Financial risks are managed in compliance with the guidelines issued by the Eni SpA Board of Directors in its role of guiding and defining risk limits, aimed at centrally aligning and coordinating the policies of Group companies on financial risks ("Guidelines on the management and control of financial risks"). The 'Guidelines' define the key components of the management and control process for each risk such as the objective of risk management, the assessment methodology, the limit structure, the reporting model, and the hedging and mitigation tools.
It consists of the possibility that changes in exchange rates, interest rates or commodity prices may adversely affect the value of assets, liabilities or expected cash flows. Market risk management is governed by the aforementioned ‘Guidelines’ and by procedures that refer to a centralised model for managing financial assets, based on the Operational Finance Structures (Eni Corporate’s Finance Department, Eni Finance International SA, Eni Finance USA Inc and Banque Eni SA, with the latter being within the limits imposed by banking regulations on ‘Concentration Risk’), as well as on Eni Trading & Shipping as regards commodity derivative activities.
More specifically, Eni Corporate’s Finance Department, Eni Finance International SA and Eni Finance USA Inc respectively guarantee the coverage of requirements and the absorption of financial surpluses for Eni's Italian, non-Italian and US-based companies.
Exposure to the risk of fluctuations in exchange rates arises from the company's operations in currencies other than the euro (mainly the US dollar) and has a number of impacts:
Generally speaking, an appreciation of the US dollar against the euro has a positive effect on Eni's operating profit and vice versa. Eni’s risk management aim is to minimise the transactional exchange rate risk and optimise the economic exchange rate risk associated with the commodity price risk. The risk arising from the accrual of income in foreign currency or from the translation of assets and liabilities of companies that prepare their financial statements in a functional currency other than the euro is not normally hedged, unless otherwise specifically assessed. Eni centralises exchange rate risk management, offsetting opposite exposures from the different business activities involved and hedging the residual exposure with the market, maximising the benefits of netting. In order to manage residual exposure, the 'Guidelines' allow for different types of derivative instruments to be used (particularly swaps and forwards, as well as currency options).
For further details, see the 2020 Annual Report - "Market Risk - Exchange Rate" section on page 271.
Fluctuations in interest rates affect the market value of the company's financial assets and liabilities and the level of net financial expenses. Eni’s risk management aim is to minimise the exchange rate risk in pursuit of the financial structure objectives defined and approved in the 'Financial Plan'. The Operational Finance Structures, based on the centralised finance model, collect Eni's financial requirements and manage the resulting positions, including structural transactions, in line with the objectives of the "Financial Plan" and ensuring that the risk profile is kept within defined limits. Eni uses interest rate derivative contracts, particularly interest rate swaps, to manage the balance between fixed-rate and variable-rate debt.
Commodity price risk is identified as the possibility that fluctuations in the price of raw materials and commodities will cause big changes to Eni's operating margins, leading to an impact on the bottom line which would jeopardise the objectives defined in the four-year plan and budget. Commodity price risk can be traced to a number of exposure categories:
For further details, see the 2020 Annual Report - "Market Risk - Commodities" section on pages 271-272.
The market risk arising from the management of the portion of the liquidity reserve referred to as 'strategic liquidity' is identified as the possibility that fluctuations in the price of invested instruments (bonds, money market instruments and mutual funds) will affect their value when they are sold or when they are measured at fair value on the balance sheet. The main purpose of building up and maintaining the liquidity reserve is to ensure the financial flexibility required to meet any extraordinary needs (e.g. difficulties in accessing credit, exogenous shocks, the macroeconomic framework and extraordinary transactions) and is sized to ensure coverage of short-term debt and medium/long-term debt due within a 24-month timeframe.
In order to regulate the investment activity of strategic liquidity, Eni has defined an investment policy with specific objectives and constraints, expressed in terms of the type of financial instruments that can be invested in, as well as operational, quantitative and duration limits; it has also identified a set of governance principles to be followed and introduced an appropriate control system.
For further details, see the 2020 Annual Report - "Market Risk - Strategic Liquidity" section on page 272.
Credit risk represents the company's exposure to potential losses due to a counterparty's failure to meet its obligations. Eni has defined credit risk management policies consistent with the nature and characteristics of the counterparties of commercial and financial transactions within the centralised finance model that has been adopted.
Eni has adopted a model to quantify and control credit risk based on the evaluation of the expected loss.
The expected loss is the value of the loss expected to be incurred on a claim against a counterparty, for which a probability of default is estimated and a recovery capacity on the claim past default is estimated through the loss given default.
Within the credit risk management and control model, credit exposures are split according to their nature into commercial exposures, substantially related to structured commodity contracts in Eni's core business, and financial exposures, substantially related to financial instruments used by Eni, such as deposits, derivatives and investments in securities.
For further details, see the 2020 Annual Report - "Market Risk - Credit Risk" section on page 273.
