3.3 Risk Management

Corporate Governance Report

The following report provides an overview of Hafnia’s key corporate governance practices regarding the Code (defined in 3.1).

For the year 2022, unless stated otherwise, Hafnia has complied with all material aspects laid out in the Code sections.

Below is a summary disclosure on our compliance with the Code.

Section 2 – Business

The Board sets the tone and direction for Hafnia, defining clear objectives, strategies and risk profile, ensuring consistency with the Company’s long-term strategic goals in a sustainable manner taking into account financial, social and environmental con- siderations. For further information, reference is made to section 2 of the Annual Report. The Board conducts an annual review of Hafnia’s objectives, strategies and risk profile, evaluating present and future opportunities, threats and risks in the external environment.

The Company’s Executive Management Team implements the Board’s decisions through managing and developing the business of Hafnia, ensuring that the policies and processes that are in place are compliant with the Board’s instructions. The strategy, objectives and corporate governance regime developed act as a foundation in the Company’s policy to integrate considerations into its business execution to deliver long-term value to the shareholders in a sustainable manner.

Stakeholders may read more about Hafnia’s strategy, objectives and risk profile in the respective section of the Annual Report.

The Company’s Business and objectives are de- scribed in the Company’s Memorandum of Association. In accordance with common practice for Bermuda incorporated companies (including those listed on the Oslo Stock Exchange), the Company’s objectives set out are wider and more extensive than recommended in the Code.

This represents a deviation from Section 2 of the Code.

Section 3 – Equity and dividends

Given the Company’s business’s dynamic and cyclical nature, the Board regularly reviews and monitors the Company’s capital structure to ensure it is in line with the Company’s objective, strategy, and risk profile. This ensures that the business’ activities and growth are funded sensibly and prudently by achieving a more efficient capital structure that seeks to reduce the Company’s overall cost of capital.

The Board has established a clear and predictable dividend policy. The Company will target a quartertly payout ratio of net profit, adjusted for extraordinary items, based on the quarter end net loan-to-value ratio, of:

• 50% payout of net profit if net loan-to-value is above 40%
• 60% payout of net profit if net loan-to-value is above 30% but equal to or below 40%
• 70% payout of net profit if net loan-to-value is above 20% but equal to or below 30%, and
• 80% payout of net profit if net loan-to-value is equal to or below 20%

In addition to cash dividends, the Company may also from time to time consider buying back shares as part of its total distribution to shareholders.

Pursuant to Bermuda law and in accordance with common practice for Bermuda-incorporated companies, the Board has the authority to issue any authorised unissued shares in the Company on such terms and conditions as it may decide and may exercise all powers of the Company to purchase the Company’s own shares. The powers of the Board to issue and purchase shares are neither limited to specific purposes nor to a specified period as recommended in the Code.

This represents a deviation from Section 3 of the Code.

Section 4 – Equal treatment of shareholders

The Company has one class of shares, meaning all shares in the Company carry equal rights, including the right to participate and vote in general meetings. As such, all shareholders will be treated equally un- less there is just cause for treating them differently.

As the Company is a Bermuda limited company, shareholders do not have the same preferential rights in a future offering of shares in Hafnia as shareholders in Norwegian limited liability companies normally have. This is common practice for Bermuda limited companies, including those listed on the Oslo Stock Exchange.
The Company does not deviate from Section 4 of the Code.

Section 5 – Shares and negotiability

The shares are generally freely negotiable. However, the Board may decline to register the transfer of any share, where such transfer would, in the opinion of the Board, likely result in 50% or more of the aggregate issued and outstanding share capital of the Company being held or owned directly (or indirectly) by individuals or legal persons resident for tax purposes in Norway, or alternatively, such shares being effectively connected to a Norwegian business activity, or the Company otherwise being deemed a “Controlled Foreign Company” as such term is defined pursuant to Norwegian tax legislation. The purpose of this provision is to avoid the Company being deemed a Controlled Foreign Company pursuant to Norwegian tax rules.

The Company’s bye-laws also provide the Board the authority to decline the registration of the transfer of “Default Securities” (as defined in the Company’s bye- laws), i.e. shares belonging to unidentified shareholders or any other person who, upon due notice from the Company, have failed to disclose his, her or its interest in company securities.
Both of the above restrictions are common practice for Bermuda limited companies listed on the Oslo Stock Exchange, but represent deviations from Section 5 of the Code.

