack of access to key segments of global financial markets (debt and derivatives), limited access to the foreign currency debt market
Unexpected major expenses
Counterparty credit risk
Restrictions imposed by foreign regulators that affect Nornickel’s operations, its key business partners and infrastructure partners
Effect on Nornickel’s development objective and strategy
A debt portfolio with a well-balanced profile in terms of maturity, currency composition and sources of financing
Maintaining a strong investment case
Risk assessment
Effect on objectives: high
Source of risk: mixed
Year-on-year change in risk: increased
Key mitigants
To manage this risk, Nornickel:
maintains a balanced debt portfolio
raises additional rouble-denominated debt to prevent a liquidity shortfall
holds liquidity reserves on the Group’s balance sheet to ensure payments on time
monitors its account balances and existing cash gaps, as well as the availability of liquidity reserves on its balance sheet
uses various hedging instruments
regularly evaluates key potential risk events through scenario modelling and develops prevention and response plans
constantly seeks new potential partners among borrowing and financial institutions, expanding and diversifying its financial infrastructure
uses different financial models for various purposes, expands the array of financial risk assessment tools (stress testing and reverse stress testing of all financial risks and risk factors considering their combinations, interrelations and changes over time).
Technical and production risks
Technical, production or natural phenomena which, once materialised, could have a negative impact on the implementation of the production programme and cause equipment breakdown or result in the need to compensate damage to third parties.
Key risk factors
Harsh natural and climatic conditions, including low temperatures, storm winds and snow load
Unscheduled stoppages of core equipment caused by fixed assets’ wear and tear
Release of explosive gases and flooding of mines
Collapse of buildings or structures
Infrastructure breakdowns
Effect on Nornickel’s development objective and strategy
Effective delivery of finished products (metals) in line with the production programme
Risk assessment
Effect on objectives: high
Source of risk: mixed
Year-on-year change in risk: increased
Key mitigants
To manage this risk, Nornickel:
ensures proper and safe operation of its assets in line with the requirements of technical documentation, as well as technical rules and regulations as prescribed by local laws across Nornickel’s geographic footprint
develops ranking criteria and criticality assessment for the Norilsk Nickel Group’s key industrial assets
implements an automated system for managing reliability, effectiveness and production asset risks
ensures timely replacement of fixed assets to consistently achieve production safety targets
continuously monitors the ongoing condition of Nornickel’s buildings and structures via an information system for conducting geotechnical surveys
uses satellite technology to monitor Nornickel’s assets and further analyse the data
implements automated systems to control equipment process flows, uses state-of-the-art engineering controls
improves its maintenance and repair system
trains and educates its employees both locally on site and centrally through its corporate training centres
systematically identifies, assesses and monitors technical and production risks, implements a programme of organisational and technical measures to mitigate relevant risks
continuously monitors the industrial asset management system
ensures risk review by collective bodies at all management levels of the Company
develops the technical and production risk management system, including by engaging independent experts to assess the system’s performance and completeness of risk data
develops and tests business continuity plans which set out a sequence of actions to be taken by Nornickel’s personnel and internal contractors in case of technical and production risks causing maximum damage. These plans ensure that Nornickel resumes its production operations as soon as possible after any disruption
engages, on an annual basis, independent surveyors to analyse Nornickel’s exposure to disruptions in the production chain and make assessments of related risks.
Investment risks
Risk related to time and budget overruns, and performance targets of Nornickel’s major investment projects.
Key risk factors
Changes in forecasts of ore volumes, grades and properties resulting from follow-up exploration
Changes in investment project timelines
Further changes to budgets of investment projects
Amendments to project performance targets in the course of implementation
Effect on Nornickel’s development objective and strategy
Strategic goal: growth driven by Tier 1 assets
Developing the mining, concentration and metallurgical assets
Developing the mineral resource base and upgrading core production processes at Nornickel’s Tier 1 assets
Risk assessment
Effect on objectives: high
Source of risk: mixed
Year-on-year change in risk: increased
Key mitigants
To manage this risk, Nornickel:
carries out proactive exploration and updates project performance targets and the mining plan (a long-term production plan) based on the progress of its major investment projects developing the mineral resource base
conducts resource, geomechanical and hydrogeological modelling
holds external expert audits of geological data
develops an in-house geological and mining information system
models mining options in geological and mining information systems
as part of the project assurance process, conducts internal (cross-functional) audits of major investment projects at each stage in their life cycle
improves incentives to drive project delivery and build skills and capabilities (including staff certification, identification of improvement areas and provision of tailored training)
promotes the use of pilot units across all technically challenging and unique processing stages
redesigns projects and substitutes supply routes to source materials/services from friendlycountries, taking into account sanctions
supports the growth of NN Development as a dedicated corporate function with integrated responsibility for major construction projects
implements a transformation programme for Gipronickel Institute to improve the quality and reduce the timelines of R&D, survey and engineering activities
enhances project management competencies of project teams and ensures best practice sharing through its Project Forum held on a regular basis.
