The overarching aim of risk management is to ensure that the risks which could affect the Company’s strategy and goal accomplishment are identified and managed efficiently, systematically and in a way that creates value. Properly managed, risks can be converted into opportunities and can add business value. Unmanaged risks can lead to loss.

Goals, process and framework

Stockholm Exergi uses the Committee of Sponsoring Organizations of the Treadway Commission (COSO) risk framework, including its three lines of defence model and risk process. This framework is based on the principle that operational activities are responsible for identifying, analysing, managing, controlling, monitoring and communicating the status of risks. Application of the framework and Enterprise Risk Management (ERM) is aimed at ensuring complete, structured and transparent risk management at Stockholm Exergi. Another aim of the risk framework is to govern and support the implementation of Stockholm Exergi’s strategies, business plan and operational activity plans, and thus avoid undesired outcomes and capitalise on 
opportunities to maximise value.

Business risks

Stockholm Exergi operates a capitalintensive business in competitive markets with a strong element of political and environmental governance and control, both indirect and direct. The business is therefore exposed to various types of risk. These are reported below based on the overall risk categories: operational, market, financial, strategic, political, regulatory and sustainability-related risks.

Operational risks

Operational risks refer to the adverse consequences of inadequate processes, system failures, undesirable behavior or external events that affect the operation’s goals. Operational risks are managed through procedures including process documentation and automation, clearly defined decision-making processes, and separation of decision-making and control functions. Stockholm Exergi’s internal controls are also focused on 
reducing operational risks. Risks are regularly assessed and corrective action 
is taken on an ongoing basis.

The most significant operational risks for Stockholm Exergi pertain to plant availability. Technical equipment can break down, causing production loss and additional production costs. To reduce the risk of this occurring, we work continuously and systematically on preventive maintenance and, where possible, ensure that we have redundant solutions in place. We are closely monitoring the geopolitical situation and its development. Insurance schemes are in place to reduce risk exposure for insurable operational risks.

Security, IT and information security is a risk area that has gained importance in recent years, which is why we have continued to focus sharply on this area. These risks are further described below.

Market risks

Market risks for Stockholm Exergi and its district heating operations include the development of competing heating alternatives and risks associated with fuel supply.

Competition from alternative heating solutions, such as heat pumps and solar energy, can impact the need for district heating. Technological changes and innovations that provide more efficient or less expensive heating solutions can also reduce demand for traditional district heating.

In addition to these normal market risks, short-term sales volumes depend primarily on customer needs that vary with the outdoor temperature. In the longer term, sales volumes can also be impacted by changes in customers’ consumption patterns and by climate change. These risks are managed mainly by offering customers different pricing models and complementary services to improve efficiency and optimize the use of district heating.

Stockholm Exergi produces electricity in CHP plants and consumes electricity mainly in heat pump plants, which limits the company’s net exposure. Risk management in this context is addressed with financial derivative instruments. Stockholm Exergi uses a range of different fuels procured on the national and international markets. Stockholm Exergi’s flexible production options limit price risks for fuel to some extent. Fixed price agreements for physical deliveries, along with financial electricity derivatives, are also used to a large degree to limit price risks.

A key component of Stockholm Exergi’s business involves the well-timed securing and optimization of availability for various types of fuel at any given time, to ensure continuous delivery to customers. Fuel market volatility has increased in recent years, prompting a review of the situation. Some adjustments have been made to delegated mandates in order to optimize Stockholm Exergi’s capacity to secure sufficient amounts of fuel at any given time at the best possible price.

Financial risks

Stockholm Exergi’s financial risks mainly relate to liquidity shortage, refinancing, currency exposure, interest rate fluctuation and credit risk.

Strategic risks

Strategic risks are mainly risks affecting Stockholm Exergi’s long-term plans and its ability to operate in the heating, cooling and electricity markets. The development of competing alternatives is one example of a strategic risk. Stockholm Exergi has detailed and well-developed plans to build a Bio Energy Carbon Capture and Storage (BECCS) plant. The project represents a major opportunity for Stockholm Exergi to reduce environmental footprint, while simultaneously laying the foundation to generate revenue from the sale of negative emissions to companies interested in promoting climate change mitigation. At the same time, the development project is exposed to strategic risks, which are in turn associated with multiple risk categories, including financial risks, operational risks, regulatory risks, market risks, reputational risks, and social and political risks.

