Activity of the board – financial year 2022

Improving the recommendations of the Corporate governance code, according to which the Board of directors must meet on a regular basis, the company by-laws envisage that the Board meets at least on a quarterly basis, and whenever the Chairman considers its necessary or when a request is made by at least one-third of its members or by the Board of statutory auditors.

Comparison with FTSE Mib index

The Board of Directors met on 11 occasions in 2022: all the directors took part in five of these meetings, while almost all of them took part in the other six; all the statutory auditors took part in nine of the meetings, while almost all of them took part in two. The average length of the meetings of the Board of Directors was approximately two hours and 30 minutes.
Also in fiscal year 2022 as since 2019, the directors again displayed a high level of participation at the meetings of the Board of Directors (equal to approximately 95%), a figure higher than the average level of attendance recorded for FTSE MIB Index companies.

In accordance with Principle XII of the Code, each director has consequently ensured that he or she has adequate time available to diligently perform the duties assigned to him or her.

The Head of Legal and Corporate Affairs, in his capacity as Secretary of the Board of Directors, attended all of the meetings.
When so required, the managers responsible for the various departmental areas participated in the meetings of the Board of Directors to refer on matters falling under their competence that are part of the agenda.

Below are the attendance records of managers invited to attend board meetings:

1. the Administration, Finance and Control Central Director attended eight meetings;

2. the Strategy, Regulation and Local Authorities Central Director attended two meetings;

3. the Innovation Central Director attended two meetings;

4. the Market Central Director attended one meeting;

5. the Enterprise Risk Manager attended three meetings;

6. the Chairman of the Supervisory Body attended two meetings

7. the CEO of Herambiente Spa attended two meetings.

Regarding the current financial year, two meetings of the Board of Directors have been held as of 21 March 2023: one meeting was attended by all members, while the other meeting was attended by almost all members. As of that date, nine meetings of the Board of Directors had been planned for the remainder of the year.

In 2022, average attendance in the B.o.D. meetings stood at 95%.

This high level of attendance is proof of the strong commitment of the Directors to guiding the company, and is in line with the average figure of the companies included in the FTSE Mib index.

* Source: Assonime Abstract Note e Studi n.4/2023

Minimum attendance

The number and attendance of members at the B.o.D. meetings guaranteed the ordinary and extraordinary management of the company, enabling Hera to carry out all the actions required in pursuit of the corporate purposes.

Self  assessment

in line with Recommendation 22 of the Code, the Board of Directors carries out an annual self-assessment of the size, composition and functioning of the Board itself and its committees, with the support of an independent external advisor who is an expert in governance issues and advising management bodies, also taking into account the role the Board has played in defining strategies and monitoring management performance and the effectiveness of the internal audit and risk management system, as set out in Recommendation 21 of the Code.

This assessment was carried out in 2023 with the support of Corsi & Partners and Mercer Italia, in a Temporary Regrouping of Companies (RTI); lastly, the assessment was presented and discussed during the meeting of the Board of Directors on 21 March 2023.

As part of the self-assessment activity, the directors:

1. expressed appreciation for the work done during the three-year term of office, despite the fact that this three-year term coincided with a “turbulent” period resulting from the pandemic, the conflict in Ukraine, the very sharp increase in commodity prices, impacts on the country's energy system, tariff increases, and the turnover of the CEO and the Central Director of Administration, Finance and Control; the Board was able to monitor impacts on the Company thanks to the work of very capable and dedicated top management, who continuously informed and interacted with the Board;

2. gave a positive assessment of the size, composition and mode of operation of Hera Spa's Board of Directors and Committees for the 2022 financial year: in particular, the overall situation is confirmed as very positive.

The consulting firm's methodology focuses on board roles and composition, decision-making, instructional and operational processes, time management and dynamics, and communication. The focus is on the effectiveness of the Board and the Committees in performing their corporate policy and control functions. This proposed methodology aims to grant continuity over time to the activities carried out in past years and is based on the following tools:

1. structured interviews with the members and Chairman of the Board of Statutory Auditors focused on the main areas of interest (size, composition, functioning) of the Board and Committees;

The interviews are based on a questionnaire, which is sent to directors prior to meetings with consultants Corsi & Partners Srl and Mercer Italia Srl and filled out by them online. This questionnaire covers issues of corporate governance, the functioning of the Board and its Committees, the composition of the Board and its Committees, the exercise of policy and control powers, and the policies adopted to promote dialogue with shareholders and stakeholders.
Each question requires both a quantitative assessment and a qualitative comment on the topic under examination. The directors express the degree to which they agree with the statements contained in the questionnaire, using an internationally recognized scale.

