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KKey sustainability issues and stakeholders’ perspective
Eni’s key sustainability issues: definition process
Eni defines and reports annually on key sustainabilty issues for the Company and stakeholders. The definition of these topics is based on a process of identification and prioritization which includes:
1 Analysis of sustainability scenario
Analysis of the context in which Eni operates, highlighting the emerging issues of sustainability, the relevant issues and the progress compared to the targets set. This scenario analysis is presented and examinated in the Sustainability and Scenarios Committee and approved by Eni’s Board of Directors.
2 Risk assessment results
Identify the main Eni’s risks including those with potential impacts on environment, health and safety, social and reputational aspects.
3 Stakeholders’ perspective
This process identifies key issues for different stakeholders designed in accordance to the international standards such as the Global Reporting Initiative, (GRI), Accountability AA1000 and the IFC guidelines “Stakeholder Engagement: A Good Practice Handbook for Companies Doing Business in Emerging Markets” which considers the potential impacts on stakeholders referring to environmental, social and governance issues (ESG).
The topics arisen from the analysis and evaluations are the basis to define Eni’s strategic sustainability Guidelines, issued by the Chief Executive Officer for all business segments. These Guidelines are deployed in the four-year strategic plan and the managerial targets are defined. These also identify key and material sustainability issues , which able the company to create value in the short, medium and long-term. These topics are represented below according to the three levers of Eni’s business model (Path to Decarbonization, Operating Model, Cooperation Model).
Eni’s business model is focused on creating long-term value, for both the company and its stakeholders, through the achievement of goals relating to profitability and growth, efficiency, operational excellence and prevention of business risks. Eni recognizes that the main challenge in the energy sector is providing access to energy resources for all efficiently and sustainably, while combating climate change.
To meet this challenge, Eni has adopted an integrated strategy to pursue its operating objectives, combining financial robustness with social and environmental sustainability, based on:
- a path to decarbonization;
- an operating model that reduces business risks as well as social and environmental impacts;
- a host country cooperation model based on long-lasting partnerships.
Accordingly, support for countries’ development in order to promote efficient and sustainable access to energy resources for all, valuing people, environmental protection, combating climate change, safeguarding health and safety, respect for human rights, ethics and transparency are fundamental values integrated within the Eni business model.
The Eni Board of Directors has always played a central role in the definition of sustainability policies and strategies, and also in the validation of relative results.
While carrying out the related duties, the Board is supported by the Sustainability and Scenarios Committee, established by the Board of Directors in 2014. The importance that Eni places on this area is demonstrated by the fact that, once again in 2017, the CEO’s variable Incentive Plan and those for all managers with strategic responsibilities include sustainability objectives.
In order to pursue these objectives, Eni has set-up organizational and management models, operating tools and cross-functional working groups for the various sustainability areas.
A strategy aiming for growth
We have transformed our company so we can face the challenges posed by the new energy environment, following a strategy based on diversifying our areas of business and increasing decarbonization.
SScenario and Strategy
The reference market and the competitive environment
Transition towards a low-carbon energy mix
Companies operating in the energy sector face with two challenges: satisfy growing energy needs, working to build a future in which everyone can access to the energy sources in an efficient and sustainable way and limit their emissions in the atmosphere, contributing to the gradual path to decarbonization, in accordance with the decision taken in COP, starting from Paris 2015.
In 2040 the world population is expected to grow from 7 million to 9 million and the energy demand will increase by approximately 30%. There will be also a geographical shift in consumption and 70% of energy demand will come from non-OECD countries, representing approximately 85% of worldwide population.
In this context, natural gas represents an opportunity for a strategic repositioning of the oil companies thanks to lower carbon intensity and the possible integration with renewable sources in the electricity production. There is a growing awareness on the needs to promote policies aimed at replace coal in electricity generation.
