Risk Management

In 2024, the global economic situation continued to face complex challenges, with several key factors hindering economic recovery. China’s economic slowdown significantly impacted the regional demand for packaging products and services, while geopolitical conflicts disrupted supply chain, transportation costs, and financial market volatility. Despite these challenges, opportunities and transformative trends have emerged that could strengthen businesses. The relocation of production bases from China to ASEAN created new competitive dynamics, presenting opportunities to develop innovative products and services to gain a competitive advantage. Additionally, stricter environmental measures in Europe, particularly waste management regulations, accelerated business transformation toward a circular economy. Preparing for change, therefore, became crucial. Developing sustainable products and services, designing flexible supply chain systems, and investing in innovations that respond to rapidly changing demands could help businesses maintain competitiveness amid uncertainty.

Risk Management Framework

SCGP has implemented the Enterprise Risk Management Framework (ERM) in alignment with the COSO ERM Framework and ISO 31000 to effectively reduce the likelihood and/or impact of potential risks. SCGP’s risk management framework encompasses the areas below.

1. Strategy and Objective Setting

SCGP has clearly defined the objectives and risk appetite in managing risks, ensuring that risk management is exercised on an enterprise-wide basis. This includes consideration of immediate risks, intermediate risks, strategic risks, investment risks, and specific risks to current situation, such as Information Technology (IT) risks

2. Risk Management Governance and Structure

SCGP has established a risk management structure, as depicted in the diagram below:

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Remark:
The Meeting of the Board of Directors held on November 26, 2024, passed a resolution to establish one additional sub-committee, namely the Risk Oversight Committee, effective from January 1, 2025, onwards. This sub-committee is therefore not included in the Corporate Governance Structure information as of December 31, 2024.

2.1 Corporate-level Risk Management

Roles and Responsibilities of the Board of Directors and the Audit Committee

The Board of Directors assigns the Audit Committee to review and ensure the effectiveness and efficiency of the risk management process. Reports on such activities are regularly submitted to the Audit Committee and the Board of Directors respectively.

Roles and Responsibilities of the Internal Audit Office

SCGP’s Internal Audit Office is responsible for auditing the first line (operating units) and the second line (management levels, risk management and compliance, and other supporting functions) to ensure effective implementation of appropriate risk management. The Internal Audit Office also reports the outcomes to the Audit Committee, provides consultations, and communicates the Audit Committee’s opinions throughout related functions that are being audited for improvement.

Roles and Responsibilities of the Risk Management Committee

The Risk Management Committee consists of the Chief Executive Officer, who serves as Committee Chairman, Chief Operating Officers of each business unit, Chief Regional Officer, Chief Marketing Officer, and Chief Financial Officer. The Committee has the following core responsibilities :

Establish the risk management structure and assign risk management responsibilities
Consider and approve the risk management strategies, framework, and mitigation plans
Review SCGP’s risk appetite statement and risk profile, and monitor the performance of risk management throughout the organization.
Report risks and risk management performance to the Audit Committee.

2.2 Business-level Risk Management and Operational-level Risk Management

Roles and Responsibilities of Risk Champion in each business unit and corporate function and Risk Coordinators in Operational Units/Companies are responsible for implementing the organizational risk management policies, processes, and frameworks at both business and operational levels, while complying risk management procedures. Various tools, such as the Risk Assessment System (RAS) to identify, assess, and monitor risk items, as well as the Enterprise Dashboard and Performance Management System (PMS) to track performance outcomes, are utilized across a range of tasks to achieve business-level goals and objectives, Furthermore, a risk management plan has been proposed to the Board of Directors as part of the Company’s Medium-Term Plan process.

3. Risk Management Process

SCGP has integrated the Risk Management Framework in core operations, including strategic, operational, and investment functions. The risk management process is outlined in the Risk Management Manual, with the following four main steps :

(1) Identify business risks/opportunities by considering existing risks and emerging risks.

(2) Assess the severity of risks by measuring their likelihood and impact with Risk Map and prioritize risks to be managed.

