Study: Commodity and energy risk management at industrial and trading companies

Study: Commodity & energy risk management at companiesl

New study by KPMG and Humboldt University of Berlin. Together with Humboldt University of Berlin, we prepared a study on managing commodity and energy price risks. Of more than 200 industrial and trading companies we contacted, and for which this risk plays a major role, 68 returned our extensive questionnaire. Companies active in the energy industry were not included due to their specific business model.

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Commodity risks should be managed actively

Our study findings clearly show that nearly all decision-makers are fully aware of the importance of actively managing commodity risks. Nine out of ten companies use derivatives to hedge against commodity risks. However, the framework for recording and managing these risks is often not adequate and complete.

Treasury is generally in charge of derivatives, but at the majority of study participants, other departments, which also set the hedging strategy, estimate and assess the commodity risks. Corporate Treasury is responsible for the usual governance of other financial risks, but often not for market risks relating to commodities and energy. However, a common definition of exposure as well as clear guidelines for risk measurement or limit setting are frequently lacking. Only few companies use truly suitable methods for assessing risks, such as scenario analysis or at-risk figures. More than 60% of the companies base their hedging decisions on how they expect commodity prices to develop, but one-fourth of them do not use a limit system to ensure risk management.

The majority of companies continue to expect major volatility and high prices. At the same time, the requirements of IAS 39 on hedge accounting are being viewed as a backdrop to comprehensively manage risks using derivatives, and considerable relief is expected in conjunction with IFRS 9. This means that the expansion and development of the methods and systems for commodity risk management are high on the agenda of many of the study participants. In this context it makes good sense to apply Treasury's expertise to activities in purchasing or commodity trading and to further integrate both these functional areas.

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