Operational risk management is part of the daily work of the businesses. Opportunities and risks are identified, assessed, and managed daily and reported to the appropriate management level.
The status of these opportunities and threats is reviewed periodically, and appropriate further actions are taken.
Wärtsilä constantly analyses its manufacturing costs and the associated supply cost of raw materials and components, while maintaining a suitable manufacturing footprint with adequate capacity. Manufacturing risk is mitigated by subcontracting and having a reduced scope for in-house manufacturing. Wärtsilä’s Sustainable Technology Hub in Vaasa, Finland, is a modern, state of-the-art R&D and manufacturing facility with a high level of flexibility and automated logistics. It also provides a partnering campus for collaboration and innovation. In April 2025, Wärtsilä released its plan to expand the Sustainable Technology Hub, adding nearly 8,000 square meters to the site.
Regular risk assessments have been made for all the main delivery centres, and significant safety, environmental impact, and risk mitigation investments have been completed. Risk identification, assessment, and mitigation actions are executed regularly as part of operational management. Management systems for quality, environmental, occupational health and safety, and other systems are utilised to improve productivity, while safety and business continuity plans have been implemented for the key delivery centres.
Wärtsilä’s target position is to shape the decarbonisation of marine and energy. Reaching the target position requires the right organisational capabilities and competences. Accelerating the energy transition generates interesting job opportunities globally, both internally and outside Wärtsilä. An inability to attract and retain skilled and experienced staff will hamper the execution and timeline of the company’s strategic priorities. Through various actions, Wärtsilä aims to be a preferred employer, able to recruit and retain qualified talent that matches business needs, and that is committed to the company’s values, goals and objectives.
Wärtsilä and its suppliers are exposed to inflation risk, which could result in increased costs for raw materials, transportation, energy, and labour, thereby affecting the profitability of business operations. In 2025, inflation generally continued to ease toward, or stabilise around, the 2% target in major economies, allowing central banks to initiate or continue a gradual reduction of interest rates from their peaks.
To mitigate the risk of cost inflation, the company has, to the extent possible, implemented raw material indexation and other cost-related indices into the pricing of contracts. Furthermore, Wärtsilä is ready to execute price realisation in its transactional business and services, if needed. In addition, continuous improvement measures are taken to improve profitability. There is close monitoring and cooperation between supply management and the sell-side pricing departments in the businesses to react swiftly to cost increases.
Ongoing events, such as the war in Ukraine, and geopolitical tensions—along with possible sanctions and new regulations—can further disrupt trade routes and supplies of essential materials. Additionally, as the green transition speeds up, there may be growing challenges with production capacity and rising costs unless the output of critical materials increases at the same pace.
Furthermore, regulatory development may impact Wärtsilä’s material costs through, for example, the Carbon Border Adjustment Mechanism (CBAM) initiated by the EU.
Wärtsilä’s supply management is integrated into the businesses and works in partnership with the supplier base to create value for Wärtsilä’s customers by ensuring quality, on-time delivery, and the lowest total cost of ownership. Category management is applied to ensure coordinated interfaces and synergies for the cross-business supplier base. Indirect Procurement is a centralized function responsible for managing strategic sourcing activities for indirect materials and services in all businesses and support functions.
Wärtsilä has a process for managing and controlling its supplier network, and for verifying that the suppliers’ performance meets expectations. Regular assessment of business interruption risk is a key activity in maintaining business continuity plans. This includes risk audits of critical suppliers.
Wärtsilä has established close collaboration and long-term relationships with its main suppliers, and follows their credit worthiness and financial condition. Wärtsilä uses an online solution for supply chain risk identification, assessment, and monitoring. Sourcing risks around the key components and materials are mitigated through partnerships, diversification and dual- or multi-sourcing where possible. In December 2025, Wärtsilä and Siempelkamp Giesserei formed strategic partnership to secure the supply chain of large cast components to support Wärtsilä’s continued growth. In addition, in November 2025, Wärtsilä announced a plan to expand its main spare parts distribution centre in Kampen, the Netherlands by 40%, to support the continued global service growth and to strengthen its ability to serve customers with greater efficiency and ensured availability.
In 2025 Wärtsilä divested its business unit Automation, Navigation and Control Systems (ANCS) and Marine Electrical Systems, and, in December 2025, announced divestment of its Gas Solution business. Streamlining the company’s overall structure also brings advantages for its sourcing operations.
Wärtsilä’s quality framework focuses on preventive and proactive actions to deliver increased customer satisfaction, shorter lead times, and a reduced number of non-conformity claims. This is delivered by effective project risk management and strengthened awareness and ownership, supported by a streamlined product improvement process.