Liquidity risk is the risk that the company is unable to meet its payment commitments due to difficulties in raising funds (funding liquidity risk) or liquidating assets on the market (asset liquidity risk). The consequence of such an event is a negative impact on the net profit in the event that the company is forced to incur additional costs to meet its commitments or, as an extreme consequence, a situation of insolvency that jeopardises its ability to continue as a going concern.
Eni's risk management objectives include maintaining an adequate amount of resources readily available to cope with exogenous shocks (drastic changes in the scenario, restrictions on access to the capital market) or to ensure an adequate level of operational resilience to Eni's development programmes. To this end, Eni maintains a strategic liquidity reserve consisting mainly of short-term, highly liquid financial instruments, thus favouring a very low risk profile.
At present, the Company believes it has adequate sources of financing to meet its foreseeable financial needs through the availability of financial assets and credit lines as well as access to a wide range of types of financing at competitive costs through the credit system and capital markets.
For further details, see the 2020 Annual Report - "Market Risk - Credit Risk-Liquidity Risk" section on page 274.
Financial risks are managed in compliance with the guidelines issued by the Eni SpA Board of Directors in its role of guiding and defining risk limits, aimed at centrally aligning and coordinating the policies of Group companies on financial risks ("Guidelines on the management and control of financial risks"). The 'Guidelines' define the key components of the management and control process for each risk such as the objective of risk management, the assessment methodology, the limit structure, the reporting model, and the hedging and mitigation tools.
It consists of the possibility that changes in exchange rates, interest rates or commodity prices may adversely affect the value of assets, liabilities or expected cash flows. Market risk management is governed by the aforementioned ‘Guidelines’ and by procedures that refer to a centralised model for managing financial assets, based on the Operational Finance Structures (Eni Corporate’s Finance Department, Eni Finance International SA, Eni Finance USA Inc and Banque Eni SA, with the latter being within the limits imposed by banking regulations on ‘Concentration Risk’), as well as on Eni Trading & Shipping as regards commodity derivative activities.
More specifically, Eni Corporate’s Finance Department, Eni Finance International SA and Eni Finance USA Inc respectively guarantee the coverage of requirements and the absorption of financial surpluses for Eni's Italian, non-Italian and US-based companies.
Exposure to the risk of fluctuations in exchange rates arises from the company's operations in currencies other than the euro (mainly the US dollar) and has a number of impacts:
Generally speaking, an appreciation of the US dollar against the euro has a positive effect on Eni's operating profit and vice versa. Eni’s risk management aim is to minimise the transactional exchange rate risk and optimise the economic exchange rate risk associated with the commodity price risk. The risk arising from the accrual of income in foreign currency or from the translation of assets and liabilities of companies that prepare their financial statements in a functional currency other than the euro is not normally hedged, unless otherwise specifically assessed. Eni centralises exchange rate risk management, offsetting opposite exposures from the different business activities involved and hedging the residual exposure with the market, maximising the benefits of netting. In order to manage residual exposure, the 'Guidelines' allow for different types of derivative instruments to be used (particularly swaps and forwards, as well as currency options).
For further details, see the 2020 Annual Report - "Market Risk - Exchange Rate" section on page 271.
Fluctuations in interest rates affect the market value of the company's financial assets and liabilities and the level of net financial expenses. Eni’s risk management aim is to minimise the exchange rate risk in pursuit of the financial structure objectives defined and approved in the 'Financial Plan'. The Operational Finance Structures, based on the centralised finance model, collect Eni's financial requirements and manage the resulting positions, including structural transactions, in line with the objectives of the "Financial Plan" and ensuring that the risk profile is kept within defined limits. Eni uses interest rate derivative contracts, particularly interest rate swaps, to manage the balance between fixed-rate and variable-rate debt.
Commodity price risk is identified as the possibility that fluctuations in the price of raw materials and commodities will cause big changes to Eni's operating margins, leading to an impact on the bottom line which would jeopardise the objectives defined in the four-year plan and budget. Commodity price risk can be traced to a number of exposure categories:
For further details, see the 2020 Annual Report - "Market Risk - Commodities" section on pages 271-272.
The market risk arising from the management of the portion of the liquidity reserve referred to as 'strategic liquidity' is identified as the possibility that fluctuations in the price of invested instruments (bonds, money market instruments and mutual funds) will affect their value when they are sold or when they are measured at fair value on the balance sheet. The main purpose of building up and maintaining the liquidity reserve is to ensure the financial flexibility required to meet any extraordinary needs (e.g. difficulties in accessing credit, exogenous shocks, the macroeconomic framework and extraordinary transactions) and is sized to ensure coverage of short-term debt and medium/long-term debt due within a 24-month timeframe.
In order to regulate the investment activity of strategic liquidity, Eni has defined an investment policy with specific objectives and constraints, expressed in terms of the type of financial instruments that can be invested in, as well as operational, quantitative and duration limits; it has also identified a set of governance principles to be followed and introduced an appropriate control system.
