This section provides disclosure on the following strategic risks: 

The Group operates in regulated markets and changes in the operating rules of the various systems, as well as the prescriptions and obligations characterizing them, impact the operations and performance of the Parent.
Accordingly, Enel closely monitors legislative and regulatory developments, such as: 

• periodic revisions of regulation in the distribution segment; 
• the liberalization of electricity markets, with special attention being paid to the acceleration provided for in Italy and expected developments in South America; 
• developments in capacity payment mechanisms in the generation segment; 
• regulatory measures to shield users from impact of price developments.

 In order to manage the risks associated with these developments, Enel has intensified its relationships with local governance and regulatory bodies, adopting a transparent, collaborative and proactive approach in addressing and eliminating sources of instability in the legislative and regulatory framework.

The macroeconomic environment in 2023 will again see inflation at levels well above central bank targets in almost all economies. While inflation is expected to moderate gradually over the course of the year, some underlying inflation dynamics involving final goods and services could persist in the coming quarters. In response, central banks may delay the process of normalizing their monetary policies by further tightening financial conditions. This represents a major risk, especially in emerging markets such as Latin America, where a further generalized decline in risk appetite could trigger additional capital outflows and place greater strain in bond issues by local governments. Indeed, the fiscal space of many emerging countries had already been stretched during the pandemic crisis in order to support the economic recovery and concerns about debt sustainability in many countries have increased even more now in view of the increasingly less favorable global financial conditions. Finally, new risks could emerge if new variants of COVID-19 should spread, forcing governments to reintroduce restrictive measures on mobility and, consequently, generate new distortions in supply chains. The considerable internationalization of the Group – which has a presence in many regions, including South America, North America and Africa – requires Enel to consider country risk, i.e., risks of a macroeconomic, financial, institutional, social or climatic nature and those specifically associated with the energy sector whose occurrence could have a significant adverse impact on both revenue flows and the value of corporate assets. Enel has adopted a quantitative Open Country Risk assessment model capable of specifically monitoring the riskiness of the countries in which it operates.
The Open Country Risk model seeks to go beyond the more conventional definition of country risk, which focuses on the ability of a government to repay the debt it has issued, to offer a broader view of the risk factors that can impact a country. The model is divided into four risk components: economic, institutional and political, social, and energy factors.

More specifically, the Open Country Risk model has the ambition to measure the economic resilience of individual countries, defined as the balance of their position with respect to the rest of the world, the effectiveness of internal policies, the vulnerabilities of their banking and corporate system that might portend systemic crises and their attractiveness in terms of economic growth, and finally a quantification of extreme climate events as a cause of stress at the environmental and economic level (economic factors).This is accompanied by an assessment of the robustness of the country’s institutions and the political context (institutional and political factors), an in-depth analysis of social phenomena, measuring the level of well-being, inclusion and social progress (social factors), and the effectiveness of the energy system and its positioning within the energy transition process, as these are all essential factors for evaluating the sustainability of investments in the medium to long term (energy factors).
Specifically, the introduction of extreme climate events within the Open Country Risk model makes it possible to develop a uniform assessment on the evolution of certain climate hazards at the country level on a global scale.
Finally, with regard to the analysis of the energy transition process, the Open Country Risk model also includes risk and opportunity analyses designed for forecasting purposes, quantifying the actions and the paths taken by the individual countries. For example, the model incorporates various factors reflecting the weight of renewable sources in energy generation, the electrification process and the environmental sustainability of the national energy system, which together are crucial characteristics for evaluating the country’s potential growth and attractiveness in the medium to long term.

As discussed in previous sections, climate change and the energy transition will impact Group activities in a variety of ways.
In order to identify the main types of risk and opportunity and their impact on the business associated with them in a structured manner consistent with the Task force on Climate-related Financial Disclosures (TCFD), we have adopted a framework that explicitly represents the main relationships between scenario variables and types of risk and opportunity, specifying the strategic and operational approaches to managing them, comprising mitigation and adaptation measures.
There are two main macro-categories of risks/opportunities: those connected with developments in physical variables and those linked to the evolution of the transition scenarios. The framework described has been created with a view to ensuring overall consistency, making it possible to analyze and evaluate the impact of physical and transition phenomena within solid alternative scenarios, constructed using a quantitative and modeling approach combined with ongoing dialogue with both internal stakeholders and external authorities.
Physical risks are divided in turn between acute (i.e., extreme events) and chronic, with the former linked to extremely intense meteorological conditions and the latter to more gradual but structural changes in climate conditions. Extreme events expose the Group to the risk of prolonged unavailability of assets and infrastructure, the cost of restoring service, customer disruptions and so on. Chronic changes in climate conditions expose the Group to other risks or opportunities: for example, structural changes in temperature could cause changes in electricity demand and have an impact on output, while alterations in rainfall or wind conditions could impact the Group’s business by increasing or decreasing potential electricity generation. In general, adapting to the probable changes that will occur in the future also drives activities in the field of innovation and strategic positioning: new businesses and better products could be found to live sustainably in the changed context.

The energy transition characterized by a gradual reduction of CO2 emissions has risks and opportunities connected both with changes in the regulatory and legal context and trends in technology development and competition, electrification and customer behavior and the consequent market developments.

Consistent with the situation delineated in the climate and transition scenarios used by Enel to determine risks and opportunities, the main transition-related phenomena are beginning to emerge in relation to customer adoption of new behavior, the adoption of industrial strategies in all economic sectors and developments in regulatory policies, including tax policies. By 2030, the transition trends will become visible in response to the evolution of the context: the Enel Group has decided to guide and facilitate the transition, preparing to seize all the opportunities that may arise. As discussed previously, our strategic choices, which are already strongly oriented towards the energy transition, with more than 90% of investments directed at improving a number of the Sustainable Development Goals, enable us to incorporate risk mitigation and opportunity maximization “by design”, adopting a positioning that takes account of the medium and long-term phenomena we have identified. The strategic choices are accompanied by the operating best practices adopted by the Group.

The framework illustrated above also highlights the relationships that link the physical and transition scenarios with the potential impact on the Group’s business.
These effects can be assessed from the perspective of three time horizons: the short term (1-3 years), in which sensitivity analyses based on the Strategic Plan presented to investors in 2022 can be performed; the medium term (until 2029), in which it is possible to assess the effects of the energy transition; and the long term (2030-2050), in which chronic structural changes in the climate should begin to emerge.
In order to facilitate the correct identification and management of the risks and opportunities associated with climate change, a Group policy was published in 2021 that describes the common guidelines for assessing these risks and opportunities. The “Climate change risks and opportunities” policy defines a shared approach for integrating issues relating to climate change and the energy transition into the Group’s processes and activities, thus informing industrial and strategic choices to improve business resilience and long-term sustainable value creation, in line with the adaptation and mitigation strategy. The main steps considered in the policy are described below.

• Prioritization of phenomena and scenario analysis. These activities include the identification of physical and transition phenomena relevant to the Group and the consequent preparation of the scenarios to be considered, which are developed through the analysis and processing of data from internal and external sources. For the phenomena so identified, functions can be developed to connect the scenarios (for example, data on changes in renewable sources) to the operation of the business (for example, changes in expected potential output). 
• Evaluation of impacts. This includes all the analyses and activities needed to quantify the effects at an operational, economic and financial level, consistent with the processes in which they are integrated (for example, design of new buildings, evaluation of operational performance, etc.). 
• Operational and strategic actions. The information obtained from the previous activities is integrated into processes, informing the decisions of the Group and the business activities. Some examples of activities and processes that benefit from this are capital allocation, such as in the evaluation of investments in existing assets or new projects, the development of resilience plans, risk management and financing activities, engineering and business development. 

The main sources of risk and opportunity identified, the best practices for the operational management of weather and climate phenomena, and the qualitative and quantitative impact assessments performed to date are discussed below. The above activities are performed on the foundation of an ongoing effort during the year to analyze, assess and manage the information produced. As declared by the TCFD, the process of disclosing information on the risks and opportunities connected with climate change will be gradual and incremental from year to year.

