Hyosung Chemical

Risk Management

As the complexity of the business environment and society increases, so does the number of unanticipated risks and new business opportunities. To ensure sustainable growth, a system capable of preventing and managing risks in advance is necessary. Acknowledging risk management as a crucial management activity, Hyosung has established a risk management system to minimize direct or indirect negative environmental and social impacts resulting from the company's business operations. In order to respond to stakeholders' increased interest in non-financial risks and to fulfill our corporate social responsibilities, we also enhance the management of risks that may arise from non-financial perspectives, such as environmental and social factors, in addition to traditional financial risks.

Risk management system

Hyosung identifies and manages market uncertainty and internal and external risks and opportunities with a significant impact on business operations, and we revised relevant process regulations in 2.02.1 to enhance company-wide risk management capabilities.

Classification of 2 risk types

Hyosung classifies risks into financial and non-financial (business continuity and management) and defines major risks based on their impact and likelihood. For major risks, we establish a preventive system to enable preemptive response by identifying the cause of occurrence in advance. We update the risk management status annually and determine if the objectives of the countermeasures for major risks have been met.

Chemical risk management organization

Hyosung Chemical’s Risk Management Committee under the Board of Directors and ESG Management Promotion Committee under the CEO discuss risk matters and address key risks and response strategies. Additionally, the ESG Management Promotion Committee, chaired by the CEO and comprising the Head of Management Strategy, Head of Finance, Head of Support, Communications Manager, Procurement Manager, Yongyeon (Ulsan) Plant Manager and CSO, manages enterprise-wide financial and non-financial risks. Financial risks fall under the jurisdiction of the Finance Department and in close cooperation with business units within the headquarters and domestic and overseas subsidiaries, periodic measurement, assessment and hedging of financial risks are carried out. Non-financial risks are managed through a cross-functional risk management organization led by the ESG Management Team under the CEO, the Management Strategy Division, the Support Division, and CSO, along with the operating units led by PU leaders and plant managers. These units address practical aspects of risk management related to environmental, safety, supply stability, orders, operations and litigation risks.

Chemical risk management organization

Risk management process

01

Understanding the internal and external situation

Investigation of internal and external stakeholder demands
02

Risk identification

SWOT, 3C analysis, etc.
03

Risk assessment

Likelihood, severity
04

Risk measures

Establishment and implementation of risk reduction measures
05

Risk identification and change management

Risk change management after implementation of measures
06

Report to the Board of Directors or top management

Major risk reporting

Management of risks in accordance
with the major types

Management of risks in accordance with the major types - Financial
Classification		Details of risk	Management activities
Financial	Market	Market risk associated with financial variables like stock price, interest rate, and exchange rate fluctuations	Risk measurement, analysis, and mitigation conducted by funds and trade finance specialists Operation of internal control accounting systems By matching deposit and expenditure currencies, we minimize the occurrence of exchange positions and systematically manage exchange risks by specifying the measurement cycling, hedging period, and hedge ratio in the Exchange Risk Management Policy.
	Credit	Risk that a client or counterparty will not fulfill their contractual obligations	We adhere to the internal receivables management regulations to establish and manage credit limits for trade receivable counterparties We manage recovery methods such as credit checks and collateral for investments and loans
	Liquidity	Risk of sustaining a financial loss due to an unforeseen decline in liquidity	We forecast cash flow on a periodic basis to maintain an appropriate level of deposit stock We have concluded an agreement with a financial institution regarding the transfer of emergency funds

