| Strategic/ business-related | Changes in Regulation and legislation | Risk of changes in the regulatory and institutional context in Europe or nationally affecting the natural gas sector. Risk of penalising update of the rate of return on net invested capital recognised by ARERAThe Italian Regulatory Authority for Energy, Networks and Environment (ARERA) is an independent body set up by Law no. 481 of 14 November 1995 to protect the interests of consumers and promote competition, efficiency and starting 1 January 2022 according to the update of the reference macroeconomic variables. | – Specific structures for monitoring regulation, legislation and their prospective development plans, including in Europe
– Active participation in the consultations called by ARERAThe Italian Regulatory Authority for Energy, Networks and Environment (ARERA) is an independent body set up by Law no. 481 of 14 November 1995 to protect the interests of consumers and promote competition, efficiency and, sharing corporate positions and/or proposals for defining, updating and implementing clear and transparent regulation criteria
– Active participation in consultations called by the Italian government or by European community organisations on relevant topics
– Guidance aimed at defining unified trade positions in Italy and abroad | Economic performance and financial sustainability |
Strategic/ business-related | Climate Change | Risk of increase in the frequency of extremely intense natural events in the places where Italgas operates (more or less prolonged unavailability of assets and infrastructure, increase in repair and insurance costs, service interruption, etc.)
EMERGING RISK1: Risk of increase in the average temperatures in the areas where Italgas operates with a negative impact on the volumes of gas distributed and/or on the number of active re-delivery points served
EMERGING RISK: Risk of changes in the Italian and EU legislative and regulatory context in terms of GHG with the objective of limiting emissions, for instance through the introduction of measures that require natural gas distributors to acquire certificates to cover emissions.
EMERGING RISK: Risk of technological changes that could lead to a negative impact on the residential demand for natural gas.
EMERGING RISK: Risk associated with the uncertainty of the role of natural gas in the future energy mix | – Operational countermeasures as described in the “Service continuity: malfunctioning, accidents or extraordinary events” risk
– Objective to reduce emissions by at least 20% by 2026
– Use of Picarro Surveyor technology, currently the most advanced technology in the field of gas network monitoring activities, with significant benefits in terms of speed of execution, extent of the areas being controlled and three times greater sensitivity of detection of gas in the air than those currently used by sector operators (parts per billion versus parts per million)
– Process of converting the almost 72,000 kilometres of network into digital infrastructure in order to enable the distribution of gas other than methane, such as hydrogen and biomethane
– Development, implementation and adoption of digital applications for the remote control of network and facility construction, development and maintenance worksites
– Conversion to methane of the distribution networks supplied by LPG, with resulting reduction in emissions compared to the current configuration
– Actions to modernise the network (investments in maintenance, replacement of cast iron pipes with mechanical joints, renovation of upright columns and brackets)
– Promotion of responsible business practices, by joining the UN Global Compact and the OGMP 2.0 of the UNEP
– Guidance to define the associative sector positions in Italy and abroad
– Active participation in consultations called by the Italian government or by European community organisations on relevant topics
– Active participation in the activities of European sector associations to oversee technological changes
– Carrying out energy efficiency projects through the subsidiaries Seaside and Toscana Energia Green
– Investments intended to increase the Group’s presence in the water and energy efficiency sectors
– Promotion of sustainable mobility
– Development of Power to Gas technology powered by renewable energy in order to produce gas that can be used in the existing networks
– Network and facility analysis initiatives for the evaluation of their adequacy and of interventions intended to enable the distribution of gas other than methane, such as hydrogen, biomethane and e-gases | Corporate identity Environmental sustainability and the fight against climate change Economic performance and financial sustainability Quality and safety of assets Innovation |
Strategic/ business-related | Risks associated with the development and awarding of area tenders for the Gas distribution serviceService of transporting natural gas through networks of local methane pipelines from one or more delivery points to redelivery points, generally at low pressure and in urban areas, for delivery to end users. | Risk of not being awarded concessions in the planned areas or being awarded concessions with less favourable conditions than previously. Risk of higher management costs borne by the Group with respect to its operating standards in case of concessions awarded in ATEMs (Minimum Territorial Areas) previously managed entirely or partially by other operators. Risk of legal and/or arbitration disputes with possible negative effects on the business and the equity, economic and financial position of the Italgas Group deriving from the complexity of the legislation that governs the expiry of the concessions held by Italgas. Risk that the redemption value of the concessions, for which a third party is an assignee following the area tenders, is lower than the value of the RAB, with possible negative effects on the business and on the equity, economic and financial position of Italgas. | – The existing legislative context states that in the event of failure to be awarded concessions previously managed, for the networks it owns, the outgoing operator is entitled to the redemption value
– Specific procedures that govern the pre-tender activities, including calculation of the redemption value, and participation in area tenders
– Monitoring of legislative changes (national, regional, local) and evaluation of the potential impacts on the tender process
– Planning of the Tender calendar and the bidding strategy integrated into the Group’s Strategic Plan.