The impacts of climate change, technological evolution, the evolution of policies and changes in macroeconomic fundamentals and geopolitical and market conditions make it every more important to develop resilient business strategies, i.e., strategies both capable of withstanding external shocks, and therefore of absorbing the causes of potential crises and thriving even when external conditions change, whether slowly or rapidly, and equipped to identify new opportunities and transform them into actions. Jointly considering the factors associated with energy transition scenarios and the various climate change scenarios is therefore a prerequisite for long-term planning.
The set of transition and climatic scenarios plays a role in guiding strategic and industrial decisions, taking account, for example, of the future effects of temperature on electricity demand, the investments necessary to support the process of ever greater electrification and decarbonization, the evolution of the market environment and of consumer habits. Given that Enel’s Strategic Plan concentrates more than 94% of investment on combatting climate change through the progressive expansion of generation from renewable sources and the development of infrastructure and services to guide energy systems and customers towards progressive electrification, aiming at the same time at significantly reducing the use of fossil fuels and increasing quality and efficiency, the Group’s investments and activities delineate, by design, a long-term growth path that is in line with an energy transition consistent with the Paris Agreement.

The application of long-term climate scenarios enables the construction of adaptation plans for the Group’s asset and business portfolio. Climate scenarios are developed starting with the identification of the most relevant physical phenomena for each business (such as heat waves, extreme rainfall, fire risk, etc.), to produce analyses that provide both high-level indicators (such as comparable country risk indices) and high-resolution data, which make it possible to study physical impacts at the single-site level. The approach applies to both the existing portfolio and new investments. More details on new investments are described in a dedicated section “Inclusion of climate change effects in the assessment of new projects”. Asset vulnerability assessment makes it possible to identify priority actions to increase resilience.

Taking the scenarios developed by the Intergovernmental Panel on Climate Change (IPCC) as our reference point, developments in the following physical variables and the associated operational and industrial impacts connected with potential risks and opportunities are assessed.

The climate scenarios developed with the International Centre for Theoretical Physics (ICTP) in Trieste do not provide definitive indications of structural changes before 2030, but structural changes could begin to emerge between 2030 and 2050. In practice, while significant meteorological variations have been recorded (e.g., the drought in Europe in 2022), it is still a challenge to establish in the short term whether some phenomena are changing structurally, or whether the average benchmark values are already changing. Instead, it is established on the longer time horizon with probability intervals. The main impacts of chronic physical changes would be reflected in the following variables:

• Electricity demand: variation in the average temperature level with a potential increase or reduction in electricity demand. 
• Thermal generation: variation in the level and average temperatures of the oceans and rivers, with effects on thermal generation. 
• Hydroelectric generation: variation in the average level of rainfall and snowfall and temperatures with a potential increase or reduction in hydro generation. 
• Solar generation: variation in the average level of solar radiation, temperature and rainfall with a potential increase or reduction in solar generation. 
• Wind generation: variation in the average wind level with a potential increase or reduction in wind generation.

The Group works to estimate the relationships between changes in physical variables and the change in the potential output of individual plants in the different categories of generation technology.
As part of the assessment of the effects of long-term climate change, we have identified chronic events relevant to each technology and began the analysis of the related impacts on potential output.

Scenario analysis has shown that chronic structural changes in the recent trends of physical variables will become significant beginning in 2030. However, in order to obtain an indicative estimate of the potential impacts, and include the possible early emergence of chronic effects, it is possible to test sensitivity of the Business Plan to the factors potentially influenced by the physical scenario, regardless of any direct relationship with climate variables. The current Business Plan was constructed using the information contained in the median scenarios relating to chronic phenomena, in order to also consider the possible effects of trends in climatic variables. 

To calculate the impact of the chronic effects of climate change on the production of our assets, a series of ad hoc functions have been created for each renewable technology (wind, solar and hydroelectric) and plant, which associate, with each change in climatic variables (e.g., temperature, radiation, wind speed, rainfall), probable changes in terms of electrical producibility of the plants in our portfolio.
To calibrate these “link” functions, we started from the historical data of the weather-climate variables⁽³⁴⁾ and from the internal references of the observed producible energy of our plants. In this way, link functions have been obtained which respond to the specific characteristics of each renewable plant and technology.
It was therefore possible to study the chronic climate impacts for possible future projections of climate variables (RCP 2.6, 4.5 and 8.5 scenarios).
Together with the chronic phenomena, which involve average structural changes, it is necessary to study the typical volatility of the weather and therefore more short-term. Both the information derived from the variation ranges of the chronic trends projected by the climatic scenarios and the historical volatilities of the meteorological data were taken as input for the strategic planning, through analysis of the variations in electricity production (TWh) over the last 10 years.
All fluctuations, both weather and climatic, can lead to adjustments, since the production of the plants feeds the sourcing for the sale of energy to customers. In essence, reductions in terms of energy for renewable production can lead to imbalances on the sourcing side which can lead to the purchase of the missing volumes on the market to feed the commercial strategy. Conversely, greater renewable production leads to a possible reduction in the purchase of volumes on the market (or possibly higher sales). From the analyses carried out at individual plant level and then aggregated, it has been calculated that on average hydroelectric production could decline slightly in the future (with substantial differences between sites), reporting average variations in the period 2030-2050 in the RCP 2.6 scenario compared with the historical values at country level included in a range between -1% and -5%. The average changes in wind production will greatly depend on the location of the assets, with both positive and negative minor changes. Finally, the effects for solar technology will generally be positive with average increases at the country level of up to 3% in the period 2030-2050 in the RCP 2.6 scenario. These effects, aggregated at the portfolio level, highlight the effects of geographical and technological diversification that balance the different variations. 

(34) Historical data from ISPRA (Istituto Superiore per la Protezione e la Ricerca Ambientale) and ERA5 data from ECMWF (European Centre for Medium-Range Weather Forecasts).

With regard to acute physical phenomena (extreme events), the intensity and frequency of extreme physical phenomena can cause significant and unexpected physical damage to assets and generate negative externalities associated with the interruption of service.
Within climate change scenarios, the acute physical component plays a leading role in defining the risks to which the Group is exposed, due both to the broad geographical diversification of its asset portfolio and the primary importance of renewable resources in electricity generation. Acute physical phenomena, in different cases such as wind storms, floods, heat waves, cold snaps, etc., are characterized by considerable intensity and a frequency of occurrence that, while not high in the short term, is clearly trending upwards in medium and long-term climate scenarios. Therefore, the Group, for the reasons described above, is already managing the risk associated with extreme events in the short term. At the same time, the methodology is also being extended to longer time horizons (up to 2050) in accordance with the climate change scenarios that have been developed (RCP 8.5, 4.5 and 2.6).

Acute event risk assessment methodology

In order to quantify the risk deriving from extreme events, the Group uses a consolidated catastrophic risk analysis approach, which is adopted in the insurance sector and in the IPCC reports.⁽³⁵⁾ Through its insurance business units and the captive insurance company Enel Insurance NV, the Group manages the various phases of assessing the risks connected with natural disasters: from assessment and quantification to the corresponding insurance coverage to minimize impacts.
The methodology is applicable to all extreme events that can be analyzed, such as wind storms, heat waves, tropical cyclones, flooding, etc. In all of these types of natural disasters, three independent factors can be identified, as briefly described below.

• The event probability (hazard), i.e., the theoretical frequency of the event over a specific time frame: the recurrence interval. In other words, a catastrophic event that has, for example, a recurrence interval of 250 years has a probability of occurrence in any given year of 0.4%. This information, which is necessary for assessing the level of frequency of the event, is then associated with the geographical distribution of Group assets.
  For this purpose, the Group adopts the hazard map tool, which associates the estimated frequency associated with an extreme event, for the different types of natural disasters, with each geographical point of the global map. This information, organized in geo-referenced databases, are obtained from global reinsurance companies, weather consulting firms or academic institutions. 

• Vulnerability, which indicates in percentage terms how much value would be lost upon the occurrence of a given catastrophic event. In more specific terms, reference can be made to the damage to material assets, the impact on the continuity of electricity generation and/or distribution or the provision of electrical services to end users.
  The Group, especially in the case of damage to its assets, conducts and promotes specific vulnerability analyses for each technology in its portfolio: solar, wind and hydroelectric generation plants, transmission and distribution grids, primary and secondary substations, etc. These analyses are naturally focused on the extreme events that most impact the different types of technologies. This produces a sort of matrix that associates the significantly impacted type of asset with the individual natural catastrophic events. 