Management of risks in accordance with the major types - Non-financial(Business continuity)
Classification			Details of risk	Management activities
Non-financial	Business continuity	Supply chain	Risk of product delivery delays resulting from insufficient raw material supply and production continuity	Establishment of and training on an emergency response system for each supply continuity scenario (e.g. discontinued supply of raw and subsidiary materials, emergencies in customer supply) Routine evaluation and quality and environmental audits of raw and subsidiary material suppliers in accordance with IATF 16949, ISO 9001, and ISO 14001 Consulting for enhancing the ESG management competence of partners and regular evaluations Determining the course of energy development for outstanding partners
		Disaster and safety	Risks associated with natural disasters such as earthquakes and fires, or workplace safety incidents	Operation of a company-wide safety risk management organization (Safety and Health Team operated under the leadership of the CSO and direct control of the CEO to inspect health, safety and disaster system management for all business sites including the headquarters) Establishment of a disaster and safety accident emergency response organization, as well as the preparation of manuals and recovery procedures for each scenario Regular public-private training based on accident scenarios, such as factory fires and explosions Implementation of annual training on accident cases and the handling of hazardous materials for all plant employees Conducting routine plant safety patrol inspections through an organization responsible for factory environmental safety
		Environment	Risk of legal sanctions and fines if environmental regulations, such as GHG and hazardous substance emissions, are disregarded improperly	Operation of an environmental risk management organization Environmental impact assessment for the periodic diagnosis and prevention of potential risks Re-certification and self-verification activities for ISO 14001 Regular response drills for every environmental accident scenario, including chemical spills and sewer overflows Conducting routine plant patrol inspections through an organization responsible for factory environmental safety

Management of risks in accordance with the major types - Non-financial(Management)
Classification			Details of risk	Management activities
Non-financial	Management	Climate change	Regulatory risks, physical risks, and business transition risks related to emissions	Operation of a climate change risk management organization Monitoring amendments to applicable laws and regulations Establishment of reduction goals and performance management Monitoring GHG emissions at business sites and calculating product carbon emissions through the carbon asset management system Business promotion and investment-related decision-making reflecting climate change risks and opportunities using internal carbon pricing
		Quality management	Risk due to changes to 4M (Man, Machine, Material, Method), risks impacting continuous supply or delivery, and risk of occurrence or leakage of nonconforming products	Feasibility assessment (change management and impact of 4M changes) Quality level monitoring Management based on nonconformant product processing methods Establishment of quality management risk emergency scenarios and training
		Human rights	Human rights violation risk and human resource management risk	Implementation and advancement of periodic human rights impact assessments Formulation and dissemination of human rights policies and guidelines Periodic implementation of human rights training, discrimination prohibition training, etc. Operation of reporting system
		Security	Risk of data leakage due to cyber terrorism or data leakage	Operation of a dedicated security organization Establishment of security standards and regulations Enterprise-level knowledge management through ECM Comprehensive monitoring of the entire process of creating, modifying, and transporting documents, including the implementation of security solution multifunction devices, the use of dedicated USB ports, and control of cameras, including mobile devices Ten rules for information security, monthly training on internal security guides, and separate IT security training at least once a month
		Law and ethics	Risk of concluding unfavorable contracts and lawsuits, engaging in unfair trade, corruption, etc.	Prevention of legal risks by adhering to the company's contract screening policy and utilizing standard contracts, and raising awareness by disseminating litigation case studies Improvement of comprehension through on-the-job training in foreign exchange, patent law, contract management, etc. Anti-corruption and ethical management training, including instruction on the Improper Solicitation and Graft Act, Fair Transactions in Subcontracting Act, and Monopoly Regulation and Fair Trade Act, among others Update on the Compliance Program Handbook Raising awareness by requiring all new recruits to sign an ethical management pledge Operation of reporting channels
		Reputation	Risk of damaged corporate image from misinformation or negative communication	Training on PR risk response for new recruits, newly promoted, and newly appointed team leaders Raising PR managers' awareness through training on behavior principles, behavior processes, and case studies Brand promotion and communication with stakeholders via multiple channels
		Marketing ethics	Risk of false, exaggerated, or reduced information in advertising or marketing, or transmission of information that disregards those who are limited in understanding information	Establishment and implementation of the "operating principles on ethical marketing" Encouraging not only Hyosung but also external advertising and marketing companies to adhere to the operating principles
		Brands/ Trademarks	Risk of brand or trademark infringement or value loss	Development of and adherence to additional guidelines to safeguard and enhance brand and trademark values
		Orders	Risk of malicious orders as a result of payment terms, contract clauses, ambiguous specifications, unsecured delivery, civil complaints, local country conditions, etc.	Operation of the Bid Approval Committee (BAC) for order deliberation
		General management	Operational risk caused by personnel or system errors	Integrated management of all management activities based on enterprise resource planning (ERP) Systematic management of the voice of the customer and customer satisfaction improvement through C-Cube system establishment COVID-19 risk management (e.g. meetings via digitally mediated services, flexible working hours, expansion of IT support, response process establishment and operation)