All the analyses and comments are processed in an absolutely anonymous and confidential manner.

2. examination of the corporate documentation (minutes of the Board meetings, the Executive Committee meetings, and the internal Board Committee meetings) and verification of the effectiveness of the actions taken during the last year, to follow up on the comments the Directors expressed during the previous self-assessment;

Hera's corporate documentation is analysed in order to understand the ways in which directors interact, the actions taken, the issues discussed and their frequency on the agenda.

Analysis of international best practices

Interviews with the Directors revealed a very high level of overall appreciation: the percentage of responses expressing agreement with the topics suggested in the questionnaire amounted to 88%.

In particular, the areas the Directors displayed the most agreement in assessing positively include:

• Instructional and operational processes;

• Decision-making processes;

The score given to these areas, based on consultants' experience, is higher than that normally found in other boards' self-assessments.

Specifically, the Directors appreciated:

• the leadership and experience the Chairman brings to the task of managing the Board's work, effectively organising the Board's activities and guiding the analysis of the various issues on the agenda;

• the commitment displayed by the CEO, in office since May 2022, to further his understanding of the business, as well as the relationship he has built with the Chairman and management;

• the role, size, and composition of the Committees;

• the activities carried out by the lead independent director in coordinating and organising the work of the independent directors;

• the activity of strategic steering performed by the Board of Directors and the planning process adopted by the Company;

• the perceived high level of attention granted to sustainability issues and the integration of related aspects into the business plan, risk management system and remuneration policies;

• risk management (including of risks related to cyber security), the internal control system, and the effectiveness of the Company's organisational, administrative and accounting structure;

• the monitoring of the Company's and subsidiaries' performance carried out systematically by the Group's management, with effective and appropriate periodic reporting;

• the pre-council briefing, which was considered to be well structured, clear, comprehensible and made available to directors on time; the quality of meeting minutes;

• the quality of induction sessions;

• The management of the Company, which appears cohesive and shows a deep understanding of the business;

• the sound business processes and the Company which, as a whole, is well managed.

In view of the manner in which the directors were appointed, the expression of the main shareholders and the evaluations attributable to them, the Board of Directors considered its size to be essentially appropriate.
Regarding the composition of the board, which is based on a diverse mix of professional backgrounds, the directors noted that knowledge of the business and the Company has gradually increased over the term of office.

Of the proposals that were identified as part of the Directors' assessments, the following are of note:

• to improve the individual contribution of directors to the Board's work as well as their participation in discussions, avoiding, as much as possible, attendance of meetings via online channels;

• to encourage the Board of Directors to periodically focus on the issue of directors' independence;

• to consider refining the role of the Executive Committee so as to enhance its contribution to the work of the Board;

• to organise additional induction sessions to fine-tune knowledge on business-related and other topics such as (i) technological innovation and its impact on the business of the Company and the Group; (ii) risks (market, rates, reputational, operational) (iii) organisational structure, Group structure, the operations of subsidiaries; (iv) strategy; (v) industry regulations and related developments; (vi) internal control; (vii) ESG; and (viii) specific investments and/or acquisitions;

• to strengthen, in preparation for the renewal of the board, the following skills: business knowledge (energy, waste management, water), Risk Management, Digital Transformation and Cyber Security; Legal and Corporate;

• to continue the periodic updating of the Board of Directors regarding dialogue with the majority of shareholders and the resulting feedback received

In the past year the Board has acted as precise control over financial activities, specifically overseeing all the operations, services supplied to customers, M&A processes and especially it guaranteed that all activities and relations with stakeholders were carried out with the greatest respect for sustainability policies and following an approach oriented to the creation of shared value.

All the initiatives carried out by Hera in order to support the global UN agenda are submitted to the attention of the Board of Directors.

In order to pursue an effective deliberative activity, the Executive Chairman and the CEO have worked throughout the year 2021 to assure that the Board of Directors was informed about the main legislative and regulatory changes related to the Company and to the corporate bodies, as well as on most relevant topics related to  Group's business.

Page update 27 April 2023