• Exposure is the set of economic values present in the Group’s portfolio that could be materially impacted in the presence of catastrophic natural events. Again, the dimensions of the analyses are specific for the different production technologies, distribution assets and services to end users. The three factors described above (hazard, vulnerability and exposure) constitute the fundamental elements of any assessment of the risk associated with extreme events. In this sense, the Group, with respect to climate change scenarios, differentiates its risk analyses in accordance with the specificities of the various associated time horizons. The following table summarizes the scheme adopted for the assessment of the impacts deriving from acute physical phenomena.

(35) L. Wilson, “Industrial Safety and Risk Management”, University of Alberta Press, Alberta 2003. T. Bernold, “Industrial Risk Management”. Elsevier Science Ltd., Amsterdam, 1990.H. Kumamoto and E.J. Henley, “Probabilistic Risk Assessment And Management For Engineers And Scientists”, IEEE Press, 1996.Nasim Uddin, Alfredo H.S. Ang. (eds.), “Quantitative risk assessment (QRA) for natural hazards”, ASCE, Germany, 2012.UNISDR, “Global Assessment Report on Disaster Risk Reduction: Revealing Risk, Redefining Development”, UNISDR, Geneva, 2011.IPCC, “Managing the Risks of Extreme Events and Disasters to Advance Climate Change Adaptation - A Special Report of Working Groups I-II of the Inter-governmental Panel on Climate Change (IPCC)", Cambridge University Press, Cambridge, 2012

In the case of the vulnerability of assets within the portfolio, therefore, a priority table of the impacts of the main extreme events on the various technologies was defined in collaboration with the relevant global business lines of the Group.

Managing the risk of extreme events in the short term
Over the short term (1-3 years) the Group, in addition to risk assessment and quantification, takes actions to reduce the impacts that the business may suffer following catastrophic extreme events. Two main types of action can be distinguished: obtaining effective insurance coverage and climate adaptation activities, preventing losses that could be caused by extreme events.
The general characteristics of these actions are illustrated below and, naturally, in the case of adaptation activities for damage prevention and mitigation, specific reference will be made to the Group’s Generation and Enel Grids Global Business Lines.

Impact of acute physical events on the Group
The Enel Group has a well-diversified portfolio in terms of its generation technologies, geographical distribution and asset scale and, consequently, the portfolio’s exposure to  natural risks is also diversified. The Group implements various risk mitigation measures, which, as described below, include both insurance coverage and other management and operational arrangements to further lower the Company’s risk profile.
The empirical evidence indicates negligible repercussions from these risks, as shown by the data for the last five years. (36) The AERI evaluates the percentage of capacity at risk in the long term (2030-2050) compared with the historical period. It is thereby assumed that the Group’s plants are resilient to phenomena observed in the recent past. (37) Plants currently being analyzed are those with COD up to 2022 for solar facilities and up to COD 2021 for other technologies. Considering the most significant events, defined as events with a gross impact of more than €10 million, the cumulative gross impact amounts to about €130 million, which represents less than 0.06% of the value of the Group’s insured assets as at 2022 (about €224 billion), most of which was recovered through insurance reimbursements. 

(36) The AERI evaluates the percentage of capacity at risk in the long term (2030-2050) compared with the historical period. It is thereby assumed that the Group’s plants are resilient to phenomena observed in the recent past.
(37) Plants currently being analyzed are those with COD up to 2022 for solar facilities and up to COD 2021 for other technologies

Insurance in the Enel Group
Each year, the Group develops global insurance programs for its businesses in the various countries in which it operates. The two main programs, in terms of coverage and volumes, are the following:

• the Property Program (“Property Damage and Business Interruption Insurance Program”) for material damage to assets and the resulting business interruption. Accordingly, in addition to the costs of rebuilding assets (or parts thereof), the financial losses due to the stoppage of electricity generation and/or distribution are also covered, within the limits and conditions defined in the policies; 
• the Liability Program (“General & Environmental Liability Insurance Program”), which insures against losses caused to third parties, including the impact that extreme events may have on the Group’s assets and business. 

Based on effective risk assessment, it is possible to specify appropriate limits and insurance conditions within the policies, and this also applies in the case of extreme natural events linked to climate change. In fact, in the latter case, the impacts on the business can be significant but, as has happened in the past in various locations around the world, the Group has demonstrated a high degree of resilience, thanks to the ample insurance coverage limits, thanks in part to the Group’s solid reinsurance capabilities through the captive company Enel Insurance NV.
The presence of this effective insurance coverage does not make the actions that the Group takes in the preventive maintenance of its generation and distribution assets any less important. In fact, while on the one hand the effects of these activities are immediately reflected in the mitigation of the impacts of extreme events, on the other hand they are a necessary prerequisite for optimizing risk financing and minimizing the cost of the Group’s global insurance coverage programs, including the risk associated with catastrophic natural events. This adaptive strategy takes the form of management strategies and actions that go beyond insurance alone and change with the surrounding conditions. For example, the Group has managed to sterilize much of the strong upward trend in premiums on the insurance markets through changes to its risk retention policies for assets, as well as through internal risk transfer policies that reward the business lines that are most virtuous in terms of risk mitigation. From this perspective, the method and the information extracted from the ex-post analysis of events play a crucial role in determining the processes and practices to be deployed in mitigating such events in the future.
Within the Property Program, Enel Insurance NV offers a Premium Refund mechanism for business lines connected with losses and the achievement of the Group’s SDG objectives, contributing to the virtuous circle linked to the Group’s adaptation to the challenges of climate change.

Climate change adaptation in the Enel Group
The Group implements climate change adaptation solutions using an overall approach that, as described in the “Climate change strategy” section, assesses potential impacts in order to appropriately calibrate the necessary adaptation measures to enhance our ability to respond to adverse events (Response Management) and to enhance the resilience of the business (Resiliency Measures), thereby reducing the risk of future negative impacts of adverse events. Furthermore, the skills and tools developed to analyze the effects of climate change will be used to create value through the creation of new business options that offer solutions to facilitate the adaptation of communities and all stakeholders.
The adaptation solutions can involve both policy actions and best practices implemented in the short term, and long-term decisions.
For new investments, in line with the general approach, it is also possible to take early action in the design and construction phase to reduce the impact of climate risks “by design”, for example by taking account in the design stage of climate scenarios and asset vulnerability analyses for specific phenomena in order to implement resilient solutions.

The following table provides a high-level summary of the type of actions that Enel implements to effectively manage adverse events and to increase resilience to weather phenomena and their evolution under the impetus of climate change. In the following sections, certain activities are described in greater detail.

How Enel ensures the resilience of generation
With regard to generation, over time the Group has implemented targeted measures at specific sites and established ad hoc management activities and processes. Measures implemented for specific sites in recent years include:

• improving cooling water management systems for certain plants in order to counter the problems caused by the decline in water levels on rivers, such as the Po river in Italy; 
• installing fogging systems to improve the flow of inlet air and offset the reduction in power output caused by the increase in ambient temperature in CCGTs; 
• installing drainage pumps, raising embankments, periodic cleaning of canals and interventions to consolidate land adjacent to plants to prevent landslides in order to mitigate flood risks; 
• periodic site-specific reassessments for hydro plants of flood scenarios using numerical simulations. The scenarios developed are managed with mitigation actions and interventions for civil works, dams and water inlets. 