Health and safety risks
Failure to comply with Nornickel’s health and safety (H&S) rules may result in threats to health and life or temporary suspension of operations, or cause property damage.
Key risk factors
Suboptimal methods of work organisation
Disruptions in technological processes
Exposure to hazards
Effect on Nornickel’s development objective and strategy
Health and safety
Risk assessment
Effect on objectives: high
Source of risk: internal
Year-on-year change in risk: stable
Key mitigants
Pursuant to the Occupational Health and Safety Policy approved by the Board of Directors, Nornickel:
continuously monitors compliance with H&S requirements
improves the working conditions for its employees and contractors deployed at Nornickel’s production facilities, including by implementing new technologies and labour-saving solutions, and enhancing industrial safety at production facilities
provides employees with certified state-of-the-art personal protective equipment
improves the system of stationary gas analysers, provides employees with portable gas analysers
carries out preventive and therapeutic interventions and enforces hygiene protocols to reduce the potential impact of work-related hazards
regularly trains, briefs employees on health and safety, assesses their health and safety performance and conducts corporate workshops, including by deploying special simulator units
enhances methodological support for H&S functions, including through the development and implementation of corporate standards
improves the risk assessment and management framework across Group enterprises as part of the Risk Control project
reviews the competencies of line managers across Nornickel enterprises, develops H&S training programmes and arranges relevant trainings
holds H&S competitions
communicates the circumstances and causes of accidents to all Nornickel employees, conducts ad hoc safety briefings
introduces frameworks to manage technical, technological, organisational, and HR changes.
Compliance risks
The risk of legal liability and/or legal sanctions, significant financial losses, suspension of production, revocation/suspension of a licence, loss of reputation, or other adverse effects arising from Nornickel’s non-compliance with the applicable laws, regulations, instructions, rules, standards, or codes of conduct.
Key risk factors
Discrepancies in rules and regulations
Considerable powers and a high degree of discretion exercised by supervision agencies
Effect on Nornickel’s development objective and strategy
Compliance by Nornickel and Russian entities of the Norilsk Nickel Group with the applicable laws, regulatory requirements, corporate standards, and business codes
Risk assessment
Effect on objectives: medium
Source of risk: mixed
Year-on-year change in risk: stable
Key mitigants
To manage this risk, Nornickel:
ensures the development and update of procedural documents on anti-corruption and on combatting the unlawful use of insider information and market manipulation
ensures its compliance with the applicable laws
protects its interests during regulatory inspections and administrative proceedings
uses trial and post-trial remedies to protect its interests
ensures that agreements signed by Nornickel contain clauses safeguarding its interests
implements conflict of interest management, anti-corruption, anti-money laundering, counter terrorist financing, and counter proliferation financing initiatives
takes actions to prevent unlawful use of insider information and market manipulation
ensures timely and reliable information disclosures as required by the applicable Russian and international laws
has its employees take insider information management and anti-corruption training courses
ensures that all employees receive anti-corruption induction briefing
ensures that the Corporate Trust Line receives and handles reports of corruption, fraud, embezzlement, or other wrongdoing, either planned or committed
ensures evaluation of anti-corruption controls at the Norilsk Nickel Group.
Information security risks
This group includes risks such as potential cybercrimes, an unauthorised transfer, modification or destruction of data assets, disruption or reduced efficiency of Nornickel’s IT services, business, technological, and production processes.
Key risk factors
Growing external threats
Unfair competition
Rapid development of Nornickel’s IT infrastructure and automation of technological and business processes
Unlawful acts by employees and/or third parties
Shift to work from home and hiring remote employees outside Nornickel’s regions of operation
Effect on Nornickel’s development objective and strategy
Mitigation of the information security risk and risk of cyberattacks on Nornickel’s information systems and automated process control systems
Risk assessment
Effect on objectives: medium
Source of risk: mixed
Year-on-year change in risk: increased
Key mitigants
To manage this risk, Nornickel:
ensures compliance with applicable Russian laws and regulations with respect to the protection of personal data, insider information, trade secrets, and critical information infrastructure
implements MMC Norilsk Nickel’s Information Security Policy
categorises data assets and makes information security risk assessments
embeds and monitors compliance with corporate information security standards within information systems and automated process control systems
raises information security awareness among employees
substitutes imported data protection tools whose functionality was restricted due to sanctions
uses technical means to ensure information security of assets and manage access to data assets
ensures information security of automated process control systems
monitors threats to information security and the use of technical protection means, including vulnerability analysis, penetration testing, cryptographic protection of communication channels, controlled access to removable media, protection from confidential data leaks, and mobile device management
develops information security regulations
sets up and certifies the Company’s information security management system
implements measures to ensure safe remote access.