– Critical analysis of the quality of the tender bid and implementation of improvement measures, including through use of external experts, organisations and universities | Corporate identity Economic performance and financial sustainability |
Strategic/ business-related | Risks related to energy efficiency certificates |
Potential risk of economic loss due both to the possible negative difference recorded between the mean purchase value of the Energy Efficiency Certificates purchased and the recognised tariff-based fee at the end of each year of obligation and the failure to achieve the targets annually set | – Established a specific provision to cover the liabilities associated with the Energy Efficiency Certificates
-Process for the acquisition of Energy Efficiency Certificates and the management of related obligations
– Monitoring of legislative changes
– Active participation in working groups and development of sector position papers with proposals for guidelines for reviewing the rules of the EEC system
– Optimised purchasing strategy through access to the market, evaluation and development of any reports for bilateral agreements, periodic reporting to company management
– Presence in energy efficiency sectors through the development of projects with partial reduction of the EEC short position | Environmental sustainability and the fight against climate change Economic performance and financial sustainability |
Financial | Credit Risk |
Risk of potential losses arising from counterparties failing to fulfil their obligations or delayed payment of amounts owed with negative effects on the financial results and financial position of Italgas | – Rules for customer access to the Gas distribution serviceService of transporting natural gas through networks of local methane pipelines from one or more delivery points to redelivery points, generally at low pressure and in urban areas, for delivery to end users. established by the ARERAThe Italian Regulatory Authority for Energy, Networks and Environment (ARERA) is an independent body set up by Law no. 481 of 14 November 1995 to protect the interests of consumers and promote competition, efficiency and and set out in the Network Codes, namely, in documents that establish, for each type of service, the rules regulating the rights and obligations of the parties involved in the process of providing said services and contain contractual conditions that reduce the risk of non-compliance by customers, such as the provision of bank or insurance guarantees on first request
– As at 31 December 2020 there were no significant credit risks. However, taking into account the effects of the emergency measures as a result of COVID-19, note that on average 96% of trade receivables relating to gas distribution are settled by the due date and over 98% within the following 4 days, confirming the strong reliability of the customers
– Analysis and monitoring of the credit portfolio
– Assessments of initiatives for outsourcing to external companies specialised in credit recovery. Monthly monitoring of the activities and performance of the appointed companies | Economic performance and financial sustainability |
Financial | Changes in interest rates, inflation and deflation |
Risk of fluctuations in interest rates, impacting the market value of the Company’s financial assets and liabilities and its net financial expense. The risk that an extended period of inflation lower than the Group’s forecasts could have adverse effects in the long-term on the RAB value and expected regulated revenue. Risk of an unexpected increase in the inflation rate with possible adverse effects on expected costs. | – Process for the preparation and monitoring of the financial and management plan, and control and reporting of financial risks
– Financial planning activities with a time frame of 7 years, carried out annually
– Maintenance of a debt ratio between a fixed rate and floating rate to minimise the risk of rising interest rates (as at 31 December 2020, 13.5% of the gross financial debt was at floating rate and 86.5% at fixed rate)
– Use of a diverse mix of external financial resources (bonds subscribed by institutional investors, syndicated loans with banks and other financial institutions, in the form of medium-to-long-term loans and bank credit lines at interest rates indexed to benchmark market rates, in particular the Europe Interbank Offered Rate [Euribor])
– Monitoring of the main economic and financial indicators, including financial structure indices used by rating agencies, liquidity indicators and liquidity buffers, risk indicators of counterparty liabilities, and of certain key parameters, such as the ratio between debt and the RAB, indicators of debt mix/ composition (fixed/variable, short/long, used/agreed) | Economic performance and financial sustainability |
Financial | Liquidity Risk |
Risk that new financial resources may not be available (funding liquidity risk) or that the company may be unable to convert assets into cash on the market (asset liquidity risk), meaning that it cannot meet its payment commitments. This may affect profit or loss should the company incur extra costs to meet its commitments or, in extreme cases, lead to insolvency and threaten the company’s future as a going concern. | – Process for the preparation and monitoring of the financial and management plan, and control and reporting of financial risks
