The Enel corporate governance system

In 2020, the corporate governance system of Enel SpA (“Enel” or the “Company”) was compliant with the principles set forth in the July 2018 edition of the Corporate Governance Code for listed companies, adopted by the Company, and with international best practice. The corporate governance system adopted by Enel and its Group is essentially aimed at creating value for the shareholders over the long term, taking into account the social importance of the Group’s business operations and the consequent need, in conducting such operations, to adequately consider all the interests involved.

In compliance with Italian legislation governing listed companies, the Group’s organization comprises the following bodies:

Shareholders’ Meeting

It is charged with deciding, among other things, in either ordinary or extraordinary session:

  • the appointment and removal of the members of the Board of Directors and the Board of Statutory Auditors and their compensation and undertaking any stockholder actions;
  • the approval of the financial statements and the allocation of profit;
  • the purchase and sale of treasury shares;
  • remuneration policy and its implementation;
  • share ownership plans;
  • amendments to the bylaws;
  • mergers and demergers;
  • the issue of convertible bonds.

Board of Directors 

16

 meetings held by the Board in 2020, in 12 of which it addressed issues connected with climate and their impact on strategies and the associated approaches to implementation

  • It is vested by the bylaws with the broadest powers for the ordinary and extraordinary management of the Company and has the power to carry out all the actions it deems advisable to implement and achieve the corporate purpose.
  • It is responsible for examining and approving the corporate strategy, including the annual budget and business plan, which incorporate the main objectives and planned actions, including with regard to sustainability,(1) to lead the energy transition and tackle climate change, promoting a sustainable business model that creates long-term value.
  • It also performs a policy-setting role and provides an assessment of the adequacy of the internal control and risk management system (the ICRMS), determining the nature and level of risk compatible with the strategic objectives of the Company and the Group. The ICRMS consists of the set of rules, procedures and organizational structures designed to enable the identification, measurement, management and monitoring of the main business risks to which the Group is exposed. These include the risks that could arise in a medium- to long-term perspective, including the risks associated with climate change and, more generally, the risks that the Group’s activities may engender in the areas of the environment, society, personnel and respect for human rights.
  • During 2020, it addressed climate-related issues at various meetings, including: (i) an in-depth analysis of possible future climate scenarios with a view to defining the Group’s strategy, taking account of the related risks and opportunities; (ii) the management of the impacts of the just transition and decarbonization on workers, providing for upskilling and reskilling programs; (iii) an analysis of investor expectations for climate change, through updates on the related engagement activities; and (iv) the inclusion of the fight against climate change and the reduction of direct and indirect emissions among the parameters taken into consideration in analyzing the positioning of the Group with respect to peers.
  • It also examined issues relating to enhancing diversity, with reference to both disabilities and gender. With regard to disabilities, a Value for Disability plan was developed to promote the empowerment of disabled workers and the inclusion of people with disabilities who live in the communities where the Group operates.
  • At each meeting, starting from the end of February 2020, it received updates on the impact of the COVID-19 pandemic in the countries in which the Group operates, constantly monitoring the actions taken to prevent or mitigate the effects of the emergency on the workplace and to ensure business continuity, with a focus on specific issues, including: (i) developments in the disease contagion among employees and obtaining a specific insurance policy to cover hospitalizations; (ii) the efficiency of remote work and the digital operation of plants and infrastructures; (iii) the impacts on individual Business Lines and on the Group’s results; and (iv) solidarity and charity initiatives.

(1) Sustainability comprises issues connected with climate change, atmospheric emissions, managing water resources, biodiversity, the circular economy, health and safety, diversity, management and development of employees, relations with communities and customers, the supply chain, ethical conduct and human rights.

In compliance with the provisions of the Italian Civil Code, the Board of Directors has delegated part of its management duties to the CEO and, in accordance with the recommendations of the Corporate Governance Code and the provision of the applicable CONSOB regulations, has appointed the following committees from among its members to provide recommendations and advice:

Corporate Governance and Sustainability Committee

11

meetings held by the Committee in 2020, in 4 of which it addressed issues connected with climate and their impact on strategies and the associated approaches to implementation

  • A majority of its members are independent directors and for all of 2020 it was composed of the Chairman of the Board of Directors and two independent directors.
  • It assists the Board of Directors in assessment and decision-making activities concerning the corporate governance of the Company and the Group and sustainability, including climate change issues and the interaction of the Group with all stakeholders.
  • With regard to sustainability issues, it examines:
    • the guidelines of the Sustainability Plan, including the climate objectives set out in the plan and the approach to implementing the sustainability policy;
    • the general approach of the Sustainability Report, which includes the Non-Financial Statement, and the structure of its content as well as the comprehensiveness and transparency of the disclosures – including with regard to climate change – provided in that document, issuing a prior opinion to the Board of Directors, which is called upon to approve that document.