2017, the year of rebalancing
In 2017, after three years of oversupply, OPEC and non-OPEC cuts in production and the strong demand led to rebalancing. At the end of 2017, OECD total stocks were near to the last 5 year average volumes, in line with the OPEC target. Geopolitical crises came back to play upward. In contrast, the growth of tight oil in the USA fuelled high volatility phases: notwithstanding a growth rate lower than the ones recorded during the boom years, the short-cycle nature of tight oil and the international export of crudes from the USA are the main volatility drivers for the market. 2017 average Brent price was 54.3 $/bbl (up 10 $/bbl vs. 2016), exceeding the 65 $/bbl threshold at the end of the year.
OPEC strategy addressing 2018 scenario
Expected cuts in 2018 and subsequent market control strategy by OPEC will support in 2018, driven also by widespread geopolitical crisis, primarily in Venezuela where production levels reached thirty years ago level. Capital expenditure discipline of Capital expenditure discipline of the last two years will allow to maintain high prices, determining a gap from expected demand.
A better context in the mid-downstream industry
In Europe the rationalization process started in 2008 until the end of 2014, with margins and commodity demand recovery. In 2017, in a trading scenario characterised by high margins, there were no reductions of capacity, despite the increase in Brent price. In the next years, European refining industry is expected to continue benefitting from demand growth and the IMO impact at 2020, which would foster the profitability of complex refineries in place of simple ones subject at risk of shut-down. However, European refiners will be less penalized because of already achieved capacity reduction. In the refinery business, Europe is expected to remain a marginal refiner in a global market of high competition from operators located in the Middle East, the USA, Russia and Asia, which leverage on competitive advantages in terms of supply cost and efficiency.
The 2018-2021 industrial plan includes a gradual increase in Brent price scenario up to the balance long-term value of 72 $/bbl, in line with the market fundamentals trend.
Our deep transformation process of Eni’s business model was implemented in the 2014-2017 period. As a result of this, we have set a company strongly integrated in the oil&gas value chain, strengthened and constantly growing in the upstream business, completed the turnaround in the mid-downstream business and more focused on the robustness of the financial structure. This process has been supported by organizational initiatives aimed at a more effective integration in the different company’s function.
Operating, economic and financial goals of the 2018-2021 plan target the development and the value growth in all businesses by leveraging the high level of maturity and soundness due to the advanced actions planned, such as: production ramp-ups of the fields lately started up, progress of planned project sanction to support production start-up, renegotiation of long-term supply contracts, LNG contracted volumes, reduced break-even level of refining activities, integration and specialties growth in the chemical business as well as our path to decabornization and development of the green businesses based on a distinctive model.
Another key driver of our plan is the dissemination of digital technology to catch development, efficiency and work-safety opportunities.
The low break-even of capex in execution phase, economic, financial and technical discipline as well as the decrease in activity of environmental impacts together with the improving Eni’s portfolio integration, will allow to catch addition value and allowed the Company Eni to be more financial resilient and robust.
In the 2018-2021 period, our cash neutrality (capex and dividend) targets are improving than the previous plan; in particular, in 2018, we plan a cash neutrality at a Brent price of approximately 55 $/bbl and decline to 50 $/bbl at the end of the plan period due to a growth in all businesses and the ongoing capex discipline.
In light of the progress in all businesses and the expected growth in the next four-year plan, Eni intends to increase the cash dividend to €0.83 per share. Eni is committed to a progressive remuneration policy linked to our underlying earnings and free cash flow growth. Share buy-back remains a flexible way to return to shareholders the cash in excess of the leverage target (0.20-0.25).
Focus on decarbonization
Eni defined a path to decarbonization and implemented a clear and defined climate strategy, integrated with its own business model. lt is based on the following pillars:
- reduction of direct GHG emissions: by 2025 we target to reduce upstream direct GHG emissions by 43% compared to 2014 realizing projects to eliminate process flaring, reduce fugitive emissions of methane (by 80% vs. 2014) and energy efficiency projects; capex planned in order to reach these targets amounts to €0.6 billion in 2018-2021 at 100% and with relate only to upstream operated activities;
- “low carbon” oil&gas portfolio characterized by conventional projects developed through a phased approach and with low C02 intensity. The total break-even of the new projects in execution is below 30 $/bbl and are therefore resilient even in low cabon scenarios. Generally, Eni’s portfolio has a higher share of gas, a bridge towards a reduced emissions future;
- green business development through: (i) a growing commitment to renewable energy (approximately 1,000 MW installed power in 2021); (ii) development of the second phase of the Venice biorefinery and the completion, by the end of 2018, of the Gela biorefinery; (iii) strengthening of green chemistry, with production of bio-intermediates from vegetable oil at Porto Torres, studies and partnerships with other operators. Eni’s capex for the 2018-2021 four-year period amount to more than €1.8 billion, including R&D costs to support path to decarbonization.
