Risk management

Galenica defines risk as the possibility of an event or action leading to immediate financial loss or other negative consequences. Our risk management process supports the Board of Directors, the Executive Committee and the respective management teams of the Group companies in identifying and assessing potential risks in good time and taking the necessary preventive measures. The goal of this process is to identify, assess and reduce significant risks at all management levels and to manage them while making conscious use of the opportunities the process provides.

A strong risk culture within the company is important to us. To raise awareness of risks, we hold regular training courses and workshops in which employees learn to identify risks at an early stage and take appropriate measures.

Group-wide risk management

Group-wide Galenica Risk Management (GRM) comprises the systematic identification, assessment and management of risks. Regular risk analyses help us to identify potential threats to our business processes in good time. These analyses involve assessing the probability of occurrence and the potential impact of each risk. Based on these assessments, we develop risk mitigation measures, such as implementing control mechanisms and contingency plans. In addition, we continuously monitor our risk landscape and adapt our strategies to respond flexibly to new challenges.

Responsibilities and processes

Our risk managers and the Risk Committee are responsible for the strategic planning and implementation of risk management. Risk management is integrated into Galenica’s organisational structure, which means that processes for identifying, assessing and managing risks are defined and integrated into day-to-day operations. The Galenica Board of Directors receives a summary of the most important risks and measures from the Executive Committee at least twice a year and approves the GRM. Suggestions for risk assessments and measures are implemented as part of the subsequent risk management process.

The risk management process is managed centrally by the Controlling unit, while the operational units are responsible for risk management in their respective areas. Specifically, the specialists responsible for each risk area survey, categorise and assess the risks every year in spring and take measures accordingly. This standardised process is based on a risk matrix in order to identify the most important strategic and operational risks as well as their possible financial and reputational effects and assess them according to their probability of occurrence and potential impact.

Most important risk clusters and measures (pursuant to Art. 964a et seq. CO)

Galenica categorises risks into different risk clusters for a structured and targeted analysis. A detailed risk description is prepared for each risk cluster, including the type of the risk, the potential causes and the possible impact on the company. These descriptions are based on predefined criteria and include both qualitative and quantitative evaluations.

Subsequently, specific risk mitigation measures are developed. These measures include preventive strategies to prevent risks, as well as reactive plans to minimise the impact in the event of their occurrence. Examples of such measures include implementing control mechanisms, training employees and developing contingency plans. Regular reviews and adjustments of the measures ensure that they are always up to date and effective.

This systematic approach enables us to ensure that the relevant risks are identified and appropriately addressed to ensure the long-term stability and success of our business.

Climate-related risks and measures

In 2024, the “Climate” risk cluster was integrated into the process in accordance with the specifications of the Task Force on Climate-related Financial Disclosures (TCFD). This step was based on a comprehensive analysis involving relevant functions from across the Group. Climate-related risks and opportunities were systematically identified, categorised and assessed. The results were incorporated into a risk matrix, which, like the other 13 risk clusters, served as the basis for approval by the Executive Committee and the Board of Directors in autumn. By integrating climate-related risks and opportunities into the overall risk management process, we ensure that these aspects are continuously monitored and assessed. Additional measures will be defined for the most important risks and opportunities over the course of 2025.

In accordance with the TCFD recommendations, Galenica distinguishes between physical and transition climate-related risks and opportunities. Physical risks arise from direct climate and weather events and thus influence Galenica’s operational activities and the supply chain. Transition risks, on the other hand, arise from the decarbonisation of the economy and the resulting legal, social, economic or technological conditions. Galenica has assessed the risks in both categories and categorised them according to their probability of occurrence and financial impact. In addition, the risks and opportunities were classified on a time scale: short-term (1–3 years), medium-term (3–10 years) or long-term (>10 years).

Factoring in different scenarios

In order to better understand the future impact of the identified risks and opportunities on the business strategy, Galenica uses a qualitative scenario analysis. To assess resilience to climate change, Galenica considers two different scenarios based on the IPCC scenarios: The “Less than 2°C scenario”, which assumes global warming of less than 2 degrees Celsius and mainly takes into account transition risks, and the “Business as usual” scenario, which assumes global warming of more than 2 degrees Celsius and therefore includes more physical risks.

Impact of climate-related risks and opportunities

The assessment shows that most risks are of a physical nature, such as flooding or landslides, which can cause acute disruptions in the supply chain. Chronic physical risks due to long-term temperature changes could impact the entire value chain, especially the production of OTC medicines such as phytomedicine, which could necessitate a relocation of production.

In addition, climate-related changes could lead to productivity losses in the company’s own operations and have more serious financial consequences, such as changes in disease patterns or climate-related behavioural changes among consumers. This could lead to lower sales or higher costs due to increased staff shortages caused by heat. However, Galenica could also take advantage of opportunities in the long term if it prepared in good time for new patterns of behaviour or disease, such as the spread of the tiger mosquito. This requires timely investment in alternative sales channels, such as an increased focus on online consultations or the manufacturing and distribution of new medicines.

In the transition to a lower-carbon economy, Galenica may also be exposed to political, legal or market economy risks in order to fulfil the requirements to mitigate and adapt to climate change. The most significant risk is increasing regulation, in particular the CO₂ tax and other regulatory requirements, such as ESG reporting. This affects Galenica’s entire value chain and could result in higher purchasing and operational costs as well as shrinking margins and service losses right up to the end customers.