(3) Establish risk responses, key risk indicators, and key performance indicators – both leading and lagging – to anticipate and mitigate risks in accordance with the risk management goals.

(4) Report the performance of risk mitigation to the Risk Management Committee and then to the Audit Committee on a quarterly basis by considering immediate risks, intermediate risks, and risks related to current situation, such as IT risks.

4. Risk Management Culture within the Organization

SCGP recognizes that corporate culture is a crucial enabler of successful risk management. Therefore, an organizational culture that promotes risk management has been encouraged through the following activities :

Assigning top executives to communicate the significance of risk management and serve as role models. This includes establishing practical guidelines for a common risk language, risk appetite, and common risk assessment systems
Assigning roles and responsibilities of risk owners.
Embedding risk management agendas in key meetings of each subsidiary.
Encouraging experience sharing across departments and subsidiaries to continually communicate the benefits of risk management.
Assigning Risk Champions at the business-level and Risk Coordinators at operational levels to regularly attend risk management training and workshops, ensuring that risk management tools are applied appropriately.
Incorporating risk management into the new hire training course and developing annual e-Learning courses accessible to all employees.

5. Risk Factors and Risk Management

SCGP identified and assessed the significant risks in 2024 according to the risk management frameworks, covering Strategic Risks, Operational Risks, Financial Risks, Compliance Risks, Emerging Risks impacting organizational goals and strategies, as well as Investment Risks to shareholders. SCGP has established a risk management plan, of which the performance is as stated below.

	Key Risks	Severity	Key Risk Indicators
Strategic Risks	Global Packaging Demand Softness Risks	High	Packaging demand growth rate, sales volume, and selling price
	Merger & Partnership (M&P) Integration Risks	Medium	Success level of business integration, and performance of acquired businesses
	Risks from Environmental Pollution and Transition to Circular Economy	Medium	Proportion of recyclable products and the number ofproducts certified for environmental standards
	Talent Development for Expansion Risks	Low	Retention rate of high-potential talent, and level ofemployee engagement within the organization
Operational Risks	Health and Safety Risks	High	Number of workplace accidents and fatality rates, proportion of employees trained in safety and accident prevention, number of safety-related complaints or reports in the workplace
	Cyber Security Risks	Medium	Cyber threat detection rate, number of cyber-attack incidents, and portion of employees trained in cybersecurity
	Risks from Cost Management in Supply Chains	Medium	Energy and key raw material price index, freight index, labor costs, and proportion of local raw material procurement
	Human Rights Risks	Medium	Number of human rights complaints, and number of business partners assessed for human rights risks
	Risks of Climate Change Posed by Greenhouse Gas Emissions	Medium	Greenhouse gas emissions, proportion of renewable energy usage, costs related to carbon tax and carbon credit purchases, proportion of low carbon footprint products, and proportion of recyclable packaging
	Risks from Flood and Drought	Low	Water levels of nearby water sources
Financial Risks	Interest Rate Risks	Low	Proportion of floating-rate debt to fixed-rate debt, market interest rate fluctuations, and cash flows used for debt repayment
	Exchange Rate Risks	Low	Fluctuations in major foreign exchange rates, proportion of debt in foreign currencies, and exchange rate-related gains or losses
Compliance Risks	Risks from Licenses and Intellectual Properties Expiration	Low	Number of expired licenses and intellectual properties
Emerging Risks	Risks from Geopolitical Conflicts	Medium	Energy price index, key raw material price index, freight index, and exchange rate fluctuations of major currencies
	Risks from Global Supply Chain Shifts Leading to Increased Regional Competition	Medium	Number of competitors in the regional market, market share, value of FDI investment
Investment Risks Associated with Investment of the Shareholders	Risks from the Shareholding Proportion of the Major Shareholder of More Than 50%	Medium

