CMPC’s Risk Management Program
Empresas CMPC and its subsidiaries are exposed to a series of risks inherent to their businesses. CMPC’s Risk Management Program seeks to identify and manage the main risks that may affect the business strategy and objectives. In addition, it incorporates monitoring of emerging risks, including, for example, the risks caused or intensified by climate change, in the most appropriate way, with the aim of minimizing potential adverse effects.
Two examples of emerging risks that CMPC has identified are:
1. High magnitude weather events
Description of Risk
Global warming increases the possibility of extreme events of nature for which we are not prepared. These natural disasters are events that cannot be controlled by companies, but can have a significant impact on the continuity of their operations. Currently, these climatic phenomena are infrequent in Chile, which makes them an emerging risk for CMPC. In the event of an unprecedented climate event, both public and private infrastructure may not be prepared to deal with it.
For example, in the south of Chile (where CMPC’s main southern office is located, in addition to a large number of industrial facilities and a significant percentage of forest assets), a large-magnitude tornado was recorded in 2019, which had not been happened before in that area. Therefore, this event is emergent and has acquired increasing importance since there was another similar event on a smaller scale a few years ago.
Potential impact on CMPC
An acute event of nature can have a significant impact on the continuity of operations, being able to generate stoppages, imply unscheduled disbursements in maintenance and recovery of damaged assets, in addition to affecting production goals and the ability to meet the needs of customers. customers, financially impacting the company. Additionally, they can imply significant damage to public and private infrastructure, such as damage to roads and cutting of roads or railway lines, necessary to transfer inputs and final products of the company, in addition to potential damage to import and export ports, necessary for the entry of certain inputs and for the output of final products destined for foreign markets.
Additionally, climatic phenomena of these characteristics could imply significant damage to the forest heritage. Specifically affecting the forests, through the fall of trees, implying that sectors cannot be harvested or must be done at a high cost to be able to re-enable said sectors for future plantations.
They can also involve accidents with high consequences and generally affect the health and safety of workers. The impact may be long-term in that it could occur more than once and be repeated. The impact of this scenario, although it affects a larger area, is specific to CMPC, as it is the company with the largest industrial and forestry presence in the area considered. This scenario does not imply an impact extended to the entire industry.
Risk management
To prepare for environmental disasters in operations, CMPC has taken the following actions, amongst others:
1. Risk assessment: CMPC performs a comprehensive risk assessment to identify potential natural disasters and vulnerabilities associated with its operations.
2. CMPC has emergency plans and crisis committees in place, specifically designed to respond to disasters and environmental emergencies, and mitigate the impact on people and the operation. These plans describe the actions to be taken in the event of a disaster, including roles and responsibilities, communication protocols, evacuation procedures, and coordination with local authorities.
3. The company has operational continuity measures and plans that help to recover the operation in the shortest possible time, understanding that these are unknown events in their impact that have not been well modeled in the region.
4. We have insurance that partially covers damage to the infrastructure, along with lost profits.
5. Training and drills: CMPC provides regular training to its employees on emergency preparedness and response protocols. This includes educating employees about potential environmental hazards, evacuation procedures, proper use of safety equipment, and the importance of reporting incidents early.
6. Monitoring Systems: The company implements robust monitoring systems to quickly detect and respond to changes or natural disasters. This includes installing sensors, alarms, or surveillance systems to detect early warning signs of disasters such as fire, chemical leaks, or water contamination.
7. Design of infrastructure and facilities: CMPC has ensured that its facilities are designed and built to withstand potential natural disasters. This includes measures such as building structures capable of withstanding earthquakes or floods, implementing fire-resistant materials, and incorporating containment systems to prevent the spread of contaminants.
2. Reduced water availability for production process impacting management & industrial asset continuity
Risk description
Water is a fundamental element for the production of cellulose and paper, and scarcity in water availability could significantly affect several of CMPC’s industrial plants that are intensive in the use of water. CMPC has defined this as an emerging risk for the company, considering that:
1) This is a new condition, growing in importance in recent years, even though Chile has been facing low precipitation levels for 14 years;
2) There could be a significant long-term impact, requiring the company to adapt its strategies to these conditions;
3) The impact may affect a large part of the company, in this case, for example, Cardboard, Paper and Cellulose operations in Chile;
4) The risk is external, since the condition of lower rainfall is exogenous to the company;
5) The impact of the risk is specific to the company, since the reality of CMPC regarding the type of industrial plants and the location of the plants is specific to the company. Even within the same company, industrial plants in Brazil are not facing this risk.
