Risk and opportunity management system

The risk management system is intended to systematically and continually identify, assess, control, monitor and report risks threatening Daimler’s existence and other material risks, in order to support the achievement of corporate targets and to enhance risk awareness at the Group. The risk management system is integrated into the value-based management and planning system of the Daimler Group and is an integral part of the overall planning, management and reporting process in the companies, segments and corporate functions.

The opportunity management system at the Daimler Group is based on the risk management system. The objective of opportunity management is to recognize the possible opportunities arising in business activities as a result of positive developments at an early stage, and to use them in the best possible way for the Group by taking appropriate measures. By taking advantage of opportunities, planned targets should be met or exceeded. Opportunity management considers relevant and realizable opportunities that have not yet been included in any planning.

In the context of the operational planning, risks and opportunities are identified and assessed with the use of appropriate categories for a two-year planning period. Furthermore, the discussions for the derivation of mid-term and strategic targets in the context of strategic planning also include the consideration of risks and opportunities relating to a longer period. Group Risk Management regularly reports on the identified risks and opportunities to the Board of Management and the Supervisory Board. Besides the reporting at specific times, risk and opportunity management is established as a continuous task within the Group. In addition to reporting at specific intervals, risk and opportunity management in established at the Group as a continuous process. There is an internal reporting obligation within the Group for material risks arising unexpectedly.

The reporting of risks and opportunities in the Management Report generally relates to a period of one year. Risk assessment takes place on the basis of probability of occurrence and possible impact according to the levels “Low,” “Medium” and “High.” These levels also apply to the possible impact of opportunities. An analysis of the probability of occurrence is not considered here. When assessing the impact of a risk or opportunity, its effect on EBIT is generally considered.

At Group level, risks and opportunities below €500 million are classified as “Low”, between €500 million and €1 billion as “Medium” and above €1 billion as “High”. For the quantification of each risk and opportunity category in the Management Report, the individual risks and opportunities are summarized for each category. The assessment of the dimensions, probability of occurrence and possible impact, is based on the levels shown in table B.70 and is conducted before measures are planned. In addition to the quantifiable risks and opportunities, risk management also considers qualitative risks and opportunities. Qualitative risks include issues that can have a negative impact on the public’s perception and thus on the reputation of the Daimler Group. They primarily comprise those risks connected with aspects presented in the Non-Financial Report. Risks in connection with compliance violations are also considered in the context of risk management. In the context of describing the risk and opportunity categories, significant changes in comparison to the prior year are explained.

B.70 Assessment of probability of occurrence/possible impact

Level Probability of occurrence
Low 0 % < Probability of occurrence ≤ 33 %
Medium 33 % < Probability of occurrence ≤ 66 %
High 66 % < Probability of occurrence < 100 %
       
Level Possible impact
Low €0 < Impact < €500 million
Medium €500 million ≤ Impact < €1 billion
High   Impact ≥ €1 billion

Risk management is based on the principle of completeness. This means that at the level of the individual entities, all identified risks enter the risk management process. The internal control system (ICS) is responsible for the monitoring of general uncertainties without any clear indication of a possible effect on earnings.

The scope of consolidation for risk and opportunity management corresponds to the scope of the consolidated financial statements and goes beyond that if necessary. The risks and opportunities of the segments and operating units, important associated companies, joint ventures, joint operations and the corporate departments are included.

Furthermore, the employees responsible for risk management include have the task of defining measures and if necessary, initiating such measures to avoid, reduce or protect the Group against risks. Within the context of opportunity management, measures are to be taken with which opportunities can be seized, improved and (fully or partially) realized. The cost-effectiveness of a measure is assessed before its implementation. The feasible impact and probability of occurrence of all risks and opportunities of the individual entities and the related measures that have been initiated are continually monitored. The management activities take place at the level of the segments based on individual risks and opportunities. As the parent company of the Daimler Group, Daimler AG monitors implementation by the segments as part of its duty to manage the Group.

