Sustainability risks and opportunities

Ansaldo STS pursues Enterprise Risk Management by identifying and assessing the main business risks using a risk assessment structured activity that is discussed with senior management and the CEO. In addition to identifying and assessing risks, process risk assessment includes risk management measures, such as the preparation of adequate action plans whose implementation is monitored every quarter.

As a result of Ansaldo STS’s analysis of the risks and opportunities of the important sustainability aspects, it has been able to act in advance and effectively preserve the social and environmental value of its business.

Risk was graded as follows: low, medium and high, showing the valuation of the risks before they are dealt with: the higher the score, the greater the attention paid by the company to reduce the residual risk and, in most cases, transform it into an opportunity for growth.

Economic and governance aspects

ASPETTI ECONOMICI E DI GOVERNANCE
TRANSPARENCY AND ANTI-CORRUPTION RISK
  • Commission of crimes and especially corruption by key company personnel, also assisted by consultants and sales representatives, in markets characterised by little transparency and high corruption levels
Value
HIGH
RISK MANAGEMENT
  • Consider the risk of non-transparency and corruption in the measurement of country risk when deciding what markets to enter and work on
  • Tailored Organizational and procedural measures to prevent the commission of crimes and especially the risk of corruption
Stakeholder involved
  • Customers
  • Suppliers
  • Partners
  • Competitors
OPPORTUNITY
  • Promotion of ethical reputation internally and externally, by committing to compliance with ethical standards and existing Organizational and procedural rules
PRODUCT/PROCESS INNOVATION RISK
  • Wrong estimation of this sector’s innovation needs
  • Inadequate or late management of products’ and components’ obsolescence
Value
HIGH
RISK MANAGEMENT
  • Internal definition processes of the product portfolio and check of technological competition
  • Specific processes for effective management of obsolescence
Stakeholder involved
  • Customers
  • Human resources
OPPORTUNITY
  • Increased competitiveness arising from appropriate management of innovation needs and correct definition of priorities
  • Expected benefits on maintenance and spare parts efficient management
CUSTOMER SATISFACTION RISK
  • Inadequate management of customer satisfaction and customer complaints. A late and/or inadequate response to customers and expected satisfaction levels could compromise Ansaldo STS’ s relations with customers and worsen their interaction for ongoing projects
Value
HIGH
RISK MANAGEMENT
  • Assembly of an inter-functional customer satisfaction team
  • Monitoring and monthly reporting to senior management on the 22 most critical customer satisfaction projects
  • Customer satisfaction interviews with key customers, after issue of a presentation letter from the CEO
  • Half-yearly customer satisfaction self-assessments by the 55 main project teams
  • “After roll-out” analysis and customer feedback to improve product reliability
  • Global management of the customer satisfaction activity for senior management
Stakeholder involved
  • Customers
  • Human resources
OPPORTUNITY
  • Improved relationships with customers
  • Improved products
  • Improved customer interface for ongoing projects
  • Greater ability to exploit commercial opportunities
CHANGE IN THE MARKET AND MACRO-ECONOMIC CONTEXT RISK
  • The uncertainty of the financial and macro-economic context, the political unrest in some geographical areas, the policies to reduce public deficit, the reduction in raw material prices and the market consolidation may have a negative effect on competitiveness and performance as well as the contraction of margins on new orders
  • Increasingly complex (project financing) or less favourable/onerous contractual conditions may cause a decrease in financial performance and the contraction of margins on new orders
  • The optimisation plans launched may not be implemented as planned, may underperform or require a longer period of time
Value
HIGH
RISK MANAGEMENT
  • Market and product analysis and prompt strategy adjustment
  • NWC (Net Working Capital) and FOCF (Free Operating Cash Flow) monitored by individual project
  • Ongoing and structured monitoring of the progress of the implementation of efficiency-improvement programmes

Stakeholder involved

  • Customers
  • Suppliers
  • Partners
  • Competitors
OPPORTUNITY
  • Global market that offers significant opportunities in emerging countries and countries with the highest rate of development
  • Optimisation of the operational structure with positive effects on competitiveness and performance
COUNTRY RISK    RISK
  • The policy to penetrate new markets with the highest development rate entails the risks of political, social and economic instability, incorrect assessment of local legislation (company, tax and technical), protection of intellectual property, exchange rate fluctuations and the creditworthiness of counterparties, with a negative impact on the financial position

