Sustainability Governance

Several in-depth seminars were also organised during the period, including those open to experts and external guests, during which they analysed the Group’s contribution to the value creation for the areas in which it operates. Furthermore, participation in courses and conferences for Directors and the members of the Board of Statutory Auditors was promoted and encouraged. All these initiatives represented important opportunities to provide training and information on economic, social and environmental aspects. Due to the health emergency, participation in almost all of these initiatives and activities took place remotely.

In line with the provisions of the Corporate Governance Code, at least once a year, the Board of Directors performs a self-assessment of its own performance and that of its Committees (so-called board evaluation) as well of their size and composition. Considering the Code’s recommendations, the results of the Board of Directors’ evaluation drew attention to critical areas, while the effectiveness of corrective and improvement actions started previously and continued during 2020 was also assessed. Assessments of the Board’s qualitative and quantitative characteristics were also introduced as part of the 2020 board evaluation activity.

To date, the BoD has not adopted a succession plan for Executive Directors, as prescribed by the rules regarding their appointment and replacement, which are provided for in the Articles of Association. Concerning the new Corporate Governance Code, the Board of Directors pointed out that the issue, from the point of view of contingency, could be the subject of possible in-depth analysis during 2021.

Composition of the Board of Directors and Internal Committees as at 31/12/2020

C = Chairperson; M = Member

Remuneration and Appointments Committee (RAC)

The Remuneration and Appointments Committee (RAC) is composed of three Non-Executive Directors, the majority of whom – including the Chairperson – are independent. At least one member of the Committee has appropriate experience in financial and remuneration policies, which is assessed by the Board of Directors at the time of appointment. The RAC:

• periodically assesses the suitability, overall consistency and actual application of the remuneration policy of Directors and Senior Executives with strategic responsibilities, by making use of the information provided by CEOs;
• submits proposals on the subject to the Board of Directors;
• presents proposals or expresses opinions to the BoD regarding the remuneration of Executive Directors and other Directors with specific office, as well as establishing performance objectives relating to the variable part of said remuneration;
• monitors the application of the decisions adopted by the BoD by verifying, in particular, the actual fulfilment of performance objectives;
• attends to the preliminary work for the preparation of the remuneration policy for Executive Directors and Senior Executives with strategic responsibilities, needed for the BoD to adopt the measures it is responsible for, after interacting with the Control, Risk and Sustainability Committee on risk profiles;
• formulates opinions to the BoD in respect of its own size and composition, and makes recommendations on the professional figures whose presence in the BoD is deemed desirable;
• proposes candidates to the BoD for the office of Director in cases of co-opting, where independent Directors need to be replaced, ensuring compliance with the requirements on the minimum number of independent directors and on the percentages reserved for the less-represented gender;
• expresses recommendations to the BoD in relation to the maximum number of appointments that members can take as Director or Statutory Auditor in other listed Companies, financial, banking, insurance or relatively large companies, compatible with the efficient performance of the office of company Director, bearing in mind the participation of Directors in the Committees established within the Board, as well as the exceptions to the bans on competition provided for by Article 2390 of the Italian Civil Code;
• performs enquiries into preparation of the plan for the succession of Executive Directors, if the BoD decides to adopt such a plan;
• supports the Board of Directors in the annual self-assessment activity.

The power to determine the remuneration of the Directors holding specific office pursuant to the Articles of Association resides with the Board of Directors, upon approval of the RAC and the Board of Statutory Auditors.

The Committee is responsible for the preliminary assessment – with respect to the decisions of the Board of Directors – of the Annual Remuneration Report to be made available to the public before the annual Shareholders’ Meeting called to approve the Financial Statements. The Report (to which reference should be made for further details) illustrates, among other things, the remuneration policy for members of the Board of Directors, the Board of Statutory Auditors and Senior Executives with strategic responsibilities and is aimed at increasing the knowledge and awareness of shareholders and, in general, of stakeholders and the market. The Chairperson of the Remuneration and Appointments Committee or another member of the Committee must be present at the annual Shareholders’ Meeting called to approve the Financial Statements in order to inform shareholders of the methods by which the Committee performs its assigned duties. After the Shareholders’ Meeting, the Remuneration and Appointments Committee analyses the voting results on the Report on Remuneration and Compensation Paid, examines any concerns arising at the Meeting and carries out assessments to review the Remuneration Policy adopted by the Group. The Shareholders’ Meeting held on 29 April 2020 approved Section One of the Report on Remuneration and Compensation Paid and resolved to vote in favour of Section Two. The voting results are available on the Company’s website.

