As an integral part of its Internal Control and Risk Management System, the Acea Group has set up an Enterprise Risk Management (ERM) framework, with a view to integrating the risk management process on an ongoing basis.
The aim of ERM is to guarantee an effective control over the entire universe of principal risks to which the Acea Group, owing to the nature of its business and the strategies adopted, is potentially exposed, ensuring that the Group’s overall exposure is duly managed in keeping with the Business Plan and Sustainability Plan objectives.
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The risk model
The Risk Model, which reflects the array of risk categories to which the Acea Group is potentially exposed, is derived from a careful analysis of both the socio-economic and business context in which the Group operates and the Business and Sustainability Plan objectives.
The Risk Model’s logic of representation provides for various risk type aggregation levels, with increasing granularity, based on the following elements:
Enterprise Risk Management is the tool used by the Board of Directors and Management, through a structured process of analysis and management as regards the risk-opportunity factors to which the company is exposed, to enhance their ability to implement strategies and achieve business objectives via the conscious undertaking of risk.
Owing to the nature of its business, the Acea Group is potentially exposed to various categories of risk, above all competitive and regulatory risks, risks concerning natural events and climate changes, financial market risks (external risks) and operational and environmental risks specific to each business sector, Information Technology risks and Human Resources risks (internal risks).
These are the strategically important risks typical of the reference business environment, management of which offers competitive advantages.
Strategic risks represent a type of risk associated with the ineffective implementation of strategic actions decided by Top Management and/or the Corporate Bodies such as might compromise the achievement of set goals. This risk applies to both short-term (budget) and long-term (business plan) initiatives.
Special attention is given to M&A transactions and the risks connected with the group’s potential inability to put in place an appropriate strategy in terms of mergers, acquisitions and disposals and/or failure to effectively handle the governance of the venture.
The Acea group operates mostly in regulated markets; a change in the rules for the organisation of these markets, together with their characteristic requirements and obligations, can significantly impact the results and performance of operations.
These risks are mitigated via a careful monitoring of legislative and regulatory developments, discussions with the competent authorities and participation at association and institutional meetings, on the part of the appropriate business structures in synergy with the organisational controls put in place by the group.
Among the risk factors to which the group is exposed it is important to highlight the potential effects deriving from unforeseeable natural phenomena (for example, earthquakes, floods and landslides) and/or cyclical or permanent climate changes affecting the networks and facilities managed by the Acea group companies. The former risk categories are dealt with by implementing structured asset governance tools, specific to each business area, as well as via projects, even at national level, aimed at enhancing the resilience of infrastructures in the various territories.
The remaining part of risks deriving from natural events is transferred by way of the group insurance plan.
Acea Water services
The companies operating as part of the Integrated Water Service, which manage the entire drinking water and wastewater cycle, from collection of the natural resource up to its return to the environment, implement programmes, procedures and controls with a view to ensuring an adequate supervision in matters of compliance on the basis of characteristics identical to those of the business managed (potential exceedance of water potability limits due to source pollution, potential exceedance of limits for the discharge of treated wastewater into recipient bodies, occupational health and safety, characterisation and conformity of outgoing waste, etc.).
Acea Commercial and trading
The main operating risks associated with sales, carried out by Acea Energia, on the deregulated electricity and gas market concern the possible progressive concentration of operators in such markets, implying an impact on the company’s customer base expansion plans and its ultimate positioning.
Moreover, Acea Energia is subject to the risks typical of the “business” deriving from an efficient and effective management of billing and credit recovery processes, insofar as it is affected by sub-optimal performance on the part of electricity and gas distributors.
Acea Electricity distribution
Potential sources of risk referable to electricity distribution in the Municipalities of Rome and Formello derive from the implementation of Business Plan development initiatives (fibre optics project, 2G smart metering project, distribution network resilience plan) and from the monitoring of computer and plant security.
With regard to plant security, the companies operate by implementing protocols, procedures and controls in keeping with the provisions set forth by current legislation and in full cooperation with the competent Authorities and Institutions.
The waste treatment and waste-to-energy facilities are characterised by a high level of technical complexity, requiring them to be managed by qualified resources and organisational structures with a significant level of know how. The waste treatment plants and the related activities are benchmarked on specific waste characteristics and a potential discrepancy between the said materials and the specifications can lead to definite operational problems, to the point of comprising the operating continuity of the plants and constituting relapse risks of a legal nature. For this reason special procedures have been put in place for the inspection and control of incoming materials via spot checks and analytical sampling pursuant to current legislation.
