CITY DEVELOPMENTS LIMITED ANNUAL REPORT 2021 CORPORATE GOVERNANCE 58 59 The Board has approved the following risk appetite statements: • The Group will continue to focus on business activities in identified core markets. Apart from the core markets, the Group shall otherwise not be overly exposed to any other single country. • The Group is prepared to undertake new investment and innovation initiatives commensurate to expected returns, and/or are in line with the Group’s core strength and strategic objectives. From acquisition to divestment, all investments undertaken should not have potential loss exposure that could significantly threaten the Group’s going concern assumption. • The Group will avoid any situations and/or actions that may result in negative impact on our reputation and branding. Should such situations arise, theywill bemanaged aggressively to preserve our reputation and brand image. • The Groupwill maintain adequate liquid assets to cover planned cash outflows and shall not take speculative positions on interest rates and foreign exchange. • The Group strives to maintain a ‘zero-tolerance’ position in relation to environmental, health and safety breaches or lapses, non-compliance with laws and regulations, as well as criminally dishonest acts such as fraud, corruption, bribery and extortion. • The Group will minimise operational and IT risks, subject to cost-benefit trade-off. The Management Risk Committee monitors the Group risk profiles and regulatory compliance status on a quarterly basis. RISK GOVERNANCE The Group’s risk governance structure comprises three lines of defence that illustrates how specific duties related to risk and controls are assigned and coordinated within the Group, to facilitate timely risk identification, escalation, and provision of Board assurance. RISK GOVERNANCE STRUCTURE Board Internal Audit Management Risk Committee KMP Third Line of Defence Board Level Oversight Type of Information Management Oversight Second Line of Defence First Line of Defence Risk and control certifications from head of division / department (for e.g. Control Self-Assessment) Legend Direct Reporting Line Indirect / Administrative Reporting Line Risk Management and Internal Control Information RISK OWNERS ERM Audit and Risk Committee RISK MANAGEMENT First Line of Defence – Risk Owners – Second Line of Defence – ERM & Internal Audit – The linemanagers of respective business and support functions are accountable and responsible for implementing and executing effective controls to manage the risks arising from their business activities. This includes establishing adequate managerial and supervisory controls to ensure compliance with policies, risk appetite, threshold limits and effective risk controls, and to highlight gaps, inadequacy of processes and unexpected risk events. The ERM function is responsible for designing, implementing and improving the risk management framework as part of the ERM and control assurance programme. The Internal Audit department provides independent assurance on the adequacy and effectiveness of the internal controls and risk management framework. Both functions are also responsible for the independent review andmonitoring of the Group’s risk profile and for highlighting any significant gaps and risk issues to the Management Risk Committee. Third Line of Defence – Board Oversight – The Board is responsible for the governance of risk across the Group, while ensuring that Management maintains a sound system of risk management and internal controls. The Audit and Risk Committee (ARC) assists the Board in carrying out the Board’s responsibility of overseeing the Group’s risk management framework and policies. The Management Risk Committee surfaces significant risk issues for discussion with the ARC and the Board, to keep them fully informed in a timely and accuratemanner. All ARCmembers, including the Chairman of the ARC, are independent non-executive directors. RISK MANAGEMENT PROCESS The Group adopts an integrated top-down and bottom-up risk review process that enables systematic identification and prioritisation of all material risks. An integral part of the process towards effective riskmanagement is continuous communication and consultation with internal and external stakeholders. This enables the Group to understand the importance of risk management, to appreciate the decisions that are taken within the Group, and to implement the best policies and practices necessary for the benefit of the Group. MATERIAL RISKS TO THE GROUP The Group categorises its risk profiles into four key areas: Strategic, Treasury and Financial, Operational and Compliance, and Information Technology. The Group is committed to mitigating risk exposure through appropriate risk management strategies and adequate internal controls. Close monitoring and control processes, including the use of appropriate key risk and key performance indicators, are implemented to ensure that the risk profiles are managed within the Group’s risk appetite and tolerance limits. Strategic Risk A large part of the Group’s strategic risks comprisemarket-driven forces, evolving business landscapes, changing customer demands and disruptive innovations. The Group remains vulnerable to uncertainties in the major economies, the looming impact of COVID-19, implications from geopolitical developments, keen competition and competitive pressure in the real estate and hospitality industry. Market and Competition Given the geographical diversity of