Remuneration of members of the BoD and Senior Executives with strategic responsibilities

The Iren Shareholders’ Meeting decides, upon appointment and for the duration of office, the total annual remuneration of the members of the Board of Directors and the maximum total amount for the remuneration of the Directors holding specific office provided for in the Articles of Association.

The BoD decides, on the suggestion of the Remuneration and Appointments Committee and considering the opinion of the Board of Statutory Auditors, the framework and remuneration of the Directors holding specific office (Chairperson, Deputy Chairperson and Chief Executive Officer) and the remuneration for the participation of the Directors in the Committees established within the Board. The BoD also defines the objectives that determine the variable annual short-term component of the remuneration of the Chief Executive Officer and General Manager. The Chief Executive Officer determines, taking into account the remuneration policy’s provisions, the remuneration of Senior Executives with strategic responsibilities, and defines the objectives to which the variable annual short-term component is correlated, involving the Company’s Remuneration and Appointments Committee in the process to obtain its prior opinion.

The remuneration of Non-Executive Directors is not related to the economic results achieved, but commensurate with the commitment required of each of them, bearing in mind their potential participation in one or more of the Committees within the Board of Directors.

For the Chairperson and Deputy Chairperson, a fixed remuneration has been established, and no performance bonus is envisaged. The Chief Executive Officer participates in the short and long-term incentives system as described in the Remuneration Report approved by the Shareholders’ Meeting.

Generally, without prejudice to compliance with the regulations in force, no indemnity is provided for directorship severance for Iren Directors. For the Chief Executive Officer and General Manager, compensation is envisaged in the event that the mandate is withdrawn without a legitimate cause or not renewed and, in view of the fixed-term management contract held with Iren, the treatment and severance indemnity established by law and the national collective labour agreement of reference apply.

For the Chief Executive Officer and Senior Executives with strategic responsibilities, the variable part of their remuneration is divided into two parts: short-term and long-term.

The short-term variable remuneration component – which, when all targets are achieved, reaches an average of about 37% of fixed remuneration – is based on an MbO (management by objectives) system that takes into consideration the Group’s main objectives relating to economic, financial and operating performance, the main strategic projects and goals linked to ESG topics, through the introduction – for all Senior Executives with Strategic Responsibilities – of a performance indicator relating to relations with stakeholders and ESG matters (such as, for example, improving environmental performance, reducing the accident frequency rates, developing gender diversity). The scheme aims to prevent unsatisfactory results through the application of a “gate” condition related to the maintenance of the investment grade rating attributed by a leading rating agency. To make the incentives scheme more stimulating in the short term, for each performance indicator there is a fixed threshold of 70% of the objective with a target of 100% of the objective.

The objectives for senior managers, which are always defined in line with horizontal and vertical consistency at a Group level and within individual Business Units, also form the foundation of the management by objectives (MbO) system used for Senior and Junior Managers, assigned via cascading objectives.

The long-term variable remuneration component is cash-based, with amounts on an annual basis of up to 25% of fixed remuneration upon the achievement of all the targets that, in the current Long-Term Incentive Plan (LTI Plan) launched in 2019, are linked to the accomplishment of three economic goals (EBITDA, levered operating cash flow and cumulative investments) set out in the Group’s Business Plan for the period 2019-2021, at the end of which payment may take place. The LTI Plan also provides an incremental mechanism in the event of significant overshooting of the operating cash flow target and decremental means linked to any failure to achieve sustainability and gender diversity objectives. Finally, the maintenance of the investment grade attributed by one of the three major rating agencies is provided for as a gate condition.

Malus and clawback clauses are provided for in the regulations of both systems (MbO and LTI).

Exceptional exogenous factors, which occurred in the first half of 2020 as a result of the pandemic emergency, have led to additional constraints and difficulties in the business management, execution of activities and implementation of projects, with the need to identify new working methods and tools, in a logic of flexibility and resilience. In relation to this situation, it was decided not to change the targets set in the short-term incentive system but to eliminate the minimum incentive threshold for all beneficiaries of this system in exchange for a 5% penalty to be applied on the target amount. It has also been envisaged that in 2022 – subject to the full achievement of the individual targets assigned for 2021 – a bonus equal to 50% of the difference between the percentage of actual achievement of the 2020 objectives and the 100% target for 2020 will be payable.