Key Risks	Mitigations
Global Packaging Demand Softness Risks	Planned to enter new potential markets with growing demand for packaging products and services to offset declining sales volume, and launched new products to expand the customer base and enhance new sales channels. Increased integration level between business units, such as fiber and paper packaging business Strategically planned and managed inventories, including raw materials, work-in-process, and finished goods for delivery by ensuring the appropriate volume to fulfill customer’s demands, and effective cost management. Enhanced profitability and adjusted selling prices in line with market prices to secure market shares while implementing cost reduction initiatives.
Merger & Partnership (M&P) Integration Risks	Implemented the Pre & Post Merger Integration Framework (PPMI), which is a clear screening and merging process aligned with best practices, including enterprise valuation, synergy value creation, good corporate governance, and cultural integration. Appointed teams of advisors from legal, accounting, and financial functions to assess risks associated with an acquisition, such as the appropriate range of enterprise value, market value, and business model; to evaluate its competitiveness; and to provide risk mitigation measures. Presented the business integration plans to executives and conducted follow-ups on a regular basis.
Risks from Environmental Pollution and Transition to Circular Economy	Developed a multitude of innovative products and solutions that minimize resource consumption, and promoted recyclability under the Circular Economy principles, such as developing mono-material flexible packaging that is easy to recycle and rigid packaging with recycled components.
Talent Development for Expansion Risks	Determined critical competencies both leadership and functional competencies required for business operations. Continuous employee development is promoted through reskilling and upskilling, focusing on essential skills for future capability solutions. These competencies are also used as tools for capability assessment, development, and career planning to ensure business growth and competitiveness. Annually assessed talents and developed them by encouraging the establishment and implementation of self development plans and learning programs that strengthen their competencies, such as learning sessions, mentoring system, and project assignments. Established learning and development programs, succession planning, and career development plans. Blended learning sessions (70 20 10 model) were offered to enhance employees with the knowledge and skills required for task achievement and to enable them to adapt to current and future business changes. Implemented succession planning and talent management with a focus on future workforce preparation and employee potential development, while incorporating IT systems in knowledge management to enhance organizational data and knowledge management efficiency.