– Financial planning activities with a time frame of 7 years, carried out annually
– Loan agreements related to undrawn credit lines as at 31 December 2020 (amounting to € 500 million) which may be used to address possible liquidity needs, where necessary, if the actual borrowing requirement is higher than estimated
– Adequate level of cash held in current accounts and fixed-term deposits with leading banks
– The EMTN programme, in addition to funding from the banking system, which presently allows issue of the remaining bonds worth a nominal €2.65 billion to be placed with institutional investors
– Monitoring of the main economic and financial indicators, including financial structure indices used by rating agencies, liquidity indicators and liquidity buffers, risk indicators of counterparty liabilities, and of certain key parameters, such as the ratio between debt and the RAB, indicators of debt mix/ composition (fixed/variable, short/long, used/agreed) | Corporate identity Economic performance and financial sustainability |
| Financial | Credit ratingRepresents the opinion of the rating agency with respect to a debtor’s general credit or the debtor’s creditworthiness with specific reference to a particular debt instrument or another form of financial obligation, based on the risk | Risk of a downgrade in Italgas’ Credit ratingRepresents the opinion of the rating agency with respect to a debtor’s general credit or the debtor’s creditworthiness with specific reference to a particular debt instrument or another form of financial obligation, based on the due to worsening in the economic and financial parameters or due to a downgrade of the rating of the Italian Republic, which, based on the methodologies adopted by the rating agencies, could trigger a downward adjustment in Italgas’ rating | – Process for the preparation and monitoring of the financial and management plan, and control and reporting of financial risks
– Financial planning activities with a time frame of 7 years and carried out annually
– Monitoring of the main economic and financial indicators, including financial structure indices used by rating agencies, liquidity indicators and liquidity buffers, risk indicators of counterparty liabilities, and of certain key parameters, such as the ratio between debt and the RAB, indicators of debt mix/ composition (fixed/variable, short/long, used/agreed)
– Constant dialogue with rating agencies | Corporate identity Economic performance and financial sustainability |
| Financial | Debt CovenantA covenant is a commitment contained within a loan agreement under which some activities may or may not be carried out by the borrower. Specifically, a covenant is defined as “financial” when it imposes a and default risk | Risk of failure to comply with financial covenants for existing loans (in some cases only when this non-compliance is not remedied within a set time period, and the occurrence of other events, such as cross-default events, some of which are subject to specific threshold values), which could result in Italgas’ failure to comply and could trigger the early repayment of the relative loan | – Absence of financial covenants and/or collateral in the loan agreements (as at 31 December 2020, there were no loan agreements with these characteristics, except for the EIB loan taken out by Toscana Energia, for a nominal €90 million, which requires compliance with certain financial covenants)
– The issue of bonds as part of the Euro Medium Term Notes programme, requiring compliance with covenants that reflect international market practices regarding, inter alia, negative pledge and pari passu clauses
– Monitoring of compliance with the following types of contractual clauses: (i) negative pledge undertakings, pursuant to which Italgas and its subsidiaries are subject to limitations regarding the creation of real rights of guarantee or other restrictions concerning all or part of the respective assets, shares or goods; (ii) pari passu and change of control clauses; (iii) limitations on some extraordinary transactions that the company and its subsidiaries may carry out (as at 31 December 2020, these commitments appear to have been respected) | Corporate identity Economic performance and financial sustainability |
| Operational | Anomalies in smart meter performance | Risk of increased levels of malfunctioning of remote-reading meters with lost/ failed reading of the use and/or requiring replacement or regeneration | – Maintenance of an adequate provision to cover the liabilities generated by the costs arising from malfunctioning
– Issue of adequate guarantees by the suppliers of materials
– “SmartTracker” Digital Factory application for the tracking and management of smart meters throughout the entire life cycle
– Plan to replace and/or repair meters with function anomalies
– Audits on suppliers and supply tests
– Update of technical specifications, including in consideration of technology changes
– Gradual adoption in the field of smart meters equipped with NB-IoT communication technology | Corporate identity Customer quality and satisfaction Economic performance and financial sustainability Quality and safety of assets Innovation |