No entry bonuses or specific incentives at the moment of appointment/taking office are adopted. The severance indemnity and supplementary pensions for Senior Executives with strategic responsibilities are established by law and by the national collective labour agreement.

Control, Risk and Sustainability Committee

The Control, Risk and Sustainability Committee (CRSC) is composed of four non-executive Directors, the majority of whom – including the Chairperson – are independent. At least one member has appropriate experience in accounting and finance or risk management (deemed adequate by the Board of Directors upon their appointment).

The BoD, pursuing the priority objective of creating value in the medium-long term, defines the nature and the level of risk compatible with the Company’s strategic objectives, evaluating the suitability of the organisational structure with particular reference to the internal control and risk evaluation system. In performing this role, the BoD is assisted by the Control, Risk and Sustainability Committee, which provides a preliminary opinion on the fulfilment of the duties assigned to the latter concerning internal control, risk management and sustainability. The Board of Statutory Auditors also monitors the effectiveness of the internal control and risk management system. The CRSC is also called upon to:

• assess, together with the Financial Reporting Manager and having consulted with the external auditor and the Board of Statutory Auditors, the proper use of the accounting principles and their consistency for the purpose of drafting the Consolidated Financial Statements;
• express opinions on specific aspects relative to identifying the main corporate risks (in particular, specific aspects relative to Risk Policies, the identification of the main company risks and the Audit Plan, as well as in regards the guidelines of the internal control and risk management system);
• express preliminary opinions with respect to resolutions of the BoD on a series of issues, including the appointment/revocation and remuneration of the Manager of the Internal Audit Unit;
• examine the periodic reports on the assessment of the internal control and risk management system and those of particular relevance drafted by the Internal Audit Unit;
• monitor the autonomy, adequacy, effectiveness and efficiency of the Internal Audit Unit;
• request that the Internal Audit Unit carry out checks on specific operating areas, providing simultaneous communication to the Chairperson of the Board of Statutory Auditors;
• report to the BoD, at least every six months, upon approval of the annual and interim Financial Report, on its activity and on the adequacy of the internal control and risk management system;
• through suitable preliminary activities, support the assessments and decisions of the Board of Directors relating to the management of risks arising from detrimental acts of which it has become aware;
• monitor sustainability policies and compliance with the conduct principles adopted by the Company and its subsidiaries;
• examine the issues under enquiry in terms of long‐term sustainability of the basic principles and guidelines of strategic planning, of the Business Plan and of short‐term planning, supervising the methods for implementing the same;
• assess, together with the Corporate Social Responsibility and Local Committees and having consulted the external auditor, the correct use of the standards adopted in order to draft the non-financial information provided for by the legislations in force;
• supervise the system for assessing and improving the environmental, economic and social impacts deriving from the business activities in the local areas;
• examine the periodic reports on the implementation of the structured comparison measures with stakeholders in the local areas where the Group operates, in particular through Local Committees, and those concerning consistency with corporate social responsibility issues of cultural activities and promotion of the Group’s image.

The CRSC convenes, on an at least half-yearly basis, the Risk Management Manager and the other control departments for the Group risk report. The Committee also requests in-depth analysis on specific matters and commissions detailed analyses on certain risks or projects of a strategic nature; in 2020, it demanded a risk assessment of the Business Plan to 2025 for which the Risk Management Department constructed a quantitative stress test and a specific Risk Map relating to the risks of the Business Plan, in line with the revision of the Group Risk Map, which is an essential factor of integration with the Strategic Planning department for which further development is planned in future years.

M&A transactions and other initiatives of a strategic nature, assessed during the year, were also subject to detailed analysis, with a particular focus on the impact of these transactions on the Group’s sustainability goals.

The Risk Management and Corporate Social Responsibility and Local Committees Departments convene at least twice a year by the CRSC, with one of the meetings held before the approval by the Board of Directors of the Consolidated Financial Statements and the Sustainability Report.

Committee for Transactions with Related Parties

The Committee for Transactions with Related Parties (CTRP), composed of four independent Non-Executive Directors, expresses its opinion on the performance of transactions of lesser and greater importance with Related Parties and, in general, performs all the other duties pursuant to the Regulation on transactions with related parties adopted by Consob.

The Procedure for transactions with related parties of Iren Group, approved by the Board of Directors and revised in 2019 (available on the Group website), identifies three types of transaction: greater importance, lesser importance, and transactions of small amounts – and lays out procedural and transparency conditions according to the type of transaction.

