6.2 Snam’s Enterprise Risk Management system

Also in order to execute the provisions of the Code of Corporate Governance, Snam has adopted an ERM system composed of rules, procedures and organisational structures, for identifying, measuring, managing and monitoring the main risks that could affect the achievement of its strategic objectives.

Snam, through the ERM system has adopted uniform and structured method for Snam and its Controlled Companies identifying, evaluating, managing and controlling risks in line with existing reference models and best practice. The ERM system provides for an integrated, cross and dynamic evaluation of risk that increases the value of the management systems already in place in the individual corporate processes.

The results arisen in relation to the main risks and the relevant plans for managing said risks are submitted to the Control and Risk Committee to allow the evaluation of the effectiveness of the internal control and risk management system in relation to the specific features of Snam and to the risk profile adopted.

Within the company has been set up the Enterprise Risk Management department, whose duties include, inter alia:

• ensuring the definition and updating of the Snam’s ERM model and providing specialist methodological support in identifying and evaluating Group risks;
• ensuring the coordination of the overall ERM process, providing that the risks to Snam and its Controlled Companies are properly consolidated and prioritised;
• providing for the identification of ‘enterprise’ risks and for the relevant measurements, to the extent of its competence;
• ensuring, in accordance with the competent corporate departments, the consolidation of the strategies of managing of the identified risks;
• ensuring the coordination of the risk monitoring and control activities;
• overseeing the periodic drafting of reports and the management and updating of defined risk indicators.

The scope of the risks identification phase is to pinpoint dangerous events both pertaining the corporate processes of Snam and its Controlled Companies and external to them that may affect the achievement of the corporate objectives. Risks are measured in an integrated and cross manner by way of defined grading scales of probability and impacts that concerns, both quantitative (e.g. economic and financial impacts) and more qualitative and intangible (e.g. reputational impact, health, safety-related and environment) aspects.

Each event is given an ‘enterprise’ score. For each risk, this score summarises the different evaluations performed by the Risk Owners and by the centralised units with specialist expertise. Risks are prioritised according to a combination of impact and probability scores.

Management actions and possible specific interventions are identified for all risks, with the relevant implementation timeframes, associated with a type of risks’ management among those codified.

Risk mapping is dynamic and thus needs to be reviewed periodically. The ‘enterprise’ evaluation dictates how often these reviews will take place, but they will happen at least once a year, even for low-priority risks. Periodic reporting ensures, at different corporate level, that the information on risk management and monitoring activities of competence is available and represented.

The ERM system is constantly verified to having a continually effective model in line with methodological and technological developments regarding the risk management matter.

Within the enterprise risks, the main corporate risks identified, monitored and, insofar as specified below, managed by Snam are the following:

• market risk arising from exposure to fluctuations of interest rates and the price of natural gas;
• credit risk deriving from the possibility of counterparty default;
• liquidity risk arising from not having sufficient funds to meet short-term financial commitments;
• rating risk;
• default risk and debt covenants;
• operational risk;
• risks specific to the business sectors in which Snam and its Controlled Companies operate.

Below is a graphical representation of how Snam’s ERM system works.