For further details, see the 2020 Annual Report - "Market Risk - Strategic Liquidity" section on page 272.
Credit risk represents the company's exposure to potential losses due to a counterparty's failure to meet its obligations. Eni has defined credit risk management policies consistent with the nature and characteristics of the counterparties of commercial and financial transactions within the centralised finance model that has been adopted.
Eni has adopted a model to quantify and control credit risk based on the evaluation of the expected loss.
The expected loss is the value of the loss expected to be incurred on a claim against a counterparty, for which a probability of default is estimated and a recovery capacity on the claim past default is estimated through the loss given default.
Within the credit risk management and control model, credit exposures are split according to their nature into commercial exposures, substantially related to structured commodity contracts in Eni's core business, and financial exposures, substantially related to financial instruments used by Eni, such as deposits, derivatives and investments in securities.
For further details, see the 2020 Annual Report - "Market Risk - Credit Risk" section on page 273.
Liquidity risk is the risk that the company is unable to meet its payment commitments due to difficulties in raising funds (funding liquidity risk) or liquidating assets on the market (asset liquidity risk). The consequence of such an event is a negative impact on the net profit in the event that the company is forced to incur additional costs to meet its commitments or, as an extreme consequence, a situation of insolvency that jeopardises its ability to continue as a going concern.
Eni's risk management objectives include maintaining an adequate amount of resources readily available to cope with exogenous shocks (drastic changes in the scenario, restrictions on access to the capital market) or to ensure an adequate level of operational resilience to Eni's development programmes. To this end, Eni maintains a strategic liquidity reserve consisting mainly of short-term, highly liquid financial instruments, thus favouring a very low risk profile.
At present, the Company believes it has adequate sources of financing to meet its foreseeable financial needs through the availability of financial assets and credit lines as well as access to a wide range of types of financing at competitive costs through the credit system and capital markets.
For further details, see the 2020 Annual Report - "Market Risk - Credit Risk-Liquidity Risk" section on page 274.
Eni's top risk portfolio consists of 20 risks which are classified into:
The risk of pandemics and epidemics with potential impacts on people and health systems as well as business is on the rise. We encourage our investors to carefully consider these risks. Eni's top risks with respect to corporate objectives are shown below, with the specific actions indicated.
Main risk events
Price Scenario, risk of unfavourable fluctuations in Brent and other commodities prices compared to planning assumptions.
Treatment measures
Main risk events
Contraction in demand/Competitive environment relating to the market demand and supply imbalance or an increase in competitiveness leading to: i) reduction of sale volumes, ii) increase difficulties in defending customer base/develop growth initiatives, iii) generate adverse dynamics in the prices of finished products, iv) reduction of demand.
Treatment measures
Main risk events
Climate change, referred to the possibility of change in scenario/climatic conditions which may generate phisical risks and connected to energy transition (legislative, market, technological and reputational risks) on Eni’s businesses in the short, medium and long term.
Treatment measures
Main risk events
Referred to the possible mismatch of the cost of supply and the minimum take constraints envisaged by supply contracts with respect to current market conditions.
Treatment measures
Main risk events
Relationships with local stakeholders on Oil & Gas industry activities.
Treatment measures
Main risk events
Risk related to the spread of pandemics and epidemics and the deterioration of health infrastructure and health response capacity.
Treatment measures
Main risk events
Impact of geopolitical issues on strategic actions and business operations.
Treatment measures
Main risk events
Political and social instability related to both political and social instability (in the Countries where the Group operates) and criminal/bunkering events against Eni and its subsidiaries, with potential repercussions in terms of lower production, project delays, potential damage to people and assets.
Global security risk relates to actions or fraudulent events which may negatively affect people and material and immaterial assets.
Credit and Financing risk related to the credit proceeds delay and the financial stress of the partners.
Treatment measures
Main risk events
Impacts on the operations and competitiveness of the businesses associated with the evolution of the energy sector regulation.
Treatment measures
Main risk events
Permitting, relating to the occurrence of possible delays or failure to issue authorizations, renewals or permits by the Public Administration with impacts on project times and costs as well as repercussions in social, environmental and image and reputation terms.
Treatment measures
Main risk events
Blow-out risks and other accidents affecting the upstream assets, refineries and petrochemical plants, as well as the transportation of hydrocarbons and derivatives by sea and land (i.e. fires, explosions, etc.) with damages on people and assets and impact on company profitability and reputation.
Treatment measures
Main risk events
Cyber Security & Industrial espionage refers to cyber attacks aimed at compromising information (ICT) and industrial (ICS) systems, as well as the subtraction of Eni’s sensitive data.
Treatment measures
Main risk events
Environmental, health and safety proceedings may trigger impacts on company profitability (costs for remediation activities and/or plant implementation), operating activities and corporate reputation. Involvement in anti-corruption investigations and proceedings.
Treatment measures