Risk Management
Mitigating Risks, Maximising Value
The Company adheres to a comprehensive Enterprise Risk Management (ERM) process and internal controls framework to identify, assess, mitigate and monitor the risks and uncertainties the business could face. This enables it to create and protect value.
The risk management framework is based on an assessment of risks through proper analysis and understanding of the underlying risks before undertaking any transactions and changing or implementing processes and systems. This risk management mechanism is supported by regular review, control, self-assessments, and monitoring of key risk indicators. Potential risks are identified on a 3x3 matrix (High, Medium, and Low) of severity and probability.
A systematic approach is employed for the identification of risks and opportunities, where each functional unit meticulously evaluates the present and future scope of its operations. Business risks and opportunities are identified within each function and subsequently consolidated to provide an organisational overview. A mitigation plan is devised for critical risks, with ongoing monitoring conducted by senior management.
Risk Management Process
ACC’s risk management process follows a strategic framework that encompasses risk maps, business environment scanning and comprehensive assessments. The Company employs a methodical approach, evaluating potential risks based on their severity and probability using a 3x3 matrix (High, Medium, and Low). Each department conducts a thorough assessment of its current and future scope, identifying potential risks and opportunities specific to their functions. These assessments are then consolidated to provide an organisation-wide view of risks. For critical risks, ACC develops effective mitigation plans, closely monitored by senior management to ensure timely and appropriate responses. Throughout ACC’s operations, it maintains strict controls to ensure effective functioning and regulatory compliance.
Objectives of Risk Management
Better Management
Incorporate risk assessment into the Company’s strategic decision making
Better Prevention
Identify threats and reduce
the
likelihood and impact of
potentially
adverse events
Better Compliance
Conform to the established laws and regulations
Risk Management Framework
Enterprise Risk Management (ERM) holds a crucial position within the Adani Group Policy Landscape, embodying a structured and unbiased approach to risk assessment and management. Supported by various corporate functions, the ERM framework ensures the comprehensive identification, assessment, prioritisation, mitigation, monitoring and reporting of all significant risks.
Risk identification and Assessment
The Company has implemented a systematic process for identifying and assessing risks across all aspects of its operations. This process includes identifying potential risks, analysing their likelihood and potential impact, and prioritising them based on their significance.
Risk Mitigation Strategies
Once risks are identified and assessed, the Company develops comprehensive risk mitigation strategies. These strategies involve implementing appropriate controls, procedures and policies to minimise the likelihood and impact of identified risks.
Risk Monitoring and Reporting
The Company maintains a robust system for monitoring and reporting risks, enabling timely detection of emerging risks and evaluation of existing risk mitigation measures. Regular updates are provided to the Board and senior management on risk profiles, mitigation efforts and any significant changes in risk exposure.
Risk Govenance
ACC establishes essential control mechanisms, adheres to appropriate guidelines, and institutionalises consistent and proper practices. This ensures effective governance and operational efficiency across the Company.
Risk Governance
ACC provides a comprehensive view of both internal and external risks, aligning with its defined risk appetite and tolerance. Through a robust risk assessment process, consistently applied across the organisation, the management is empowered to identify, evaluate and mitigate risks while ensuring regulatory compliance and operational efficiency.
Risk governance is central to ACC’s approach, fostering a holistic view and enabling strategic responses based on risk ratings and the overall risk appetite. Quarterly reporting to the Risk Management Committee, led by the CEO and CFO, ensures transparency and accountability. The Company employs a top-down and bottomup approach to assess risks and opportunities, culminating in a consolidated overview of the organisation.
The Risk Management Committee of the Board oversees the adequacy of the ERM process and monitors the progress of mitigation actions. By focusing on a maximum of two risks in each meeting, ACC ensures a dedicated and clear-sighted approach to addressing issues and implementing actionable solutions. This focused governance strategy strengthens its ability to adapt and thrive in the face of foreseeable risks safeguarding its business and promoting sustainable growth.
Risk Management Committee (RMC)
The RMC, consisting of 50% Independent Directors, operates within its comprehensive risk management framework. It monitors, reports and mitigates various risks faced by the Company, reviewing risk governance structure, assessment, policies, and practices. Constituted in compliance with the Companies Act 2013, it directly reports to the Board, assisting in fulfilling responsibilities related to risk management. The RMC also comprises two sub-committees to support its functions.
Commodity Price Risk Committee
This sub-committee supports the Risk Management Committee in reviewing the risks associated with the Company's commodity price exposures while promoting risk awareness and code of conduct. It devises the Commodity Price Risk Management (CPRM) policy and reviews it according to market conditions.
Reputation Risk Committee
It supports the Risk Management Committee in reviewing the risks associated with the reputation of the Company, promoting the culture of risk awareness, and maintaining high standards of culture and conduct. It assesses and resolves specific issues and ensures reporting of potential conflicts of interest and other reputation risk issues to the Risk Management Committee.
Risk Mitigation Measures
Risks
Maintaining Market Share
Description
The cement industry in India is an aggregation of small and large players. In such an environment, the risk of protecting market position is optimal. Capacity addition and consolidation are happening at a fast pace. The biggest challenge for the Company is to protect its market position in this fast-evolving and competitive environment.
Mitigation
To mitigate this risk, the Company has chalked out an ambitious plan to achieve a total capacity of 140 MTPA by FY 2027-28, which will help to improve its market position across India. Further, to strengthen its market position and to remain competitive and profitable, the Company has been actively working towards enhancing its brand equity through innovation and digitisation.