Section 6 – General meetings

The Company encourages all shareholders to participate in and to vote at general meetings. In order to facilitate shareholder participation, the Board will ensure that:

• The resolutions and supporting documentation, if any, will be sufficiently detailed, comprehensive and specific to allow shareholders to understand and form a view on matters that are to be considered at the general meeting
• The registration deadline, if any, for shareholders to participate at the general meeting will be set as closely to the date of the general meeting as practically possible and permissible under the provision in the Company’s bye-laws
• The shareholders will have the opportunity to vote on each individual matter, including on each candidate nominated for election to the Company’s Board and committees (if applicable); and
• The board members, the chairman of the Nomination Committee and the auditor (where attendance is regarded as essential) will be present at the general meeting

Shareholders who are not able to attend the general meeting will be given the opportunity to vote by proxy or to participate by using electronic means.

The Company will, in this respect:

• Provide information on the procedure for attending by proxy in the notice
• Nominate a person who will be available to vote on behalf of shareholders as their proxy; and
• Prepare a proxy form which will, insofar as this is possible, be formulated in such a manner that the shareholder may vote on each item that is to be addressed and vote for each of the candidates that are nominated for election

The Company secretaries will also prepare minutes from the general meetings. These minutes aim to capture the essence of the meeting, its comments and results from the resolutions.
Pursuant to common practice for Bermuda incorporated companies, the Chair of the Board, or the president of the Company if there is one appointed, will chair the Company’s general meetings unless otherwise resolved by majority vote.
This represents a deviation from Section 6 of the Code. However, there will be routines to ensure that an independent person is available to chair the general meeting or a particular agenda with regards to any matters related to the chair.

Section 7 – Nomination committee

As provided for in its bye-laws, Hafnia established a Nomination Committee at the 2020 Annual General Meeting of the Company.
The Nomination Committee’s duties include proposing candidates for election to the Board and the Nomination Committee itself. As part of its work in proposing candidates for election to the Board, the Nomination Committee will provide reasoned recommendations for any candidate and seek to consult shareholders concerning proposals for candidates’ appointment.

Andreas Sohmen-Pao was previously both the Chair of the Nomination Committee and of the Board. This represented a deviation from Section 7 of the Code. Sophie Smith replaced Andreas Sohmen-Pao as a member and as the Chair of the Nomination Committee at the Annual General Meeting held on 20 May 2022 and the current composition of the Nomination Committee does not represent a deviation from Section 7 of the Code.
See Section 3.3 of the Annual Report for further information regarding the Nomination Committee and its responsibilities.
The Company does not deviate from Section 7 of the Code.

Section 8 – Board of Directors: Composition and independence

The Company believes that the composition of the Board ensures that the Board has a good balance of knowledge, expertise and diversity appropriate to promote different perspectives and mitigate the risk of groupthink. This helps the Board to attend to duties towards the Company and its stakeholders effective- ly. An introduction to the members of the Board of Directors and their expertise is included in Section 3.2 of the Annual Report.

The Board currently consists of five board members but the number of directors of the Company may be increased to eight. The Board members work together to exercise proper supervision of the Company’s business, compliance, performance and work done by the Company’s management. The Chair of the Board is elected by the shareholders.

Three out of five of the board members are independent of the Company’s executive personnel, its main shareholders and material business contacts, and the Company’s executive management is not represented on the Board.
The members of the Board serve for periods of two years at the time, after which they are re-evaluated for potential re-election. The benefit of continuity in the Board’s composition will be balanced against the potential benefits of renewal and independence. The members of the Board are encouraged to own shares in the Company.
The Company does not deviate from Section 8 of the Code.

Section 9 – The work of the Board of Directors

The Board oversees the overall conduct of the Company’s affairs and the day-to-day management of the Company.
The Board’s duties and responsibilities are set out in detail in the Company’s bye-laws. The Board emphasises clear allocation of responsibilities amongst members and between the Board and executive management for increased accountability. Various guidelines have been adopted for both the Board and executive management.
To ensure independence, directors, officers and executive personnel of the Company are required to notify the Board if they directly or indirectly have a material interest in any transaction carried out by the Company. Members of the Board and executive personnel are to recuse themselves from decisions that they have a special interest in so that such items can be considered unbiased. Another director will chair discussions on significant matters if the chairman of the Board has been actively involved outside of his role as Chair of the Board.

