Meetings and activities of the Control and Risk Committee in 2017
In 2017, the Committee met 14 times, with 100% of its members attending. In particular, the Committee met 5 times before the end of the term of the previous Board of Directors and 9 times after the appointment of the new Board. In both periods, the average duration of the meetings was 3 hours.
The following provides a summary of the main issues tackled during the 2017, with the Board of Statutory Auditors in attendance:
1) In assisting the Board of Directors, in order to oversee the activities of the Internal Audit Department, monitoring its work for independence and ensuring that it is performed with the required level of objectivity, competence and professional diligence, in accordance with the Eni Code of Ethics and international standards for the professional practice of internal auditing, among other things, the Committee reviewed:
- the Integrated Audit Plan and the Budget for Eni’s Internal Audit Department for 2018, expressing its opinion thereon to the Board of Directors;
- the results of scheduled and non-scheduled internal audits, the results of monitoring the status of corrective actions planned by the operational units to tackle issues that emerged during the audits, the results of audits carried out by Eni’s Internal Audit Department in response to specific requests from the control and supervisory bodies, as well as the status of other activities conducted by the Internal Audit Department (such as reports of problems, independent monitoring);
- the Internal Audit Reports of December 31, 2016 and June 30, 2017 on the primary results of internal audits performed and on the assessment of the suitability of the Internal Control and Risk Management System for achieving an acceptable overall risk profile, as well as the results of the External Quality Review conducted by an independent advisor of the compliance of the activities performed by Internal Audit with the profession’s international standards.
The Committee also expressed its favourable opinion concerning the proposal to confirm the Head of Internal Audit Department following the positive outcome of the assessment of his integrity, professionalism, expertise and experience.
2) In performing its duties with respect to the internal control system as applied to the financial reporting model, during periodic meetings with the Chief Financial Officer (CFO), also in his capacity as the officer in charge of preparing financial reports (the “Financial Reporting Officer” or “FRO”) and the Company’s administrative structures, and the audit firm in attendance, the Committee reviewed:
- the reports of the CFO/FRO on: i) Eni’s administrative and accounting structure at December 31, 2016 and at June 30, 2017, ii) on the internal control system as applied to financial reporting at December 31, 2016 and June 30, 2017, on the basis of which it expressed its favourable opinion to the Board on the appropriateness of the powers and resources assigned to the FRO and on the actual compliance with administrative and accounting procedures for the purposes of the Board’s supervisory function;
- the key aspects of the individual and consolidated financial statements at December 31, 2016 of Eni and Eni’s half-year consolidated financial report at June 30, 2017. Before the topic was submitted to the Board of Directors, it examined impairment test methodology and findings as well as the major issues related to the application of the accounting principles in preparation for the drafting of the 2017 Annual Report;
- the main aspects of the Annual Report on Form 20-F 2016;
- the content of the 2016 management letter of the audit firm, giving its favourable opinion prior to subsequent examination by the Board and the statement on the status of the audit pursuant to SOA 404; the report on key issues that arose during the statutory audit and the planning of 2017 auditing activities;
Moreover, the Committee examined: i) the key issues raised by the UK’s “Criminal Finances Act”; ii) the main changes in statutory audit legislation; iii) the requirements connected with the disclosure of non-financial information, examining in particular the decisions taken by Eni with regard to the preparation of the “Consolidated Non-Financial Information” pursuant to the provisions of Legislative Decree no. 254/2016; iv) the “Consolidated Report on Payments to Governments” for 2016 by Eni SpA, its consolidated subsidiaries and companies consolidated proportionately (EU Accounting Directive 2013).
3) In supporting the Board of Directors in conducting the assessments and making decisions concerning risk management, including with regard to potentially prejudicial situations, the Committee conducted an in-depth analysis of specific situations at the request of the Board. Among other things, in the context of its periodic meetings with the Legal Affairs Department, the Committee closely examined the main legal issues and received updates on developments in the major pending legal proceedings, particularly as concerns the possible accounting repercussions, for the purpose of performing its duties as they pertain to the process of preparing the annual and half-year financial reports.
4) The Committee held several meetings with the Integrated Compliance Department during which it i) examined the periodic reports of Anti-Corruption Compliance on the support provided to the units of Eni and the subsidiaries in the areas for which it is responsible, with a specific focus on training activities performed; ii) examined the issues associated with the revision of the Model 231 arrangements of the subsidiaries; iii) examined the result of the Integrated Compliance Project, evaluating the main aspects of the new organisational structure; iv) was informed of the issue or updating of Anti-Corruption rules and of the successful completion of the verification by the certifying agency of the conformity of the Eni Anti-Corruption Compliance Programme with the provisions of ISO 37001:2016 “Antibribery Management System”.