Several risk management techniques are applied in R&D, including the risk elimination tool FMEA (Failure Modes and Effects Analysis) and in-house validation testing. Wärtsilä seeks to control quality risks by monitoring the incoming quality of the supply chain, and by designing and manufacturing its products with all due care. A non-destructive robotic ultrasonic data analysis procedure enhances the probability of detecting imperfections in key components with a complex geometry.
Wärtsilä applies a GATE model to control the product development process. Initially, only a limited release of new products is allowed, and full release authority is given to the sales organizations only after testing and further validation has been completed.
Wärtsilä controls its manufacturing quality risks by applying several assurance and quality control principles. The level of quality assurance and control requirements are determined based on component criticality, and are applied throughout the delivery chain.
Requirement management is used to assess components systematically, enabling the allocation of resources and efforts according to component criticality. The ranking criteria indicates the consequence if a component fails. The objective is to improve quality proactively within product development, supply management, and the entire delivery process.
Non-conformity management focuses on developing and improving operations by registering and handling detected non-conformities, and by ensuring that the products and services received by customers are according to the agreed scope and specifications. Efficient handling, monitoring, and reviewing of non-conformities is crucial for proper risk management and mitigation.
Product improvement management (issue resolution) projects are prioritised based on risk and importance. Such a project is initiated when Wärtsilä identifies a technical issue according to claim statistics, customer feedback, or internal analysis, and the case fulfils the risk categorisation for a non-isolated case.
The businesses support customers in all warranty issues. This offers a feedback loop from the field to production and R&D, while taking care of customer installations throughout their lifecycle. Warranty provisions are made to cover any costs that may arise after product delivery. The company’s product liability insurance covers unexpected damages.
Best industry practices and good governance are adopted to continuously improve quality. Each business is responsible for the quality of its products, its way of working, and its services. Management at all levels are responsible for the quality output from their organizations, and are accountable for ensuring that appropriate review and feedback mechanisms are in place.
Wärtsilä’s business level quality, environmental management, and occupational health and safety systems are ISO 9001:2015, ISO 14001:2015, and ISO 45001:2018 certified, with an emphasis on proactive risk and opportunity management. In addition, Wärtsilä’s GridSolv Quantum battery module qualifies under the 2023 revision of NFPA 855. It is also compliant with NFPA 69 and certified to UL 9540 and UL 9540A unit-level performance requirements.
Wärtsilä’s equipment business includes projects and deliveries of various sizes requiring extensive coordination, efficient risk management, and the seamless integration of all contracted systems and solutions. Energy has EEQ (Engineered Equipment) as the preferred offering, whereas EPC (Engineering, Procurement, and Construction) is only considered in selected markets. In 2025, more than 90% of the equipment net sales (80% in 2024) in Energy consisted of extended equipment supply (EEQ) deliveries, compared to less than 50% in 2022. The company continues to maintain a stronger order book risk/reward profile for 2026 and onwards.
Wärtsilä provides lifecycle services to its customers in the form of transactional sales of spare parts and field service work, long-term service agreements, and service projects, such as engine upgrades, retrofits, and modifications to the installed base.
Wärtsilä places strong emphasis on having project management competences, proper technical assessment controls, time schedule and cost controls, supplier approval routines, and internal training programmes in place. With these measures, Wärtsilä aims to ensure the quality and performance of its contractual obligations during execution, and the upfront identification of specific risks and opportunities.
Product liability claim risk is reduced through maintaining a high level of lifecycle quality in the company’s products and work. This applies from the initial design and continues through all stages of the production process to the eventual field service activities. In addition, Wärtsilä has adequate insurance in place to cover product liability risk.
The Group is involved as a defendant in number of legal cases that have emerged from its regular business activities or are related to them. Most of these lawsuits pertain to matters such as contractual obligations, various forms of liability, labour relations, property damage, and regulatory matters. From time to time, the Group receives claims of different amounts and with varying degrees of substantiation. At present, there is one unusually large claim. The Group's policy is to make provisions for claim-related expenses, litigation, and arbitration whenever an adverse result is likely and the potential loss can be reasonably estimated.
Wärtsilä complies with the law and its own internal policies and procedures everywhere the company operates. Wärtsilä’s Code of Conduct is the key guideline for all employees globally, demanding high ethical standards and integrity.
Wärtsilä is fully committed to complying with anti-corruption laws and regulations. Wärtsilä acts to prevent corruption and does not accept violations of the principles set forth in the Code of Conduct, or in Wärtsilä’s Anti-Corruption and Compliance Reporting policies. The company forbids any kind of corruption and bribery and has a strict zero tolerance policy. There is a whistle-blowing channel in place for reporting misconduct incidents. Anti-Corruption risk assessments are carried out regularly as part of our continuous anti-corruption improvement efforts. In 2025, no instances of substantiated corruption or bribery were identified.
