Managing SSE's Risks
SSE plc Group Risk Report 22/23
Contents
01 SSE at a glance
03 Risk-informed decision making Managing SSE's Risks
05 Risk Management Framework
07 Group Principal Risks
- Risk Appetite Statement
- Viability Statement
SSE at a glance | ||||||||||||||||||||
Together, as a Group, SSE's businesses are | Financial highlights | Non-financial | ||||||||||||||||||
Group operating profit/loss | Profit/loss before tax | Earnings/Losses Per Share | Safety (TRIR) per 100,000 | |||||||||||||||||
well positioned to capture the substantial | highlights | |||||||||||||||||||
In the face of exceptional | £2,529.2m | £2,183.6m | 166.0p | hours worked | ||||||||||||||||
growth opportunities generated by driving | macro-economic conditions, | The Total Recordable | 0.19 | |||||||||||||||||
SSE saw strong financial | Adjusted | Adjusted | Adjusted | Injury Rate safety measure | ||||||||||||||||
and accelerating the net zero agenda | performance in 2022/23 thanks | |||||||||||||||||||
£(146.3)m | £(205.6)m | (14.7)p | increased in the year due | |||||||||||||||||
through electricity infrastructure. | solid operational delivery and | |||||||||||||||||||
to its resilient business model, | a rise in contractor hours | Economic contribution | ||||||||||||||||||
good progress on its strategy. | Reported | Reported | Reported | worked on construction. | UK/ROI | |||||||||||||||
SSE continues to make a | £6.04bn/ | |||||||||||||||||||
was o'set in the year by | Dividend | Adjusted investment and capex | ||||||||||||||||||
Below-plan renewables output | significant contribution to | |||||||||||||||||||
gas storage assets which | 96.7p | £2,803.3m | the economies it operates in | €429m | ||||||||||||||||
thermal, flexible hydro and | as it delivers on its ambitious | |||||||||||||||||||
were rewarded for providing | (after refunds, including | investment programme. | ||||||||||||||||||
timely system backup. | acquisitions) | |||||||||||||||||||
Market | Economically | Balance between market-exposed and | ||||||||||||||||||
based | regulated | stable, economically-regulated earnings. | ||||||||||||||||||
SSE Renewables | SSE Thermal | SSEN Transmission | SSEN Distribution | Energy Customer Solutions | |||||||||||||||||
Onshore and o•shore wind; flexible, run-of-river | Gas-fired power stations; hydrogen | Connecting power generation | Powering 3.9m homes | Providing access to green energy for | |||||||||||||||||
and pumped storage hydro; solar and battery. | carbon capture and storage; gas storage. | to urban areas of demand. | and businesses. | households and businesses. | |||||||||||||||||
Operating profit | Operating profit | Operating profit | Operating profit | SSE Airtricity operating profit | |||||||||||||||||
£580.0m | £1,031.9m | £372.7m | £382.4m | £5.6m | |||||||||||||||||
Adjusted | Adjusted | Adjusted | Adjusted | Adjusted | |||||||||||||||||
£446.3m | £1,089.5m | £405.5m | £382.4m | £5.2m | |||||||||||||||||
Reported | Reported | Reported | Reported | Reported | |||||||||||||||||
Operating profit contribution to Group | Operating profit contribution to Group | Operating profit contribution | Operating profit contribution | SSE Business Energy operating profit | |||||||||||||||||
23% | 41% | to Group | to Group | £17.9m | |||||||||||||||||
15% | 15% | ||||||||||||||||||||
Adjusted | |||||||||||||||||||||
Proportion of Group capex | Proportion of Group capex | ||||||||||||||||||||
£17.9m | |||||||||||||||||||||
48% | 10% | Proportion of Group capex | Proportion of Group capex | ||||||||||||||||||
18% | 19% | Reported | |||||||||||||||||||
SSE Distributed Energy | |
inc Solar and Battery* | |
Operating profit/loss | |
Balance between renewables and thermal output/earnings provides | £(27.4)m |
Adjusted | |
a natural hedge against market volatility and weather variability. | £33.5m |
Reported |
Energy Portfolio Management | * From April 2023 the Solar and Battery business is part of | |
Operating profit/loss | SSE Renewables. | |
Procuring the fuel required for, and trading the power | ||
£80.4m | (£2,626.0) | |
output from, SSE's generation assets, as well as trading | ||
on behalf of its supply businesses. | Adjusted | Reported |
1SSE PLC Group risk report 2022/23
2
Risk-informed decision making Managing SSE's Risks
The execution of SSE's strategy and the creation of value from the opportunities arising from net zero are dependent on the e•ective identification, understanding and mitigation of the Group's Principal Risks.
