Due to the nature of its business and relative geographic presence, the Group is exposed to various types of environmental, social and governance-related risks, of which the main types are indicated in the table below, together with the activities aimed at mitigating their effects and ensuring their appropriate management.
The following researches were considered in identifying potential risks10:
- the results of materiality assessment (see the following paragraph “Materiality analysis”);
- the 2019 Global Risk Report of the World Economic Forum (WEF), involving some 1,000 experts and leaders from around the world;
- the country risk assessment carried out as part of the due diligence process on human rights overseen by Enel, which involved a wide range of experts from different sectors, including civil society, academic institutions, local communities, customers and suppliers, in various countries where the Group operates;
- the analyses of some of the world’s most highly renowned ESG rating agencies, which use specific risk assessment systems to rate companies sustainability performance.
The Precautionary Principle11 was also applied during the risk identification and assessment phase. This Principle was applied in particular to risks relating to the environment and health and safety, and for each type of risk, specific actions have been identified to mitigate their effects and ensure their proper management.
Enel also applies this principle to risk management, especially as regards the development and introduction of new products/technologies, the planning of operating activities and the construction of new plants/assets. Further details on the risks presented
Description of the risk
Management procedures and mitigation actions
The digitalization and technological innovation era implies that organizations are increasingly exposed to cybernetic attacks, which are becoming more numerous and sophisticated, also with regard to changes within the reference framework. The organizational complexity of the Group and the high number of areas which characterize it (data, people and industrial world) expose the assets to the risk of attacks.
The Enel Group has adopted a risk management model based on a “systemic” vision, which applies both to the traditional Information Technology area and the industrial area (Operational Technology), also taking into account the access to the network of smart “objects” (Internet of Things). In particular, Enel has adopted a policy, called “Cyber Security Framework”, to address and manage cyber security activities. Such Framework provides for the involvement of business areas, the implementation of legal and regulatory provisions, the use of the best available technologies, the preparation of ad hoc business processes and people awareness. The Framework lays the foundations for strategic decisions and design activities using a “risk-based” approach and a planning and development model which defines the appropriate security measures throughout the whole life of the applications, processes and services (“cyber security by design”). Enel has also created its own CERT (Cyber Emergency Readiness Team), which is active, recognized and accredited by national and international communities, in order to address an industrialized response to cyber threats and accidents.
Climate change physical risks
Physical risks arising from climate change can be connected to a single event or a long-term change in climate models. Extreme meteorological events and natural disasters expose the Group to the risk to incur damages to its assets and infrastructures, with the consequent possibility of prolonged unavailability of the assets involved. Moreover, the Group is exposed to the risk of impacts on the functioning of the assets linked to gradual climate changes (e.g. air and water temperature, rainfall and wind).
Enel participates in the entire electricity value chain (generation, distribution and sales) and has a diversified portfolio of activities, both in terms of generation technologies and in terms of geographical areas and markets in which it operates, mitigating the risks associated with changes in climate models and their overall financial implications. In addition, the Group adopts the best prevention and protection strategies in this area, also in order to reduce the possible impact on the communities and areas surrounding its assets. Therefore, weather monitoring and forecasting activities are constantly carried out in the areas where the most exposed assets are located. Numerous activities are carried out to increase the resilience of assets most exposed to extreme weather events or natural disasters. All areas of the Group are subject to ISO 14001 certification and, through the application of internationally recognized environmental management systems (EMSs), potential sources of risk are monitored so that any critical issue can be promptly identified.
Climate change transitional risks
The transition to a “low-carbon” energy model may involve risks related to law/regulatory, political, legal, technological and market changes associated with the fight against climate change, with effect on the short, medium and long term. In this context, topics such as the increasing reporting requirements on emissions and other legal requirements, the use of lowemission energy sources and the reduced exposure to fossil fuels, the uncertainty of market signals with potential unforeseen changes in energy prices, the increase of raw materials or the increasing interest of stakeholders on climate are the climate change risk factors to which Enel can be exposed to and which can potentially influence the Company’s financial performance.
The Group is committed to a continuous improvement of its existing activities in terms of environmental impact by pursuing its objective of reduction of the emissions, first and foremost the one related to the “zero emission generation” by 2050, and by adopting a strategy which pursues growth through the development of low-carbon technologies and services, in line with the objectives of COP21. Moreover, in order to mitigate the risks deriving from the legal and regulatory aspects linked to climate change, the Group maintains relations – characterized by a transparent and collaborative approach – with local and international authorities and regulatory bodies.
Water crises risks
|The risks related to water crises are mainly due to changes in climate and levels of water use. Impacts differ depending on the geographic context, but the general tendency is a lower predictability of frequency and a greater rainfall intensity, with a consequent reduction in the availability of water. With regard to the levels of use of water as a resource, the risk is linked to the competition between industrial production, agricultural use and use of drinking water, in a context of water scarcity.||Enel conducts meteorological analyses every 3-6 months and is developing long-term analyses in areas where generation plants are located, in particular hydroelectric plants, in order to anticipate possible variations in the availability of water. Important activities are also carried out in collaboration with the local basin management authorities, with the ongoing objective of adopting a shared water resources management strategy that also considers the needs of local communities. Enel adopts measures to improve the efficiency of water use and quality at the level of production site within the environmental management systems.|
Environmental compliance risks
Environmental protection regulations are becoming more stringent, in part due to the community’s greater awareness of and sensitivity to the topic. This has led to an increase in requests for companies to minimize their environmental footprint. Moreover, the increase in the population and economic growth are generating an impact related to the scarcity of resources, water management, waste and biodiversity.
Enel has adopted an environmental management system certified to ISO 14001 at its generation plants and distribution networks, which include extensive systems to monitor environmental KPIs and actions to minimize the environmental footprint, which go beyond legal requirements. Moreover, Enel puts in place specific measures to protect the biodiversity of areas surrounding its plants and installations. Lastly, the Group conducts environmental impact assessments when a new project is developed, establishing measures to protect the surrounding environment and ecosystems over the entire project life cycle (construction, operation, decommissioning).
Risks related to human capital: demand for and development of new professional profiles and skills
The considerable change in the energy sector, with its strong technological focus, calls for new professional profiles and skills, as well as an important cultural and organizational change. Organizations must advance towards new business models that are agile and flexible. Policies that value diversity while also manage and promote talent have become key aspects in companies that are carrying out the transition, and have a widespread geographic presence.
Enel puts its people at the center of its business model. This is why management of human capital is one of the pillars of its 2019-2021 Strategic Plan. There are specific related targets, including the development of digital abilities and skills, the promotion of systems to appraise the workplace and performance and the dissemination of a diversity and inclusion policy in all countries. Enel is also putting in place specific initiatives to adopt agile working in its company processes.
Above and on the risk management system in general, along with financial risks, are provided in the 2018 Annual Report and in the 2018 Consolidated Non-financial Statement in accordance with Italian Legislative Decree 254/16 made available on the Company’s website (www.enel.com).
10 The analysis considers and assesses perceived risk, in the absence of controls.
11 Rio Declaration on Environment and Development (Rio de Janeiro, June 3-14, 1992). Principle 15.