Control and Risk Committee 

12

 meetings held by the Committee in 2020, in 5 of which it addressed issues connected with climate and their impact on strategies and the associated approaches to implementation

  • It is composed of non-executive directors, the majority of whom (including its Chairman) are independent. For all of 2020 it was made up of four independent directors.
  • It has the task of supporting the assessments and decisions of the Board of Directors relating to the internal control and risk management system, as well as those relating to the approval of periodic financial reports. In particular, it issues its prior opinion to the Board of Directors, inter alia: (i) on the guidelines of the internal control and risk management system, so that the main risks concerning Enel and its subsidiariesincluding the various risks that may be relevant from the perspective of medium- to long-term sustainabilityare correctly identified and adequately measured, managed and monitored; (ii) on the degree of compatibility of the risks referred to in point (i) above with company management consistent with the strategic objectives identified; and (iii) on the adequacy of the internal control and risk management system with respect to the characteristics of the Company and the risk profile assumed, as well as the effectiveness of the system itself.
  • It also examines the content of the Sustainability Report, which includes the Non-Financial Statement relevant for the purposes of the ICRMS and contains corporate disclosures on climate issues, issuing a prior opinion on these aspects to the Board of Directors, which is called upon to approve that document.

Nomination and Compensation Committee

12

meetings held in 2020

  • It is composed of non-executive directors, the majority of whom (including its Chairman) are independent. For all of 2020 it was made up of four independent directors.
  • It supports the Board of Directors in evaluations and decisions relating to the size and composition of the Board itself, as well as the remuneration of directors and key management personnel. In this regard, the remuneration policy for 2020 provides that a significant portion of the short- and long-term variable remuneration of the Chief Executive Officer/General Manager and key management personnel shall be linked to sustainability-related performance objectives. In particular, with regard to the long-term variable component of the remuneration of the Chief Executive Officer/General Manager and key management personnel, in the 2020 Long-Term Incentive Plan, starting from 2020, an additional ESG target was introduced concerning the ratio between consolidated net installed renewables capacity and the total consolidated net installed capacity, in line with the provisions for SDG-linked bond issues by Enel linked to SDG 7 (Affordable and Clean Energy). Furthermore, the Long-Term Incentive Plan retains the reduction of specific carbon dioxide emissions among the performance objectives, in line with the Groups decarbonization strategy, which provides for the progressive reduction of CO2 emissions in line with the Paris Agreement. As regards the short-term variable component of the remuneration of the Chief Executive Officer/General Manager, the ESG target concerning the further improvement of safety parameters in the workplace was retained in the remuneration policy for 2020 and its weight was increased. Furthermore, in light of the state of the COVID-19 health emergency, a new performance target was introduced that measures the Groups ability to remotely manage company activities where possible, guaranteeing service continuity and excellent levels of operational efficiency.

Related Parties Committee

4

meetings held in 2020

  • It is composed of independent non-executive directors. For all of 2020 it was made up of four independent directors.
  • It performs the functions provided for in the relevant CONSOB regulations and in the specific Enel procedure for transactions with related parties, essentially issuing in particular reasoned opinions on the interest of Enel – and any direct or indirect subsidiary that may be involved – in carrying out transactions with related parties, expressing its assessment of the benefits and substantive appropriateness of the associated conditions, subject to receiving timely and comprehensive information on the transaction.

Board of Statutory Auditors

27

meetings held in 2020

It is charged with overseeing:

