Assessment of the risks and opportunities connected with the Strategic Plan

The process of defining the Groups strategies is accompanied by an accurate analysis of the risks and opportunities connected with those strategies.
Identifying those risks and opportunities within the Enel Group’
s strategic and industrial planning process is designed to span the horizon of the Plan in an integrated manner.
Although the strategy underlying the Plan, as described above, envisages a phase of careful analysis and verification of the strategic risk factors and variables, it retains scenario assumptions regarding future events that will not necessarily occur, as they depend on variables that cannot be controlled by management. Upside and downside developments may occur as time unfolds.
Before being able to approve the Strategic Plan, a quantitative analysis of the risks and opportunities associated with the Group’
s strategic positioning is presented annually to the Control and Risk Committee appointed by the Board of Directors. In particular, risk factors such as macroeconomic and energy variables (such as exchange rates, inflation, commodity prices and electricity demand), regulatory developments, weather and climate events and risks connected with the competition are identified.
Based on the nature of the risk and opportunity drivers, the analytical approach that best represents their volatility is selected. In practice, we perform a
scenario analysis for all those variables whose market time series provide a robust foundation to estimate levels of correlation and representative volatility for future risk, and a deterministic analysis based on what-ifs and expert judgments of the possible evolution of the business with respect to the main risk factors for the execution of the Business Plan.
The validity of the results is also monitored with ex-post analyses by risk cluster. In 2020, most of the actual upside and downside events fell well within the limits estimated by the risk models of the Strategic Plan presented at the end of 2019, despite the strong downside impact of the COVID-19 emergency.
Focusing on the scenario risk analysis for the Strategic Plan, exchange rates, electricity demand and the volatility of energy and commodity prices represent almost all the volatility of the drivers. In particular, in addition to the US
dollar the most impacting currencies are the Chilean peso, the Colombian peso and the Brazilian real. Nevertheless, the Groups very structure ensures that the volatility of the South American currencies has only a negligible impact on profit, as demonstrated in the presentation at the Capital Markets Day. Italy and Spain represent nearly all of the Groups exposure to the impact of the volatility of energy prices and commodity price fluctuations on margins.
Examining the other risk factors, such as those connected with weather and climate events, we can see that geographical diversification significantly reduces the exposure to the risk associated with renewable resources –
a highly positive factor considering the Groups positioning and the steady expansion of renewable generation. Furthermore, with regard to climate change, the risk associated with acute events is managed as part of investment for adaptation to climate change and the Groups insurance strategy.
With regard to risk factors estimated deterministically, the monitoring of all possible regulatory issues is crucial for assessing any upside or downside impact on the Group.

In general, correlations between all the risk factors create diversification effects that substantially mitigate total exposures.