Throughout 2022/23 SSE has met and managed unprecedented challenge in the markets in which it operates. As highlighted in the Chair's Statement on pages 4 and 5 of the Strategic Report of the Annual Report and Accounts, issues such as safety programmes, a•ordability, sectoral risks (such as extremely volatile commodity
prices and inflationary pressures), extreme weather and climate change have featured heavily in strategic risk discussions.
While managing these external challenges, SSE has continued to make substantial progress on the execution and delivery of it's Net Zero Acceleration Programme (NZAP), with in excess of £2.8bn of capital investment including acquisitions delivered during the course of the year. Supporting
concerns, formed the basis of the full review of SSE's Principal Risks that took place during the financial year.
SSE's risk management process is comprised of four main stages summarised in the diagram below. Continued maturity and refinement of our risk management framework ensures that it remains aligned with SSE's strategy and this year included the review and redrafting of the Group Risk Management Policy which is available to view on sse.com.
SSE's sector review on pages 12 to 15 of the Strategic Report of the Annual Report and Accounts provides more detail on the range
of external factors that influenced the risk exposures to the Group over the course of
trends in the energy market, including those relating to climate change, technological developments and government policy and aims to do so in a way that reflects the expectations of SSE's key stakeholder groups.
These material influencing factors also have an impact on the nature and extent of risks the Board is willing to take to meet these objectives, and related mitigation strategies adopted by the Group. Material changes in the nature, proximity and potential impacts of SSE's Group Principal Risks are regularly assessed by the oversight committees and the Business Unit executive committees with appropriate mitigations implemented where necessary.
Overseeing risk
System of Internal Control
The elements that make up the System of Internal Control are:
a just transition through continuing to create options for investment and growth by boosting energy security, supporting communities and creating green jobs, coupled with its balanced mix of businesses, uniquely positions SSE for the transition to net zero and resilience against volatility. These factors along with the ongoing geopolitical crisis in Ukraine having a significant impact on energy a•ordability and security of supply
the year.
Board considerations E•ective identification, understanding and mitigation of Principal Risks underpins the Board's approach to setting strategic objectives for SSE and informing strategic decision making (please see page 124 of the Directors Report of the Annual Report and Accounts for SSE's decision making context). The Board aims to consider all material influencing factors and key external
The Group Executive Committee and its subcommittees (as detailed on page 122 of
the Directors Report of the Annual Report and Accounts) have responsibility for
overseeing SSE's Principal Risks. During the third quarter of SSE's financial year, an assessment of each Principal Risk is completed by the assigned oversight committee. This assessment requires committee members to provide commentary on contextual changes to the risks, consider whether over the course of the year the risks have become more or less material based on impact and likelihood
• Governance Framework. esigned to | ||
ensure focus on the key components | ||
o | ctive decision | |
ma | ility, | |
transparency and eciency. For further | ||
de | of the | |
i | nn | |
and Accounts. | ||
• Strategic Framework. his includes | ||
SS | Goals and | |
alues, as well as the focus of its | ||
usiness model and forms the | s for |
For further details please
of the Annual eport and Accounts.