| Operational | Service continuity: malfunctioning, accidents or extraordinary events | Risks of malfunctioning and unforeseeable distribution service disruptions from unintended events, such as accidents, breakdowns or malfunctioning of equipment or control systems, the underperformance of plants, and extraordinary events such as explosions, fires, earthquakes, landslides or other similar events beyond Italgas’ control | – Third Party Liability Insurance and Asset Protection coverage
– Procedures and systems for emergency management, emergency plans with measures defined to make facilities safe and guarantee service continuity
– Health and safety procedures, communication campaigns, training and meetings to raise awareness of and analyse the prevention of accidents, initiatives that also involve suppliers/contractors
– Integrated Centre for Supervision (CIS) active 24/7 which makes it possible to monitor the status of the network remotely using remote monitoring systems, manage requests for prompt intervention, identify the places that require intervention and monitor the progress of making conditions safe
– Facility and asset safety and network monitoring systems
– Digitisation of the network, for the improvement of real-time monitoring systems and predictive maintenance
– Planned search for leaks using the best systems and technologies (Picarro Surveyor) and with higher levels of annual coverage of the network inspected than the standards defined by ARERAThe Italian Regulatory Authority for Energy, Networks and Environment (ARERA) is an independent body set up by Law no. 481 of 14 November 1995 to protect the interests of consumers and promote competition, efficiency and
– Modernisation of the network (investments in maintenance, replacement of cast iron pipes with mechanical joints, plans to clean up upright columns and brackets)
– Actions for the prevention of potential damage to pipes caused by third parties (e.g. other sub- services)
– Qualification procedures for third-party construction, engineering and works supervision companies, contractor monitoring
– Digital Factory for the development of innovative solutions intended to digitise processes and improve the network operating and management activities and the quality of service | Corporate identity Development of human resources Customer quality and satisfaction The commitment to the local area Economic performance and financial sustainability Quality and safety of assets |
| Operational | Cyber attacks | Risks of cyber-attacks on the IT (Information Technology), OT (Operational Technology) and IoT (Internet of Things) sectors | – Specific insurance coverage of the risks related to cybersecurity
– Cybersecurity organisational and operational model
– Models and procedures for business continuity, network and information security, and emergency and crisis management
– Specific training for Group employees on cyber risks, common vulnerabilities, phishing and spam
– Phishing simulations for Group employees intended to test and strengthen their ability to recognise malicious emails
– Secure Product Development Lifecycle process which defines an operational and project approach in which the considerations and measures to prevent and mitigate cybersecurity risks are integrated from the very start of the procurement process and/or the development of hardware and software
– Performance of IT and OT vulnerability assessment
– Definition and periodic updating of contract technical specifications, including in relation to cybersecurity
– Leading sector suppliers that guarantee maximum levels of security and performance, the service levels of which are defined by contract and monitored
– “Cybersecurity Awareness for third parties”, with which the suppliers of the Italgas Group must formally comply. It promotes the application of appropriate cybersecurity processes by third parties | Corporate identity Compliance and transparency Responsible supply chain management Customer quality and satisfaction Economic performance and financial sustainability Innovation |
| Operational | Risks associated with the health and safety of people and environmental protection | Risk of injuries due to accidents and/or non-compliance with safety standards. Risk that Italgas may incur costs or liability, including to a significant extent, arising from any environmental damage, including in consideration of changes in legislation on protecting the environment, the possible occurrence of disputes and the difficulty of determining any consequences, including in relation to the liability of other parties | – Specific insurance policies for “individuals”, which cover cases of professional and non-professional accidents, and death by illness
– HSEQ system in compliance with the reference standards, certified according to international legislation for aspects of health, safety, environment, quality and energy efficiency, which envisages compliance audits carried out by the certification body
– Research and technological innovation and actions and projects for the energy efficiency of processes, the improvement of plant safety conditions and the environmental recovery of former manufactured gas production sites
– Monitoring of HSEQ legislation, formation and dissemination of applicable legislative oversight.