Risks
Comply with New Regulations
Description
Regulatory changes have been proceeding at a rapid pace across countries due to changes in climate and environment. Non-compliance with new standards imposes a high degree of complexity as it may lead to reputational and financial consequences. To meet business challenges, transformation, upgradation, modification, etc. are the different tools which are used to comply with the regulatory changes, which come at a cost.
Mitigation
Various projects across operations within the Company have been taken up to control pollution and to comply with the new emission standards (for dust, SOx and NOx) issued by the Ministry of Environment and Forest and Climate Change (MoEF and CC).
Risks
Fuel and Raw Material Security
Description
Cement Industry is not only capital-intensive but also energyand raw-material-intensive, with energy and raw materials constituting a major portion of the operating cost.
Mitigation
ACC focuses on establishing long-term deliveries to ensure business continuity by optimising fuel mix, improving plant efficiency, and increasing the use of alternative fuels like WHRS and Solar. Procurement of raw materials, including coal, limestone, and fly ash, at economical cost and suitable quality is vital for production efficiency. Challenges arise from the MMDRA Act’s notification mandating lease renewals and grants through auctions, leading to tough competition due to limited resources. However, ACC maintains adequate limestone resources and identifies suitable blocks for acquisition to secure future supply.
Risks
Cybersecurity
Description
Digitisation and new technology are deeply embedded in ACC’s strategy and bring a new dimension to the business environment with continual advances in areas ranging from Artificial Intelligence (AI) and the Internet of Things (IoT) to data availability and block chain. The speed at which digital technologies evolve not only brings opportunities but also increases the risks.
There are potential security risks associated with the use of artificial intelligence (AI) tools such as ChatGPT and Google Bard, social media platforms, and other online services that enable data uploads and downloads within the Company network.
Mitigation
To safeguard confidential information, prompt measures have been implemented. Additionally, the Company are actively identifying and blocking any data leakage sites that pose a threat to its network. Concurrently, plans are in place to establish a secure and monitored environment for the use of AI tools.
To ensure that the Company conducts business in a safe environment, back up procedures and firewalls are put in place. Systems are upgraded and monitored regularly with the latest security standards. Cybersecurity policies and procedures are updated periodically and users are educated on adherence to the policies to eliminate risk.
Risks
Health and Safety
Description
Health and Safety is core to the sustainability of ACC’s business. It is complex and multidisciplinary and requires teamwork and a high degree of commitment from all stakeholders at all levels.
Mitigation
ACC prioritises health and safety as a core function, constantly reviewing systems and processes to enhance frontline safety. Initiatives like Unchaai Kendra and Life Saving Safety Rules aim to raise awareness and prevent mishaps. Regular assessment of dynamic risks supplements onsite and offsite efforts, advancing ACC’s journey towards achieving ‘Zero Harm’.
Risks
Climate Risk
Description
Climate change poses multiple physical risks like flooding, temperature rise, water stress, etc. Emerging and potential regulations may introduce or escalate regulatory risks.
Mitigation
The Company is investing in renewable energy sources, energy efficiency measures and low-carbon technologies to reduce greenhouse gas (emissions).
Risks
Natural Resources
Description
The cement industry relies predominantly on natural resources such as limestone, coal, and other minerals. Ensuring an uninterrupted flow of these essential materials, while simultaneously maintaining optimal cost and quality standards, is imperative for sustaining seamless business operations.
Mitigation
To mitigate risks associated with natural resources, ACC is investing in improving its operational efficiency for better resource utilisation. The Company is also actively undertaking several initiatives to conserve, reuse and recycle resources wherever possible. These initiatives include efforts to improve the clinker factor and thermal substitution rate among others. Furthermore, the Company is investing in renewable energy and WHRS systems to minimise its reliance on non-renewable sources. To ensure availability of key raw materials, the Company is also investing coal and limestone mines. Through these measures, ACC aims to enhance sustainability, reduce environmental impact, and ensure a more resilient supply chain.
Risks
Energy Security
Description
Energy security is a critical factor for ACC, as it heavily influences both operations as well as overall production cost. The Company faces substantial risks associated with energy expenses, which constitute a significant portion of its overall production costs. Given the energyintensive nature of cement production, particularly during kilning and grinding processes, managing energy costs effectively is paramount.
Mitigation
ACC recognises the importance of safeguarding against the risk of energy price inflation, and one strategy it employs is diversifying fuel sources, which includes leveraging alternative fuels. This approach not only helps mitigate the impact of fluctuating energy prices but also promotes sustainability by reducing reliance on conventional fossil fuels. Moreover, ACC evaluates various energy procurement options to ensure optimal cost-effectiveness and reliability. The Company is committed to enhancing energy efficiency across its operations through the implementation of innovative technologies and sustainable practices. By proactively managing its energy resources, ACC aims to bolster operational resilience and sustain competitiveness in the dynamic cement industry landscape.
Risks
Project Execution
Description
Project execution is critical, considering the Company’s vision to reach 140 MTPA by FY 2027-28. In line with this target, the Company is already executing large-scale projects at multiple sites. Ensuring timely completion, upholding the highest safety and quality standards, and staying within budget are the utmost priorities for ACC’s business.
Mitigation
The Company is leveraging group synergies by aligning with the Adani Group’s project management Company which has demonstrable experience and expertise in executing large-scale projects. Budgetary concerns, an important factor in project execution, are mitigated by a robust cashflow through internal accruals. The Company is executing its ongoing projects primarily through EPC mode, for which it is partnering with the most reputed and regarded suppliers in the world. The Company is aligning its internal processes with an objective of simplifying, standardisation, and skill enhancement to achieve maximum speed and scale – the Projects team’s 5S mantra.