The Group’s integrated risk management system
In the performance of our operations, which encompass a diverse range of countries, markets and industry segments, Enel is exposed to various types of risks over the short, medium and long term (e.g. commodity risk, financial risks, and strategic risks, including in relation to climate change). In order to effectively deal with events that could lead to risks and opportunities, Enel has adopted an Internal control and risk management system (“SCIGR”).
This system consists of the set of rules, procedures, and organizational entities aimed at identifying, measuring, monitoring and managing the main corporate risks within the Group. More specifically, the SCIGR seeks to safeguard company capital and ensure the efficiency and effectiveness of corporate processes, the reliability of information provided to the corporate bodies and to the market, and the compliance with laws, regulations, as well as with the corporate bylaws, and internal procedures.
Given the importance of identifying,monitoring and managing the climate-related risks that could have an impact on achieving company objectives, the Board of Directors is committed to developing guidelines to ensure that decisions at all levels of the Group are consistent with risk appetite. To this end, the board has established a Control and Risks Committee to provide support in making decisions concerning approval of the Business Plan and of financial reporting. This committee also provides the Board of Directors with opinions concerning the system of internal controls and risk management guidelines so that the main risks of Enel SpA and its subsidiaries – including any risk that may affect the sustainability in a medium-long term perspective – are properly identified, measured, managed and monitored.
The Group also has specific internal committees composed of senior management that are responsible for governing and overseeing risk management, monitoring and control.
Process for identifying risks and opportunities
The identification of risks and opportunities within the Group’s business and strategic planning process is designed to manage short-term (less than 3 years), the medium-term outlook (3-5 years), and the revision of long-term ambitions (beyond 5 years).
Medium- and long-term planning starts with a strategic assessment of the external landscape and climate-related issues, which involves the following activities:
macroeconomic, energy and climate scenario analysis - a series of global and local analyses and forecasts to identify the main macroeconomic, climate and energy-related drivers over the short-, medium- and long-term horizon;
competitive landscape analysis - a set of analysis to compare financial and operating performance as well as environmental, social and governance (ESG) performance of utility and other sectors players in order to monitor, guide and support the Group’s competitive advantage and leadership position;
industry view - an overview of the macro-trends affecting business environment and impact assessment on the Group business through an extensive internal and external collaborative approach;
strategic dialogue - an ongoing process of engaging the Board of Directors, management, and employees in the definition of strategies. This process ensures that there is agreement as to the Group’s priorities;
analysis of ESG risks - analysis to identify the potential ESG risks to which the Group may be exposed due to geographical distribution and operations, is conducted based on an analysis of external studies such as the World Economic Forum’s Global Risk Report, studies by leading ESG investment analysts, and internal studies such as materiality analyses or due diligence concerning human rights;
ESG landscape analysis and materiality assessment - Enel conducts ESG and materiality analyses using an approach that takes account of the guidelines based on numerous international standards (e.g. Global Reporting Initiative, UN Global Compact, SDG Compass, etc.) with the goal of identifying and assessing priorities for stakeholders and correlating them with the Group’s strategy.
Process for assessing risks and opportunities
Enel is committed to setting up and structuring periodical monitoring and assessment processes of risks and opportunities associated both with physical variables trends, related to acute and chronic climate-related events, and with transition scenarios related to changes in the socio-economic landscape and in laws and regulations concerning the combat against climate change.
For the ex ante assessment of risk levels, a Plan risk analysis, including exposure to climate-related factors, will be presented each year to the Control and Risks Committee. With regard to ex post monitoring, the various risk factors, including the main climate-related variables that could have an impact on the Group’s objectives and operations, will be periodically evaluated and revised. These activities will be undertaken starting from year 2019, while at the operational level there are already processes in place to monitor the risk of damage to assets and infrastructures caused by climate-related extreme events or natural disaster, as well as the consequent risk of prolonged unavailability of such assets.
Process for managing risks and opportunities
Consistently with the Strategic Plan, the Business Lines submit investment proposals, in terms of financial and sustainability performance, for approval to the relevant Investment Committees, composed by Business Line senior management; moreover, Group Investment Committee approves investments above a certain threshold or concerning particularly innovative projects.
Investment Committee approval is based on a joint assessment of both return and risk aspects. The risk assessment includes a quantitative analysis of economic, financial and operational risk factors and a qualitative analysis of all risk categories in order to determine the potential impact on the investment return and the appropriate mitigation efforts. The units responsible for developing each project identify the specific factors that could influence the expected return on investment, including certain environmental and climate-related risks (e.g. an increase in the frequency of extreme environmental and climate-related events and changes in national laws and regulations regarding the combat against climate change). The Group is committed to further developing the investment analysis framework to explicitly include an assessment of each project contribution to the improvement of the Group’s climate resilience.