Value
MEDIUM

RISK MANAGEMENT
  • Country risk is assessed as part of the selection of the offers and tenders in which the group decides to participate
  • Contract management
  • Market diversification and country risk monitoring

Stakeholder involved

  • Customers
  • Suppliers
  • Partners
  • Competitors
OPPORTUNITY
  • Market share increase
DEPENDENCE ON PUBLIC CUSTOMERS AND COMPLEX LONG-TERM CONTRACTS RISK
  • Delays, changes, revisions or cancellations of one or more long-term significant orders obtained
  • Assessing long-term contracts using the percentage of completion method requires the use of estimates that could be disregarded
Value
MEDIUM
RISK MANAGEMENT
  • Structured processes for the periodic review of contract quotations and programmes
  • Adoption of risk management processes, both as part of the offer and project execution and life cycle management stages, constantly comparing physical and accounting progress

Stakeholder involved

  • Customers
  • Suppliers
  • Partners
  • Competitors
OPPORTUNITY
  • Signing of contractual variations
THIRD PARTIES (SUBCONTRACTORS, ADDITIONAL SUPPLIERS, PARTNERS) RISK
  • The non-compliance with the contractual conditions by subcontractors or additional suppliers may harm customers’ relationships and, without prejudice to possible compensation through the right of recourse against subcontractors or additional suppliers, the financial position
  • The assessment and selection of partners, subcontractors and additional suppliers, above all in new markets, may be inadequate and have a negative impact on competitiveness and performance
Value
MEDIUM
RISK MANAGEMENT
  • Right of recourse against the non-compliant related company
  • Risk management processes and request, where applicable, of specific guarantees and back-to-back conditions
  • Subcontractors’ and additional suppliers’ vetting and eligibility processes
  • Collaboration with partners already known and of proven reliability
  • Definition, signing and management of adequate contractual and grouping clauses

Stakeholder involved

  • Customers
  • Suppliers
  • Partners
OPPORTUNITY
  • Agreements with partners in new markets in order to create business opportunities
  • Framework and commercial agreements with new suppliers, specifically on a global level, in order to increase competitiveness and performance
BUSINESS EFFICIENCY AND ADEQUACY OF TECHNICAL REFERENCES RISK
  • Development and engineering activities may be carried out without a clear understanding of requirements, specifications or efficient configuration management
  • Inadequate market and product references may trigger the risk of losing business opportunities and being non-compliant when executing the project
Value
MEDIUM
RISK MANAGEMENT
  • Processes to manage requirements and configuration in order to ensure the expected quality, deadlines and efficiency levels in line with project and development management
  • Specific projects are underway to monitor the adequate application of internal processes to projects
  • During the offer stage, processes which ensure adequate interaction between engineering, which reflects customer needs, the portfolio department, which assesses the technical requirements of the market, and the development department
  • Definition and monitoring of the product development roadmap

Stakeholder involved

  • Customers
  • Suppliers
  • Partners
OPPORTUNITY
  • Opportunity to improve quality and cut costs with improved management of requirements and configuration
LIABILITY TO CUSTOMERS OR THIRD PARTIES FOR NON-COMPLIANCE OF PRODUCTS SOLD RISK
  • Late or failed provision of the products or services covered by the contract due to their potential non-compliance with the customer’s requirements
Value
MEDIUM
RISK MANAGEMENT
  • Insurance coverage
  • Careful supervision of engineering and validation processes and monitoring of the returns of the year
  • Non-compliance risks are considered in contract quotations

Stakeholder involved

  • Customers
  • Suppliers
  • Partners
OPPORTUNITY
  • Improved product reliability parameters
  • Reduced insurance costs
BUDGET PROCESSES AND PROJECT PLANNING RISK
  • Failure to comply with deadlines and costs, specifically with respect to complex projects, due to a lack of fully successful planning and control processes and weaknesses in project technical management.
Value
MEDIUM
RISK MANAGEMENT
  • Defined and monitored processes to control physical and accounting progress and risk management
  • Clear allocation of responsibilities to the project team
  • Project performance reviewed by management processes
  • Estimates are reviewed during the offer stage and independent review by the risk management function