Iren has also established the Evaluation Commission for Transactions with Related Parties (composed of the Managers of the Administration, Finance and Control, Legal and Corporate Affairs, Risk Management and Corporate Responsibility Departments and, depending on the transaction in question, the First-Level Managers involved), with the function of permanently monitoring the process of evaluating transactions and filtering between management and the parties responsible for investigating transactions (typically, the CTRP). The procedure attributes a central role to the CTRP and, in order to guarantee the double requirement of independence and non-relation in the individual transaction to be investigated of the members of the CTRP, outlines the mechanisms for identifying any persons responsible, as an alternative, for the investigation.

For transactions of lesser importance, the CTRP is required to express a non-binding, supported opinion regarding the Company’s interest in the completion of the transaction and the convenience and substantial correctness of the relative conditions. For transactions of greater importance, the CTRP is involved during the investigatory phase and is required to express a favourable opinion regarding the Company’s interest in the completion of the transaction, as well as the convenience and substantial correctness of the relative conditions. In this case, the Evaluation Commission for Transactions with Related Parties produces a document to be disclosed to the market within seven days of the approval of the transaction by the competent body or, in the event that the competent body decides to present a contractual agreement, from the moment that the preliminary contract is concluded according to the applicable guidelines.

In the case of transactions involving the remuneration of Directors and Senior Executives with strategic responsibilities, the Remuneration and Appointments Committee assumes responsibility for the matter, limited to cases where the composition of the Committee meets the minimum requirements of independence and non-relation of its members as required by the Consob Regulation.

Board of Statutory Auditors

Iren’s Board of Statutory Auditors in office as of 31 December 2020 was appointed by the Shareholders’ Meeting of 19 April 2018 (for three years until approval of the Company’s Financial Statements as of 31 December 2020) and is composed of 3 Standing Auditors and 2 Supplementary Auditors.

The Articles of Association establish the appointment of the Board of Statutory Auditors through the submission of the lists in order to guarantee an adequate presence of the less-represented gender within the Board.

The Board of Statutory Auditors is called upon to assess the adequacy of the identification, measuring, management and monitoring system for corporate risks, as well as to verify the appropriate and prompt application of corrective actions held to be suitable for reducing risks to levels considered acceptable by the BoD when defining the business strategy. More specifically, the Board of Statutory Auditors verifies:

• the compliance of the acts and deliberations of the governing bodies with the regulation, statutory provisions and the Corporate Governance Code, as well as the tangible means of implementing the same;
• the compliance of management choices with the principles of correct administration and, thus, with the general criteria of economic rationality, such as control of substantial legitimacy and compliance with the operative procedures and/or practices in force;
• the adequacy of the organisation structure compared to the size and complexity of the Company, placing particular attention on the completeness of existing Company departments, on the separation and on contrasting responsibilities in the functions and duties, as well as the clear definition of mandates or powers of each department;
• the adequacy of the internal control system in relation to the size and complexity of the Company and the sector in which the Group operates, as well as strategic objectives;
• fulfilment of the obligations to draw up and publish the Non-Financial Statement under Italian Legislative Decree 254/2016;
• the adequacy of the procedures adopted by the Board of Directors to regulate transactions with related parties, as well as the compliance of the same with the laws and regulations on transparency and public information in this regard.

Also, the Board of Statutory Auditors, in its capacity as the “Internal Control and Audit Committee”, is entrusted with the following tasks:

• monitor the statutory audit of the Separate Financial Statements and Consolidated Financial Statements, also taking into account any findings and conclusions of the quality controls carried out by Consob;
• review and monitor the autonomy of the Independent Auditors, especially concerning the adequacy of the provision of non-audit services, and, more specifically, contemplate the adoption of appropriate procedures for the authorisation of eligible non-audit services and evaluate in advance each request to refer to Independent Auditors for eligible non-audit services.

Governance of Group Companies

Iren Ambiente, Iren Energia, Iren Mercato and Ireti (top-tier companies) have a traditional corporate governance system with a Board of Directors composed of 3 members, in the case of the first three companies, and by 4 members, in the case of Ireti, and a Board of Statutory Auditors composed of 3 Standing Auditors and 2 Supplementary Auditors.

Iren’s Chief Executive Officer appoints the CEOs of the aforementioned companies, while the Chairperson, Directors and members of the Boards of Statutory Auditors are proposed by the Iren BoD. The appointed persons are primarily and predominantly selected from Group personnel (Directors of the parent company, Senior Executives or Managers of Group companies, with suitable professional profiles), or persons external to the Group with experience and expertise appropriate to the role in question. One member of the Iren Board of Statutory Auditors must be present on the company Boards of Statutory Auditors.

