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Control environment

The control environment is the set of standards, processes, culture, and structures that provide the basis for carrying out internal control across the organization. The Executive Committee sets the tone at the top regarding the importance of internal control including expected standards of conduct. An important principle of the control environment is the commitment of the Executive Committee to integrity and ethical values, which is demonstrated by the programs mentioned below.

Business conduct / compliance

Business Conduct Program

Corbion’s Business Conduct Program combines the legal requirements of the countries where we operate and international standards, resulting in a framework that regulates how all Corbion employees interact with colleagues, business partners, governments, and communities. We translate these legal requirements and standards into our Code of Business Conduct, internal policies, and procedures to make it accessible to everyone. Often we go beyond what is required by local legislation to create a single global integrity approach within Corbion.

The Executive Committee has overall responsibility for the Business Conduct Program including underlying policies and oversees its execution. To this end they establish effective global business conduct governance while allocating appropriate resources for proper implementation and development of the Business Conduct Program.

Corbion’s Legal & Compliance Department is responsible for Business Conduct as a second line of defense and as such has a coordinating role. The Legal & Compliance Department works closely together with other departments (e.g. Risk Management, Internal Audit, HR, Communications) and external stakeholders (e.g. law firms, compliance consultants, compliance software providers) to enable proper roll-out of the Business Conduct Program throughout the organization.

As a third line of defense, Internal Audit offers independent reviews. The business is in the front line and is responsible for day-to-day risk management/compliance.

Each year, Corbion’s Compliance Officer reports to the Audit Committee of the Supervisory Board on the status of the Business Conduct Program as well as any major developments. In the event of significant incidents, the Audit Committee is immediately informed by the Executive Committee.

Code of Business Conduct and policies

At the heart of our Business Conduct Program is the Corbion Code of Business Conduct (which is available in six languages). Our Code states the values and principles that guide our work at Corbion, and sets out the expected standard of behavior for everyone working for Corbion. Our Code applies to all activities we perform on behalf of Corbion wherever they take place, and to everyone working for our company.

Guided by the principles of the UN Global Compact and the OECD Guidelines for Multinational Enterprises, our Code of Business Conduct describes principles with respect to personal and business conduct, asset protection, employment standards, and our commitment to sustainability and sets out the expected standard of behavior for all Corbion employees. Our Code was revised in 2019 to include how Corbion's new values relate to our purpose, vision, and mission, and to extend our commitment to sustainability.

Our Code serves as an umbrella for underlying policies which cover in more detail areas such as competition law, anti-bribery, anti-corruption, conflict of interest, privacy, economic sanctions, and insider trading.

Corbion has a network of regional Business Conduct Coordinators who help embed the Code of Business Conduct and the underlying policies into local operations. Besides this, they function as a local point of contact for management and employees.

Speak Up channels

Under the Corbion Speak Up Policy, Corbion employees can report misconduct and (potential) violations of the Code of Business Conduct and underlying policies to their manager, their local HR contact, or the regional Business Conduct Coordinator. Next to that, the Corbion Speak Up Line, which is available 24/7 and operated by an independent service provider, allows employees to report issues directly to the Business Conduct Committee, which is composed of the Chief Human Resources Officer, the VP Legal & Compliance, and the Director Internal Audit. Any misconduct and (potential) violations can be reported anonymously. In 2019, Corbion launched its External Speak Up Helpline, a dedicated channel available to Corbion’s external stakeholders (such as customers, suppliers, communities, distributors, and agents), which can be used to raise concerns about (suspected) violations of the Corbion Code of Business Conduct, Corbion's Supplier Code, Corbion's Cane Sugar Code, or any applicable laws. In 2020, 26 complaints with respect to the Code of Business Conduct were reported internally, of which 16 had merits. Appropriate measures have been taken by management. Corbion has not received any reports via the external Speak Up channels to date.

A breach of the Code of Business Conduct can lead to disciplinary actions, including termination of employment. The outcome of the investigations as well as any measures taken are documented accordingly and reported to the Executive Committee and Audit Committee bi-annually.