our business, the Group is exposed to various levels of event risks in major economies, as well as in key financial and propertymarkets. The Group’s principal business operations, comprising property development, property investment and hotel operations, face significant competition across the diverse markets in which they operate. The failure to compete effectively in terms of price, market positioning, product quality and levels of service could adversely affect the Group’s financial condition and results of operations. We manage this risk by: a) Monitoring macroeconomic trends, market conditions and developments, and formulating responses and pre-emptive strategies accordingly. b) Leveraging onourmarket analytics andproject delivery expertise to introduce quality products and innovative solutions to meet evolving consumer demands. c) Strengtheningour brandand competitiveness throughproduct differentiation,market positioning, operational efficiency, transformation through innovation and creating new revenue generating platforms, as well as leveraging on a portfolio of distribution channel partners. d) Diversifying of portfolio across geographies, focusing on core markets and cities where the Group has operational scale, and where underlying economic fundamentals are more robust. e) Distinguishing the quality, value, and efficiency of our lodging products and services by focusing on delivering a seamless customer experience, including our Loyalty Programme, direct booking channels, and consumerfacing technology platforms and services, from those offered by others. Brand and Reputation The Group’s reputation is one of its most valuable assets, playing a major part in the continued success of the business. The assessment of reputational risk is constantly evolving and dependent on numerous factors at any given point in time. It may therefore not be possible to define all circumstances which may pose reputational risk, or to set out al l the considerations which should be applied as part of the decisionmaking process. We manage this risk by: a) Undertaking active monitoring of both traditional and social media platforms, aggressively responding to and managing any undesirable situation(s) that may arise. b) Raising the profile of our brands through marketing campaigns and strategic partnerships to build brand equity. c) Focusing on a customer-centric approach, and monitoring customer satisfaction closely through surveys, gathering of feedback, inspections and other forms of engagement. d) Establishing brand standards that are designed to maintain a level of product consistency based on the brand collection to which a hotel belongs, whilst allowing flexibility in order to maintain the personality of the property. e) Striving to avoid any situations and/or actions that could result in a negative impact on our reputation and brand. Climate Change The Group recognises that climate risks are business risks. A focal issue of the Paris Agreement and Singapore Green Plan 2030, climate change is one of the long-term key global risks that can potentially impact the Group’s assets, revenue, operations, supply chain, product design, stakeholder engagement, and investor communication. Aside from physical risks arising from climate change, regulatory transition risks can result in stricter emission standards, increased carbon tax and water pricing, and stricter building design requirements. The Group prioritises ESG communication and reporting to proactively manage rising stakeholder capi tal ism, investor and consumer activism. In the face of climate change, climate-proofing its buildings for a low-carbon future is key to the Group’s growth strategy. We manage this risk by: a) Pledging net zero whole life carbon for CDL’s new developments and major renovations over which we have direct operational and management control in Singapore by 2030, in accordance with World Green Building Council’s Net Zero Carbon Buildings Commitment. b) Implementing robust climate mitigation and adaptation strategies to accelerate efforts towards a lowcarbon business model, such as setting carbon emissions reduction targets validated by the Science Based Targets initiative (SBTi) for a 1.5oC warmer scenario. c) Pushing the envelope in innovative green building technologies to enhance the resilience of our assets against physical and transition risks posed by climate change. Having set up the Green Building and Technology Application team under the Sustainability portfolio in 2020, the Group remains committed to exploring new frontiers in innovation and sustainable investing. d) Disclosing CDL’s management of climate-related risks using internationally recognised frameworks/ assessments, such as the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, Climate Disclosure Standards Board (CDSB) and CDP. e) Conducting climate change scenario analyses as ameans of testing the Group’s strategic resilience against different plausible and science-based climate scenarios (4oC vs 2oC (2018) and 2oC vs 1.5oC (2019/2020)). Commencing the third climate change scenario analysis in December 2021, taking into account COP26 outcomes and the prolonged impact of COVID-19. f) Monitoring supply chain risks to better prepare for the increasing physical and social challenges impacting the Group’s supplies of materials and workers. g) Raising the bar on proactive, transparent and prompt ESG communication and reporting via digital platforms.
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