Political risks and regulatory risks

Stockholm Exergi’s operations are subject to many laws, directives and regulations, so any changes in these areas present a risk. Political decisions – e.g., market regulations and decisions related to emissions, energy and environmental policy – can impact Stockholm Exergi’s ability to achieve its set targets. Changes to emission standards or renewable energy incentives can have both positive and negative impacts on the business and its future profitability. The need to invest in new technology and infrastructure to meet future environmental requirements can result in major financial costs. 

These risks are managed through well-developed internal frameworks and decision support systems that indicate, among other things, when legal support should be obtained. Stockholm Exergi applies its own Code of Conduct to ensure good quality control and high business ethics in its daily work. 

Stockholm Exergi closely monitors developments and actively participates in the energy debate by highlighting the benefits of its cogeneration operations, including relieving the electricity system.

Policy instrument risks

The EU has set up an emissions trading scheme. A Green Electricity certificate scheme has been set up at a national level to support the production of renewable electricity. Stockholm Exergi’s production units are covered by these systems. These risks are managed by means of financial derivative instruments, and by taking into account the prices of policy instruments when planning production.

Sustainability risks

Stockholm Exergi conducted a double materiality assessment in 2024 to identify the company’s material impacts, risks and opportunities from a sustainability perspective. The assessment covers Stockholm Exergi’s value chain, both upstream and downstream, and the company’s own operations. Results are presented in the company’s Sustainability Report (Page 84-157).

Climate change is the company’s largest sustainability area, from both an impact and a financial perspective. For Stockholm Exergi, the topic is both negative (the company’s operations emit green gases) and positive (the company’s products and services are designed to counteract climate impact, presenting a potential financial opportunity). Stockholm Exergi’s operations and business development are sensitive to the way policy instruments are designed; accordingly, transition risks (regulatory and policy instrument risks) have a natural, very strong connection to the climate issue.

Resource use and circular economy are also critical areas for Stockholm Exergi. In our waste treatment service, we use incineration and energy recovery to make use of resources that would otherwise be lost. Our operations therefore help reduce Stockholm’s resource requirements for heating, which is in itself positive. But incineration emits climate-impacting carbon dioxide, which constitutes a real financial and market risk. The company supports activities and takes its own measures to reduce emissions, including collaborating on automated post-sorting of waste and applying a waste treatment pricing structure that provides incentives for sorting more plastic. 

Corporate responsibility is another key risk area from a sustainability perspective. The company needs to be able to attract people with the right skills, and wants to build a corporate culture that benefits our employees. A safe and inclusive work environment is therefore a target area highlighted by the company, and developments are closely monitored. The company’s sustainability policy also includes a policy on diversity (clause 5). The company has explicit targets for gender distribution and proportion of employees with a foreign background and is working actively to achieve these targets. Efforts in this area are described in the Sustainability Report under the ESRS S1 standard (Own workforce). The company runs industrial operations, so the risk of work-related accidents needs to be minimized through a combination of good safety culture, procedures for safe working methods, and technical protection and barriers. Results from our health and safety work during 2024 are presented in the Sustainability Report.

Results from our health and safety work during 2024 are presented in the Sustainability Report.

Risk of irregularities and corruption

Stockholm Exergi is well aware of the risk of corruption and other irregularities. All activities have been analyzed based on these considerations, and the Company’s Code of Conduct aims to minimize these risks. All employees are required to undergo e-training in anti-corruption and Stockholm Exergi’s Code of Conduct as part of the onboarding process, and to repeat this training every three years. As of December 31, 2024, 97 percent of all employees completed this digital training program during the period 2022-2024. Stockholm Exergi’s purchasing departments, where there is generally a higher level of exposure, received more comprehensive skills development during 2024 in the area of business ethics.

Stockholm Exergi has procedures and processes in place for reporting and dealing with suspected cases of corruption and irregularity. A general whistleblower function has also been implemented, which allows any employee or supplier to report wrongdoing anonymously. All applicable policies are published in Stockholm Exergi’s operating systems and are available to all employees.