3.3 Risk Management

Risk Management Framework

Risk is inherent in the business activities of Hafnia, and managing it is critical for ensuring long-term success. Hafnia’s overall risk management program focuses
on the unpredictability of the economic and financial landscape and seeks to minimise potential adverse effects on Hafnia’s operations. That way, we will be able to create sustainable value for our customers, employees, shareholders and the community.

Hafnia’s operations are dependent on the market for worldwide transportation of refined oil products.

Apart from that, the Company is also exposed to a variety of risks: transitional, physical and other corporate risks. An overview of Hafnia’s key risks and our mitigating strategy is included here.

Type of Risk Risk description Potential impact Our response Opportunities TCFD Risk Category
Market risk
  • The product tanker industry is highly dependent on global supply and demand of oil and oil products
  • Many factors affecting the demand for oil products are beyond our control, such as global economic and political conditions
  • When a vessel is not employed, we will not receive any earnings from the vessel, but will still have to pay interest, debt, and operation expenses as necessary to maintain the vessel, hence leading to reduced revenues
  • Monitor market developments closely and leverage our in-house commercial expertise to make timely and appropriate decisions regarding deployment and investment of vessels
  • Engage actively with market research experts to assess quality research reports to better understand the market outlook and underlying trends
  • Maintain a young and modern fleet that has relatively lower operating expenses
  • Diversify portfolio and retrofit ships to transport low carbon fuels to mitigate the risk of long-term reduction in oil demand
  • Further cement foothold as a market leader in the product and chemical space, through thought- ful acquisitions and consolidations
  • Gain competitive advantage through making informed deci- sions in deploying our vessels
  • Constant fleet renewal to reduce operating costs
  • Grow our adjacent businesses to ensure we have diversified revenue streams
Transition Risk
Regulatory risk
  • The shipping industry is affected by extensive and changing international regulations, especially in environmental laws
  • Increased efficiency standards might lead to vessels having to travel at slower speeds to remain compliant, increasing operating costs and breakeven levels
  • This will also lead to higher vessel scrapping activity for vessels that are not compliant
  • Remain compliant with reporting requirements and legislation through monitoring of all our vessel performance
  • Explore opportunities to reduce our environmental impacts, through retrofitting vessels and continually seeking initiatives that help to optimise vessel performance
  • Collaborate with international maritime bodies on new regulations to ensure we stay atop of any development in international frameworks on climate change
  • Stay on top on developments in the renewable fuel engine sector as that will allow large strides in the decarbonisation of the ship- ping sector
  • Gain competitive advantage through strategic partnerships to accelerate our decarbonisation journey
  • Assist Pool Partners across environmental regulations
Transition Risk
  • The financial sector is under pressure to reduce CO2-financed emissions, which could lead to higher costs of capital for shipping industry
  • Increased financing costs for our vessels, leading to higher interest payments and breakeven levels
  • Adequate financial planning to forecast our needs by anticipating higher cost of capital to ensure we do not incur unnecessary liquidity risks
  • Show a clear pathway towards decarbonisation and seek sustainable/climate-linked bonds and loans
  • To be the market leader in ESG practices will instill confidence in our company from various stakeholders
Transition Risk
Reputational risk
  • With gaining traction of renew- able energy, investors may perceive transportation of fossil fuels as aspects of a sunset business model
  • A loss in confidence in the quality of our industry could have an impact on our share liquidity, and ability to access lending
  • Strengthen investors’ engagement by regularly publishing market updates, Hafnia’s climate strategy and increased transparency in ESG reporting, to ensure investors fully understand our strategy and the conditions we operate in
  • Comply with reporting requirements and legislation to position Hafnia as a leading company in the management of maritime operations
  • Support industry-wide research within new forms of propulsion and renewable fuels
  • Demonstrate clear progress to- wards our net zero commitments by 2050 and access to a broader range of investors
  • Utilise fleet to underscore commitment to decarbonisation by transporting a larger proportion of renewable bioproducts (In 2022, 17% of cargo transported by the chemical fleet were bioproducts)
  • Retain and attract new custom- ers investing in decarbonisation and improve competitiveness
Transition Risk
Technology risk
  • Disruptions may occur from new technologies arising in terms of new vessel propulsion or renewable fuels
  • With improved innovations, this may decrease the value of existing vessels which are not compatible
  • Monitor new technologies and propulsion fuels and invest in technology training and skills for employees
  • Be able to accommodate carbon neutral fuels with our LR2 newbuilds equipped with dual-fuelled high pressure LNG engines
  • Make informed decision making by leveraging research and data
  • Provide customers with sustainable freight solutions and cooperate with environmentally friendly and energy-efficient suppliers
Transition Risk
  • Our business is heavily reliant on technology. Our onshore employees are communicating with people around the world digitally, while our vessels have installed several technological initiatives such as live data collection to optimise performance
  • Heavy reliance on technology will cause us to be prone to cybersecurity attacks and data breaches
  • Continually enhance our cyber defence across our people and processes, through identifying potential vulnerabilities and conducting training for employees to raise their awareness
  • Since the onset of the Covid-19 pandemic, we have adopted a flexible working arrangement. It is therefore important that our technology team maintain high cyber resilience with no degradation of our business levels
  • With growing trend in automation and big data, we must ensure we are able to collect and make sense of data to optimise performance
Financial risk
  • Our business is exposed to adverse changes in base interest rates, mainly due to interest-bearing financial liabilities in the form of bank borrowings at variable interest rates
  • A portion of our fleet is financed through interest-bearing bank borrowings. An increase in base interest rates could increase breakeven levels and lead to short term liquidity risks
  • Closely monitor the interest rate environment and use financial instruments such as interest rate swaps and freight forward agreements to hedge material exposures
  • Maintain sufficient cash for its daily operations in short-term cash deposits with banks and have access to unutilised portions of revolving facilities provided by financial institutions
  • Actively work on refinancing areas of the balance sheet to further strengthen and optimise our capital structure
  • Maintaining strong relationships with financiers and the investment community will allow us to enjoy industry-leading debt financing and ease of raising capital
Acute risk
  • Extreme weather conditions can result in physical damages to vessels and marine infrastructure
  • It could also jeopardise our at sea workforce’s health and safety
  • Physical damages to vessels and marine infrastructure could lead to vessels not be- ing able to be deployed, resulting in decreased revenues, higher insurance premium and incuring additional repair costs
  • Maintain robust maintenance and navigational management processes, such as weather routing systems
  • Provide specialised training and adequate equipment to at-sea staff and make strategic planning for long periods at sea
  • With advancement in technology, we must leverage artificial intelligence and data to better forecast decisions regarding the deployment and maintenance of our vessels
Physical Risk
Chronic risk
  • Megatrends such as rising temperatures and sea levels will require vessel adaption
  • Slow moving, but powerful changes on a global scale could affect vessel trading routes due to rising sea levels, affecting vessel access to end customers
  • Include chronic risks considerations in our evaluation of business opportunities and plan for investments in infrastructure adaptation
  • Spot shifts in global behavior caused by underlying megatrends and adapt to these changes in advance to improve our competitiveness and resilience
Physical Risk

Transition risks are related to the transition to a lower carbon economy that may entail extensive policy, legal, technology and market changes to address mitigation and adaptation requirements related to climate change

Physical risks are related to the physical impacts of climate change being event driven (acute) or longer-term shifts (chronic)

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