Acea Power Generation
Potential risk sources referable to the electricity generation segment derive from energy market fluctuations within the scope of a wider trend in the macroeconomic situation, the legislative trends particularly as regards the assignment of hydroelectric concessions and the risks pertaining to the business continuity of operations with possible consequences in terms of loss of production by plants, as well as from the implementation of 2020-2024 Business Plan development initiatives (growth in photovoltaic capacity via M&A transactions and the construction of plants).
For the management of operating risks Acea Produzione has put in place a series of computer security and physical controls for the plants and has taken out policies, with leading insurance companies, to cover any damages that may occur.
The main business processes use sophisticated information systems, implemented and managed by centralised group departments in a logic of support for the operations of the various business units: the group is therefore exposed to risks concerning the adequacy of the computer infrastructure in terms of the existing or prospective requirements of the various businesses, as well as risks of unauthorised access, with or without misconduct, and in any case risks of inappropriate or disrespectful use of the current regulations regarding data handled via computer procedures.
Insofar as concerns the computer security of systems, infrastructures, networks and other electronic devices within the scope of services provided, the companies’ existing procedural and technological departments are taking all necessary actions to bring its cyber security position into line with the main domestic and international standards for the sector, in order to enhance its resilience to phenomena of this kind.
Risks associated with potential danger to workers’ health and safety could expose the group to significant costs for the reimbursement of damages, as well as detriment to the group’s reputation vis-à-vis public opinion and investors. Read more on the special initiatives associated with the Covid-19 health emergency.
The group is exposed to various risks of a financial nature, with particular reference to the risk of fluctuating prices/volumes as regards the commodities subject to purchase or sale, interest rate risk and, only to a minimal extent, to exchange rate risk.
Commodity risk refers to the risk of unforeseen effects on the value of assets in the portfolio due to variations in market conditions. More specifically, reference is made to Price Risk, linked to the change in commodities prices due to the difference in the price indices for purchases and sales of Electricity, Natural Gas and EUA Environmental Certificates, and Volume Risk, linked to changes in volumes effectively consumed by end customers with respect to the volumes envisaged in the sales contracts (sale profiles).
Interest rate risk
The Acea group’s approach to managing interest rate risk, considering the asset structure and the stability of the group’s cash flows, has hitherto essentially been targeted at protecting funding costs and stabilising financial flows, with a view to safeguarding the margins and ensuring certainty of the said cash flows deriving from ordinary operations.
Exchange rate risk
The group is not particularly exposed to this category of risk, which mostly concerns the translation of financial statements pertaining to its overseas subsidiaries.
The Group’s liquidity risk management policy, for both Acea and its subsidiaries, involves the adoption of a financial structure which, in keeping with business objectives and within the limits defined by the Board of Directors, guarantees a suitable level of liquidity that can meet financial requirements, whilst maintaining an appropriate balance between maturity and composition of debt.
Acea has identified different strategies for managing receivables:
Risks associated with the Covid-19 health emergency
The Covid-19 emergency situation has also impacted the analysis of risks and identification of related management procedures. Right from the beginning of the pandemic, we put in place a series of actions to safeguard all stakeholders, from time to time adapting to developments in the situation. In the area of employees’ health and safety, from February 2020 we adopted various prevention and protection measures, among which we mention smart working (which involved over 85% of the company population), remote support initiatives, medical control activities and screening campaigns. Insofar as concerns our customers, we undertook to respond immediately to the new requirements that emerged, for example by continuing to guarantee the services offered to customers and enhancing the capacity of digital channels. With regard to investors, bearing in mind that the Group’s EBITDA is 85% generated by regulated activities and that the regulatory frameworks governing the Group’s businesses have not undergone any significant changes, no major uncertainties emerged concerning repercussions of a financial nature.
Lastly, even during this emergency phase, the pursuit of sustainable objectives remains a priority: we intend to take advantage of the opportunities that will derive from an acceleration of investments in infrastructures and renewable energy sources, particularly in connection with the European Green Deal and Recovery Fund programmes.
For further information on all the risks and uncertainties to which the companies in the Acea Group are exposed, please read our 2020 Consolidated Financial Statement.
For further information on our central monitoring stations for particular risk categories, please read our 2020 Report on corporate governance and ownership structures.