Sustainability as a competitive advantage

Opportunities can arise if Galenica takes effective climate action and successfully adapts its business model and strategy to the challenges of climate change. CO₂ taxes could serve as a catalyst for innovative logistics and distribution models. In particular, Galenica could improve its customer service through advanced last-mile concepts that optimise the frequency of deliveries. Electric vehicle fleets and energy-efficient commercial buildings may also increase the attractiveness of the company as a responsible and forward-thinking business partner.

Galenica has embedded sustainability as a core principle in its corporate strategy and is therefore well prepared for future demands from politicians, customers and partners. These efforts could be key to attracting and retaining talented employees and fostering stable long-term business partnerships. Overall, sustainability as part of Galenica’s value proposition could become a driver for innovative solutions and offerings in an increasingly environmentally conscious market economy.

Transition plan: Galenica’s path to net zero emissions

The identification of climate-related risks and opportunities encourages Galenica to embed sustainability as an integral part of its corporate strategy and to systematically reduce its CO₂ emissions. In line with Switzerland’s national climate targets, Galenica has committed to achieving net zero emissions by 2050. A key element of the transition plan are the climate targets, which aim to limit global warming to well below 2°C.

Targets

• We will reduce our operational greenhouse gas emissions (Scope 1+2) by 25% by 2025 and by 50% by 2030 (base year 2021).
• From 2025, we will be sourcing 100% of our electricity from renewable sources at all our locations.

In order to achieve these goals and increase Galenica’s resilience to climate-related risks, the Group has addressed sustainability – and therefore also climate-related issues – centrally: Sustainability in all its forms is firmly rooted in the corporate strategy and an integral part of the measures contributing to the decarbonisation of the Group. In 2025, Galenica also plans to develop an in-depth climate strategy that includes the reduction of total greenhouse gas emissions (all scopes) by 2050.

Integration into the corporate strategy: Sustainability is firmly rooted in the corporate strategy, the business model and the strategic areas of action and priorities. The strategic priority of “Efficiency” in particular aims to use resources sustainably and reduce CO₂ emissions. The definition of group-wide objectives and measures forms the framework for resource-conserving and efficient operations.

Initiatives to reduce operational emissions: In order to mitigate potential climate risks and take advantage of the opportunities, Galenica is striving to continuously reduce its operational emissions (Scope 1+2). The activities focus on the following areas:

• Use of renewable energies: From 2025, Galenica is aiming to obtain electricity from renewable sources at all operating sites. To this end, Galenica relies on its own photovoltaic systems and heat pumps, among other things.
• Increased energy efficiency: When undertaking renovations, Galenica focuses on measures to increase energy efficiency, such as the renovation and insulation of roofs.
• Reduction of fuel consumption: In distribution, Galenica is increasingly relying on vehicles with more efficient or renewable drive systems. Vehicle capacity utilisation is also being optimised.

Galenica reduction path (Scope 1+2 emissions)

Reduction of Scope 3 emissions: In 2024, Galenica carried out an initial full screening of its Scope 3 emissions. This shows that Scope 3 accounts for around 98% of all emissions. The vast majority (approx. 94%) falls into category 1 “Purchased Goods and Services”. This initial screening forms the basis for developing a reduction path to net zero, the associated measures and for examining a possible SBTi commitment.

Up to now, the main instrument relied upon in efforts in the supply chain has been the Supplier Code of Conduct for suppliers, which also covers environmental aspects. From 2025, Galenica will carry out random checks to ensure compliance with the Code.

More information on the management of greenhouse gas emissions and the detailed measures and KPIs can be found in the section on greenhouse gas emissions and resources.

Resilience under consideration of scenarios

Galenica acknowledges the importance of sustainability and recognises both the opportunities and risks that climate-related changes entail. By taking a proactive and strategic approach, the company ensures that it is prepared for future challenges while at the same time having the opportunity to seize opportunities as they arise.

The analysis shows that Galenica is exposed to both climate-related risks and opportunities. While the “business as usual” scenario (above 2°C) entails risks for the company’s infrastructure and supply chain security, these impacts are further in the future and allow Galenica to take preventive action. Galenica is focussing on maintaining a financially sound foundation, a diversified supply chain and protecting and upgrading its sites against climate-related physical risks such as flooding.

The “below 2°C” scenario, and thus the decarbonisation of the economy, also involves some risks. However, Galenica estimates that their financial impact will be moderate. In addition, the company is well positioned, having already integrated sustainability and climate considerations into its corporate strategy and implementing measures to increase energy efficiency and reduce operational emissions. This enables Galenica not only to mitigate the transition risks but also lays the foundations for utilising potential climate-related opportunities.

Internal control system

As part of its risk management system, Galenica operates an internal control system (ICS) to ensure reliable internal and external financial reporting and to prevent misstatements and errors about business transactions. The ICS offers the necessary processes and controls to ensure that risks in connection with the quality of the company’s financial reporting can be identified and managed in good time. A thorough review of the existence of the processes and controls of the Galenica ICS is carried out annually by the external auditors at the time of the interim audit. The results of these reviews are reported to the Audit and Risk Committee. Management takes appropriate measures to continuously improve business processes in the areas of purchasing, procurement, investment, sales, human resources, general financial management and reporting, and IT controls.

Internal Audit

Internal Audit carries out audits of operational and strategic risk management and the ICS in accordance with the audit plan determined by the Audit and Risk Committee. It carries out audits, analyses and interviews throughout the Group and supports the Service Units in achieving their objectives by ensuring an independent assessment of the effectiveness of internal control processes. Internal Audit prepares regular reports on the audits carried out and reports directly to the Audit and Risk Committee in writing. The activities of Internal Audit are conducted through contracts issued to external service providers.