The Group adopts a series of best practices to manage the impact of weather events on power generation, such as:

• Weather forecasting both to monitor renewable resource availability and detect extreme events, with warning systems to ensure the protection of people and assets. 
• Hydrological simulations, land surveys (including with the use of drones), monitoring any vulnerabilities through digital GISs (Geographic Information Systems) and satellite measurements. 
• Advanced monitoring of over 100,000 parameters (with over 160 million historical measurements) for dams and hydroelectric works. 
• Real-time remote monitoring of generation plants. • Safe rooms in plants in areas exposed to tornadoes and hurricanes, such as the wind farms in Oklahoma in the United States. 
• Adoption of specific guidelines for performing hydrological and hydraulic studies from the earliest development stages, aimed at assessing the risks inside plants and in the areas outside plants, with application in the design phase of drainage and mitigation systems in compliance with the principle of hydraulic invariance. 
• Verification of potential climate trends for the main project parameters in order to take them into account in the sizing of systems for relevant projects (for example, assessments of the temperature of the coolant source in order to ensure greater flexibility in cooling in new CCGTs) and civil engineering works (for example, rainfall assessments for designs of drainage systems at solar plants). • Estimation of extreme wind speeds using updated databases containing the logs and historical trajectories of hurricanes and tropical storms, enabling the selection of the wind turbine technology best suited to the emerging conditions.

Main areas: Maintenance O&M Operation Dams and Hydraulic infrastructure Safety Critical Event Management

n addition, in order to ensure rapid response to adverse events, the Group has adopted specific emergency management procedures with protocols for real-time communication and management of all activities to restore operations rapidly and standard checklists for damage assessment and the safe return to service for all plants as rapidly as possible. One solution to minimize the impacts of climate phenomena is represented by the lessons-learned feedback process, which is implemented by the technical functions. It is governed by the existing operating model and influences future projects.

Grid resilience lies at the heart of Enel’s strategy
The Enel Grids Business Line, following the Group guidelines mentioned above (“Climate change risks and opportunities“), has issued a specific policy (Climate Change Risk Assessment) that provides general criteria, methodological tools and requirements for identifying, analyzing and assessing climate change risks in respect of the assets managed and the activities conducted, in order to monitor the risk and the actions to be implemented to mitigate its impacts.

In the Enel Grids Business Line the Enel Group has adopted an approach in recent years called “4R” to cope with extreme climate events. A specific policy (which seeks to implement an innovative strategy to ensure the resilience of the distribution grid) has been developed to define the measures to be taken both in preparation for an emergency within the network and for the prompt restoration of service once climate events have caused damage to assets and/or outages. The 4R strategy is divided into four phases: 

1. Risk prevention: this includes actions that make it possible to reduce the probability of losing network components because of an event and/or to minimize its effects, i.e., interventions aimed both at increasing the robustness of the infrastructure and maintenance interventions. The choice of technical solutions to enhance resilience is guided by a catalogue that identifies the most appropriate response for each climate event and geographical area. 
2. Readiness: this includes all measures aimed at increasing the speed with which a potentially critical event can be identified, ensuring coordination with Civil Protection authorities and local institutions and preparing the necessary resources once a grid disruption has occurred. 
3. Response: this represents the phase in which the operational capacity to cope with an emergency upon the occurrence of an extreme event is assessed. It is directly related to the ability to mobilize operational resources in the field and the capacity to remotely restore power supply through resilient backup systems.
4. Recovery: this is the last phase, in which the goal is to return the grid to ordinary operating conditions as soon as possible in cases where an extreme weather event has caused service interruptions despite the increased resilience measures taken previously. 

Following this approach, the business line has prepared various policies for specific actions to address the various aspects and risks associated with climate change. In particular: 

Guidelines for Readiness Response and Recovery actions during emergencies
This policy covers the last three phases of the 4R approach, indicating guidelines and measures to improve preparation strategies, mitigate the impact of total blackouts and, finally, restore service to as many customers as possible in the shortest time possible

Guideline for Network Resilience Enhancement Plan 
This policy seeks to identify the most impactful extraordinary climate events on the network, to evaluate the specific KPIs of the AS-IS network and to improve them based on proposed interventions in order to be able to evaluate the order of priority. In this manner, actions are selected that, when implemented, will minimize the impact on the grid of particularly critical extreme events in a given area/region. The policy therefore covers the first two phases of the 4R approach, suggesting measures regarding risk prevention and readiness.
In Italy, this policy has been translated into the Resilience Plan that e-distribuzione has prepared each year since 2017, which represents an addendum to the Development Plan for ad hoc investments over a 3-year time horizon to reduce the impact of extreme events in certain critical areas, namely heat waves, icing and windstorms (with the associated risk of falling trees). In 2017- 2021, some €672 million were invested and about €262 million will be invested in the following three-year period, as specified in the addendum to the 2022-2024 Plan. To address these risks, investments include the targeted replacement of uninsulated lines with insulated conductors, the undergrounding of cables in some cases or solutions involving routes to restore power that are not vulnerable to the above phenomena.
As in Italy, similar issues are being explored in other countries, both in Europe and South America, in order to prepare an ad hoc investment planning process to enhance the resilience of grids to extreme events, taking due account of the distinctive characteristics of each territory. 

Measures for Risk Prevention and Preparation in case of wildfires affecting the electrical installations
This policy is dedicated to addressing the risk of wildfires, outlining an integrated approach to emergency management measures applied in the case of forest fires, whether they are of external origin or, in rare cases, are caused by the grid itself and could potentially threaten Enel plant. The document provides guidelines to be implemented in the various territories involved to identify areas/plant at risk, define specific prevention measures (e.g., evaluation of specific maintenance plans and any upgrades) and, in the event of a fire, manage the emergency optimally in order to limit its impact and restore service as soon as possible.

Support actions
These include the implementation of systems for weather forecasting, monitoring the status of the grid and evaluating the impact of critical climate phenomena on the grid, the preparation of operational plans and the organization of specific exercises. Particularly important in this regard are advance agreements for the mobilization of extraordinary resources to respond to emergencies, comprising both internal personnel and contractors. For example, in Italy, in addition to having installed and placed in operation three experimental stations to observe and investigate ice formation on MV lines, IoT sensor trials were launched to monitor on above-ground lines in areas that are highly exposed to snow and wind (Project Newman).

EEnel Grids is making a significant contribution to the drafting of the initial industry publications on the importance of resilience and adaptation to climate change and possible actions, including the report issued by Eurelectric-EPRI⁽³⁸⁾ in December 2022 entitled “The Coming Storm: building electricity resilience to extreme weather”.
With a view to ensuring continuous improvement, Enel Grids also performs scouting activities, directly contacting startups and industry experts or using challenges proposed by the Enel Group’s Innovability function, in order to identify innovative technological solutions to support climate impact and adaptation measures to increase the resilience of the grid.

Adaptation activities – Enel X Global Retail
In order to address extreme climate events, the Enel X Global Retail Business Line has begun work to estimate the potential impacts of physical phenomena in order to develop actions to adapt to climate change, identifying the risks and opportunities for priority countries/assets. An impact analysis was carried out for owned assets, which represent a minority share of the total asset portfolio. At the same time, potential risks and possible resilience solutions are being assessed for business-to-business and business-to-government customers.
The work on adaptation focused on defining a methodology for assessing the vulnerability of Enel X Global Retail assets by extending the studies developed by Enel Green Power and Thermal Generation and Enel Grids for the assessment and management of acute meteorological events for solar (Distributed Energy PV) and for public lighting.
For solar, a preliminary climate risk screening was carried out in the countries/assets identified as priorities for certain acute events such as extreme winds, heavy rainfall/ floods and fire risk. From the work performed so far and from the findings of the preliminary screening for solar energy, no critical issues have emerged concerning climate impacts on the identified assets. The analysis will be extended to sites for new facilities. For public lighting assets, the correlation analysis between data regarding historical losses/faults recorded so far and acute climatic events is being refined.

Many activities connected with the evaluation and implementation of new projects can benefit from general and site-specific climate analyses, which the Group is beginning to integrate with those already considered in the evaluation of new projects. For example: 

• preliminary studies: in this phase, climate data can serve as a preliminary screening tool, with the analysis of specific climate phenomena, such as those discussed previously in the analysis of physical scenarios, and synthetic indicators such as the Climate Risk Index, integrated into the Open Country Risk model. These data provide a preliminary measure of the most relevant phenomena in an area among those identified as being relevant for each technology;
•  estimation of expected output: the climate scenarios will be progressively integrated to enable the evaluation of how climate change will modify the availability of renewable sources at the specific site. In the in-depth development of the preliminary analyses on potential output, the approach applied for now to selected pilot sites is described and then scaled up over the entire generation portfolio;
• environmental impact analysis: the Group has begun to integrate a Climate Change Risk Assessment into project documentation. This contains a representation of the main physical phenomena and their expected change in the area; 
• resilient design: as noted, the development of resilient assets by design is a key climate change adaptation activity. The Group is working to progressively consider analyses based on climate data, such as the increase in the frequency and intensity of acute events. The latter will integrate existing analyses based on historical data already in use, in order to increase the resilience of future assets, including all necessary adaptation actions over the useful life of a project.