5) The Committee was periodically informed of the status of the updating of the New Regulatory System and, meeting with the corporate units responsible for the project, examined the proposed revisions of the following Management System Guidelines (MSG): “Antitrust”, “Code of Commercial Practices and Advertising”, “Transactions involving the interests of Directors and Statutory Auditors and transactions with related parties” and “Corporate Governance for Eni companies”, as well as the proposed revisions and new issue of the MSGs “Compliance model concerning corporate responsibility for the Italian subsidiaries of Eni – WS composition” and “Compliance model concerning corporate responsibility for the foreign subsidiaries of Eni”, on which the Committee issued a favourable opinion prior to subsequent approval by the Board of Directors.
6) With regard to “Transactions involving the interests of Directors and Statutory Auditors and transactions with related parties” the Committee:
- issued a favourable opinion on the proposal to make changes to the relevant MSG to be approved by the Board of Directors on April 4, 2017;
- examined a number of transactions of lesser importance on which it expressed a favourable opinion on the interest of the Company in the transactions and the appropriateness of the associated terms and conditions.
7) The Committee thoroughly examined specific internal control and risk management issues, including during special meetings with members of Eni’s top management. Specifically, the Committee:
- met on several occasions with the Integrated Risk Management unit, focusing in particular on the evolution of Eni’s main risks and on the progress made in the related treatment actions;
- met with the Finance Department to examine the periodic reports on the management and control of financial risks;
- met with the CFO units to examine developments in insurance activities;
- reviewed the reports on disciplinary action taken against employees for illegal conduct.
8) As envisaged in Eni’s Model 231, the Committee met – together with the Board of Statutory Auditors – with the members of Eni SpA Watch Structure to review the Watch Structure’s semi-annual report on its activities, including in its role as Guarantor of the Code of Ethics, and to take a closer look at certain issues of common interest with regard to the activities performed.
Meetings and activities of the Remuneration Committee (Compensation Committee until 15 March 2018) in 2017
In 2017, the Remuneration Committee met 10 times, with an average participation rate of 98% and an average duration of 2 hours and 35 minutes. At least one member of the Board of Statutory Auditors participated in each meeting, as well as, following the renewal of corporate bodies, the Chairman of the Board of Statutory Auditors. At the invitation of the Chairman of the Committee, the Chief Executive Officer and General Manager, Company Executives and advisors also took part in specific meetings to provide information and clarifications considered necessary by the Committee to perform its enquiries.
The following were issues addressed in the first half of the year:
- the review, with the assistance from leading law firms, of relevant updates to legal and regulatory requirements governing Directors or Managers severance arrangements under Italy’s national collective bargaining regime (CCNL);
- the periodic review of the remuneration policy implemented in 2016 in order to prepare the proposed policy guidelines for 2017 which provided for the introduction of a new and generally simplified variable incentive system, as discussed in greater detail in the 2017 Remuneration Report;
- the review of Eni’s results for 2016 in order to implement the short-term and long-term incentive plans using a method for the analysis of deviations specified and approved by the Committee in order to neutralize the effects, either positive or negative, of exogenous factors and to make it possible to objectively assess performance;
- the definition of 2017 Eni’s performance targets relevant to the variable incentive plans including the introduction of a new annual incentive plan, with deferral of the new “Severity Incident Rate” metric, which measures both the frequency and severity of injuries, replacing the previous metric, the total recordable incident rate (TRIR);
- the formulation of proposals for implementing the Deferred Monetary Incentive Plan for the CEO and General Manager and other management personnel;
- the formulation of proposals for the new 2017-2019 Long-Term Equity-based Incentive Plan;
- the examination of the 2017 Eni Remuneration Report;
- the examination of the implementation of the engagement process conducted with the main institutional investors in order to maximise shareholder consensus on the 2017 Remuneration Policy and the relative voting projections arrived at with the assistance of an international consulting firm;
- the formulation, after the renewal of corporate bodies, of the remuneration proposals for Directors with delegated powers (Chairman – Chief Executive Officer and General Manager) for the 2017-2020 term, with particular regard to fixed remuneration, in line with Eni’s 2017 Remuneration Policy and with the terms of the 2017-2019 Long-Term Incentive Plan, as approved by the Shareholders’ Meeting on April 13, 2017.
During the second part of the year, the Committee first examined the results of the 2017 shareholders’ meetings, with regard to the Eni Remuneration Report, of the major Italian and European listed companies as well as Eni’s peer group, and the 2017-2019 Long-Term Equity-based Incentive Plan.
