Investor Presentaiton
5. Social and environmental risk
management
6. Financial risk management
The Company, through its subsidiaries and associates, operates in various
segments and consequently, these activities are subject to several Brazilian
and international environmental laws, regulations, treaties and conventions,
including those that regulate the discharge of materials into the envi-
ronment, which establish the removal and cleaning of the contaminated
environment, and those relating to environmental protection. Violations of
the environmental regulations in force expose the violator(s) to significant
fines and monetary penalties, and may require technical measures or in-
vestments to ensure compliance with the mandatory emissions levels.
The Company and its subsidiaries carry out periodic studies to identify
any potentially affected areas and records, based on the best estimates
of costs, and the amounts expected to be disbursed for the investigation,
treatment and cleaning of the potentially affected areas. The Company and
its subsidiaries believe they are in compliance with all of the applicable en-
vironmental standards in the countries in which they operate.
6.1. Financial risk factors
The activities of the Company and its subsidiaries expose them to a variety
of financial risks, namely: (a) market risk (including currency, commodity
price and interest rate risk), (b) credit risk and (c) liquidity risk.
A significant portion of the products sold by the Company and its subsidia-
ries, such as aluminum, nickel and zinc are commodities, with prices pegged
to international indexes and denominated in US Dollars. Their costs, howe-
ver, are mainly denominated in reais, and therefore, there is a mismatch of
currencies between revenues and costs. Additionally, the Company and its
subsidiaries have debts linked to different indexes and currencies, which
may have an impact on their cash flow.
In order to mitigate the various effects of each market risk factor, the
Company and its subsidiaries follow a Market Risk Management Policy,
approved by the Finance Committee, with the objective of establishing go-
vernance and the overall guidelines of the process of managing these risks,
as well as the metrics for their measurement and monitoring.
The financial risk management process aims to protect the cash flow and
its operational (revenues and costs) and financial (financial assets and lia-
bilities) components against adverse market events, such as fluctuations in
the prices of currencies, interest rates and commodity prices, and against
adverse credit events. In addition, it aims to preserve liquidity.
The following financial instruments may be taken out in order to mitigate
and manage risk: conventional swaps, call options, put options, collars,
currency futures contracts, interest or commodities and non-deliverable
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