With regard to the risks and opportunities associated with transition variables, we use the different reference scenarios in combination with the elements that make up the risk identification process (e.g., competitive context, long-term vision of the industry, materiality analysis, technological evolution, etc.) to identify the drivers of potential risks and opportunities. Priority is given to the most material phenomena. The main risks and opportunities identified within this framework are described below.

Policy & Regulation

Limiti alle emissioni e carbon pricing

Laws and regulations that introduce more stringent emission limits by government action (non-market driven) and market-based mechanisms.

• Opportunities: command & control regulations and market-based mechanisms strengthening CO2 price signals to foster investment in carbon-free technologies. 
• Risks: lack of a coordinated approach among the various actors and policymakers involved and limited effectiveness of the policy instruments, with an impact on the speed of the trend towards electrification and decarbonization in the various sectors, compared with a decisive Group strategy focused on the energy transition.

Policies and regulation for accelerating the transition and energy security

Introduction of policies, regulatory frameworks and revision of market design features incentivizing the energy transition, consequently guiding the energy system towards the use of renewable energy resources as the mainstream approach in the energy mixes of countries, greater electrification of energy consumption, energy efficiency, flexibility of the electrical system and upgrading of infrastructure.

• Opportunities: creation of a more favorable framework for investment in renewable energy, thanks also to the development of long-term markets (PPAs, CfDs) in electricity technologies and distribution grids in line with Group strategy. 
• Risks: slow administrative authorization processes, and ineffective market design and regulatory frameworks in core countries can reduce asset profitability and limit growth opportunities. 

Resilience and adaption regulation

To improve standards or introduce ad hoc mechanisms to incentivize investments in resilience in the context of the evolution of climate change.

• Opportunities: benefits from investments that reduce the risk of impact on service quality, losses on corporate assets and service continuity for customers and communities.
• Risks: in the case of especially severe extreme events with a greater-than-expected impact, there is a risk that recovery could be slower than planned, with an associated reputational risk.

Financial measures for the energy transition

Development of policies and financial instruments that encourage the energy transition, which should be capable of supporting an investment framework and a long-term, credible and stable positioning of policymakers. Introduction of rules and/or public and private financial instruments (e.g., funds, mechanisms, taxonomies, benchmarks) aimed at integrating sustainability into financial markets and public finance instruments.

• Opportunities: the creation of new markets and sustainable finance products consistent with the investment framework, activating greater public resources for decarbonization and access to financial resources in line with energy transition objectives and the related impact on costs and on finance charges; introduction of subsidized support tools (funds and calls) for the transition. 
• Risks: actions and instruments are not sufficient to drive an acceleration of energy transition, uncertainty or slowdown in the introduction of new instruments and rules due to the deterioration in the public finances.

Market

Commodity prices dynamics

Changes in market dynamics, such as those related to the volatility of commodity prices, can influence the behavior of operators, policymakers and customers.

• Opportunities: acceleration of clean electrification as a solution to reduce energy costs and exposure to commodity volatility. Increased propensity of customers to switch from conventional fossil fuel technologies to efficient electric technologies. 
• Risks: “disorderly” energy transition caused by the introduction of potentially distortive measures.

Market dynamics

Propensity of final customers to adopt more sustainable technologies, thanks to greater awareness of the risks of climate change and greater regulatory pressure. 

• Opportunities: positive effects associated with the growth in electricity demand and the greater room for renewables, thanks in part to greater demand for long-term contracts (PPAs). 

Technology

Penetration of new technologies supporting the transition

Gradual penetration of new technologies such as electric vehicles, storage, demand response and electrolyzers for the production of green hydrogen. Large-scale adoption of digital technologies to transform operating models and “platform” business models.

• Opportunities: investments in developing technology solutions supporting the flexibility of the electrical system. Additional boost to renewables for the production of green hydrogen. 
• Risks: slowdowns and interruptions in the supply chain for raw materials and semiconductors could lead to delays in procurement and/or increase costs, potentially slowing the penetration of renewables, storage and electric vehicles.

Products & Services

Electrification of residential energy consumption and industrial processes

With the gradual electrification of end uses, the penetration of products with lower costs and a smaller impact in terms of local emissions and greater efficiency in the residential and industrial sectors will expand (for example, the use of heat pumps).

• Opportunities: increase in electricity consumption against a background of declining energy consumption thanks to the greater efficiency of electricity. Greater opportunities to provide beyond-commodity services and the opportunity to reduce customers’ energy costs and carbon footprint. Greater investments in grids to support the electrification of consumption. 
• Risks: additional competition in this market segment. Dependence on adequate development of electricity grids, which are essential to deliver increasing loads and service continuity.

Electric mobility

Use of more efficient and effective modes of transportation from the point of view of climate change, with a special focus on the development of electric mobility and charging infrastructure; electrification of industrial energy users.

• Opportunities: positive effects of the increase in electricity demand and greater margins connected with the penetration of electric transportation and associated beyond-commodity services. 
• Risks: additional competition in this market segment

The Group has already taken strategic actions to mitigate potential risks and exploit the opportunities offered by the energy transition. Thanks to our industrial and financial strategy incorporating ESG factors, an integrated approach shaped by sustainability and innovation makes it possible to create long-term shared value.
A strategy focused on complete decarbonization and the energy transition makes the Group resilient to the risks associated with the introduction of more ambitious policies for emissions reductions and maximizes opportunities for the development of renewable generation, infrastructure and enabling technologies, thanks in part to our geographical positioning in countries with an integrated presence and leveraging assets operated under our Stewardship model.

To quantify the risks and opportunities engendered by the energy transition, the transition scenarios described in the section “Enel’s energy transition scenarios” have been considered. The effects of the Slower Transition and Accelerated Transition on the variables that can most impact the business were then identified, in particular electricity demand influenced by developments in the electrification of consumption – and hence the penetration of electrical technologies – and the power generation mix. These considerations offer ideas for determining what the Group’s strategic positioning for resource allocation could be.

Enel’s benchmark scenario – the Paris scenario – envisages a greater ambition for decarbonization and energy efficiency, supported by increasing the electrification of final energy consumption and the development of renewables capacity. The dynamics of the energy transition could bring greater opportunities for the Group. In particular, on the retail electricity market, the progressive electrification of final consumption – in particular in transportation and the residential segment – will lead to a significant increase in electricity consumption to the detriment of other more polluting forms of energy. Likewise, the gradual increase in the renewables share of the energy mix should lead to a reduction in the wholesale price of electricity in the medium to long term. This impact is limited, however, considering an unchanged market design based on system marginal prices in the medium term. Any alternative market structures could induce different effects.
With regard to the financial impact of changes in transition scenarios, the Group analyzed the impact of the Slower Transition and Accelerated Transition scenarios on 2030 results in terms of EBITDA compared with the benchmark Paris scenario.

With regard to the electrification of consumption, however, the Slower Transition scenario envisages lower penetration rates for the most efficient electrical technologies, in particular electric vehicles and heat pumps, producing a decrease in electricity demand compared with the Paris scenario, which would have a limited impact on the commodity and beyond-commodity retail business. At the same time, the decline in electricity demand would leave less room for growth in renewables, with an impact on the generation business.
The Accelerated Transition scenario assumes a more rapid reduction in the costs of green hydrogen production technologies. This translates into greater penetration for this energy source, displacing blue and gray hydrogen, with a consequent additive effect on national electricity demand and the installation of renewables capacity compared with the Paris scenario.