The Board has established an Audit Committee consisting of two of the board members and has adopted guidelines for the Audit Committee’s work.
See Section 3.2 of the Annual Report for further information regarding members of the Audit Committee and their responsibilities.
The Board has also established a Remuneration Committee to ensure due and independent preparation of matters relating to executive personnel compensation. See Section 3.2 of the Annual Report for further information regarding the members of the Remuneration Committee and their responsibilities.
The Board established a Nomination Committee at the 2020 Annual General Meeting to ensure Board succession through identifying and nominating candidates for the appointment of members of the Board. See Section 3.2 of the Annual Report for further information regarding the members of the Nomination Committee and their responsibilities. The Board’s internal assessment and performance evaluation was carried out in 2022, to the overall satisfaction of the directors.

The Board aims to annually assess the effectiveness and performance as a whole and of its committees. This ensures that it fulfils its duties and responsibilities satisfactorily and uncovers key areas for improvement and requisite follow-up actions.
In cases of transactions between the Company and a shareholder, a shareholder’s parent company, director, officer or executive personnel of the Company or persons closely related to any such parties, which are not immaterial for either the Company or the close associate involved, the Board will obtain a valuation from an independent third party. Agreements with related parties are given account for in the annual report.
The Company does not deviate from Section 9 of the Code.

Section 10 – Risk management and internal control

The Board is responsible for overseeing risk management in the Company, ensuring appropriate control procedures and systems are in place to manage its exposure to risks that are inherent to the Company’s business. The Company recognises the importance of balancing risks and rewards to pursue business opportunities within its risk appetite. Such procedures also support the quality of the Company’s financial reporting and compliance with applicable laws and regulations.
In Section 3.3 of the Annual Report, the Company provides an overview of Hafnia’s central risks and its business.

Management and internal reporting and control mechanisms are based on Company-wide policies and internal guidelines in areas such as Finance and Accounting, Health, Safety, Security, Environ- ment & Quality (HSSEQ), Ship Operations and Project Management, in addition to implementation and the follow-up of a risk assessment process.
The Company’s policies and guidelines are imperative to the Company’s internal control and risk limitations and are designed to ensure that the Company’s vision, policies, goals and procedures are known and adhered to. This also helps to instil discipline and reinforces the Company’s risk culture regarding the nature and extent of risks that the Company is willing to accept.

The Company has implemented frequent manage- ment reporting sessions where both operational and financial matters are analysed and reported to relevant decision-makers, allowing them to respond quickly to changing conditions. This helps to provide reasonable assurance against foreseeable events that may adversely affect the Company’s business objectives. The Company has established clear and safe communication channels between the employees and management to ensure effective reporting of any illegal or unethical activities in the Company, as such activities may be detrimental to the Company’s reputation, financial well-being as well as to the Company’s various stakeholders.
The Board carries out annual reviews of the Company’s most important areas of exposure to risk and its internal control arrangements.
The Company does not deviate from Section 10 of the Code.

Section 11 – Remuneration of the Board of Directors

The Company seeks shareholders’ approval at the annual general meeting regarding the remuneration of the Board. No director decides his or her own fees. Rather, in determining the remuneration of the Board, the Board’s responsibility, expertise, time commit- ment and the complexity of the Company’s activities will be considered.
To maintain the Board’s independence, the Board’s remuneration will not be linked to the Company’s performance, nor does the Company intend to grant share options, similar instruments or retirement benefits to board members as consideration for their work.

As a rule, the directors do not undertake special tasks for the Company in addition to their director- ship. Fees for any such services rendered should be approved by the Board.
The Company does not deviate from Section 11 of the Code.

Section 12 – Remuneration of executive personnel

The Board has adopted guidelines and principles for determining the remuneration of executive person- nel, which are currently under review and will be presented to the shareholders and communicated to the annual general meeting. The guidelines are clear and understandable, and contribute to the Company’s business strategy, long term interests and financial sustainability. Such guidelines are not a requirement under Bermuda law and will therefore not be subject to the annual general meeting’s approval.

The Remuneration Committee administers all the performance-related elements of remuneration of executive management. The Remuneration Committee annually prepares recommendations to the Board, considering inter alia responsibility, expertise, time commitment and the complexity of the Company’s activities. The remuneration paid to executive manage- ment will aim to ensure a convergence of the financial interests of the shareholders and executive manage- ment. The Company has inter alia adopted a long- term share incentive program for executive manage- ment, and it is designed to be easily understood and, to align the interests of executive management with those of shareholders and link rewards to corporate and individual performance.
Performance-related remuneration is not subject to an absolute limit.
This represents a deviation from Section 12 of the Code.