Business Conduct training

Every year, all Corbion employees need to follow a mandatory training on our Code of Business Conduct, which is available in six languages. Employees receive training through an online course or a classroom session. Course materials are updated yearly, based on the most relevant risks at the time of the release, and touching on the topics which were brought up in Speak Up reports in the previous year. Corbion has a strict policy on attendance to the Code of Business Conduct training, with a 100% completion rate.

In addition, selected groups of employees need to follow every two years mandatory e-learning trainings with respect to anti-corruption and competition law. In 2020, 476 employees (from the sales and procurement departments, and senior management) participated in the competition law e-learning, which had a 100% completion rate.

Compliance statement

Every year, at the time of the annual Code of Business Conduct training, employees confirm their compliance with the Code and underlying policies by signing a compliance statement.

In January of every year, the Supervisory Board and Executive Committee members as well as the direct reports of the Executive Committee, confirm their compliance with the Conflicts of Interest Policy by signing a compliance statement. They also fill out a questionnaire with respect to related party transactions.

In terms of our onboarding program, our standard employment contracts contain a clause with respect to the Code of Business Conduct. New hires receive the yearly Code of Business Conduct training as soon as they join Corbion.

Anti-bribery and anti-corruption

For Corbion as a listed company operating worldwide, compliance with anti-bribery and anti-corruption laws is key. Given the consequences of non-compliance herewith, compliance with our policy is overseen by the Executive Committee. Our policy with respect to anti-bribery and anti-corruption is laid down in our Gifts, Entertainment, and Third-Party Payments Policy (which is available in six languages). This policy covers (i) prohibition of offering, authorizing, or accepting bribes, (ii) rules for how to deal with giving and receiving gifts and entertainment, and (iii) rules for how to deal with third-party payments (agents and distributors, facilitation payments, sponsorships, political contributions).

At Corbion, we are committed to maintaining good relations with our customers, suppliers, and other business partners. In this context we acknowledge the business custom of exchanging small gifts and invitations to dinners or social activities in order to initiate, develop, or sustain good business relations. All Corbion colleagues should however ensure that the gifts and entertainment that we offer or receive are not, or could not be perceived as, a bribe. All Corbion colleagues as well as our agents, distributors, and other representatives are prohibited from offering, authorizing, or accepting bribes of any kind. Any gifts and entertainment must be for legitimate business purposes, of a reasonable value, and appropriate to the business relationship, and be given or accepted at an appropriate time. If the nominal value of a gift exceeds a certain threshold, prior approval of the employee's manager is required. Prior management approval is always required for entertainment (with the exception of business meals) and travel and overnight accommodation.

Corbion has a procedure in place for engaging with agents and distributors. This means that due-diligence questionnaires need to be filled out which are being assessed by the Legal & Compliance Department. Furthermore, higher management approval is required. The agent and distributor should sign an agency or distribution agreement and accept the Corbion anti-corruption/bribery clauses contained therein.

Economic sanctions

Corbion is committed to complying with economic sanctions laws and regulations. According to the Corbion Economic Sanctions Policy, we need to screen each prospective business partner before engaging with them to ensure compliance with economic sanctions laws and regulations.

Alongside our procedure for the screening of business partners prior to onboarding, Corbion has appropriate tools to ensure ongoing screening of all active business partners and to prevent shipment to embargoed countries and regions.

Privacy and data protection

In light of the European regulation on data protection (GDPR), Corbion has created a robust privacy program since 2018. Following its initial implementation, Corbion has further developed and localized its privacy program to reflect newly enacted privacy regulations in the countries where we operate, such as the CCPA in California, the LGPD in Brazil, and the PDPA in Thailand.

Enforcement actions

Corbion has not been the subject of any investigation into business conduct violations (e.g. competition, privacy, bribery, etc) by competent governmental authorities to date.

Risk appetite

Part of the control environment is the definition by the Executive Committee of the risk appetite of the company. Our risk appetite is the amount of risk we are willing to accept to achieve our strategic goals. This requires adequate understanding and awareness of potential risks and their magnitude within the company. The level of risk appetite is set by the Executive Committee. Our risk appetite can be summarized as follows.

Risk appetite

A 1% change in net sales, costs, profit, and currency rates can have the following impact on EBITDA (in millions of euros).