Environmental risks
This risk group includes events that result in environmental pollution, are not provided for in approved technological processes and Russian laws, and affect the achievement of the Company’s environmental goals.
Key risk factors
Failure to comply with the requirements of environmental laws when operating the Company’s facilities
Poor internal management and control
Delay in implementing environmental programmes and measures
Natural and climate phenomena
Effect on Nornickel’s development objective and strategy
Compliance of business with the applicable laws, regulations, corporate standards, and business codes
Risk assessment
Effect on objectives: medium
Source of risk: mixed
Year-on-year change in risk: stable
Key mitigants
To manage these risks, Nornickel:
develops, implements and improves environmentally sustainable business processes and introduces advanced practices and approaches
has in place an incentive system and promotes environmental competences of its employees
implements its corporate Environmental and Climate Change Strategy
implements environmental initiatives at the Company and Russian entities of the Norilsk Nickel Group
oversees environmental compliance and the implementation of environmental programmes and measures.
Social risk
Tensions may escalate among the workforce due to the deterioration of social and economic conditions in Nornickel’s regions of operation.
Rejection of Nornickel’s values by individual employees and/or third parties
Limited ability to perform annual wage indexation
Dissemination of false and inaccurate information about Nornickel’s plans and operations among the Group’s employees
Reallocation of funds originally intended for social programmes and charity
Effect on Nornickel’s development objective and strategy
Social responsibility:
Partnering with regional and local authorities to develop a social infrastructure that supports a safe and comfortable living environment for local communities
Facilitating theemployees’ professional and cultural development and building up talent pools across Nornickel’s regions of operation
Implementing long-term charity programmes and projects
Risk assessment
Effect on objectives: medium
Source of risk: mixed
Year-on-year change in risk: stable
Key mitigants
To manage this risk, Nornickel:
strictly adheres to the terms and conditions of collective bargaining agreements between the Group companies and their employees (the Group has signed a total of 23 collective bargaining agreements)
interacts with regional authorities, municipalities and civil society institutions
fulfils its social obligations under public-private partnership agreements
implements corporate social responsibility programmes and the World of New Opportunities charity programme aimed at supporting and promoting regional civil initiatives, including by indigenous peoples of Taimyr and the Plant of Goodness employee volunteering programme
implements infrastructure projects to support the accelerated development of the service economy and improved living standards across Nornickel’s regions of operation through the Norilsk Development Agency, the Second School centre for community initiatives in the Pechengsky District and the Monchegorsk Development Agency
implements regular sociological monitoring across its operations
surveys Norilsk residents on living standards, employment, migration trends, and general social sentiment to identify major issues
implements social projects and programmes aimed at supporting employees and their families, as well as Nornickel’s former employees
maintains dialogues with stakeholders and conducts questionnaire surveys when preparing the Group’s public sustainability reports
provides a range of social support measures to redundant staff under Kola MMC’s social programmes and develops the Social and Economic Development Strategy of the Pechengsky District.
Supply chain risks
Supply chain interruption/disruption within the existing transport and logistics system.
Challenging natural and climatic conditions in the regions of operation
Limitations of the transport and logistics system
Growing inflation, FX rates, pricing pressure from suppliers, poor planning, and other factors
Breach of contracts by contractors
Effect on Nornickel’s development objective and strategy
Effective delivery of finished products in line with the production programme
Timely supply of products to consumers
Risk assessment
Effect on objectives: medium
Source of risk: external
Year-on-year change in risk: stable
Key mitigants
To manage this risk, Nornickel:
actively engages Russian manufacturers to expand competition
uses long-term agreements / contracts / price lists with fixed optimal prices for materials, equipment and spare parts on terms that are most beneficial for the Company
drafts lists of critical manufacturers of equipment and materials, works to prevent supply disruptions and monitors suppliers’ performance
implements its Logistics Infrastructure Development Programme.
