Achieving Ferrovial’s strategic and operating objectives requires effective risk management.
Ferrovial has a Risk Control and Management Policy approved by the Board of Directors that sets a general framework for action for control and management of the diverse risks the management team may encounter in working towards the business objectives, as well as the tolerance level for each risk factor.
In order to detect sufficiently in advance the risks that threaten the attainment of the business objectives, the company has a risk identification and assessment process called Ferrovial Risk Management (FRM) led by the Management Committee and implemented in all the company’s business areas under the regular supervision of the Audit and Control Committee of the Board of Directors.
This risk management process has been subject to independent verification that confirms the high degree of alignment with the good practices and principles within the 2017 COSO ERM framework, particularly aspects related to governance and culture, connection with the business strategy and operating objectives or performance.
By applying common metrics, the process can detect risk events early and assess them by their probability of occurrence and their possible impact on business objectives, including corporate reputation. In this way, Ferrovial can take more appropriate steps of management and protection according to the nature and location of the risk.
For each risk event identified, two assessments are made: one inherent, prior to specific control measures implemented to mitigate the risk, and a residual one, after implementation of specific control measures.
Ferrovial, in achieving its business objectives, is exposed to diverse risk factors that are intrinsic to the nature of the activities it carries out and to the countries in which it operates. The following risks can impact the progress of the strategy, depending on their residual assessment:
Section 5.4h of the Consolidated Financial Statements explains the impact of Brexit on key financial figures. The pound sterling appreciated against the euro in 2019 in anticipation of a negotiated exit from the single market. Interest rates have declined due to the economic slowdown as a result of uncertainty relating to the final exit agreement. This has a positive impact on derivatives that hedge the risk of lower inflation and on exchange rate hedge options that materialized during the year.
Financial risks: section 5.4 of the financial statements describes the financial risks and how they are handled.
In addition to the aforementioned risks, Ferrovial assesses and monitors emerging risks that may adversely affect the attainment of its strategic objectives and others that, in spite of their low probability of occurrence, would cause significant adverse impacts on business objectives. Among others, these include humanitarian crises, anti-globalization and protectionist political movements that reduce international investment and endanger free competition, technological disruption and/or obsolescence and the impact of technological innovation in the management of infrastructures.
Ferrovial also pursues a policy of insurance coverage in international markets so as to transfer risks of material damage in assets, and lost profits that may result from such damage. The company has civil and professional liability policies in place to cover damage the company’s activity may cause to third parties, including policies to cover liability for damage to the environment and the civil liability of directors and executives. With respect to coverage of cyber-risks, Ferrovial is negotiating the taking out of specific coverage that will be in effect in the coming weeks.
Also, Ferrovial has a Compliance Model for identifying and assessing the risk of the commission of criminal acts, and for identifying and assessing the control measures designed to mitigate such risks. This is all based on the principle of “zero tolerance” with fraud and corruption (see Integrity section).
Further, the company monitors environmental risks with a special focus on risk exposure relating to climate change, with the aim of anticipating them sufficiently in advance so as to implement programs of remediation and adaptation to the new environment. In the process, it distinguishes between physical risks; extreme climate events that may affect infrastructures and transition risks; economic effects (increase in cost of raw materials); and technology effects relating to regulatory changes designed to reduce pollutant gases (increase in taxes on fossil fuels, prices of greenhouse gas emissions, new forms of transport with an impact on projects’ business plan, etc.). The Environment section of this report outlines Ferrovial’s strategy with respect to climate change. Lastly, the increase in trade tensions between the major world economic powers – i.e., China, the US, the EU and Russia – and the protectionist measures being put in place are adversely affecting world trade, capital markets and the regulatory environment. In this setting of socio-economic uncertainty, the weight of some risks presently deemed to be of low probability or negligible may increase.