Stakeholder involved

  • Customers
OPPORTUNITY
  • Improving project efficiency and increasing profit margins
ABILITY TO FINANCE A HIGH LEVEL OF CURRENT ACTIVITIES AND TO OBTAIN GUARANTEES RISK
  • Difficulties in obtaining adequate financial conditions for new contracts, delays and/or suspension of payments and worsening of previously agreed terms of payment
  • Reduced ability to obtain cost-effective guarantees
Value
LOW
RISK MANAGEMENT
  • Commercial and contract management policies focused on financial aspects
  • Treasury centralised management in order to optimise cash flows
  • Financial stability of the contract’s valuation model since the offer stage
  • Ongoing monitoring of working capital

Stakeholder involved

  • Customers
  • Suppliers
  • Partners
OPPORTUNITY
  • Decrease in borrowing costs
  • Improved terms of payment
  • Market expansion
  • New credit lines
INFORMATION SYSTEM MANAGEMENT RISK
  • IT solutions that do not meet business needs or the strategy or updating of said solutions not in line with users’ needs. Potential unavailability or interruption of IT services
  • Potential breach of network or data integration (including sensitive data or those subject to intellectual property rights), also as a result of external attacks
Value
MEDIUM
RISK MANAGEMENT
  • IT policies base on Organizational and process change plans
  • Governance system based on best practices and in line with structured and monitored infrastructure and application management processes, including  cybersecurity aspects

Stakeholder involved

  • Customers
  • Suppliers
OPPORTUNITY
  • Increase in communication flows

Social aspects

SOCIAL ASPECTS 
WORKERS' HEALTH AND SAFETY RISK
  • Need to define and apply a safety management model given current local regulations
  • Rise in the number of accidents and injuries
  • Need to define and guarantee specialised resources to manage health and safety aspects
Value
HIGH
RISK MANAGEMENT
  • OHSAS 18001-compliant workplace safety management systems
  • Definition of systems to supervise and monitor compliance of production with local laws
  • Select specific resources for each project
Stakeholder involved
  • Human resources
  • Suppliers
  • Partners
  • Local communities
OPPORTUNITY
  • More control over activities and smaller risk of accidents and injuries
  • Better reputation
HUMAN RESOURCES TRAINING AND DEVELOPMENT RISK
  • High technological content, project complexity and global market require human resources with specific training, which is often difficult to obtain on the market
Value
HIGH
RISK MANAGEMENT
  • Human resources management policies closely related to business needs
  • Integrated human resources management and development system which includes periodic checks of skills and performance and implements the necessary measures to develop skills and improve the allocation of resources
  • Processes and measures to identify the best talents (management and technical profiles) and prepare the related development plans.
Stakeholder involved
  • Human resources
OPPORTUNITY
  • Enhancement of resources thanks to the successful application of HR policies and processes, with a positive impact on the company’s performance
ETHICAL CONTROL OF THE SUPPLY CHAIN RISK
  • Rise in fraudulent conduct, also due to the current economic situation
  • Underestimation of our customers’ focus on sustainable purchasing and loss of competitiveness if products do not meet minimum standards requested by the market
  • Reputation risks and disruptions in the supply chain with clear negative impact on the company’s overall working and its financial performance
Value
MEDIUM
RISK MANAGEMENT
  • Suppliers’ agreement to Ansaldo STS’s code of ethics as an essential condition to signing contracts and tenders
  • Review of the “General contract terms” to ensure compliance by both Ansaldo STS and its suppliers with regulations about calls to tender and public sector tenders
  • Systematic approach to competitive sustainability to ensure customer satisfaction
  • Monitor and assess the sustainability level along the supply chain, preferring the more sustainable suppliers
  • Integrate the general supply and tender terms with sanctions clauses
  • Monitor the supply chain, including economic, environmental and social impacts throughout the entire medium to long-term value chain
Stakeholder involved
  • Suppliers
  • Local communities
  • Customers
OPPORTUNITY
  • More transparent business relations
  • Foster a “sustainable” business culture with more critical suppliers increasing their CSR standards
  • Guarantee the sustainability of SMEs through the responsible management of the supply chain
  • Cut indirect and direct costs by introducing sustainable supply chain practices
PROTECTION OF THE RELATIONS WITH LOCAL COMMUNITIES RISK
  • Technical specifications requirements that provide for a certain percentage of local supplies and labour in emerging countries where the required skills have not yet been developed or honed
  • Risk of negative economic, social and environmental impacts on local communities
Value
MEDIUM
RISK MANAGEMENT
  • Involvement of local suppliers that, if appropriately assisted, can gain the necessary skills
  • Involve international suppliers with demonstrated experience that are committed to helping local companies
  • Assessment of environmental impact and monitoring
  • Participation in local stakeholder committees
  • Assistance with the promotion of communication between the local authorities and citizens
  • Participation in programmes to develop local communities
Stakeholder involved
  • Customers
  • Local communities
  • Suppliers
  • Partners
OPPORTUNITY
  • Increase in competition in the specific area
  • Find new competitive suppliers that can also be used in other areas benefitting competition
  • Improved reputation
  • More competitive due to development of ability to manage relations with the local communities
LEGAL DISPUTES RISK
  • The complex nature of the relations with third parties, specifically with respect to international projects, and the content of the developed systems and products, as well as the risks specific to the company’s business entail a significant risk of legal disputes. The settlement of disputes may be complex and require a long time, causing delays in project  implementation and generating a negative effect on the company’s business and financial position and results of operations.
Value
MEDIUM
RISK MANAGEMENT
  • Monitoring of disputes and careful analysis of contractual provisions with the support of the legal department
  • Adoption of a prudent approach when recognising specific items under contract costs and risk provisions
Stakeholder involved
  • Customers
  • Suppliers
  • Partners
OPPORTUNITY
  • Mitigation of disputes
  • Reduction in potential delays in project implementation