• Risk Management Framework. This |
framework supports each Business Unit |
in managing its risks and helps to ensure |
that the Board can meet its obligations. |
The framework is underpinned by the |
fundamental principle that everyone at |
SSE is responsible for the management |
of risk. |
activity that is independent of the day- to-day operations of the Business Units and corporate functions. It is made up of Internal Audit, Group Compliance, Large Capital Projects Services and Group Safety, Health and Environment
- Standards and Quality Framework. Sets out the expected standards and guidelines to be followed in the delivery of the Group's core purpose.
Principal Risk assessment processes
and to confirm e•ective mitigations are in place for controlling risks. Consideration is also given to emerging risks and whether any of those identified have the potential to become a Principal Risk to the business in the medium to long-term.
al |
Framework. |
• Assurance Framework. An integrated |
programme of audit and assurance |
Individual risk
reviews
Outputs: | |||
Actions | Committee | ||
and risk | Risk | Risk | |
self-assessments | |||
disclosures | |||
monitoring | identification | ||
Risk | Risk | ||
response | assessment |
Board | Executive |
Committee | |
assessment | |
assessment | |
3SSE PLC Group risk report 2022/23
These responses are then consolidated into reports, one for each Principal Risk, which are presented back to the committees along with the results of provisional viability testing and analysis of relevant, current management information and key information relating to Business Unit Principal Risks and controls. These reports form the basis for the committees to discuss and confirm the risk trend (more, less or equally material), overall e•ectiveness of the risk control and monitoring environment, and whether any additional control improvement actions are required. This is an inclusive and iterative process that results in considered and objective outputs and a robust assessment of the Principal Risks. The outputs from these committee assessments are then presented to the Group Executive Committee for full review.
Governance | Strategic | Risk Management | Assurance | Standards and |
Framework | Framework | Framework | Framework | Quality Framework |
Group Risk Management | ||||
and Internal Control Policy | External Audit | |||
Board and | Review of the | Group Policies | ||
Board Committees | Internal Audit | |||
Eectiveness of the | ||||
System of | ||||
Internal Control | ||||
Strategic | ||||
Objectives | ||||
Principal Risk | Group Compliance | |||
Self-Assessment | ||||
Group Executive | Financial | Group Safety, Health | ||
Committee and | Risk Appetite Statement | Governance | ||
Objective | and Environment | |||
Executive sub- | Viability Assessment | Manuals | ||
Committees | Large Capital | |||
Sustainability | Key Risk Indicators | Projects Services | ||
Goals | ||||
Business Unit Executive | Business Unit Principal Risk | |||
Self-Assessment | Business | Business Unit, Policies, | ||
Committees and | ||||
Procedures, Processes | ||||
Corporate Support | Assurance Evaluation | Assurance | ||
and Systems | ||||
Functions | ||||
Risk Blueprint | ||||
4
Risk Management
Framework
Within SSE, we apply the fundamental principle that everyone who works for us is responsible for the management of risk.
Group Risk Management Policy:
The policy sets out the minimum standards, roles and responsibilities and provides clear principles which guide the risk management culture within SSE. These include:
- That everyone at SSE is responsible for the management of risk. All employees must understand and manage all risks that threaten the achievement of objectives or compromise the SSE SET of values which, in turn, help define our corporate culture.
- All decisions must be made with full consideration of the risks involved. This principle is reflected in SSE's Risk Appetite Statement and underpins our disciplined approach to decision-making.
- The Board of Directors is accountable to SSE's customers, investors, employees and other key stakeholders, and has ultimate responsibility for the effectiveness of SSE's management of risk.
Review of the Effectiveness of the System of Internal Control:
The Board is required to carry out a review of the System of Internal Control each year in accordance with the UK Corporate Governance Code ("the Code"). The Board has delegated responsibility for reviewing the System of Internal control to the Audit Committee. This covers
all material controls including financial and compliance controls, in addition to the financial reporting process.
To assist the Committee's review of the System of Internal Control, the different elements are evaluated by relevant key stakeholders. These evaluations are assessed by the Finance Director and a letter is provided to the Audit Committee summarising the work conducted in the year to improve the control environment and making a recommendation on the overall effectiveness of the System of Internal Control.
