CITY DEVELOPMENTS LIMITED ANNUAL REPORT 2022 CORPORATE GOVERNANCE 62 63 RISK MANAGEMENT First Line of Defence – Risk Owners – Second Line of Defence – ERM – The line managers 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 program. It also provides independent identification, assessment and monitoring, and reporting of the Group’s risk profiles and material risk issues to the Management Risk Committee and the ARC. Third Line of Defence –Internal Audit & Management Risk Committee – The Internal Audit department provides independent assurance on the adequacy and effectiveness of the internal controls and risk management framework to senior management and the ARC. Significant risk issues are also surfaced for discussion with the ARC and the Board by senior management, to keep them fully informed in a timely and accurate manner. All ARC members, including the Chairman of the ARC, are independent non-executive directors. Strategic Risk A large part of the Group’s strategic risks comprises market-driven forces, evolving business landscapes, changing customer demands and disruptive innovations. The Group remains vulnerable to uncertainties in the major economies, implications from geopolitical developments, keen competition and 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 property markets. 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, and 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 on our market analytics and project delivery expertise to introduce quality products and innovative solutions to meet the evolving consumer demands. c) Strengthening our brand and competitiveness through product 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 Program, 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, due to the nature of this type of risk, is constantly evolving and dependent on numerous factors at any given point in time, and it is therefore not possible to define all matters and circumstances which may pose reputational risk, or to set out all 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. 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 risk management 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. These risks vary widely, with many being beyond the Group’s control. The Group is committed to mitigate 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 the risk profiles are managed within the Group’s risk appetite and tolerance limits. 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 capitalism, 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 its assets against physical and transition risks posed by climate change. Setting 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) Measuring and 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 a means of testing the Group’s strategic resilience against different plausible and science-based climate scenarios. The analysis also covered climate-related risks from the COVID-19 pandemic as well as emerging net-zero regulatory landscapes across five key CDL markets. 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. Regulatory Changes The Group operates in many jurisdictions and is exposed to various levels of political and policy risks, such as political uncertainties, introduction or change in public policies, statutory and regulatory requirements. We manage this risk by: a) Actively engaging with regulatory bodies and professional firms on updates to laws and regulations. b) Continuous monitoring and assessment of impact arising from regulatory changes, observing market reactions, and formulating our strategies accordingly. RISK GOVERNANCE STRUCTURE Board External Assurance Providers Internal Audit Management Risk Committee ERM Risk Owners Third Line of Defence Board Level Oversight Type of Information Alignment, communication, coordination, collaboration 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 Key Management Personnel Audit and Risk Committee RISK GOVERNANCE The Group’s risk governance structure comprises three lines of defence that illustrate 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.
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