 

Change

Approx. EBITDA impact (millions of euros)

Net sales

+1% / -1%

+/- 4.8

   

Gross profit

+1% / -1%

+/- 3.2

Operating costs (= selling expenses + R&D costs + G&A expenses)

+1% / -1%

+/- 1.6

USD

+1% / -1%

+/- 1.5

JPY

+1% / -1%

+/- 0.2

Risk assessment

As an integral part of the strategy review, the Executive Committee annually performs an entity-wide risk assessment to assess the strategic risks, with a mid-year update for significant changes. Furthermore, risk assessment is an integral part of the project stage-gate methodology applied at Corbion for strategic initiatives and related investments.

Derived from the strategic risks, the Executive Committee selects a number of key management activities with an increased focus in 2021 on further strengthening our control framework. This is discussed with the Audit Committee and the Supervisory Board.

Operations, reporting, and compliance risks are considered throughout the organization, with ownership lying with the line organization (first line of defense). Risk committees have been established to monitor specific risks to stay within Corbion’s risk appetite (Treasury Risk Committee, Commodity Pricing Risk Committee).

The financial reporting risks are assessed on a regular basis and the outcome of this assessment forms the input for the Corbion internal control framework over financial reporting (see section Internal control systems). For more information on financial risk management and financial instruments see Note 27 of the Financial statements.

Key risk areas

The table below summarizes the top risks that have the focused attention of the Executive Committee to support the realization of the strategic targets. For each risk the table lists the potential impact as well as a summary of mitigation measures taken to address them. There may be other risks currently unknown to Corbion, or currently believed not to be material, which could ultimately have a major impact on Corbion's business, objectives, revenues, income, assets, liquidity, or capital resources.

Corbion top risks

Risk event

Cause and potential impact

Mitigation actions

Strategic risks

  

Capacity

Due to favorable developments of PLA and the lactic acid market, our lactic acid production facilities run at maximum capacity. Significant interruptions would immediately result in lost sales impacting the realization of the strategic goals.

The construction of a new lactic acid plant in Thailand has been announced. The plant will be operational mid-2023. Meanwhile, an extensive debottlenecking program is in place at existing lactic acid plants. In addition, we regularly expand our capacity incrementally in our derivatives plants.
With sophisticated demand forecasting and sales & operations planning, Corbion is optimizing the allocation of products to ensure we can meet our customer needs.
For measures to prevent business interruption, see the business interruption risk below.

COVID-19

Supply-chain disruption (inbound and outbound)



Cash flow issues






Economic downturn
Delayed customer payments




Production disruption

We are continuously managing our in- and outbound supply chain and taking appropriate action to mitigate risk. We have increased inventory levels of strategic raw materials and arranged for multi-sourced supply alternatives wherever possible.

Our net debt/EBITDA ratio at the end of 2020 was 1.7x, well below the limits of our loan covenants. From a refinancing perspective our funding is secure. As a precautionary measure we have increased our cash balances by partially drawing on our revolving credit facility. Cash flow issues can occur when multiple customers do not pay or pay late; or when business is declining due to the economic downturn, or due to production disruption issues within Corbion (see below).

Generally, the food and pharma businesses are relatively less sensitive to economic downturns, although the long-term consequences of the COVID-19 pandemic for future consumer behavior patterns are unknown. We increased our monitoring of business developments and payment behavior of customers to enable timely measures in case of worsening trends.

Because of our position as a key supplier in the food and pharma supply chains, our plants in most countries are qualified as “essential,” enabling our people and contractors to come to the plant and continue their activities, and enabling us to serve our customers in the best possible way. We have taken all preventive measures to reduce contamination risk on the shop floor and ensured redundancy in our shift planning.

Competition

With lactic acid demand exceeding supply, the possibility of new market entrants increases.

By investing in R&D Corbion intends to keep its competitive edge. The gypsum-free lactic acid production technology is an example of the innovative strength of Corbion. In 2020 Corbion made the decision to build the first plant with gypsum-free technology, resulting in reduced production costs (operational mid-2023).

Algae Ingredients business development

Algae-based ingredients for food and feed offer a promising plant-based solution with a view to the increasing sustainability concerns and the potentially reduced availability of resources currently used.

Algae-based solutions, however, are in an early stage of development. Significant efforts have to be made to reach the proper level of market adoption, especially because animal-based alternatives are still more economical.