Compliance processes are embedded in all businesses, and the responsibility for compliance and awareness of ethics and integrity is that of all Wärtsilä employees. The Compliance function promotes Group-wide compliance and continuously strives to raise awareness of the risk of corruption, bribery, and other misconducts. Wärtsilä consistently aims to ensure that all employees complete Code of Conduct and anti-corruption training as an ongoing part of its sustainability targets.
While being aware of the risk of being subject to fraud by external business parties, and that the risk of corruption and fraud is heightened in several markets where the company operates, Wärtsilä consistently maintains its highly ethical practices.
Oil and gas
In 2025, oil markets were marked by significant volatility and price swings, primarily driven by escalating geopolitical tensions and supply risks. Brent crude prices declined about 20% year-on-year, fluctuating between $58 and $83 per barrel, with a rebound near year-end due to heightened fears over supply disruptions. Downward price trends were fuelled by weak global economic conditions—especially in China and the eurozone—unstable OPEC+ production policies, and increased output from non-OPEC producers, resulting in a surplus and generally suppressed prices.
The 2025 natural gas market is characterised by significant price volatility resulting from fluctuating supply-demand dynamics, weather patterns, and geopolitical events. Despite strong U.S. production, high storage levels, and robust LNG exports stabilizing supply, the market remains highly reactive to weather extremes and policy changes, with prices experiencing sharp swings. While availability disruptions have been limited, ongoing risks from geopolitical tensions and potential supply chain issues continue to pose challenges.
The direct effect of oil and gas price changes on Wärtsilä’s operations is limited and mostly related to fuel costs for engine testing, R&D activities, and the heating of some premises.
In general, higher oil and gas prices represent a risk for global economic growth and increased operating costs, especially in the shipping markets. On the other hand, higher oil and gas prices increase interest in our energy efficiency offering, and increase the demand for alternative green fuels as they become more cost-competitive against conventional fuels. Wärtsilä is a global company involved in various shipping and power plant segments where oil and gas price changes can have an opposing impact on demand drivers.
In the marine markets, high gas prices, or their volatility, are not expected to reduce the appetite for LNG as a fuel in the long run. Higher demand and supply volumes, and investments in expanding LNG liquefaction capacity, are driving demand for additional LNG carrier capacity. However, shipyards capable of building LNG carriers have few to no slots available during the coming years. Persistent high gas prices may encourage ship operators to switch temporarily from LNG to low-sulphur fuel, which most modern vessels can use in dual-fuel engines. In the energy markets, gas price volatility and increasing prices can have a negative impact on the competitiveness of our portfolio, especially in thermal baseload plants, and may lead to more running hours of coal-fired and nuclear power plants. Higher fuel prices may have an impact on project viability and customer decision making. However, these are expected to have less of an impact on thermal balancing power plants operating with fewer running hours.
Metals
Metal prices have an indirect effect on component costs for Wärtsilä’s products. Some key components are sourced with long-term contracts, which limits raw material price volatility during the validity of contracts. However, concentrated supply chains of some raw materials, and the tight competitive situation to secure supplies, impose direct risks to the Energy business.
The battery industry continues to suffer from raw material price volatility, characterised by a complex interplay of demand, supply, technological, and geopolitical factors. The year 2025 marked a pronounced shift in the dynamics of battery energy storage system (BESS) material pricing, especially for lithium and its associated components, such as cobalt, nickel, and graphite. Early in the year, lithium prices remained under pressure from surplus inventory and weaker-than-anticipated electric vehicle (EV) demand. Lithium carbonate prices in North Asia fell to their lowest since 2021—leading to production cuts and delayed projects, most notably in Australia and China. This persistent oversupply capped price recovery throughout H1 2025. In H2, supply disruptions, such as curtailments at major Chinese mines, drove lithium carbonate considerably up by December—a 34% rise from October—indicating growing volatility. Western dependency on Chinese battery materials is recognised as a profound strategic and commercial risk, especially for AI, defense, and energy independence, which is likely to trigger further tariff actions and legislative moves.
Energy and electricity
High electricity prices, in general, support investments in new capacity by utility customers in the energy markets. High volatility, however, may have a negative impact on new investments.
Wärtsilä’s annual total energy consumption in 2025 was 254,116 MWh. This includes the electricity, heat and fuels used in Wärtsilä’s companies. Fuels are used mainly in engine testing and for R&D purposes, as well as in heating, production, and transportation.
Electricity is needed for manufacturing operations, but electricity prices have no substantial direct impact on Wärtsilä’s production capacity costs. In the new Sustainable Technology Hub facility in Vaasa, the heat generated in engine test runs is used for heating, whereas any excess electricity produced is sold to the grid at prevailing market prices.