3.3 Control and Risk Committee

(i) Duties

The Control and Risk Committee provides recommendations and advice to the Board by making suitable enquiries to support Board decisions and assessments concerning the internal control and risk management system, as well as those relating to the approval of financial reports.

Specifically, the Control and Risk Committee performs the following functions:

• it evaluates, together with the Executive Responsible for preparing corporate accounting documents and having consulted the External Auditors and the Board of Statutory Auditors, the proper use of accounting standards and their consistency for the purposes of preparing the consolidated financial statements;
• it issues opinions on specific aspects relating to the identification of the main risks faced by the Company; it performs the additional duties assigned to it by the Board of Directors in relation to transactions in which directors or statutory auditors have an interest and related-party transactions, in accordance with the terms and methods set out in the procedure annexed to the Committee Regulations⁴²;
• it examines the periodic reports relating to the evaluation of the internal control and risk management system, as well as those of particular importance prepared by the Internal Auditor;
• it monitors the independence, suitability, effectiveness and efficiency of the Internal Auditor;
• it may ask the Internal Auditor to carry out inspections of specific operational areas, giving notice of this to the Chairman of the Board of Statutory Auditors, the Chairman of the Board of Directors and the director in charge of the internal control and risk management system;
• it reports to the Board, at least every six months, upon approval of the annual and half-year financial report, on the activity it carries out and the adequacy of the internal control and risk management system;
• it expresses its opinion on the proposals put forward by the Director in charge of the internal control and risk management system, in agreement with the Chairman, to the Board of Directors:
1. relating to the appointment, dismissal and remuneration of the Internal Auditor, in line with the Company’s remuneration policies; and
2. with a view to ensuring that the Internal Auditor has sufficient resources to fulfil their responsibilities.

The Committee expresses its opinion to the Board of Directors in order to:

• define the guidelines for the internal control and risk management system, so that the main risks facing the Company and its Subsidiaries can be identified correctly and measured adequately, managed and monitored, as well as determining to what extent these risks can be managed using a policy that is consistent with the strategic objectives identified
• periodically evaluate, at least annually, the adequacy and effectiveness of the internal control and risk management system with respect to the characteristics of the Company and the risk profile it has adopted;
• periodically approve, at least once a year, the audit schedule prepared by the Internal Auditor;
• describe, in the Report on Corporate Governance and Ownership Structure, the main features of the internal control and risk management system, as well as evaluate the adequacy of the system;
• evaluate the conclusions presented by the External Auditors in any suggestion letters and in the report on key matters arising from the external audit.

(ii) Composition

The Control and Risk Committee has four members, in order to ensure that it reflects the diversity of expertise represented on the Board of Directors⁴³.

The composition of the Committee is as follows:

Snam’s Board of Directors decided that more than one Committee member has adequate accounting, financial and risk management experience.

Pursuant to the Committee Regulations, Committee meetings held to carry out the duties assigned to the Committee by the Board of Directors pursuant to the procedure “Transactions in which directors and statutory auditors have an interest and related-party transactions” consist exclusively of independent directors⁴⁴.

The Chairman of the Company, the Director in charge of the internal control and risk management system and the statutory auditors are usually invited to attend Committee meetings. Other non-Committee members may also attend, upon invitation by the Committee Chairman, in order to provide information and express an opinion on individual agenda items.

The Committee meetings are deemed valid with the presence of the majority of the members in office; the Committee resolves by an absolute majority of the attendees. In the event of a tied vote, the Committee Chairman shall represent the position adopted by the majority of the independent directors to the Board of Directors, while also informing the Board of the position of the other Committee members.

(iii) Activities

In 2015 the Committee met 10 times, with 95.0% of members present on average. The average duration of Committee meetings was 170 minutes.

Below is a brief description of the main issues discussed during the 2015 financial year:

• matters pertaining to the internal control and risk management system connected with the Decree of the Court of Palermo, Preventive Measures Section, issued to Italgas on 11 July 2014, pursuant to Article 34, paragraph 2 of Legislative Decree 159/2011. Taking into account the results of the verifications performed and Snam Group’s effective cooperation, Court of Palermo, on 9 july 2015, by revoking the abovementioned decree, has ruled on the return of Italgas. The Committee in relation to the above:
• analysed the various aspects of the judicial administration measure; examined the Reports drawn up by the Judicial Administrators and the orders handed down by the Court of Palermo; and examined, with the External Auditors, the issue of the consolidation of Italgas in the Snam financial statements. Special attention was dedicated to the analysis of the merit and implications of the “Judicial Control” measure pursuant to Article 34, paragraph 8 of the Antimafia Code, providing simultaneously for the annulment by the Court of Palermo and the appointment of a new, autonomous and independent Watch Structure, with responsibility for verifying correct and full implementation of the intervention plan;
• monitored
1. the multiple initiatives launched by Snam and Italgas to strengthen the internal control system, including through the implementation of a structured system to verify the reputation of the Group’s suppliers and subcontractors;
2. the adjustments to the risk map by the ERM unit; and
3. the results of the audits carried out by the Internal Audit department at Italgas and subsidiaries;
4. examined the intervention plan defined by the Italgas in agreement with the Judicial Administrators and the progress made with said plan, and assessed its implications on the Snam half-year financial report with the External Auditors and the Italgas’s management.