Key Risks	Mitigations
Health and Safety Risks	Operated in accordance with SCG Safety Framework with conducting safety assessment and annual self-declaration. Encouraged employees and contractors to demonstrate safety behaviors that comply with the Bradley Curve Model, setting the goal for employees to adopt safety behaviors that ensure safety of their team members and enable them to work safely. Established risk identification and assessment processes, as well as measures for systematic risk mitigation and control, including health and safety goals. Managed the safety of contractors through directions and plans established by the Contractor Safety Management Committee, covering the entire process from contractor selection, operational control, and performance assessment to elevate and support contractors’ safety operations. Managed transport safety and vehicle use by developing skills and safety awareness of drivers, and enforcing compliance with transportation standards. Complied with chemical safety management standards and ensured that all chemical-related operations adhered strictly to legal regulations.
Cybersecurity Risks	Complied with SCGP e-Policy and established work procedures in line with the ISO 27001 standards and established the Security Operation Center (SOC) in the forms of on-premise SOC and on-cloud SOC. Installed additional cybersecurity tools such as vulnerability scans, Privileged Access Management (PAM), network access controls, and the security of the Industrial Control System (ICS). Established the Cyber Incident Response Plan to prevent discontinuity of business caused by cyber-attacks and arranged annual drills for the response plan and the Disaster Discovery Plan (DRP). Raised awareness regarding technology usage continuously through various training and activities, including annual tests on SCG e-Policy.
Risks from Cost Management in Supply Chains	Appointed the Coal Collaborative Committee to procure coal through pooled sourcing to achieve effective cost management. Increased the proportion of self-generated power consumption, decreased power purchases from external providers and coal consumption by installing solar panels in the plants, and enhanced the use of alternative energy sources, such as biomass energy from woodchips or bark. Closely monitored the cost of recovered paper and plastic resin to appropriately adjust procurement and inventory management strategies in line with the market conditions and raw material costs. This includes diversifying the sources of raw material imports from the U.S., EU, Japan, and Australia. Increased the proportion of locally sourced raw materials and maintained an appropriate inventory level to reduce the impact of risks arising from higher shipping costs and longer shipping times. Adjusted selling prices to offset increased costs to maintain profitability and competitiveness in the market. Additionally, prices were negotiated on a case-by-case basis to secure competitive pricing during periods of decreased demand. Invested in an automation system in plants to reduce dependence on a human workforce in manufacturing processes.
Human Rights Risks	Announced the Human Rights, Diversity, and Inclusion Policy, aligned with international standards of the United Nations Global Compact (UNGC), International Labor Organization (ILO) Declaration on Fundamental Principles and Rights at Work, and other international requirements. The policy was deployed into actual operations through the SCGP ESG Committee. Implemented a comprehensive Human Rights Due Diligence process and assessed human rights risks, encompassing operational risks and supply chain risks, to further establish mitigation plans. Organized Ethical e-Testing for all Thai employees to test their knowledge and understanding of the various ethics and human rights aspects, including human rights and labor, environment, health and safety, anti-corruption, trade competition, and anti-money laundering. The test’s objective is to raise awareness of these issues among employees to prevent potential violations. All employees are required to pass the test by scoring 100%.
Risks of Climate Change Posed by Greenhouse Gas Emissions	Set a target to reduce greenhouse gas emissions by 25% by 2030 (from 2020 base year) for direct emissions (Scope 1), indirect energy-related greenhouse gas emissions (Scope 2), and achieve net-zero greenhouse gas emissions by 2050. Closely studied packaging trends in target industries, aligning with government regulatory measures, and offered products and services in integrated packaging solutions, emphasizing resource-efficient design and production, environmental sustainability, and cost management for customers. Improved efficiency, changed work processes and equipment, increased biomass fuel consumption, and expanded solar roof project to reduce greenhouse gas emissions. Continuously monitored and assessed potential business risks, and formulated preventive measures to address various scenarios under the evaluation of the Risk Management Committee, the Working Group of Climate Change and Energy Management to disclose information in accordance with the Task Force on Climate-Related Financial Disclosures (TCFD)guidelines. Compiled with the principles of Natural Climate Solutions (NCS), an internationally agreed approach to reduce global warming by lowering carbon emissions, through afforestation and forest conservation to enhance carbon dioxide absorption and storage in the atmosphere. Implementation takes place through restoration and conservation projects, including tree planting within and area around Company’s plant in various provinces.
Risks from Flood and Drought	Monitored water risk situations in areas where SCGP’s plants are located using the Early Warning System (EWS), connected with data from primary sources, such as the Royal Irrigation Department and the Meteorological Department. Monitored and managed in high-risk areas with the collaboration of the Business Unit Management Team and the Local Management Team, complying with the business continuity plan. As a result, SCGP was able to effectively manage situations, mitigate the impact of these risks on the manufacturing process, and deliver products without disruptions. Conducted drills based on the plan to prepare for flood related crises that may impact manufacturing processes or disrupt transportation routes. In addition, flood protection equipment, including pumps, sandbags, and space for a backup office were prepared to ensure business continuity during a crisis. Reduced dependence on external water sources by enhancing water consumption efficiency in production process and improving manufacturing procedures, while reducing water consumption in line with global 3R principles (Reduce, Reuse, Recycle). Optimize the water treatment process to ensure that the treated water can be reused, resulting in a 27.3% reduction in external water usage in 2024 compared to the baseline year of 2014.

Key Risks	Mitigations
Interest Rate Risks	Managed the proportion between floating and fixed-rate debts at appropriate levels by offering debentures to investors and obtaining term loans with fixed interest rates from commercial banks, as well as entering into an Interest Rate Swap (IRS) agreement with overseas commercial bank to convert floating rates to fixed-rates.
Exchange Rate Risks	Entered into forward exchange contracts to prevent risks related to foreign currency financial assets or debts. Also, a Cross Currency Swap (CCS) contract was made with overseas banks. Managed exchange rates by using the same currencies for income and expenses (Natural Hedge)

Key Risks	Mitigations
Risks from Licenses and Intellectual Properties Expiration	Appointed compliance management representatives responsible for monitoring related laws, regulations, and expiring licenses to communicate such information to the responsible functions to ensure timely license renewals. Developed the compliance and license management system to track and retain compliance information, reporting the results to the Compliance Monitor Committee and the ESG Committee respectively.

