Risk management

The aim and principles 

Like any business, Wärtsilä faces risks as part of its everyday operations. Accepting some level of risk is a natural part of running a company. By promoting awareness of these risks and taking proactive steps to manage them, Wärtsilä aims to execute its strategy effectively, run its operations smoothly, reach its goals, meet financial targets, and stay prepared for possible external challenges.

Risk represents an element of uncertainty regarding objectives, which, if realised, can lead to deviations from anticipated outcomes, posing either threats or opportunities. Thus, risk management activities are primarily focused on identifying significant risks that could hinder the company from achieving its objectives and determining their acceptability. If such risks are deemed unacceptable, corrective actions are undertaken to avoid, mitigate, transfer, or monitor them. Conversely, where feasible, risks may be converted into opportunities. 

At Wärtsilä, the following statements apply:

• Risk management is a fundamental part of Wärtsilä’s strategic and operational management, seamlessly integrated with the company’s management systems and embedded within its organization culture.
• The company’s risk management process is a systematic, continuous loop of repetitive steps of context establishment, risk identification, risk assessment, risk mitigation, communication and consultation, and finally monitoring and review. 
• Wärtsilä businesses are accountable for achieving their strategic objectives and financial targets. Accordingly, business management teams and individual managers must proactively manage risks and implement effective mitigation plans. However, risk awareness is a matter for everyone at Wärtsilä. 
• Wärtsilä continuously improves its risk management in response to changes, both within the organization and in the external environment where it operates. Risk management practices are regularly reviewed for maturity and effectiveness.

Risk management principles

Risk management framework and governance

Wärtsilä’s over-arching risk management framework, and the associated practices, adheres to the ISO 31000:2018 standard, and is focused on continuous improvement and verification. The risk framework and guidelines are documented in the Group’s Enterprise Risk Management policy.

Wärtsilä’s Board of Directors sets the company’s risk appetite and tolerance limits, monitoring the overall risk profile through frequent reviews. The President & CEO and the Board of Management are responsible for fostering a culture of risk awareness throughout Wärtsilä, making sure risk management is integrated into all major processes with the appropriate tools and resources. The Board of Management quarterly assesses the Group’s risk profile—which highlights the most significant risks and their mitigation strategies—providing guidance and setting priorities as needed to ensure that risk management measures and controls are sufficient.

Wärtsilä's businesses are tasked with adhering to their strategies and achieving their operational and financial targets. Additionally, the businesses and their management teams are responsible for implementing ongoing risk management actions to identify, manage, and address all significant risks. This responsibility extends to the business unit level and beyond within the  organization. Each business quarterly presents its risk profile to the President & CEO, the Chief Financial Officer, and the rest of the Board of Management. 

The Corporate Risk Management function within Corporate Treasury oversees the risk reporting process, and supports the businesses and their underlying organizations in risk management. This function also leads the internal risk management peer group with business representatives to ensure proper alignment, knowledge sharing, and the continuous improvement of risk management practices. Wärtsilä’s Internal Audit function regularly evaluates and verifies the effectiveness of the risk management framework and process.

Risk reporting

Risk categorisation

Within Wärtsilä’s comprehensive risk management framework, risks are classified into strategic, operational, hazard, and financial categories. Generally, the potential impact of strategic and operational risks is the greatest, while hazard and financial risks pose a lower potential impact. These impacts can be both positive and negative, except in the case of hazard risks, which exclusively have negative consequences.