All of the scenarios, but especially the Paris and the Accelerated Transition scenarios, will entail a considerable increase in the complexities that will have to be managed by grids in the various geographical areas. In fact, we expect a significant increase in distributed generation and other resources, such as storage systems, the greater penetration of electric mobility with the related charging infrastructures, as well as the growing rate of electrification of consumption and the appearance of new actors with new modes of consumption.
These developments will lead to the decentralization of power withdrawal/injection points, an increase in electricity demand and the average power required, and strong variability of energy flows, requiring dynamic and flexible management of the grid. The Group, therefore, expects that in this scenario incremental investments will be needed to ensure connections and adequate levels of quality and resilience, encouraging the adoption of innovative operating models. These investments must be accompanied by consistent policy and regulatory scenarios to ensure adequate financial returns within the Enel Grids Business Line.

As seen in previous sections, the analysis of the competitive environment is one of the key elements of the analysis of the context in which the Group operates and defines its business ambitions.
The risks associated with evolutionary developments in the market are also mitigated by the periodic monitoring of the comparative performance at an industrial and financial level of our competitors.
The assessment activity is carried out using a framework designed to (i) identify the most relevant competitors and peers; (ii) analyze their results, the main business drivers, strategic and industrial objectives; and (iii) understand their current and prospective positioning.
The process of identifying our peer group is periodically updated to ensure timely collection of information, KPIs and reporting elements useful for the Group’s positioning and strategic planning activities.
In particular, a comparative assessment of the strategic and industrial plans of competitors is particularly relevant for assessing potential risks deriving from possible changes in the competitive context and, above all, providing economic and industrial benchmarks to help improve the Group’s performance. 

As part of its operations, Enel is exposed to a variety of financial risks that, if not appropriately mitigated, can directly impact our performance. In line with the Group’s risk catalogue, these risks include the following:

The internal control and risk management system (ICRMS) provides for the specification of policies that establish the roles and responsibilities for risk management, monitoring and control processes, ensuring compliance with the principle of organizational separation of units responsible for operations and those in charge of monitoring and managing risk.
The financial risk governance system also defines a system of operating limits at the Group and individual Region and Country levels for each risk, which are monitored periodically by risk management units. For the Group, the system of limits constitutes a decision-making tool to achieve its objectives.
For further information on the management of financial risks, please see note 49 of the consolidated financial statements.

Interest rate
The Group is exposed to the risk that changes in the level of interest rates could produce unexpected changes in net financial expense or financial assets and liabilities measured at fair value. The exposure to interest rate risk derives mainly from the variability of the terms of financing, in the case of new debt, and from the variability of the cash flows in respect of interest on floating-rate debt.
The interest rate risk management policy seeks to contain financial expense and its volatility by optimizing the Group’s portfolio of financial liabilities and using OTC derivatives.
Risk control through specific processes, risk indicators and operating limits enables us to limit possible adverse financial impacts and, at the same time, to optimize the structure of debt with an adequate degree of flexibility

Commodity
Enel operates in energy markets and for this reason is exposed to the risk of incurring losses as a result of an increase in the volatility of the prices of energy commodities, such as power, gas and fuel, and other commodities, such as minerals and metals (price risk), or owing to a lack of demand or energy commodity shortages (volume risk). If not managed effectively, these risks can have a significant impact on results. To mitigate this exposure, the Group has developed a strategy of stabilizing margins by contracting for supplies of fuel and materials and the delivery of electricity to end users or wholesalers in advance.

Enel has also implemented a formal procedure that provides for the measurement of the residual commodity risk, the specification of a ceiling for maximum acceptable risk and the implementation of a hedging strategy using derivatives on regulated markets and over-the-counter (OTC) markets. The commodity risk control process limits the impact of unexpected changes in market prices on margins and, at the same time, ensures an adequate margin of flexibility that makes it possible to seize short-term opportunities. In order to mitigate the risk of interruptions in the supply of fuel and raw materials, the Group has diversified fuel sources, using suppliers from different geographical areas.

In 2022, the complex global economic crisis – triggered by the COVID-19 pandemic – continues in the wake of the Russia-Ukraine conflict and climate change, sparking increases in the volatility of prices of energy commodities and other raw materials. In the last quarter, the risks recorded by Enel exceeded the limits estimated in 2021 for the year 2022 for energy commodities, which were contained thanks to careful and timely mitigation measures, the geographical diversification of our business and supply channels in order to reduce dependence on Russian gas. Finally, the adoption of global and local strategies, such as flexibility in contractual clauses and proxy hedging techniques (in the event that hedging derivatives are not available on the market or are not sufficiently liquid), has made it possible to optimize results even in a highly dynamic market context.

Currency
In view of their geographical diversification, access to international markets for the issuance of debt instruments and transactions in commodities, Group companies are exposed to the risk that changes in exchange rates between the presentation currency and other currencies could generate unexpected changes in the performance and financial aggregates in their respective financial statements. Given the current structure of Enel, the exposure to currency risk is mainly linked to the US dollar and is attributable to:

• cash flows in respect of the purchase or sale of fuel or electricity; 
• cash flows in respect of investments, dividends from foreign subsidiaries or the purchase or sale of equity investments; 
• cash flows connected with commercial relationships; 
• financial assets and liabilities. 

The possible impacts of exchange rate risk are reflected in: 

• costs and revenue denominated in foreign currencies with respect to the time at which pricing conditions were defined or the investment decision was made (economic risk); 
• revaluations or adjustments to fair value of financial assets and liabilities sensitive to exchange rates (transaction risk); 
• the consolidation of subsidiaries with different currencies of account (translation risk). 

The currency risk management policy is based on systematically hedging the exposures of the Group companies, with the exception of translation risk.
Appropriate operational processes ensure the definition and implementation of appropriate hedging strategies, which typically employ financial derivatives obtained on OTC markets.
Risk control through specific processes and indicators enables us to limit possible adverse financial impacts and, at the same time, to optimize the management of cash flows on the managed portfolios. During the year, currency risk was managed through compliance with the risk management policies, encountering no difficulties in accessing the derivatives market.

Credit and counterparty

The Group’s commercial, commodity and financial transactions expose it to credit risk, i.e., the possibility that a deterioration in the creditworthiness of counterparties or the failure to discharge contractual payment obligations could lead to the interruption of incoming cash flows and an increase in collection costs (settlement risk) as well as lower revenue flows due to the replacement of the original transactions with similar transactions negotiated on unfavorable market conditions (replacement risk). Other risks include the reputational and financial risks associated with significant exposures to a single counterparty or groups of related customers, or to counterparties operating in the same sector or in the same geographical area.

The exposure to credit risk is attributable to the following types of operations:

• the sale and distribution of electricity and gas in free and regulated markets and the supply of goods and services (trade receivables); 
• trading activities that involve the physical exchange of assets or transactions in financial instruments with commodity underlyings (the commodity portfolio); 
• trading in derivatives, bank deposits and, more generally, financial instruments (the financial portfolio). 

The policy for managing credit risk associated with commercial activities and transactions in commodities provides for a preliminary assessment of the creditworthiness of counterparties and the adoption of mitigation instruments, such as obtaining guarantees.
The control process based on specific risk indicators and, where possible, limits ensures that the economic and financial impacts associated with a possible deterioration in credit standing are contained within sustainable levels. At the same time, this approach preserves the necessary flexibility to optimize portfolio management.
In addition, the Group undertakes transactions to factor receivables without recourse, which results in the complete derecognition of the corresponding assets involved in the factoring.
Finally, with regard to financial and commodity transactions, risk mitigation is pursued through the diversification of the portfolio (giving preference to counterparties with a high credit rating) and the adoption of specific standardized contractual frameworks that contain risk mitigation clauses (e.g., netting arrangements) and possibly the exchange of cash collateral.
Despite the deterioration in the collection status of certain customer segments, which was taken into consideration in determining impairment of trade receivables, the Group’s portfolio has so far demonstrated resilience to the macroeconomic context and current price scenario. This reflects the expansion of digital collection channels and a solid diversification of commercial customers.

Liquidity

Enel’s liquidity risk management policy is designed to maintain sufficient liquidity to meet expected commitments over a given time horizon without resorting to additional sources of financing, also retaining a prudential liquidity reserve, sufficient to meet any unexpected commitments. Furthermore, in order to meet its medium and long-term commitments, Enel pursues a borrowing strategy that provides for a diversified structure of funding sources, which it uses to meet its financial needs, and a balanced maturity profile.