As for the other companies reported in this Sustainability Report, the traditional corporate governance system is the one predominately adopted, with a monocratic composition of the administrative body in some cases and a collegial composition in others. The designations of competence of the Group within the governing bodies are disciplined by the Articles of Associations and Shareholders’ Agreements in force for each company.

Iren’s management and coordination of Iren Ambiente, Iren Energia, Iren Mercato and Ireti is expressly provided and governed by the Iren Articles of Association and those of the aforementioned companies. For other subsidiaries, management and coordination, where not expressly governed by the respective Articles of Association, derives from the organisational structure whereby the Business Departments are appointed by the parent company and report to its Chief Executive Officer.

The drafting of sustainability policies and conduct principles to be adopted at a Group level are the responsibility of the Board of Directors of the parent company, in order to ensure the creation of value over time for shareholders and all other stakeholders, in addition to the definition of a sustainability plan (strategic priorities, commitments and objectives) for the development of the Group.

ESG strategic integration Committee and Sustainable Finance Committee

The integration and monitoring of ESG (Environment, Social, Governance) factors, from strategic planning to the management and monitoring of the Group’s activities, is entrusted to the ESG Strategic Integration Committee, set up in 2020, to ensure:

• sharing of scenario analyses for proposing guidelines and policies to integrate sustainability into business strategy and processes, to ensure the creation of value over time for the Group, its shareholders and other stakeholders;
• analysis of risks/opportunities related to ESG matters;
• assessment of the implications of national and European guidelines and standards regarding ESG profiles;
• sharing of environmental and social impact assessments arising from the Group’s activities;
• analysis of the ESG positioning of Iren Group and proposal of initiatives for improvement;
• analysis and monitoring of sustainable finance instruments to support the Group’s development strategy;
• periodic presentation of updates on ESG integration policies at Group level;
• spreading of the culture of sustainability.

The Committee, which meets at least quarterly, is composed of: Administration, Finance and Control Manager, Procurement, Logistics and Services Manager, Manager of CEO Office, Communications Manager, Corporate Social Responsibility and Local Committees Manager, Head of Personnel, Organisation and Information Systems Manager, Risk Management Manager, Head of Finance and Credit Policy, Head of Investor Relations and Head of Planning and Control. The Committee is expected to involve the Managers of the BUs and other Departments in a targeted manner and ensure the mainstreaming of ESG factors at all Group levels.

The Sustainable Finance Committee operates in conjunction with the ESG Strategic Integration Committee and is responsible for defining the sustainable finance framework and for carrying out the following tasks:

• identification and selection of investments, activities and projects considered eligible for access to sustainable finance instruments, based on market standards and national and international frameworks, and which produce a positive and measurable impact in line with the Group’s sustainability policy;
• monitoring of the progress of projects/activities financed with sustainable finance instruments;
• ensuring proper management of the process throughout the duration of the activated loan.

The Sustainable Finance Committee has the right of veto in the selection of activities/projects eligible for sustainable finance instruments, is coordinated by the Administration, Finance and Control Manager and is composed of: Corporate Social Responsibility and Local Committees Manager, Head of Planning and Control, Head of Finance and Credit Policy, Head of Financial Management and Sustainable Finance and Head of Investor Relations.

CSR Department and Local Committees

The following tasks are attributed to the Corporate Social Responsibility and Local Committees Department:

• definition of the sustainability impacts, targets and objectives for the Group’s strategic plans, budgets and finance, in coordination with Strategic Planning, Finance and BUs;
• participation in the ESG Strategic Integration Committee and the Sustainable Financing Committee set up to identify the investments with a positive environmental impact within the Group’s investments;
• definition of guidelines, oversight and management of activities for the Group’s non-financial statement pursuant to Italian Legislative Decree 254/2016 and presentation to stakeholders;
• definition of the improvement plan relevant to the Group’s Corporate Responsibility activities;
• definition of the engagement plan, management and analysis of the results from the dialogue with stakeholders;
• issue and update of the Code of Ethics, in collaboration with the Internal Audit and Compliance Department;
• issue and update of the operational Regulations for the Local Committees;
• establishment and management of the Local Committees and the on-line platform Irencollabora.it;
• coordination of projects promoted by the Local Committees with the aim of their implementation;
• creation of Group customer satisfaction surveys;
• participation in working tables and initiatives on strategic integration of sustainability;
• processing of data and information for sustainability ratings.