Hera business has a very conservative risk profile being built up by primary utility services with an anti-cyclical demand. Furthermore:
- 35% of the results (Ebitda) relates to "regulated" activities (distribution of energy, water business and household waste collection)
- 65% of liberalised activities (sales and trading of energy, power generation, industrial waste treatments) where Hera highlights primary and defendable market positions.
Diversification and balanced mix of the business, high percentage of regulated activities, strong market position reduce possible negative effects caused by the unfavourable macro-economic scenario on Group's results.
The existing and emerging risks which Hera faces belong to different types: risks deriving from the evolution of the macroeconomic and financial, business (regulatory and competitive), technological, environmental and human capital contexts, including with regard to climate change and sustainable development.
In order to mitigate exposure to these risks, Hera carries out the specific analysis, measurement, monitoring and management activities:
Financial risks |
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|---|---|---|
| Type | Identification | Management |
| Debt market | Fluctuations in interest rates, exchange rates, credit spreads and liquidity crises. |
• Diversified funding source structure and balanced maturity profile; • Careful monitoring of the Group's financial indicators and use of derivative financial instruments. |
| Commodity price | Fluctuations in commodity prices. | • Effective management of procurement and hedging activities, with strong focus on skills and a single interface for the constant monitoring of the market. |
| Counterparts | Counterparties unable to meet the obligations undertaken, both in terms of respect of economic conditions and in the execution of contractual provisions. | • Structured process of counterparties identification and selection through credit checks; • Constant monitoring of counterpart positions; • Possible external transfer of risk through credit assignment. |
Operational risks |
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|---|---|---|
| Type | Identification | Management |
| Competitive and macroeconomic | Business activities involving increasing competition on the free market, carried out mainly in Italy, with an economic context of limited growth: • Changes in energy consumption levels (Covid-19); • Reduced production of volumes of waste treated at Hera's plants, which affects the achievement of targets. |
• Continuous innovation in and timely presentation of the commercial offering; • High degree of flexibility in the supply sources for energy commodities, in parallel with the timely management of hedging activities; • Diversified plant equipment with high-performance environmental technologies, and a strategy focused on the circular economy, specifically in the industrial waste cycle: entering the process of recovering and recycling polymeric materials and the production of biogas. |
Strategic risks |
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|---|---|---|
| Type | Identification | Management |
| Strategic | • Failure to achieve the strategic objectives set in the long-term planning process; • Loss of the necessary licenses, authorizations and permits for the regular performance of company activities. |
• Structured approach to strategic risk analysis, aimed at evaluating the robustness of the Business Plan in the face of multiple adverse risk scenarios in an enterprise-wide logic; • Constant monitoring of authorization processes and the requirements for maintaining them. |
Regulatory risks |
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|---|---|---|
| Type | Identification | Management |
| Regulatory - Legal | • Interventions by the regulatory authorities of the sectors in which Hera operates; • Regulatory developments with possible impact on both network and market businesses. |
• Dialogue activities with national and local authorities through an organizational structure designated for this purpose; • Timely alignment of commercial offerings to guidelines specified by the Regulator; • Enhancement of technical capacity and management efficiency to meet customer expectations (in terms of service range and quality). |
Geopolitical risks |
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|---|---|---|
| Type | Identification | Management |
| Regulatory and Policy Changes | Changes in government policies, regulations, and environmental standards, both national and european level, can impact operations, particularly in waste management and energy sectors |
Engage in continuous dialogue with policymakers, participate in industry associations, and monitor regulatory developments to adapt quickly. Investing in compliance and regulatory affairs teams to help anticipate and manage changes effectively |
| Energy Market Volatility | Geopolitical tensions can cause fluctuations in energy prices, supply disruptions, and shifts towards renewable energy can pose significant risks. | • Diversify energy sources, invest in renewable energy projects. |
| Cybersecurity Threats | Increasing geopolitical tensions can lead to cyberattacks targeting critical infrastructure | • Use hedging strategies to mitigate the impact of energy price volatility • Invest in robust cybersecurity measures, conduct regular security audits, and establish a response plan for cyber incidents • Collaborate with government agencies and industry partners to share intelligence and best practices. |
| Environmental Risks and Climate Change | Geopolitical focus on climate change can lead to stricter environmental regulations and demand for sustainable practices. | • Invest in green technologies, improve energy efficiency, and develop sustainable business practices • Engaging in carbon reduction initiatives and reporting transparently on environmental impact to enhance resilience |
| Geopolitical Tensions Impacting Supply Chains | Counterparties unable to meet the obligations undertaken, both in terms of respect of economic conditions and in the execution of contractual provisions. | • Develop flexible supply chains, maintain strategic storage • Explore alternative options to reduce reliance on international supply chains |
Environmental risks |
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|---|---|---|
| Type | Identification | Management |
| Environmental-Catastrophic and caused by Climate Change | Failure to comply with environmental standards and related legal limits, with worsening of environmental conditions and exposure to possible sanctions; Climate change impacting both economically and in terms of service quality, arising from physical and transitional scenarios. | • Adequate environmental control system, both as regards the governance of environmental certification processes and related audits, and as regards the operational management of controls and assessments; • Reporting on company performance and engagement in the area of climate change; • Activating projects to promote the production of energy from renewable sources and reduce energy consumption; • Supporting clients to reduce their greenhouse gas emissions; • Incentivizing recovery strategies. |
Operational security and ICT risks |
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|---|---|---|
| Type | Identification | Management |
| Operational security and ICT | • Negative externalities that compromise business continuity and may increase the financial requirements for the restoration of the Group's regular operations; • Reduced operational security of distribution networks (fluids and electricity), reduced logical security of information, reduced security of communication networks and information systems, and reduced reliability of remote control systems. |
• Centralized network monitoring systems that are in constant operation, with real-time detection of potential critical factors; • Constant monitoring of the level of cybersecurity risk, with governance and organizational structures designed for this purpose. |
Health and safety risks |
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|---|---|---|
| Type | Identification | Management |
| Safety and personal development | • Reduced occupational health and safety and limited social protection for workers; • Skills mismatch; • Reduced attractiveness of the workplace environment. |
• Careful identification of hazards and assessment of emerging needs; • Continuous and targeted initiatives to raise awareness about improving protection and prevention processes in terms of safety, and technical-regulatory training accompanied by training to develop risk perception awareness; • Constant monitoring and identification of evolving needs in terms of skills, and qualitative adjustment of existing skills and those to be acquired; • Establishment of a welfare system based on attention to people. |
The organisational structure adopted by the Hera Group allows it to manage the risk exposure involved in its businesses, while at the same time maintaining the effectiveness and profitability of management along the entire value chain.
The system of corporate governance adopted allows strategies to be oriented in a unitary and coherent way. The main managerial body that orients, monitors and provides information on risk management strategies is the Risk committee.
Alongside it, the Internal control and risk committee, made up of members of the BoD, in accordance with article seven of the Corporate governance code, is tasked with overseeing the operation of the internal control system, the efficiency of company operations, the reliability of financial information, as well as compliance with the law and regulations, and protection of company assets.
The approach towards defence from risks adopted by the Group is set out over three levels, defining an appropriate separation between:
- the role of risk management, entrusted to the risk owners at the various levels of organisation;
- the role of risk orientation and control, entrusted to the Risk committee, which turns to risk specialists who carry out second-level controls, meaning that their task is to define, apply and update methods in risk analysis and engage in control activities for the areas falling under their mandate (review challenge and control).
- the role of evaluating the adequacy of risk management processes, i.e. the internal control and risk management system, assigned to the Internal Auditing Department.
To learn more: The architecture of risk governance