– Training on HSEQ issues and digital management system for courses (Learning Management System)
– Digital applications for reporting and recording “near misses” and for waste management
– Communication campaigns and meetings to raise awareness about safety and other HSEQ topics for all operating units. Reward systems for virtuous operating structures in terms of health and safety
– Conventions with suppliers/contractors intended to raise awareness/create alignment on HSEQ issues
– Internal procedures that involve specific measures with regard to suppliers/contractors in case of HSEQ non-compliance and reward system for virtuous behaviour (Contractor Safety Trophy)
– Compliance audits on the HSEQ and ISO 37001 integrated system and technical audits on suppliers and contractors during qualification and normal activities With particular reference to reclamation activities:
– Established a specific provision to cover the estimated liabilities in relation to the formalities required by the law in effect
– Reclamation process of contaminated sites, which defines the tasks, operating procedures and indications in operations of waste removal, land analysis, establishing safe conditions and/or reclamation of sites contaminated by previous activities
– Structure dedicated to monitoring the design and construction phases. Audits on sites being reclaimed, carried out internally and by third parties, both during the works and for the final inspection | Corporate identity Responsible governance and risk management Development of human resources Environmental sustainability and the fight against climate change Responsible supply chain management The commitment to the local area Compliance and transparency |
| Operational | Risks associated with human resources | Risks associated with the development of human resources, including risk of resources in key roles leaving, lack of technical and specialist know-how, increase in the age of company personnel, drop in the level of satisfaction and/ or increase in workplace disputes | – Knowledge transfer system developed in the Italgas Digital Factory, which involves the video coding of operating activities and real-time instructions available via wearable devices
– Refining of training processes, with a multimedia platform for planning, managing and accessing the various managerial, technical, HSEQ and digital training activities
– Initiatives for the dissemination of the culture and digital knowledge (mapping of digital skills, creation of Digital Ambassadors and training on digital topics)
– Personnel scouting and recruitment process, performance management system and development plans for resources with a role-specific training programme
– Succession plan for senior roles
– Collaborations with Italian universities intended to anticipate talent acquisition
– Definition of organisational structures dedicated to diversity and inclusion and to HR sustainability
– Periodic survey on the corporate climate extended to all Group employees
– System of services and welfare under constant expansion in order to intercept new requirements and expectations
– Italgas Human Rights Policy
– Italgas Diversity and Inclusion Policy
– Mac@Italgas project to provide Italgas personnel already in possession of an iPhone or iPad with a MacBook to replace Windows PCs, guaranteeing an ecosystem capable of ensuring the simplicity of the approach to new digital solutions, driving exchange and collaboration and improving the daily experience | Corporate identity Responsible governance and risk management Development of human resources Innovation |
| Operational | Risks associated with the quality and level of service | Risk of non-compliance of the commercial levels of service for services to sales companies and/or risk of delayed or partial compliance with the obligations assumed, such as execution of the investments plan related to concessions involving obligations borne by the concession holder | – Continuous monitoring of Key Performance Indicators on commercial processes, alerts and communication to Territorial Hubs for activation/acceleration of territorial interventions
– Ad hoc analysis of all commercial processes and development of improvement measures
– Operating procedures and instructions for Commercial Management of the Service
– Acceleration in improvements to the level of service driven by the digitisation of assets and processes
– Surveys at sales companies
– New Italgas digital portal dedicated to Gas2Be sales companies, developed to strengthen the partnership, facilitate the accreditation process of the network and allow the sales companies direct and immediate access to information and news about Italgas such as the most recent promotions launched in the territory, or about the upcoming webinars designed specifically to increase and improve the exchange of know-how between Italgas and the sales companies
– Allocation to a specific business unit of the responsibility for mapping the existing concession obligations, monitoring and activating the network technical units for prompt interventions
– Monitoring of the works progress on the basis of the obligations assumed
– Constant dialogue with contracting parties, including in order to understand and satisfy update requirements
