Risk management

Rigorous and systematic risk management is essential. The current risk landscape is impacted by elevated geopolitical uncertainties and market dynamics in the segments in which we operate.

We apply a dual-lensed approach to risk management. This means that we aim to identify and mitigate both operational risks that pose a threat to our short- to medium-term plans, and strategic risks that could reduce our ability to realise our corporate strategy over the long term.

Addressing risks in our strategic planning

Scenario and risk-thinking exercises are part of our strategic planning. These exercises involve analysing market trends and considering the effects of socioeconomic, environmental, geopolitical and political changes that could pose risks to, or create opportunities for, our business. Annually, Executive Management and the Board of Directors review and discuss a strategic risk profile. Further, strategic risks and the conclusions from our double materiality assessment in the Sustainability statement are compared to better integrate sustainability risks in our risk outlooks and strategic direction. The main strategic risks are:

Innovation and competition

Novo Nordisk faces a concentration risk with multiple brands being dependent on the semaglutide compound as the active pharmaceutical ingredient. To remain competitive in the long term and thereby mitigate the innovation risk, we invest in internal and external pipeline opportunities as well as effectively attracting talent to continue providing patients with innovative treatments.

Production capacity and supply chain risks

Demand fluctuations, resource shortages, geopolitical instability, trade disputes and local manufacturing requirements are all factors that can pressure global supply chains. Furthermore, expanding production capacity is complex and associated with a long lead times. Therefore, planning and management of our production capacity and supply chain are key to mitigate this risk.

Access and affordability

Access to affordable care is a global issue as healthcare systems struggle to provide quality care at a sustainable cost, while the burden of chronic diseases keeps rising. Ensuring access and affordability is a risk and responsibility Novo Nordisk shares with all stakeholders involved in healthcare. We continue to scale our capacity to meet patient demand and thereby broaden access to medicines and to meet our social responsibilities.

Healthcare reform

Some governments are adopting changes to their pharmaceutical frameworks that introduce further complexity in healthcare systems and uncertainties in the regulatory environment. This may lead to additional price pressure, potentially impacting our profitability. We continuously educate healthcare providers about the value and benefits of our products as well as engage in a dialogue with policymakers and stakeholders, communicating potential consequences of healthcare reform to the innovative life science environment.

Digital disruption

New digital technologies could provide an opportunity to deliver more value to our stakeholders and help patients live a life with fewer limitations. We recognise that there is also a risk of digital disruption leading to increased competition through accelerated and enhanced drug discovery and development. To ensure we remain competitive, we continuously innovate and integrate these technologies into our processes.

Environmental impact

Novo Nordisk’s current expansion efforts, including scaling of production capacity, significantly increases our current and projected greenhouse gas emissions. We are addressing this challenge through our Circular for Zero strategy. This includes an increased focus on our global emissions, also encompassing scope 3 emissions, as well as assessing, monitoring and mitigating environmental risks across the value chain.

Geopolitical uncertainty

Ongoing conflicts, geopolitical tensions and social unrest represent a volatile landscape which has led to governments introducing trade restrictions and tariffs. If escalating tensions persist, there is a risk that further tariffs may be imposed. Most notably, the new US administration considers to impose a range of trade actions on all articles imported into the US. We navigate this elevated degree of geopolitical uncertainty by monitoring geopolitical developments, actively engaging in policy making and diversifying our supply chain.

Ethics and compliance

Our commitment to ethics and compliance remains at the forefront of all our operations. Any inability to uphold our ethical standards could lead to reputational implications, with potential effects on market access and pricing negotiations. Our values, encapsulated in the Novo Nordisk Way, guide every decision we make. OneCode, our code of conduct, further empowers us to conduct our operations responsibly. These guidelines help us to maintain integrity, thereby enabling us to fulfil our purpose effectively.

Operational risk management process

In the short- to medium-term, we are exposed to risks throughout our value chain. Some risks are inherent in the pharmaceutical industry, such as delays or failures of potential late-stage medicines in the R&D pipeline. Other risks, such as geopolitical instability, supply disruptions and competition, are common amongst manufacturing companies with global production. We will not compromise on product quality, patient safety and business ethics: these are front and centre of our enterprise-wide risk management set-up. We assess risks with regard to their corresponding likelihood of financial loss or reputational damage.

Executive Management, the Board of Directors and the Audit Committee review a risk grid of our biggest operational risks every three months. This grid is based on insights from management teams across the organisation and includes all types of risks that could cause significant disruptions to the business over a three-year horizon, including potential environmental, social and governance risks. An overview of our key operational risks, along with detailed descriptions, is provided on the next page. For more information, see our Corporate Governance Report available at: www.novonordisk.com/about/corporate-governance.html.