- commitment to research and development (R&D), which will play a key role in achieving maximum efficiency in the decarbonization process.
We've restructured all of our businesses and we're ready to see them grow, creating value for our shareholders. Today Eni is a fully integrated oil and gas company that is aiming for greater efficiency and improved liquidity generation across all the sectors in which it works.
IIntegrated risk management
The integrated risk management (IRM) process is aimed at ensuring that management takes risk-informed decisions, with adequate consideration of actual and prospective risks1 , including medium and long-term ones, within the framework of an organic and comprehensive vision.
IRM Model also aims to strengthen the organization awareness, at any level, that suitable management and evaluation risk may impact the delivery of corporate targets and value.
Integrated Risk Management Model
(*) Including Integrated Risk Management function.
(1) Potential events that can affect Eni’s activities and whose occurance could hamper the achievement of the main corporate objectives.
Integrity and transparency are the principles that have inspired Eni in designing its corporate governance system1, a key pillar of the Company’s business model. The governance system, flanking our business strategy, is intended to support the relationship of trust between Eni and its stakeholders and to help achieve business goals, creating sustainable value for the long-term.
Eni is committed to building a corporate governance system founded on excellence in our open dialogue with the market and all stakeholders.
Ongoing, transparent communication with stakeholders is an essential tool for better understanding their needs. It is part of our efforts to ensure the effective exercise of shareholder rights.
With this in mind, recognising the need for a deeper dialogue with the market, in 2017 Eni organised a new cycle of “corporate governance roadshows” involving the Chairman of the Eni Board of Directors with the main institutional investors of Eni to present the Company’s governance system and main initiatives in the fields of sustainability and corporate social responsibility.
The initiative was much appreciated by the investors, who welcomed the open and constructive dialogue forged with the Company. In particular, the investors applauded the composition of the Board of Directors, including its diversity, the governance measures adopted and the completeness and transparency of the information provided to shareholders and the market as a whole. In addition, during the meetings the investors displayed considerable interest in developments in the governance of risks and the control system, including compliance, the associated organisational arrangements and the leading role reserved for the Board and the Chairman in the system. Additional events were held in early 2018.
(1) For more detailed information on the Eni Corporate Governance system, please see the Corporate Governance and Shareholding Structure Report, which is published on the Company’s website in the Governance section.
The Eni Corporate Governance structure
a – Member appointed from the majority list, non-executive and independent pursuant to law.
b – Member appointed from the majority list.
c – Member appointed from the majority list and independent pursuant to law and Corporate Governance Code.
d – Member appointed from the minority list and independent pursuant to law and Corporate Governance Code.
e – External member.
f – Senior Executive Vice President Legal Affairs.
g – Executive Vice President Integrated Compliance.
h – Senior Executive Vice President Internal Audit.
i– Executive Vice President Labour Law and Dispute.
* – On July 27, 2017, Eni’s Board of Directors has established an Advisory Board, chaired by Director Fabrizio Pagani and composed of leading international energy experts: Ian Bremmer, Christiana Figueres, Philip Lambert and Davide Tabarelli.
** The following are Alternate Auditors:
Stefania Bettoni - Member appointed from the majority list and independent pursuant to law and Corporate Governance Code.
Claudia Mezzabotta - Member appointed from the minority list and independent pursuant to law and Corporate Governance Code.
*** Also Senior Executive Vice President Corporate Affairs and Governance.
**** Compensation Committee until March 15, 2018.