Section 13 – Information and communication

The Board has adopted guidelines for the Company’s communication with shareholders and how the Company will make information available to shareholders outside of general meetings. Hafnia values openness and transparency towards its shareholders and is committed to disclosing to shareholders as much relevant information as is possible in a timely and accurate manner.

All communications and announcements of information will take into account the requirement for equal treatment of the Company’s shareholders. The Company publishes an updated financial calendar with dates for important events such as the annual general meeting, publishing of interim reports, public presentations and payment of dividends (if applicable) on the Company’s website and on Newsweb.

The Company has also established guidelines for contact with shareholders. A conference call to pres- ent financial information and key business updates
is held every quarter by the executive management. The contact details of executive management are also available on the corporate website, allowing share- holders to reach out to the Company easily.
The Company does not deviate from Section 13 of the Code.

Section 14 – Take-overs

The Company has established key principles for how to act in the event of a take-over offer. In the event of a take-over process, the Board has a duty to ensure that the Company’s shareholders are treated equally and that the Company’s activities are not unnecessarily interrupted. The Board will also ensure that the shareholders have sufficient information and time to assess the offer.

In the event of a take-over process, the Board will abide by the principles of the Code and also ensure that the following take place:

• The Board will ensure that the offer is made to all shareholders, and on the same terms
• The Board shall not undertake any actions intended to give shareholders or others an unreasonable advantage at the expense of other shareholders or the Company
• The Board should not enter into an agreement with any offeror that limits the Company’s ability to entertain other offers for the Company’s shares, unless it is obvious that such an agree- ment is in the common interest of the Company and its shareholders
• The Board shall strive to be completely open about the take-over situation. Agreements between the Company and the offeror which are of significance for the market’s assessment of the offer shall be made known to the market no later than the time when the market is notified of the offer
• The Board shall not institute measures which have the intention of protecting the personal interests of its members at the expense of the interests of the shareholders; and
• The Board acknowledges the particular duty the Board carries to ensure that the interests of the shareholders are safeguarded

The Board shall not attempt to prevent or impede the take-over bid unless this has been decided by the shareholders in a general meeting in accordance with applicable laws. The main underlying principles shall be that the Company’s common shares shall be kept freely transferable and that the Company shall not establish any mechanisms which can prevent or deter take-over offers unless this has been decided by the shareholders in a general meeting in accordance with applicable law.

If an offer is made for a Company’s common shares, the Board shall issue a statement evaluating the offer and making a recommendation as to whether share- holders should or should not accept the offer. If the Board finds itself unable to give a recommendation to the shareholders on whether or not to accept the of- fer, it should explain the reasons for this. The Board’s statement on a bid shall make it clear whether the views expressed are unanimous, and if this is not the case, it shall explain the reasons why specific members of the Board have excluded themselves from the statement.

The Board may also consider to arrange a valuation from an independent expert. An independent valuation will be arranged if any member of the Board, close associates of such member or anyone who has recently held a position but has ceased to hold such a position as a member of the Board, is either the bid- der or has a particular personal interest in the bid. This will also apply if the bidder is a major shareholder of the Company. Any such valuation should either be enclosed with the Board’s statement, or reproduced or referred to in the statement.
The Company does not deviate from Section 14 of the Code.

Section 15 – Auditor

The Company’s auditor is appointed by the Company’s annual general meeting and is responsible for the audit of the Company’s consolidated financial statements.
The auditor participates in the Audit Committee’s review and discussion of the annual accounts and quarterly interim accounts. Annually, the auditor will submit an audit workplan to the Board or the Audit Committee.

The auditor normally participates in Board meetings that deal with annual accounts and accounting principles. The auditor will also assess any important accounting estimates and matters of importance on which there has been disagreement between the auditor and the Company’s executive management and/or the Audit Committee. At least once a year,
the auditor shall present to the Board or the Audit Committee a review of the Company’s internal control procedures, including identified weaknesses and proposals for improvement. Further, the Board will normally hold a meeting with the auditor at least once a year at which no representative of the executive management is present.
The Board is responsible for determining whether executive management may engage the auditor for other purposes than auditing. The auditor is required to annually confirm his or her independence in writing to the Audit Committee.

The Board will give the shareholders an account at the annual general meeting of the remuneration paid to the auditor, including details of the fee paid for audit work and any fees paid for other specific assignments.
The Company does not deviate from Section 15 of the Code.