The internal control system with regard to the accounting process has the objective of ensuring the correctness and effectiveness of accounting and financial reporting. It is designed in line with the internationally recognized framework for internal control systems of the Committee of Sponsoring Organizations of the Treadway Commission (COSO Internal Control – Integrated Framework), is continually developed further, and is an integral part of the accounting and financial reporting processes in the relevant companies, organizational entities and corporate functions. The system includes principles and procedures as well as preventive and detective controls. Among other things, it is regularly checked, if

  • the Group’s uniform financial reporting, valuation and accounting guidelines are continually updated and regularly taught and adhered to;
  • transactions within the Group are accounted for and properly eliminated;
  • issues relevant for financial reporting and disclosure from agreements entered into are recognized and appropriately presented;
  • processes are established to guarantee the completeness of financial reporting;
  • processes are established for the segregation of duties and for the “four-eyes principle” in the context of preparing financial statements, and authorization and access rules exist for relevant IT accounting systems.

The effectiveness of the internal control system is systematically assessed with regard to the corporate accounting process. The first step consists of risk analysis and a definition of control with the objective of identifying significant risks relating to the processes of corporate accounting and financial reporting in the main companies, organizational entities and corporate functions. The controls required are then defined and documented in accordance with Group-wide guidelines. Random samples are regularly tested to assess the effectiveness of the controls. Those tests constitute the basis for self-assessment of the appropriate magnitude and effectiveness of the controls. The results of this self-assessment are documented and reported in a Group-wide IT system; identified control weaknesses are eliminated. At the end of the annual cycle, the selected companies, organizational entities and corporate functions confirm the effectiveness of the internal control system with regard to the corporate accounting process. The Board of Management and the Audit Committee of the Supervisory Board are regularly informed about the main control weaknesses and the effectiveness of the control mechanisms installed. However, the internal control and risk management system for the accounting process cannot ensure with absolute certainty that materially false statements in accounting are avoided.

The organizational embedding and monitoring of risk and opportunity management takes place through the risk management organization established at the Group. In this context, the companies, organizational entities and corporate functions report on concrete risks and opportunities to the next-higher entity at regular intervals. Through the segments, this information is passed on to Group Risk Management, which processes it and provides it to the Board of Management and the Supervisory Board as well as to the Group Risk Management Committee (GRMC). The GRMC is responsible for the continual improvement of the risk management system and for assessing its efficiency and effectiveness. It is composed of representatives of Accounting & Financial Reporting, the Legal Department, Compliance and Technical Compliance, and the members responsible for finance of the Boards of Management of Mercedes-Benz AG, Daimler Truck AG and Daimler Mobility AG; it is chaired by the Board of Management members of Daimler AG responsible Finance & Controlling/Daimler Mobility and for Integrity and Legal Affairs. The Internal Auditing department contributes material findings on the internal control and risk management system.

Responsibility for operational risk management and for the risk management processes lies with the segments, corporate functions, organizational entities and companies.

Reports regarding the current risk situation and the effectiveness, functionality and appropriateness of the internal control and risk management system are regularly presented to the Board of Management and to the Audit Committee of the Supervisory Board of Daimler AG, as well as to the Boards of Management of Mercedes-Benz AG, Daimler Truck AG and Daimler Mobility AG. Furthermore, the risks and opportunities of business operations are regularly discussed by the responsible persons in the Board of Management of the relevant company.

The Audit Committee of the Supervisory Board of Daimler AG and the committees of the Supervisory Boards of Mercedes-Benz AG, Daimler Truck AG and Daimler Mobility AG are responsible for monitoring the internal control and risk management system. The internal auditing department monitors whether the statutory conditions and the Group’s internal guidelines concerning the internal control and risk management system of the Group are adhered to. If required, measures are initiated in cooperation with the respective management. External auditors audit the system for the early identification of risks which is integrated in the risk management system for its general suitability to identify risks threatening the existence of the Group; in addition, they report to the Supervisory Board on any significant weaknesses that have been recognized in the internal control and risk management system.

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Risks and opportunities
Risk and Opportunity Report