Corbion’s strategy is to develop new algae-based solutions with strong partners who have the power to increase market adoption.

The performance of the algae business is closely monitored on executive level to enable timely action to support the realization of the strategic targets.

For new algae-based solutions the same disciplined approach is followed as for business development in general as described below.

Corbion managed to decrease production costs of AlgaePrima DHA to such a level as to price AlgaePrime DHA comparable to fish oil. Corbion anticipates this will further speed up the development of the algae-based omega-3 market.

Business development underperformance

Business development is one of the key drivers of Corbion's Creating Sustainable Growth strategy. Corbion is investing in new platforms of growth such as PLA, for which the pace of market adoption is inherently uncertain given the early development stage of these initiatives.

Corbion is following a disciplined investment approach to these major business development initiatives through actions like:
- strict project management approach supported by a well-established stage-gate development methodology;
- regular project status reviews with direct involvement at Executive Committee level;
- alignment of investment pace with market development;
- involvement of innovation / business partners to share business development risk and increase speed and likelihood of success.

Business interruption due to new ERP platform

Corbion embarked on a multi-year (2017 - 2022) project to replace the existing ERP systems by a new, global ERP platform (project CUBE, based on SAP S/4HANA). As this new system addresses nearly all of the core transactional processes, such transition if not prepared and/or managed well, could lead to major business interruptions.

Corbion considers project CUBE as one of the key initiatives for change management which will be implemented in the years to come. The project is staffed with dedicated experienced project management (resources from both internal and external system integrator), follows strict project governance procedures, and reports to an Executive Committee-led steering committee.
After a careful preparation phase and rigorous testing phase, the new system is currently being implemented using a multi-year phased approach (region by region). The first implementation successfully took place in the second half of 2019 in Asia. COVID-19 caused a slight delay in the implementation schedule in 2020 thus extending the project into 2022.

Inability to find, develop, and retain skilled talent

To execute the Advance 2025 strategy, Corbion requires a pool of skilled talent.
If Corbion in today's international labor market is not able to attract and retain skilled talent, the execution of the strategy may be delayed.

Corbion has robust compensation and performance management processes in place.
Succession planning is embedded in Corbion to ensure a strong pool of talent for the key positions.

Raw material and energy price volatility and availability

Failure to manage the price volatility risk of raw materials, chemicals, and energy which cannot be directly passed on to customers due to market conditions or lack of contractual enforcement, may result in adversely impacted gross margins. Climate-change-related events may cause more volatility in respect of our key raw material components (sugar, corn).

The inclusion of price formulas in contracts, frequent monitoring of key materials and energy impact. Overall raw material risks are mitigated by actively taking longer-term contract positions where necessary, by sourcing from different locations/key raw materials, and in the longer run, by considering alternative or second-generation feedstocks.

Our global procurement organization, with dedicated finance support, has developed adequate measures to secure contract positions and obtain financial instruments to minimize or delay exposure to cost fluctuations due to changing raw material prices that might impact our margins negatively. These measures include early warnings of possible impact on our organization and our customers. Furthermore, we have implemented a multiple-supplier sourcing policy for our most critical raw materials.

Changing customer behavior toward food and changing product regulations in all industries in which Corbion is active

Our industry is inherently subject to uncertainties including evolving diets, reflecting perceptions with respect to health and sustainability issues, and subsequent policy responses (regulations).

The wide range of industries Corbion is serving add to the complexity.

Corbion works closely with its customers to identify trends and develop the right portfolio of solutions to address evolving trends.

Corbion is well positioned having several biobased solutions for emerging trends and to address changing product regulations.

Operations risks

  

Safety incidents

Inherent health and safety hazards in our operations and insufficient awareness of unsafe plant conditions can lead to injuries or casualties and, potentially, a temporary plant shutdown.

Safety is an integral part of new design and change in product formulations and production processes. A new policy focused on safety core beliefs, followed by participative workshops, and a program focused on life-changing safety rules, supported by e-learning and awareness campaigns have been rolled out. In 2020 Corbion continued the awareness campaigns, in addition to the roll-out of the ISO 45001 safety standards. Next to that, an external consultant assessed our safety culture and a roadmap was developed to further strengthen our safety performance.
Corbion fosters an open and transparent culture by encouraging all employees to report, amongst others, all near misses and events in order to continuously improve our safety and environmental performance.