Principal Risk Self Assessment
SSE's Group Executive Committee and relevant subcommittees are assigned oversight of each of SSE's Principal Risks, and a full review of these is carried out each year which includes the effectiveness and appropriateness of all relevant controls, detailed analysis relating to monitoring information and comprehensive scenario impact analysis. The deemed change in materiality of each risk is also included within these assessments.
The outputs from these committee assessments are then presented to the Group Executive Committee for full review, with any emerging risks or additional material changes resulting from this being proposed to the Board for approval.
Risk Appetite Statement
As required by the Code, SSE's Risk Appetite Statement, as defined by the Board, sets out clearly the nature and extent of risk that the Group is willing to take in order to achieve its strategic objectives, and key decision-making is aligned with this Statement.
Viability Assessment
Provision 31 of the Code requires Directors to make an annual statement of the longer term viability of the Group. To help support this Statement, over the course of the year a suite of severe but plausible scenarios has been developed for each of SSE's Principal Risks. These scenarios are based on relevant real life events that have been observed either in the markets within which the Group operates or related markets globally. Examples include critical asset failure to generation assets (for Energy Infrastructure Failure); changes to key government energy policies (for Political and Regulatory Change); and the physical impacts of climate change on distribution assets through more frequent and increasingly severe storm events (for Climate Change).
Key Risk Indicators
As part of the ongoing assessment of the Group's Principal Risks, Key Risk Indicators (KRIs) are reported to SSE's various oversight committees on a regular basis. These provide high level insight into key risk factors which are likely to influence SSE's exposure to these risks.
Business Unit Risk Approach
The Group Risk Management Policy allows flexibility for the Managing Directors of SSE's Business Units to tailor operational risk management to the specific requirements of their business areas while meeting the minimum standards required.
Assurance Evaluations
The Assurance evaluations are undertaken annually by the Managing Directors of each of SSE's seven Business Units. These assurance evaluations consider each framework of the system of internal control form a Business Unit perspective and include any planned improvements to enhance controls. These improvements are tracked, with updates reported to the executive-level Group Risk Committee on a regular basis.
Risk Blueprint
SSE Risk Blueprint is a best practice guide to risk management that is available to anyone who requires it within the Group. The Blueprint is reviewed on an annual basis in line with the review of the Group Risk Management and Internal Control Policy.
In addition, when undertaking the review of the effectiveness of the System of Internal Control, the Committee considers the assurance evaluations undertaken annually by the Managing Directors of each of SSE's seven Business Units.
Scenarios are stress tested against forecast available financial headroom and in addition to considering these in isolation, the Directors also consider the cumulative impact of different combinations of scenarios, including those that individually have the highest impact.
Risk Management
Framework
Governance | Strategic | Assurance | Standards and | |
Framework | Framework | Framework | Quality Framework | |
Group Risk Management | ||||
and Internal Control Policy | ||||
Review of the | ||||
Board and | Eectiveness of the | External Audit | Group Policies | |
Board Committees | System of | Internal Audit | ||
Internal Control | ||||
Strategic | ||||
Objectives | ||||
Principal Risk | Group Compliance | |||
Group Executive | Financial | Self-Assessment | Group Safety, Health | |
Committee and | Governance | |||
Objective | Risk Appetite Statement | and Environment | ||
Executive sub- | Manuals | |||
Committees | Viability Assessment | Large Capital | ||
Sustainability | Projects Services | |||
Goals | Key Risk Indicators | |||
Business Unit Executive | Business | Business Unit, Policies, | ||
Committees and | ||||
Business Unit Principal Risk | Procedures, Processes | |||
Corporate Support | Assurance | |||
and Systems | ||||
Functions | Self-Assessment | |||
Assurance Evaluation | ||||
Risk Blueprint |
5SSE PLC Group risk report 2022/23
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SSE plc published this content on 15 June 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 16 June 2023 12:09:01 UTC.