Fiscal 2022 Universal Registration Document

6 CORPORATE GOVERNANCE

A list of 26 physical and transition risks that could affect Sodexo’s business was identified. Each risk was qualitatively assessed in relation to Food Services, Facilities Management and Benefits and Rewards Services activities for Sodexo regions, using likelihood and impact as risk criteria. Likelihood was calculated for each country using respected external data sources. Impact was assessed based on knowledge of Sodexo’s business and the insights from a series of risk interviews run with key senior leaders. The standard definitions for impact within Sodexo’s wider risk management framework were used for the assessment. Results were aggregated to show the criticality of each risk by activity type and by region.

At the same time, opportunities created by climate change were assessed. Those opportunities can help Sodexo mitigate the risks, adapt to climate change or create value. They were assessed through a series of workshops with key stakeholders on Food Services and Facilities Management, as well as interviews with key senior leaders. More than 60 initiatives were identified, regrouped in 18 opportunities after impact assessment.

The risk assessment identified that Sodexo’s Food Services business had the greatest risk exposure, driven by possible disruptions to its supply chain through physical risks. For example, the increased frequency and severity of drought could mean that the agricultural industry becomes less productive, reducing its ability to meet demand and increasing costs. This would mean that Sodexo might not be able to source the products needed for client and consumer offers, resulting in reputational damage, or the products can only be bought at a much higher price, leading to loss of profitability on contracts.

In order to mitigate this risk, Sodexo already uses a broad range of suppliers, and continually adapts its menus to take account of the availability of products. Sodexo also manages its costs through the use of indexation clauses in client contracts.

In relation to transition risks, the risk assessment highlighted a risk from a shift in consumer demand – a move away from traditional menus and recipes to more plant-based options. If Sodexo is not able to adapt to this change, then it will lose client and consumer business, resulting in a loss of revenues and profitability.

To mitigate this risk, our nutritionists constantly work to create new attractive meals that reflect consumer choices and the diversity of their tastes around the world. Sodexo also recently launched the Future Food Collective; a collaborative initiative bringing its chefs together with industry experts and key suppliers to look at consumer habits. By partnering with NGOs such as the Food for Climate League, the Future Food Collective is gathering insights to develop new plant-based innovative solutions for consumers.

In a second stage after the risk assessment, scenario analysis was carried out to assess the resilience of Sodexo’s strategy to key risks and opportunities under different climate scenarios. Full details of this work are outlined in Chapter 2 p. 89.

For possible adverse effects from Sodexo’s activities on the environment, which are already identified as part of the main risk profile, please refer to 6.4.3.1 Environmental impact risk.

Prolonged Economic Slowdown

A combination of the after-effects of the pandemic, geopolitical factors, rises in inflation and a sharp slowdown in global growth means that there is a risk of a global economic slowdown that could last several years. It is possible that many countries will enter a period of recession. If clients downsize their activities during this period, then there is a risk that Sodexo could experience a loss of revenue and have fewer opportunities for strategic growth.

To mitigate this risk, leadership teams follow the geopolitical and economic climate of their countries closely to ensure that any developments and their potential to impact our business. are clearly understood. Sodexo continually takes appropriate measures to protect the business against external economic influences including portfolio right sizing, adapting strategy, introducing new technology and controlling costs.

6.4.3.3 Risk coverage

Group Insurance works closely with the relevant executives in the entities to:

  • implement global insurance programs, negotiated at the Group level, available for all entities and supported by insurance companies recognized within the Insurance Industry for their financial solidity;
  • put in place insurance coverage to protect the interests of employees, clients, shareholders and the Group;
  • identify and evaluate the key insurable risks faced by Sodexo, with particular attention to the emergence of new risk factors associated with changes in our activities;
  • reduce contractual risk, in particular by means of limitation of liability clauses or hold-harmless agreements;
  • achieve the appropriate balance between risk retention (self-insurance) and the insurance market in covering the potential financial consequences of Sodexo’s risk exposure; and
  • achieve optimization by financing some of the Group’s risks through the use of captive insurance companies.
6.4.3.3.1 Insurance coverage

Sodexo’s general policy is to transfer non-retained risks, especially intensity risks, to the insurance market. Insurance programs are contracted with world class insurers.

The main insurance programs are as follows:

  • liability insurance, which covers personal injury, property damage or consequential loss caused to third parties. This category notably includes operational, product, after-delivery and professional liability insurance. Since June 1, 2016, Sodexo has implemented a worldwide liability insurance program benefiting all countries in which the Group operates, including the USA and Canada;
  • property insurance, which mainly covers the risk of fire and explosion, water damage, natural disasters, and (in some countries) acts of terrorism. As a general rule, the sum insured is equal to the value of the insured property; however, some insurance contracts cap the amount paid out under the policy;
  • workers’ compensation. In countries with no government-provided coverage (primarily the United States, Canada and Australia), Sodexo has contracted workers’ compensation programs;
  • crime insurance specifically for Benefits and Rewards Services, to partially transfer the risks of fraud, falsification and theft to the insurance market;
  • marine cargo insurance for covering loss or theft of goods during shipment;
  • employment practices liability which provides coverage for wrongful termination, sexual harassment, discrimination and workplace torts. This program was originally implemented in the United States and Canada, but has been expanded globally from June 1, 2017;
  • cyber risk insurance, which responds to cyber events such as intrusion, denial of service attacks, data breach. It covers the forensics, privacy breach and data restoration costs as well as any business interruption arising out of a cyber event. In a very tough market, the cyber risk insurance is reviewed regularly and implemented according to the best possible conditions.