– Introduction of Salesforce (CRM) to support people working at the Italgas Contact Centre in carrying out front-end activities (Customer Service) | Corporate identity Customer quality and satisfaction The commitment to the local area Economic performance and financial sustainability Innovation |
| Operational | Supply chain risks | Risks associated with the availability and cost of materials, services and supplies, the operating capacity and scalability and the reputational and compliance reliability (including respect for human rights) of the suppliers and contractors of the Group | – Planning of procurement, analysis and monitoring of department KPIs
– Supplier qualification process which provides for specific reputational and anti-mafia checks
– Standardised tender processes and regulations
– Supplier performance evaluation, including in terms of sustainability, integrated into the vendor management module
– On-site checks for the qualification purposes of suppliers deemed critical/strategic
– Technical specifications being continuously updated including in consideration of the technological changes and contractual clauses that govern cases of goods and services exposed to cyber risk
– “Supplier Code of Ethics”, which requires a commitment by the suppliers, inspired, among other things, by the information set out internationally in the UN Universal Declaration of Human Rights, the Declaration on Fundamental Principles and Rights at Work and the Conventions issued by the International Labour Organization (ILO) and the Ten Principles of the UN Global Compact, in addition to the contents of the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises
– “Cybersecurity Awareness for third parties”, with which the Italgas Group’s suppliers must comply
– Renewed logistics model with Warehouse Centralisation and management of Withdrawal Points in the territories (UT) and consequent digitisation of monitoring materials in stock/transit | Fight against corruption Compliance and transparency Development of human resources Responsible supply chain management Economic performance and financial sustainability Innovation |
Operational | COVID-19, pandemics and new diseases | Risks associated with the health crisis arising from COVID-19 and/or the spread of new pandemics or new diseases that have repercussions on health and safety, on the operating context and on the resulting economic and financial framework of reference of Italgas. | – Formation of a Crisis Committee for the analysis and decision-making associated with the management of the pandemic
– Continuous monitoring of the changes in the reference regulations and scientific solutions for the management of the COVID-19 emergency both nationally and internationally, maintaining constant connections with the authorities, research organisations and hospitals
– Adoption of the Italgas Group Protocol regulating measures to combat and contain the spread of the COVID-19 virus in the workplace
– Specific indemnity insurance policy for all employees who test positive for COVID-19
– Campaigns open to all employees for carrying out PCR swab tests, serological tests and flu vaccinations
– Specific operating measures to minimise contact (smart working, review of operating procedures, suspension of transfers and visitor entry), specific safety measures such as the provision of specific routes, temperature scanners upon entry and hand sanitiser towers
– Daily monitoring of positive cases and personnel in quarantine and process for the receipt and management of reports regarding positive COVID-19 cases, which provides for the identification of any personnel who have come into contact with them and activation of quarantine in coordination with health authorities and local doctors | Corporate identity Responsible governance and risk management Development of human resources The commitment to the local area Economic performance and financial sustainability |
| Legal and non- compliance | Risk of non- compliance and legislative changes | Risk of non-compliance with legislation at European, national, regional and local level with which Italgas must comply in relation to the activities that it carries out and/or risk of failure to intercept and transpose new regulations falling under the scope of application | – Internal control and risk management system and areas of responsibility defined in terms of compliance
– Code of Ethics, Model 231, Policy for the prevention of and fight against corruption, ISO 37001 anti- bribery certification for Italgas and all Group companies
– Monitoring, analysis, distribution and implementation of legislative measures on topics of interest for the Italgas Group and verification of correct implementation
– Training for personnel on compliance issues
– Analysis and monitoring of the reputational requirements of the Group’s counterparties
– “Supplier Code of Ethics”, with which the Italgas Group’s suppliers must comply | Corporate identity Fight against corruption Compliance and transparency Responsible governance and risk management Development of human resources Environmental sustainability and the fight against climate change Responsible supply chain management Customer quality and satisfaction |