  • compliance with the law and the bylaws, as well as compliance with the principles of sound administration in carrying out corporate activities;
  • the financial reporting process and the appropriateness of the organizational structure, the internal control system and the administrative-accounting system of the Company;
  • the statutory audit of the annual accounts and the consolidated accounts, as well as the independence of the Audit Firm;
  • the approach adopted in implementing the corporate governance rules envisaged by the Corporate Governance Code.
Chairman of the Board of Directors
  • The Chairman is vested by the bylaws with the powers to represent the Company and to sign on its behalf.
  • Presides over Shareholders’ Meetings.
  • Convenes the meetings of the Board of Directors, establishes the agenda and presides over its proceedings, ensuring that sufficient information on the issues being addressed in the agenda is provided in a timely manner to all members of the Board of Directors and the Board of Statutory Auditors.
  • Ascertains that the Board’s resolutions are carried out.
  • Pursuant to a Board resolution of May 15, 2020, the Chairman has been vested with a number of additional non-executive powers.
  • In the exercise of the function of stimulating and coordinating the activities of the Board of Directors, the Chairman plays a proactive role in the process of approving and monitoring of corporate and sustainability strategies, which are sharply focused on the decarbonization and electrification of energy consumption.
  • In addition, during 2020 the Chairman also chaired the Corporate Governance and Sustainability Committee.
Chief Executive Officer
  • Like the Chairman of the Board of Directors, the CEO is vested by the bylaws with the powers to represent the Company and to sign on its behalf, and in addition is vested by a Board resolution of May 15, 2020 with all powers for managing the Company, with the exception of those that are otherwise assigned by law, regulation or the bylaws or that the aforesaid resolution reserves for the Board of Directors. 
  • In the exercise of these powers, the CEO has defined a sustainable business model, delineating a strategy to lead the energy transition towards a low-carbon model. The CEO is also responsible for managing the business activities connected with Enel’s efforts in combatting climate change.
  • The CEO reports to the Board of Directors on the activities performed in the exercise of the powers granted to him, including business activities to maintain Enel’s commitment to address climate change.
  • The CEO represents Enel in various initiatives that deal with sustainability, holding positions of leadership in international institutions such as the United Nations Global Compact and the Global Investors for Sustainable Development (GISD) Alliance launched by the United Nations in 2019.
  • The CEO has also been designated as the director responsible for the ICRMS.
Statutory audit of the accounts
  • This is performed by a specialized firm entered in the appropriate register of auditors, which is appointed by the Shareholders’ Meeting on the basis of a reasoned proposal from the Board of Statutory Auditors. 
Good corporate governance practices
  • In 2020, the Company organized a comprehensive induction program – also taking account of the significant change in the Board membership following the appointment of the Board of Directors approved by the Shareholders’ Meeting of May 14, 2020 – in order to provide the directors with an understanding of the sectors in which the Group operates, including issues related to sustainability. 
  • At the end of 2020 and during the first two months of 2021, the Board of Directors carried out, with the assistance of a specialized independent advisor, an assessment of the size, composition and functioning of the Board and its committees (the “board review”), in line with the most advanced corporate governance practices accepted at the international level and incorporated within the Corporate Governance Code. The board review was also carried out using a “peer review” approach, i.e. evaluating not only the operation of the body as a whole, but also the style and substance of the contribution made by each of its members, and it was extended to include the Board of Statutory Auditors. The board review also specifically sought to verify the directors’ perception of the Board’s involvement with sustainability issues and the integration of sustainability into corporate strategy.
  • The Board of Directors and the Board of Statutory Auditors have approved, each within their own sphere of competence, specific diversity policies that set out the characteristics considered optimal for the members of these bodies, so that each can exercise their duties most effectively, taking decisions that can effectively draw on the contribution of a plurality of qualified points of view, able to examine the issues under discussion from different perspectives. The policy approved by the Board of Directors establishes that with regard to the types of diversity and the associated objectives:
    • the optimal composition of Board members should provide for a majority of independent directors;
    • even when the regulatory provisions on gender balance expire, it is important to continue to ensure that at least one-third of the Board of Directors, both at the time of appointment and during its term of office, shall be made up of directors of the least represented gender;
    • the international scope of the Group’s activities should be taken into consideration, ensuring that at least one-third of directors should have adequate experience in the international arena, which is also considered useful for preventing the standardization of opinions and the emergence of “group thought”;
    • in order to achieve a balance between the need for continuity and renewal in management, it would be necessary to ensure a balanced combination of people of differing seniority – and age – within the Board of Directors;
    • non-executive directors should have a management and/or professional and/or academic and/or institutional background such as to create a diverse and complementary set of skills and experience.
  • In July 2015 the Board of Directors also approved (and subsequently amended in February 2019) a number of recommendations aimed at strengthening the corporate governance of Enel subsidiaries with shares listed on regulated markets and ensuring the implementation of local best practices in this area by those companies. Among other issues, these recommendations concern the composition of the management body, with regard to which it is also suggested to integrate a diversity of professional and management experience and skills, combined, where possible, with a diversity of gender, age and seniority, without prejudice to the provisions of applicable local legislation.

For more detailed information on the corporate governance system, please see the Report on Corporate Governance and Ownership Structure of Enel, which has been published on the Company’s website (http://www.enel.com, in the “Governance” section).