Risk management

Risk management strategy and sustainability

Since ESG strategy is integral to the Company’s overall strategy, we had elected to combine sustainability with risk and strategy in one single function, led by the Chief Risk, Strategy and Sustainability Officer, a senior C-level executive with a seat on the Management Committee. Following the year end, in July 2023, we restructured this in order to split risk and sustainability and will report further on this in due course.

One of our core objectives is to optimise how we manage risk. We are committed to responsible growth and sustainability through effective, disciplined and proactive risk management.

At ACWA Power, ERM has always been a core and primary business function to proactively identify, assess, and mitigate risks across our business lines. Strategic environmental, operational, legal and compliance, IT/ OT/Digital, and financial risks to our businesses, are key elements of our risk management framework, and climate-related risks and their potential impact on our business including disclosure to the investment community are also set to be a part of it.

Risk and opportunity management

ACWA Power operates in a fast-changing and highly competitive environment that can give rise to a host of risks across its value chain, which could have a materially adverse effect on its business, financial position, operations and reputation. We recognise that the identification and management of these risks is central to achieving our strategic business and ESG objectives.

Risks are proactively identified and managed at each level of the organisation (from project companies up to corporate functions) with the appropriate level of granularity. They are reported on a regular basis to the appropriate management levels and the board’s Risk Management Committee and the board.

Risk and opportunity oversight

The Board Risk Management Committee (BRC) assists the board in executing its fiduciary responsibility for overseeing and reviewing the identification and evaluation by management of the Company’s principal strategic, financial, operational, business and compliance risks. These include the Company’s risk management framework and the policies, procedures and practices employed to manage risks.

This committee supports the board in monitoring our risk environment and provides direction for any activities that will mitigate any risk that could adversely affect the Company’s ability to achieve its goals.

Risk culture

We provide risk training for all involved stakeholders, such as risk owners, risk champions and the leadership team. We conduct quarterly risk reviews across the group, from project companies, plant managers and corporate functions. We assess all the identified risks in terms of their strategic, financial, business operations, legal and compliance, HSSE, digital, and reputational impacts.

Risk appetite

To ensure a confident response to risks, effective risk management should support informed decision-making in line with a defined risk appetite, reflecting the type and amount of risk that the Company is willing to accept to achieve its business objectives. ACWA Power’s risk appetite is modelled on objectives, including ESG considerations, outlined in a Risk Appetite Statement, providing a framework which enables us to make informed management decisions. The Risk Appetite Statement considers and requires compliance with all company-wide guidelines on strategic, financial and non-financial risk categories, approved by the board.

Any non-compliance with these guidelines is considered a breach of the Risk Appetite level and needs board approval. Any deviation from the principles and limits defined in the Risk Appetite Statement will be reported to, and require the approval of, the board.

ESG risk management framework

Our board recognises that effective risk management is critical to meet our business objectives and accordingly risk management is embedded and integrated in all business activities and processes of our business units.

The board has established the control environment, approved the risk appetite statement, risk management policy, and delegated oversight responsibilities under the (ERM) framework to the board’s Risk Management Committee.

The group’s comprehensive, state-of-the-art approach to risk management follows the principles and methodology of the ISO 31000 guidance standard, depicted in the summary chart below:

Most of the group’s managed risks are related to the different phases of its business model of developing, investing in, operating and optimising the power generation, water desalination and green hydrogen production assets, encompassing a full life cycle of such assets.

The group promotes a strong culture of risk management, combined with an approved risk framework that effectively supports appropriate risk awareness, behaviours, and risk-based decision-making. In accordance with the group’s risk management framework, we have developed specific responsibilities, tools and guidance, and systematically assess, mitigate, and monitor risks at corporate level and during the development, construction, and operation phase of projects to manage all relevant identifiable risks effectively.

The ACWA Power risk universe, shown above, identifies internal and external risks that are categorised into four main risk areas (operational, strategic, financial and political/regulatory). The trend of each risk is marked by an arrow to denote increasing, decreasing or stable risk.

Integration of climate risks in our risk approach

In addition to the environmental, operational and financial risks to our businesses, climate-related risks are increasingly set to become a core element of our risk management framework. Other categories include strategic, HSS, IT/cybersecurity/digital and reputational risks.

Global warming affects our environment with changes in average air temperature, increase in sea levels, inconsistent rainfall patterns, droughts and increased frequency of extreme weather events. We are factoring these environmental threats into our risk assessments so that we can manage the potential adverse changes in the operating conditions of our assets as well as lives of our people in our locations.

We believe in ensuring transparency around climate-related risks and opportunities and are working towards integrating the voluntary recommendations of the Financial Stability Board (FSB) Task Force on Climate-related Financial Disclosures (TCFD).

Physical climate risks

In 2022 we established a bespoke methodology and approach to develop climate threats/opportunities matrix and identify climate change risk exposure. This entails structured conversations with key business teams across business units before climate risk reporting becomes an obligation, which is likely to come soon across several countries. When the Company has a climate risk framework in place, we may start mapping it to any future requirements such as TCFD. This means the Company will be ready when these requirements become obligatory.