Potential impact
Management and industrial asset continuity could be significantly affected by reduced water availability for production processes, which is a climate-related chronic physical risk: the scarcity of water for production processes could result in the need to spend on the purchase of water from other sources or for technologies to reduce water use in the processes. There is certain equipment that due to their level of criticality is essential for the production of the company’s goods, and if they fail, the operational continuity of the industrial plants would be affected. Under certain conditions, the failure of critical equipment could lead to an incident or operational accident and could significantly affect the health and safety of workers and/or the environment.
Although internal failures could lead to explosions or industrial fires, there are also external causes, such as natural phenomena. Risks that, if they materialize, could have serious consequences for operational continuity, the environment, the health and safety of collaborators, as well as affecting the community and the company’s reputation.
Risk management
Since 2021, the Company has a Water Resources and Effluents Sub-Management, in charge of the responsible and efficient use of water, its ecosystem management, compliance with the corporate goal, the search for new sources of supply to minimize the vulnerability of operations to the climate change, among other priorities.
In addition, CMPC established four sustainability goals linked to its environmental performance, one of which is the reduction in water use (the goal is to reduce the use of water per ton of product by 25% by 2025). This goal considers the context of future water availability for our operations. The Sustainability Committee, which meets bimonthly, reviews and proposes the adoption of best practices to reinforce the long-term commitment to sustainable development. During the year, the Committee reviews the Company’s overall performance towards its four environmental sustainability goals in relation to the established objectives.
CMPC also has maintenance standards and objectives to avoid equipment obsolescence to manage the risk of failure. Additionally, the management of this risk considers the implementation of emergency plans focused on workers and operational continuity plans to mitigate the impact on assets and operations. The company has contracted insurance coverage through which a substantial part of its industrial risk is transferred.
Empresas CMPC and its subsidiaries are exposed to a series of risks inherent to their businesses. CMPC’s Risk Management Program seeks to identify and manage the main risks that may affect the business strategy and objectives. In addition, it incorporates monitoring of emerging risks, including, for example, the risks caused or intensified by climate change, in the most appropriate way, with the aim of minimizing potential adverse effects.
Two examples of emerging risks that CMPC has identified are:
1. High magnitude weather events
Description of Risk
Global warming increases the possibility of extreme events of nature for which we are not prepared. These natural disasters are events that cannot be controlled by companies, but can have a significant impact on the continuity of their operations. Currently, these climatic phenomena are infrequent in Chile, which makes them an emerging risk for CMPC. In the event of an unprecedented climate event, both public and private infrastructure may not be prepared to deal with it.
For example, in the south of Chile (where CMPC’s main southern office is located, in addition to a large number of industrial facilities and a significant percentage of forest assets), a large-magnitude tornado was recorded in 2019, which had not been happened before in that area. Therefore, this event is emergent and has acquired increasing importance since there was another similar event on a smaller scale a few years ago.
Potential impact on CMPC
An acute event of nature can have a significant impact on the continuity of operations, being able to generate stoppages, imply unscheduled disbursements in maintenance and recovery of damaged assets, in addition to affecting production goals and the ability to meet the needs of customers. customers, financially impacting the company. Additionally, they can imply significant damage to public and private infrastructure, such as damage to roads and cutting of roads or railway lines, necessary to transfer inputs and final products of the company, in addition to potential damage to import and export ports, necessary for the entry of certain inputs and for the output of final products destined for foreign markets.
Additionally, climatic phenomena of these characteristics could imply significant damage to the forest heritage. Specifically affecting the forests, through the fall of trees, implying that sectors cannot be harvested or must be done at a high cost to be able to re-enable said sectors for future plantations.
They can also involve accidents with high consequences and generally affect the health and safety of workers. The impact may be long-term in that it could occur more than once and be repeated. The impact of this scenario, although it affects a larger area, is specific to CMPC, as it is the company with the largest industrial and forestry presence in the area considered. This scenario does not imply an impact extended to the entire industry.
