Regulatory, political and legal risk
- Regulatory risk refers to Solvay’s exposure to changes in legislation and regulations. Solvay could be exposed to significant cost increases or business interruptions as a consequence of new legislation or regulations, or a more strict interpretation or application of current regulations by courts or authorities.
- Solvay must obtain and maintain regulatory approval to operate its production facilities and sell its products. Withdrawal of any previously granted approval or failure to obtain an authorization may have an adverse effect on its business continuity and operating results.
- For Europe in particular, all chemical substances manufactured, imported, or used by Solvay require registration under the REACH Regulation and must meet the deadlines imposed by this regulation. This is in addition to other, already existing requirements. 451 dossiers were successfully registered with the European Chemical Agency between 2010 and May 31, 2013. Around 332 substances have to be registered before the next REACH registration deadline of May 31, 2018. With respect to these, the registration schedule is on track as of the end of 2016. 123 dossiers had already been registered as of December 1, 2016.
Political risk refers to Solvay’s exposure to circumstances where the normal exercise of public authority is disrupted. This could be the consequence of a social crisis, political instability, civil war, nationalization, or terrorism in countries where the Group operates or sells products, resulting in delays or failure to deliver products, or an unavailability of raw materials or utilities, or logistical or transport facilities.
- Legal risk refers to the exposure to actual and potential judicial and administrative proceedings.
- The simple fact of doing business exposes Solvay to disputes and litigation, and adverse outcomes are always possible (see the Important Litigation section below).
- The Group may become a party to judicial or administrative proceedings in the conduct of its normal course of business, particularly in the areas of product liability, contractual obligations, antitrust laws, patent infringement, tax assessments, and environmental matters (see the Important Litigation section below).
- The Group’s operations depend on the control of its key technologies and on the capacity to innovate. Legal challenges to the right of Solvay to use certain technologies could have an impact on its operations.
Prevention and mitigation
- The Group’s geographic spread around the world helps reduce the impact of adverse regulatory and political developments.
- Properly designing and testing products and their production processes helps contain regulatory and legal risks, as does making sure that applications for necessary approvals are timely and thorough.
- Regulatory and political risk both within and outside the European Union is reduced through the continuous work of Solvay’s Government and Public Affairs department, which works with public authorities and through the local Belgian Embassy.
- To manage its legal risk, Solvay maintains in-house legal and intellectual property professionals, as well as regulatory resources and tools. It also retains external professional resources when appropriate.
- Financial provisions are made based on Solvay’s awareness of legal risks. Awareness is raised by dedicated training, sharing of information, self-assessment procedures, and internal audits.
- Trade secrets and patents protect Solvay’s technological know-how on new products and processes, and continuous efforts are made to protect its proprietary information and its position as a leader in technological know-how for its production processes.
- With respect to political risks, Solvay’s actions include risk-sharing with local or institutional partners, as well as monitoring of political developments in sensitive areas.
All risks that could trigger an eventual exposure (irrespective of probability of outcomes) are monitored centrally and are shared with Comex and with the Audit committee every quarter, whereby developments in the intervening period are considered and suitability of financial provisions considered.