Liquidity risk is the risk that the Group, while solvent, would not be able to discharge its obligations in a timely manner or would only be able to do so on unfavorable terms or in the presence of constraints on disinvestment from assets with consequent capital losses, owing to situations of tension or systemic crises (credit crunches, sovereign debt crises, etc.) or changes in the perception of Group riskiness by the market. 

Among the factors that define the risk perceived by the market, the credit rating assigned to Enel by rating agencies plays a decisive role, since it influences its ability to access sources of financing and the related financial terms of that financing. A deterioration in the credit rating could therefore restrict access to the capital market and/or increase the cost of funding, with consequent negative effects on the financial position, financial performance and cash flows of the Group.
In 2022, Enel’s risk profile only changed compared with December 2021 for Fitch, whose rating went from “A-” with a stable outlook to “BBB+” with a stable outlook. Enel’s rating remained “BBB+” with a stable outlook for Standard & Poor’s and “Baa1” with a stable outlook for Moody’s.

In order to manage liquidity efficiently, treasury activities have largely been centralized at the holding company level, meeting liquidity requirements primarily by drawing on the cash generated by ordinary operations and managing any cash surpluses appropriately.

The increase in gas prices in 2022 following the Russia-Ukraine conflict had an impact on the margins on commodity derivatives, which reached unprecedented levels. At the end of the year, the liquidity risk index monitored for the Group was well within the limits set for 2022, demonstrating the Group’s resilience even under severe liquidity conditions caused by extraordinary and unforeseeable events. 

The risks discussed in this section are as follows:

Cyber security
The speed of technological developments that constantly generate new challenges, the ever-increasing frequency and intensity of cyber-attacks and the attraction of critical infrastructures and strategic industrial sectors as targets underscore the potential risk that, in extreme cases, the normal operations of companies could grind to a halt. Cyber-attacks have evolved dramatically in recent years: their number has grown exponentially, as has their complexity and impact, making it increasingly difficult to promptly identify the source of threats. In the case of the Enel Group, this exposure reflects the many environments in which it operates (data, industry and people), a circumstance that accompanies the intrinsic complexity and interconnection of the resources that over the years have been increasingly integrated into the Group’s daily operating processes.

The Group has adopted a holistic governance approach to cyber security that is applied to all the sectors of IT (Information Technology), OT (Operational Technology) and IoT (Internet of Things). The framework is based on the commitment of top management, on global strategic management, on the involvement of all business areas as well as of the units involved in the design and implementation of our systems. The Group leverages the best technologies available on the market while also acting on the human factor through initiatives to increase awareness and understanding of cyber security, which represents the first line of corporate defense. In addition, the framework incorporates regulatory requirements for information security, as well as the execution of extensive tests (in IT, OT and IoT environments) to identify and remove identified vulnerabilities. In addition, the Group has developed an IT risk management methodology founded on “risk-based” and “cyber security by design” approaches, thus integrating the analysis of business risks into all strategic decisions and integrating security requirements over the entire life cycle of solutions and services. Enel has also created its own Cyber Emergency Readiness Team (CERT) in order to proactively respond to any IT security incidents.
Finally, back in 2019, the Group also took out an insurance policy for cyber security risks in order to mitigate those risks with other tools in addition to technical countermeasures.

Digitalization, IT effectiveness and service continuity
The Group is carrying out a complete digital transformation of how it manages the entire energy value chain, developing new business models and digitizing its business processes, integrating systems and adopting new technologies. A consequence of this digital transformation is that the Group is increasingly exposed to risks related to the functioning of the IT systems, which are integrated across the Company with impacts on processes and operations, which could expose IT and OT systems to service interruptions or data losses.

These risks are managed using a series of internal measures developed by the Group to guide the digital transformation. It has set up an internal control system that introduces control points along the entire IT value chain, enabling us to prevent the emergence of risks engendered by such issues as the creation of services that do not meet business needs, the failure to adopt adequate security measures and service interruptions. The internal control system oversees both the activities performed in-house and those outsourced to external associates and service providers. Furthermore, Enel is promoting the dissemination of a digital culture and digital skills within the Group in order to successfully guide the digital transformation and minimize the associated risks.

The risks discussed in this section are as follows:

The main health and safety risks to which Enel personnel and contractors are exposed are associated with operations at the Group’s sites and assets. The violation of the laws, regulations and procedures governing health and safety, work environments, management of corporate structures, assets and processes, which could have an adverse impact on the health of employees, workers or stakeholders, can give rise to the risk of incurring administrative or judicial penalties and related economic, financial and reputational impacts.
The main operational health and safety risks are assessed for each site or company asset.
At Group level, analysis of the main events that have occurred in the last three years shows that, in terms of probability of occurrence, mechanical incidents (falls, collisions, crushing and cuts) are the most common, while the most severe in terms of potential associated impact are electrical incidents (possibly fatal injuries).
In addition, in relation to the presence of the Group in different areas of the world, employees and contractors could be exposed to health risks connected with potential emerging infectious diseases of a pandemic and potentially pandemic nature, which could have an impact on their health and well-being.
Enel has adopted a Declaration of Commitment to Health and Safety, signed by the Group’s top management.
In implementing the policy, each Group business line has its own Occupational Health and Safety Management System compliant with the international standard UNI ISO 45001, which is based on the identification of hazards, the qualitative and quantitative assessment of risks, the planning and implementation of prevention and protection measures, the verification of the effectiveness of the prevention and protection measures and any corrective actions. The Enel Group has defined a structured health management system, based on prevention and protection measures, which also plays a role in the development of a corporate culture aimed at promoting the psycho-physical health and organizational well-being of workers, as well as helping to balance personal and professional life.
This system also considers the rigor employed in the selection and management of contractors and suppliers and the promotion of their involvement in programs for continuous improvement of safety performance.
Furthermore, with regard to emergencies in relation to risks connected with the ongoing pandemic, a specific unit has been set up within the P&O department of the Parent with liaisons in each business line and country in order to ensure emergency management in every Group organization. In particular, this organizational structure and the related management processes make it possible to direct, integrate and monitor, both at Group and Country level, all the prevention, protection and intervention actions aimed at protecting the health of employees and contractors, also in relation to exogenous health risk factors that may not be strictly related to work activities.

Recent years have seen the continuation of the growth in the sensitivity of the entire community to risks connected with development models that impact the quality of the environment and ecosystems with the exploitation of scarce natural resources (including raw materials and water).
In some cases, the synergistic effects between these impacts, such as global warming and the increasing exploitation and degradation of water resources, have increased the risk of environmental emergencies in the most sensitive areas of the planet, with the risk of sparking competition among different uses of water resources such as industrial, agricultural and civil uses.
In response to these needs, authorities have imposed increasingly restrictive environmental regulations, placing ever more stringent constraints on the development of new industrial initiatives and, in the most impactful industries, incentivizing or requiring the elimination of technologies no longer considered sustainable.
Our international commitment in the mitigation of impacts on biodiversity is also growing. Already present in Europe in the Green Deal, in 2022 this was sanctioned by the Global Biodiversity Framework approved at COP 15 in Montreal. In this context, companies in every sector, and above all industry leaders, are ever more aware that environmental risks are economic risks. As a result, they are called upon to increase their commitment and accountability for developing and adopting innovative and sustainable technical solutions and development models.
Enel has made the effective prevention and minimization of environmental impacts and risks a foundational element of each project across its entire life cycle.
The adoption of ISO 14001-certified environmental management systems across the entire Group ensures the implementation of structured policies and procedures to identify and manage the environmental risks and opportunities associated with all corporate activities. A structured control plan combined with improvement actions and objectives inspired by the best environmental practices, with requirements exceeding those for simple environmental regulatory compliance, mitigate the risk of impacts on the environment, reputational damage and litigation. Also contributing are the multitude of actions to achieve the challenging environmental improvement objectives set by Enel, such as those regarding atmospheric emissions, waste production and water consumption, especially in areas with high water stress and impacts on habitats and species.
The risk of water scarcity is directly mitigated by Enel’s development strategy, which is based on the growth of generation from renewable sources that are essentially not dependent on the availability of water for their operation. Special attention is also devoted to assets in areas with a high level of water stress, in order to develop technological solutions to reduce consumption. Ongoing collaboration with local river basin management authorities enables us to adopt the most effective shared strategies for the sustainable management of hydroelectric generation assets.