Environmental aspects

ENVIRONMENTAL ASPECTS
ENVIRONMENTAL OBLIGATIONS RISK
  • Lack of compliance with applicable regulations due to inadequately monitored operating processes, specifically in relation to countries that do no follow high standards or exposed to specific risks
  • Poor assessment of the relevant obligations and of the necessary environmental procedures
Value
HIGH
RISK MANAGEMENT
  • ISO14001-certified environmental management systems for the main Ansaldo STS group companies
  • Bureaucratic requirements in new markets already assessed during the offer stage with assistance, including though external consultants
  • Common policies and procedures in order to ensure consistent conduct across group companies, while considering specific local legislation
Stakeholder involved
  • Human resources
  • Customers
  • Suppliers
  • Partners
  • Local communities
OPPORTUNITY
  • Compliance with environmental regulations and improvement in environmental impact
ENVIRONMENTAL IMPACT OF PRODUCTS RISK
  • Environmental impact of production processes, product composition, energy consumption and reduction or elimination of hazardous substances
Value
HIGH
RISK MANAGEMENT
  • Special R&D projects
  • Partnerships with suppliers to develop components that comply with high robustness, safety and environmental standards

Stakeholder involved

  • Customers
  • Suppliers
  • Partners
  • Local communities
OPPORTUNITY
  • Greater ability to compete with products and solutions that best meet new market demand
  • Better financial returns
DIRECT AND INDIRECT GREENHOUSE GAS EMISSIONS RISK
  • Possible negative effects on activities to be performed influenced by climate change
  • Risks related to changes in regulations and standards that could lead to obsolescence of part of the company’s assets
  • Little awareness and involvement of resources in these aspects
Value
MEDIUM
RISK MANAGEMENT
  • Analysis and valuation of the risk and vulnerability to climate change at international level
  • Definition of an action plan to guarantee that the improvement measures are: adopted promptly and are effective and consistent over time
Stakeholder involved
  • Human resources
  • Future generations
  • Suppliers
  • Local communities
OPPORTUNITY
  • Greater ability to manage climate change
  • Increased competitive edge: development of new products and processes with reduced GHG emissions
  • Improved reputation thanks to the company’s ability to respond effectively to any widespread public concerns
ENERGY CONSUMPTION RISK
  • Rise in energy consumption costs
  • Less able to compete
Value
MEDIUM
RISK MANAGEMENT
  • Investments to reduce consumption checking potential profitability
  • Adoption of projects designed to reduce facilities’ energy consumption and the use of renewable energy sources
Stakeholder involved
  • Human resources
  • Future generations
  • Suppliers
  • Local communities
OPPORTUNITY
  • Achieve sustainable savings increasing competitiveness
  • Better financial returns
WASTE AND WASTEWATER MANAGEMENT RISK
  • Non-compliance with regulations by the company and its suppliers for projects/activities
  • Changes in laws leading to risks of sanctions
Value
MEDIUM
RISK MANAGEMENT
  • System to monitor changes in laws at an international level
  • Adoption of projects designed to reduce facilities’ waste generation and wastewater management
Stakeholder involved
  • Human resources
  • Suppliers
  • Future generations
  • Local communities
OPPORTUNITY
  • Better financial returns
  • Better reputation