Food safety

Food safety is of utmost importance to Corbion. Customers need to fully trust the safety of our products. Any issue can have significant impact on the reputation of the company and can result in significant costs of resolving the issue (for example, in case of a major recall).

Corbion has comprehensive quality assurance and control processes in place to ensure food safety and to track and trace our products in case of any issue. Every site is certified for food safety.

Where possible, liability caps are included in contracts. A product liability insurance is in place to cover part of the risk.

Business interruption

An external hazardous event (floods, riots, fires etc.) or internal disruption (e.g. availability of critical spare parts, global supply chain complexity etc.) may result in a significant period of plant shutdown or disruption and hence in delayed/non-delivery of our products to internal and/or external customers, ultimately leading to adverse financial and reputational consequences. Climate-change-related events may increase the risk of business or supply chain interruption.

Business continuity and crisis management plans including contingency sourcing are in place with ongoing evaluation, based amongst other things on highly credible incident identifications for each site. Furthermore, appropriate customer and supplier agreements are in place to limit exposure whilst leveraging supplies. Finally, residual risks are adequately insured including assets and business continuity risks.

Cybersecurity breach

A breach of our IT security might lead to loss of information.

We have implemented an IT governance structure including a dedicated corporate information security officer and an information security governance board. The IT general control framework has been updated including amended IT policies. On a frequent basis we perform penetration tests, helping us to identify and correct potential IT security weaknesses. The outcome of these tests helps us to further strengthen our IT security levels. In addition, we reduce our risk exposure by continuously raising IT security awareness with our people (e.g. through e-learning, communications). In 2020 we continued to have a strong IT control environment with our focus on timely application of patches, full implementation of multi-factor authentication, running a Security Operating Center, and segmentation of Corbion’s IT network.

Confidential information leakage

Failure to protect sensitive information adequately due to limited physical protective measures, inadequate user behavior, or potential cyberattacks may result in loss of valuable or sensitive information such as trade secrets or intellectual property.

All mitigation actions mentioned above under Cybersecurity breach help keep our sensitive information confidential.
As an additional manual control, non-disclosure agreements with third parties are in place.

Compliance risks

  

Non-compliance with applicable tax laws

Failure to timely detect and anticipate changes in a wide variety of tax laws or in the application thereof could adversely affect our financial results.

An adequate quarterly reporting system is in place, we hold regular tax meetings, and review tax compliance of our operating companies. Our global tax control framework warrants compliance. Transfer pricing policy and documentation are in place as well. We seek the advice of external tax experts in compliance matters.

Non-compliance with legislative and regulatory environment

Failure to comply with (changing) laws and regulations in the markets we operate in. Lack of insight into and/or awareness of relevant laws and regulations and their requirements may result in suspension of activities, reputational damage, and exposure to criminal and financial lawsuits.

Global legal and regulatory compliance programs are in place, including related awareness trainings, and we monitor, review, and report on changes in laws and regulations. We seek the advice of external experts in compliance matters.

Reporting risks

  

Volatility in currency exchange rates

Failure to manage volatility in the exchange rates of a number of currencies versus the euro, especially the US dollar, can have a significant impact on our financial results.

A hedging policy is in place to limit the impact of volatility in foreign exchange rates.

Hedging the impact of the foreign currency translation risk is partly effectuated through matching with liabilities denominated in foreign currency. Our external debt is partly denominated in US dollars, which partly reduces the equity translation exposure we have against the US dollar.

The exposure to transaction risks is partly hedged by offsetting the long/short foreign currency positions through a system of gradually selling and/or buying these currencies to mitigate the impact of sudden volatility in these currencies.

Non-compliance with International Financial Reporting Standards (IFRS)

Not informing our shareholders and other stakeholders in conformity with IFRS might lead to a lack of trust, reputational damage, a declining share price, and, possibly, legal claims.

Corporate accounting policies are maintained and made available via the Corbion intranet. Our global control framework includes financial reporting controls that warrant compliance with IFRS. For significant entities, the effectiveness is self-assessed every quarter.
External best-in-class expert advice is used if/where necessary.