Key Risks

Mitigations

Risks from Licenses and Intellectual Properties Expiration

Appointed compliance management representatives responsible for monitoring related laws, regulations, and expiring licenses to communicate such information to the responsible functions to ensure timely license renewals.
Developed the compliance and license management system to track and retain compliance information, reporting the results to the Compliance Monitor Committee and the ESG Committee respectively.

Key Risks	Mitigations
Risks from Geopolitical Conflicts	Continuously monitored the situation and assessed potential risks to the business by adjusting procurement strategies and inventory management according to market conditions and raw material prices while also sourcing raw materials from diverse imported sources. Captured business opportunities and competitive advantages through investments and development of new technologies that align with significant global trends with growth potential, while continuously expanding the customer base in new markets to increase sales management flexibility and mitigate impacts amidst various uncertainties that may arise.
Risks from Global Supply Chain Shifts Leading to Increased Regional Competition	Expanded the customer base across various sectors, such as export fruits, electronics, and home appliances, to diversify portfolio of over-reliance on highly competitive markets, while increasing growth opportunities in high-potential markets. Developed and enhanced production capabilities to better meet customer demand and focus on creating differentiation in products and services to strengthen competitive advantages.

Key Risks

Mitigations

Risks from Geopolitical Conflicts

Continuously monitored the situation and assessed potential risks to the business by adjusting procurement strategies and inventory management according to market conditions and raw material prices while also sourcing raw materials from diverse imported sources.
Captured business opportunities and competitive advantages through investments and development of new technologies that align with significant global trends with growth potential, while continuously expanding the customer base in new markets to increase sales management flexibility and mitigate impacts amidst various uncertainties that may arise.

Risks from Global Supply Chain Shifts Leading to Increased Regional Competition

Expanded the customer base across various sectors, such as export fruits, electronics, and home appliances, to diversify portfolio of over-reliance on highly competitive markets, while increasing growth opportunities in high-potential markets.
Developed and enhanced production capabilities to better meet customer demand and focus on creating differentiation in products and services to strengthen competitive advantages.

Key Risks	Mitigations
Risks from a Major Shareholder Holding More Than 50% of the Shares	The Board of Directors has established a conflict-of-interest prevention policy, outlining guidelines, prohibitions, and considerations to ensure that directors, executives, and employees understand and adhere to the policy. SCGP Board of Directors consists of 12 directors, including 7 independent directors (58.3% of total directors) and 11 directors who are not included in the Management Committee (more than 90% of total directors). Furthermore, SCGP has stipulated the qualifications of an independent director with regard to shareholding : an independent director of a company must hold shares in the Company not exceeding 0.5% of the total number of shares with voting rights of the Company, a parent company, a subsidiary, an associated company, a major shareholder, or a controlling person, in order to prevent any impact on his/ her independent judgment.

Key Risks

Mitigations

Risks from a Major Shareholder Holding More Than 50% of the Shares

The Board of Directors has established a conflict-of-interest prevention policy, outlining guidelines, prohibitions, and considerations to ensure that directors, executives, and employees understand and adhere to the policy.
SCGP Board of Directors consists of 12 directors, including 7 independent directors (58.3% of total directors) and 11 directors who are not included in the Management Committee (more than 90% of total directors). Furthermore, SCGP has stipulated the qualifications of an independent director with regard to shareholding : an independent director of a company must hold shares in the Company not exceeding 0.5% of the total number of shares with voting rights of the Company, a parent company, a subsidiary, an associated company, a major shareholder, or a controlling person, in order to prevent any impact on his/ her independent judgment.