Finally, effective action is being taken for ecosystems to protect, restore and conserve biodiversity in species and natural habitats, respecting the mitigation hierarchy (avoid, minimize, restore and offset) as well as appropriate terrestrial, marine and river monitoring to verify the effectiveness of the measures adopted.
Enel takes an active part in the international engagement with influential stakeholders and networks (e.g., Business for Nature, Taskforce on Nature-related Financial Disclosures, World Business Council for Sustainable Development and Science Based Targets for Nature) on issues concerning nature and biodiversity.

The purchasing processes of Global Procurement and the associated governance documents form a structured system of rules and control points that make it possible to combine the achievement of economic business objectives with full compliance with the fundamental principles set out in the Code of Ethics, the Enel Global Compliance Program, the Zero-Tolerance-of-Corruption Plan and the Human Rights Policy, without renouncing the promotion of initiatives for sustainable economic development.
These principles have been incorporated into the organizational processes and controls that Enel has voluntarily decided to adopt in order to establish relationships of trust with all its stakeholders, as well as define stable and constructive relationships that are not based exclusively on ensuring financial competitiveness but also take account of best practices in essential areas for the Group, such as the avoidance of child labor, occupational health and safety and environmental responsibility. Thanks to the greater interaction and integration with the outside world and with the different parts of the corporate organization, the procurement process has assumed an increasingly central role in the creation of value. Global Procurement contributes to a resilient and sustainable supply chain, thinking from a circular economy perspective and fostering innovation, sharing the Group’s values and objectives with suppliers who thereby become enablers of the achievement of Enel’s targets.
More specifically, bonus factors have been introduced in tenders in order to engender virtuous behavior on the part of our suppliers. For example, the environmental impact of any customer is strongly influenced by the impact of its upstream supply chain, and that is why Global Procurement pushes its suppliers to objectively measure their carbon footprint and improve their performance.

From the point of view of the procurement process, the various Procurement Units almost systematically adopt the tender mechanism, thus ensuring maximum competition and equal access opportunities for all operators who are in possession of the technical, economic/financial and environmental requirements, security, human, legal and ethical rights. Procurement with direct assignment and without a competitive procedure can only take place in exceptional cases, duly motivated, in compliance with current legislation on the matter.
Furthermore, the single global supplier qualification system for the entire Enel Group, even before the procurement process begins, verifies that potential suppliers who intend to participate in procurement procedures are aligned with the Company’s strategic vision and expectations in all the areas and requirements cited earlier and that they have adopted the same values.

With regard to the risk governance system, Global Procurement is focused on the application of metrics that indicate the level of risk before and after the mitigation action, in order to implement precautionary measures to reduce uncertainty to a tolerable level or mitigate any impacts in all business, technological and geographical areas. The effectiveness of supply chain risk management is monitored through specific indicators – including the probability of insolvency, the concentration of contracts with individual suppliers or industrial groups, the supplier’s dependence on Enel, a performance indicator for the correctness of conduct during the tender, quality, punctuality and sustainability in the execution of the contract, country risk, etc. – for which thresholds have been specified to guide the definition of the procurement, negotiation and tender award strategy, enabling informed choices of risk and potential benefit (savings).

The actions taken to counter the impact of the COVID-19 emergency have focused in differentiating supply sources to avoid interruptions in the supply chain and the remote performance of activities that would ordinarily require physical interaction between Enel and the supplier (e.g., inspections at the company). Furthermore, to counter the consequences of the geopolitical situation in Ukraine, which has increased market volatility and further stressed the supply chain, already strained during the COVID-19 pandemic, Global Procurement constantly monitors activities related to the supply/logistics chain, with the active participation of our suppliers, through a specific contractual monitoring obligation, to mitigate the risks of market shortages, logistical problems and business interruptions.

Enel has placed sustainability at the center of its strategy as the heart of its business model in order to contribute to the achievement of the Sustainable Development Goals of the United Nations 2030 Agenda. The Group has incorporated sustainability into different geographical, economic and social contexts with the aim of guiding the Just Transition, essential for the future of the planet, accelerating the decarbonization of its energy mix through the growth of renewables and increasing electrification of consumption. The profound social, economic and cultural transformations we are experiencing, from the energy transition to the processes of digitalization and technological innovation, also have a profound effect on the world of work, renewing its paradigms and imposing major cultural and organizational changes, which require new professional qualifications and skills.
In order to deal with change, it is essential to act inclusively, placing the Person at the center in his or her social and work dimension, with adequate tools to cope with this epochal transformation.
Organizations must increasingly move towards new agile and flexible work and business models that are sustainable along the entire value chain. It is also essential to adopt policies to enhance the diversity and talents of each person, understanding that the contribution of the individual represents an essential element for the creation of widespread and shared value.

Recognition of the value of the person in his or her uniqueness, constant listening, empathy, sharing, passion, involvement, are some of the keywords that guide our way of working and experiencing the Company, in a path that moves from Me to get to We.

The centrality of people and the management of human capital take on a key role in the energy transition, acting as an enabling factor and representing the priorities to which specific objectives are linked. The primary of these are: the development of digital skills and competences; the promotion of reskilling and upskilling for our people (continuous, personalized, flexible, accessible and transversal) in order to ensure long life employability; the sharing of industry best practices and training aimed also at those who work with our people, both suppliers and contractors; the appropriate widespread involvement of the corporate purpose, which ensures the achievement of results while guaranteeing greater satisfaction for people understood as motivation and well-being; the development of systems for evaluating the working environment and performance; the dissemination of diversity and inclusion policies to all countries in which the Group operates, as well as instilling an inclusive organizational culture based on the principles of non-discrimination and equal opportunity, key drivers for attracting and retaining talent.
The Group is involved in enhancing the resilience and flexibility of organizational models through the simplification and digitalization of processes in order to enable the effectiveness and autonomy of individuals and teams by strengthening people empowerment processes and fostering an entrepreneurial approach through a “courteous” leadership model that values people’s talents, attitudes and aspirations in affirming the We. The hybrid working method, which combines in-office and remote work in flexible proportions that take into account everyone’s needs, as well as the use of innovative and flexible organizational models, are tools aimed precisely at supporting this evolution of organizational culture on the basis of trust and responsibility rather than hierarchy and control.
In line with this strategy, social dialogue is also evolving towards a model that increasingly strengthens the centrality of the person. For example, Enel and the trade unions have signed a “Charter of the Person”, an innovative protocol centered on the well-being, involvement, motivation and participation of the individual, whose principles have also been welcomed and implemented in the other countries in which the Group operates.
The commitment is also aimed at creating figures within the organization who, as “ambassadors”, promote the adoption of shared models and conduct focused on the sustainability of relationships.

The risks discussed in this section are as follows:

In the era of the digitalization and globalization of markets, Enel’s business strategy has focused on accelerating the transformation towards a business model based on a digital platform, using a data-driven and customer-centric approach along the entire value chain.

The Group, which is present in more than 40 countries, has the largest customer base in the public services sector (about 67 million customers), and currently employs more than 65,000 people. Consequently, the Group’s new business model requires the management of an increasingly large and growing volume of personal data in order to achieve the financial and business results envisaged in the 2023-2025 Strategic Plan.
This exposes Enel to the risks connected with the protection of personal data (an issue that must also take account of the substantial growth in privacy legislation in most of the countries in which Enel operates). These risks may result in the loss of confidentiality, integrity or availability of the personal information of our customers, employees and others (e.g., suppliers), with the risk of incurring fines determined on the basis of global turnover, the prohibition of the use of certain processes and consequent financial losses and reputational harm.

In order to manage and mitigate this risk, Enel has adopted a model for the global governance of personal data, with the appointment of personnel responsible for privacy issues at all levels (including the appointment of Data Protection Officers at the global and country levels) and digital compliance tools to map applications and processes and manage risks with an impact on protecting personal data, in compliance with specific local regulations in this field.