Risk management

Risk management is a key part of the LEO Foundation’s work, allowing it to appropriately manage and mitigate risks and respond to changing circumstances.

The LEO Foundation’s main risks relate to value generation and operational risks at LEO Pharma as well as the management of the Foundation’s financial assets. The Foundation must ensure that sufficient capital is always available to withstand a severe crisis, including a convergence of several high-impact risk events.

The LEO Foundation applies risk models to simulate the effect of potential high-impact risks to ensure that the Foundation always has sufficient capital available to withstand such crises. These simulations are carried out twice a year and reported to the Board. In addition, the Foundation is subject to a number of other risks of a more generic nature, including risks related to the Foundation’s philanthropic activities as well as political and reputational risks. These are, as far as possible, mitigated through the implementation of policies and procedures.

In 2020, the LEO Foundation continued its work to strengthen the mapping, reporting and mitigation of risks across our areas of operations.

Risk – LEO Pharma

Business and financial risks associated with operations are managed by LEO Pharma, which has defined risk management policies and procedures. To facilitate a sustained repeatable approach to risk management, an Enterprise Risk Management Framework (“ERM Framework”) is being implemented globally, primarily based on the ISO 31000 International Risk Management Standard. This includes standardized risk assessment and risk treatment, and a risk reporting methodology and cycle.

The LEO Pharma Board of Directors has overall responsibility for the company’s enterprise risk management, with oversight of the ERM Framework delegated to its Audit Committee.

A separate risk report with a risk heat map of the key enterprise risks relevant to LEO Pharma’s strategic ambitions toward 2030, including high-level scenarios and main risk treatment activities for each key risk, is provided to the company’s Board of Directors as well as to the Foundation on a biannual basis. In parallel, a biannual worst-case risk report is provided to support financial stress testing and ensure that key internal stakeholders stay vigilant and maintain a balanced level of preparedness for these often low-likelihood but high-consequence risk scenarios.

Risk – Financial portfolio

The financial portfolio is managed according to the investment policy, which is reviewed and approved annually by the Board. The investment policy sets out the strategic asset allocation and the boundaries for each asset class within which tactical asset allocation positions can be taken. Furthermore, the investment policy sets limits on counterparty risk, overall interest rate risk and the liquidity of the financial portfolio. Currency risk is hedged for all fixed-income exposure, while equity investments have full currency exposure but with the option of hedging.

All asset classes, external managers and external investment funds are approved by the Board’s Investment Committee prior to any investments.Compliance with the investment policy is verified by the finance department, and investment results are documented in reports to the Investment Committee and the CEO.

Each week, a portfolio performance report is prepared by the Chief Investment Officer and distributed to the CEO and the Chairman of the Investment Committee, followed by a meeting between the CEO and the investment team. A monthly report is issued to the Investment Committee, and an investment update is presented to the full Board by the Chief Investment Officer at all regular Board meetings.

In relation to ESG, the investment team reviews the external investment managers as an integrated part of the investment process. All investment managers report annually on ESG factors and matters, including, where relevant, exited investments, engagement with companies and ESG Committee issues.

Please refer to the Corporate Social Responsibility section for more information about the LEO Foundation’s ESG policy.

For more information about risks at LEO Pharma, please refer to LEO Pharma’s Annual Report Click here