With regard to other main activities, the Committee:
- finalised the proposal concerning the fulfilment (“2017 attribution”) of the 2017-2019 Long-Term Equity-based Incentive Plan for the CEO and General Manager and critical management personnel for business;
- examined the outcome of the first cycle of meetings conducted, after the Shareholders’ Meeting, with Eni institutional investors and the leading proxy advisors as well as activities planned for the 2018 Shareholders’ Meeting, to enable the broadest possible understanding and sharing of the Policy;
- started the review of 2018 Remuneration Report Policy Guidelines, with the support of the competent Company functions in light of the monitoring conducted of the developments in the current legislative and regulatory environment and in market standards for the representation of information on remuneration issues.
Meetings and activities of the Nomination Committee in 2017
In 2017, the Nomination Committee met 10 times, with a participation rate of 96%; the average duration of the meetings was about 1 hour. More specifically, in 2017, the Committee:
- submitted for Board approval the proposed amendment of the Committee Rules concerning the appointment of a specific company officer (the CSRO) as the Committee Secretary in order to align the Rules of the Nomination Committee with those of the Remuneration Committee, the possibility of employing remote electronic consultations;
- conducted on behalf of the Board the enquiry into whether Directors satisfy the independence and integrity requirements and the absence of circumstances that would render them ineligible or incompatible, as well as the respect of the Board’s policy on the maximum number of positions that can be held by Directors; - expressed its assessment of the manner in which the Board Review was conducted for the period 2017-2019 and conducted preparatory work for the selection of the external advisor, formulating proposals for the engagement for the Board;
- formulated an opinion for the Board concerning the advice to shareholders, prior to the appointment of the new Board, on the size and composition of the latter and on the management and professional skills that it felt should be represented on the Board;
- examined the issue of the appointment of managers and members of the Company bodies and boards of strategically important subsidiaries, providing the Board with its assessment with regard to the issue of the appointment of the Financial Reporting Officer, the Head of Internal Audit Department, the members of the Eni Watch Structure, and the members of the Board of Directors of Eni International BV; - began its activities for the designation of Eni’s candidates for appointment to the Board of Directors of Saipem SpA in view of the election of that body in 2018;
- examined the proposed changes to the “MSG Corporate Governance for Eni companies” and expressed its opinion on the criteria for designating the members of the corporate bodies of companies in which Eni holds an interest;
- examined the Compliance Model concerning corporate responsibility for the subsidiaries of Eni and expressed its opinion on the criteria for designating the members of the Watch Structures and the Compliance Supervisory Bodies incorporated in the new MSGs “Compliance model concerning corporate responsibility for the Italian subsidiaries of Eni – WS composition” and “Compliance model concerning corporate responsibility for the foreign subsidiaries of Eni”;
- examined the “Leveraging Professional Skills” processes, a project that led to the definition and enhancement of the career development path of Eni personnel with a strong strategic professional and technical orientation;
- examined the overall approach adopted by Eni with regard to gender diversity within the broader theme of diversity management, assessing internal initiatives and commitments made in this area.
Meetings and activities of the Sustainability and Scenarios Committee in 2017
In 2017, the Committee met 12 times. The meetings lasted an average of 2 hours and 45 minutes, with an average participation rate of 92% of its members.
During these meetings, the Committee discussed the following issues: update of the 2017-2020 and Long-Term Price Scenario, Eni-MIT Cooperation - Achievements and way forward, Eni/Syndial and reclamation efforts in Italy, Data on deaths from workplace illnesses, long-term strategies of the majors, Eni for 2016-Sustainability Report and Sustainability Performance, SSC Rules, SSC Budget, Calendar of SSC meetings, Scope of SSC activities, Variables-methodologies and tools for analysing energy markets, 2018-2021 and Long-Term reference scenarios, the sustainability context, draft statement on the “Modern Slavery Act”, Eni 2016 HSE review document, resolutions on climate change, analysis of trends and projections for climate change, update of the TCFD working group (Climate-Related Financial Disclosures), Shell and Exxon resolution on climate change, short-term update on oil & gas market, Semi-annual SSC report, analysis of the demand function – presentation by IEA official (Laura Cozzi), Eni demand forecast – an examination of challenges and scenarios, technological innovation in decarbonisation scenarios, Total-Maersk: brief analysis of the deal, 2018-2021 and Long-Term Price Scenario, update on Energy Solutions activities, climate transition and decarbonisation strategies of the majors, Total Strategy presentation, ETS market developments, OGCI Update, Eni in sustainability indices and ratings, update on developments in oil & gas market, implementation of climate accords – COP23 update, Eni and biodiversity, definition of SSC agenda for 2018.