The Committee also received ongoing information on the matter’s development and its implications during meetings of the Control and Risk Committee and of the Board of Directors, as well as during specific conference calls;

• the ERM system and management of the main risks faced by the Company, and in particular:
  • examination of the Risk Policy defined by Snam and of the quarterly reports relating to the identification and updating of the main risks faced by the Company within the ERM system;
  • periodic analysis, with the management of the Finance department, of the management of financial risks;
• oversight of the Internal Audit department, and, in particular:
  • examination of the periodic reports on the activities carried out in implementation of the audit schedule approved by the Board of Directors for 2015, the relevant follow-up activities and the audit’s results;
  • analysis of the proposed 2016 audit schedule;
• issues relating to regulatory provisions concerning corporate reporting and control system, and, in particular:
  • examination of the report on the adequacy of the Corporate Reporting Control System and on the compliance of the administrative and accounting procedures and the annual report on the organisational, administrative and accounting structure of Snam and of its Subsidiaries of strategic importance;
  • analysis of the activities carried out during 2015 as part of the project aimed at revising and updating the Snam Group’s Corporate Reporting Control System;
• the activities of the firm appointed to audit the accounts, and, in particular:
  • analysis of issues relating to the half-year and annual financial report with the External Auditors, with regard to both the auditing and the checks performed in relation to the effectiveness of the Corporate Reporting Control System;
• issues relating to regulatory provisions pursuant to Legislative Decree 231/2001, the Code of Ethics and the Anti-Corruption Procedure, particularly:
  • meetings with the Watch Structure and examination of the activities carried out in implementation of the role assigned to it by Model 231;
  • updates received from the Head of Legal & Corporate Affairs and Compliance regarding the update of the Model 231 and in relation to the new regulations;
• issues relating to corporate governance and regulatory compliance, and, in particular:
  • examination, with the Head of Legal & Corporate Affairs and Compliance, of the 2014 Report on Corporate Governance and Ownership Structure and the 2014 Compliance Report, and analysis of issues relating to workplace safety.

In relation to its duties concerning “Transactions in which directors and statutory auditors have an interest and related-party transactions”, the Committee performed the following activities:

• examination of transactions in place with related parties, particularly with regard to:
1. transactions managed by Snam relating to the EMTN programme and the syndicated loan agreement, in relation to the role of Chairman of the Board of Directors of Société Générale S.A. assumed by the Chairman of Snam; and
2. the signing of ancillary agreements relating to the acquisition in 2014 by Snam Rete Gas of a portion of the Green Data Center owned by Eni S.p.A. and located in Ferrera Erbognone (Pavia);
• annual examination of the procedure “Transactions in which directors and statutory auditors have an interest and related-party transactions” (approved most recently by the Board of Directors on 17 December 2014) and annual assessment of the choices made by the Company, based on the relevant criteria set out by Consob, for the definition of the threshold for the purposes of distinguishing between transactions of lesser and greater significance, confirming their adequacy;
• analysis of the report drawn up by the Administration department on the related-party transactions carried out in the first half of 2015.

The Regulations governing the Control and Risk Committee were most recently approved by the Board of Directors on 12 December 2013.

The Committee reported to the Board of Directors, at the Board meetings of 28 July 2015 and 16 March 2016, on the activities it carried out in the first and second halves of 2015 respectively.

The Committee has scheduled eight meetings for 2016. As at the Report approval date, three meetings had been held.

During 2015, several non-Committee members attended meetings of the Control and Risk Committee upon invitation by the Committee, in order to provide information and explanations. The Chairman of the Board of Statutory Auditors and/or other statutory auditors also usually attended.

The Committee Regulations state that the Committee may access any information necessary for the purposes of performing its duties and may make use of the relevant Company departments and external consultants, within the terms set by the Board of Directors. The Committee has the financial resources necessary to pay independent consultants or other experts, and to fulfil its duties.

The table in Annex 1 of Section IV lists information about the attendance of each participant in Control and Risk Committee meetings.

(iv) Relations with other bodies and departments

The Board of Statutory Auditors and the Control and Risk Committee promptly exchange information that may be useful in carrying out their respective functions; receive and collate significant information, at least once every six months, from the control functions (the Internal Audit, Risk Management and Compliance departments) and the External Auditors on the controls performed and on any weaknesses, problems or anomalies identified; and meet at least once every six months to assess the results.

The Committee also meets with the Watch Structure/Code of Ethics Supervisor and th Board of Statutory Auditors when the Watch Structure reviews the half-year report.

These activities were carried out regularly during 2015.