Risk management
To prepare for environmental disasters in operations, CMPC has taken the following actions, amongst others:
1. Risk assessment: CMPC performs a comprehensive risk assessment to identify potential natural disasters and vulnerabilities associated with its operations.
2. CMPC has emergency plans and crisis committees in place, specifically designed to respond to disasters and environmental emergencies, and mitigate the impact on people and the operation. These plans describe the actions to be taken in the event of a disaster, including roles and responsibilities, communication protocols, evacuation procedures, and coordination with local authorities.
3. The company has operational continuity measures and plans that help to recover the operation in the shortest possible time, understanding that these are unknown events in their impact that have not been well modeled in the region.
4. We have insurance that partially covers damage to the infrastructure, along with lost profits.
5. Training and drills: CMPC provides regular training to its employees on emergency preparedness and response protocols. This includes educating employees about potential environmental hazards, evacuation procedures, proper use of safety equipment, and the importance of reporting incidents early.
6. Monitoring Systems: The company implements robust monitoring systems to quickly detect and respond to changes or natural disasters. This includes installing sensors, alarms, or surveillance systems to detect early warning signs of disasters such as fire, chemical leaks, or water contamination.
7. Design of infrastructure and facilities: CMPC has ensured that its facilities are designed and built to withstand potential natural disasters. This includes measures such as building structures capable of withstanding earthquakes or floods, implementing fire-resistant materials, and incorporating containment systems to prevent the spread of contaminants.
2. Reduced water availability for production process impacting management & industrial asset continuity
Risk description
Water is a fundamental element for the production of cellulose and paper, and scarcity in water availability could significantly affect several of CMPC’s industrial plants that are intensive in the use of water. CMPC has defined this as an emerging risk for the company, considering that:
1) This is a new condition, growing in importance in recent years, even though Chile has been facing low precipitation levels for 14 years;
2) There could be a significant long-term impact, requiring the company to adapt its strategies to these conditions;
3) The impact may affect a large part of the company, in this case, for example, Cardboard, Paper and Cellulose operations in Chile;
4) The risk is external, since the condition of lower rainfall is exogenous to the company;
5) The impact of the risk is specific to the company, since the reality of CMPC regarding the type of industrial plants and the location of the plants is specific to the company. Even within the same company, industrial plants in Brazil are not facing this risk.
Potential impact
Management and industrial asset continuity could be significantly affected by reduced water availability for production processes, which is a climate-related chronic physical risk: the scarcity of water for production processes could result in the need to spend on the purchase of water from other sources or for technologies to reduce water use in the processes. There is certain equipment that due to their level of criticality is essential for the production of the company’s goods, and if they fail, the operational continuity of the industrial plants would be affected. Under certain conditions, the failure of critical equipment could lead to an incident or operational accident and could significantly affect the health and safety of workers and/or the environment.
Although internal failures could lead to explosions or industrial fires, there are also external causes, such as natural phenomena. Risks that, if they materialize, could have serious consequences for operational continuity, the environment, the health and safety of collaborators, as well as affecting the community and the company’s reputation.
Risk management
Since 2021, the Company has a Water Resources and Effluents Sub-Management, in charge of the responsible and efficient use of water, its ecosystem management, compliance with the corporate goal, the search for new sources of supply to minimize the vulnerability of operations to the climate change, among other priorities.
In addition, CMPC established four sustainability goals linked to its environmental performance, one of which is the reduction in water use (the goal is to reduce the use of water per ton of product by 25% by 2025). This goal considers the context of future water availability for our operations. The Sustainability Committee, which meets bimonthly, reviews and proposes the adoption of best practices to reinforce the long-term commitment to sustainable development. During the year, the Committee reviews the Company’s overall performance towards its four environmental sustainability goals in relation to the established objectives.
CMPC also has maintenance standards and objectives to avoid equipment obsolescence to manage the risk of failure. Additionally, the management of this risk considers the implementation of emergency plans focused on workers and operational continuity plans to mitigate the impact on assets and operations. The company has contracted insurance coverage through which a substantial part of its industrial risk is transferred.
