GRI-G4  14, 2, 45, 46, 47, 58, EC2, EC7, EC8, HR9, PR1, SO5
This content was subject to assurance by SGS Italia S.p.A. (14 March 2014).

Enterprise Risk Management

Fiat Group adopted an Enterprise Risk Management (ERM) model in 2004 to provide greater transparency and disclosure of business risks as well as respond to regulatory directives requiring companies to adopt suitable corporate governance models.

Chrysler Group subsequently adopted the Fiat ERM methodology in 2012. In the first half of 2013, a review of the ERM process was launched based on a pilot project carried out at Chrysler Group. As a result of this review, the ERM process was revised to focus on making the analysis of potential risks dynamic (periodic evaluation with follow-up of the main risks and periodic monitoring of mitigating actions identified and/or implemented), predictive (prospective risk assessment), and cross-functional (risk assessment with close involvement of business areas). With this in mind, ERM Coordinators were appointed in the Sector/Region Finance functions and they are supported by one or more business unit leaders to prepare, coordinate and hold meetings with key company functions. These meetings are cross-functional and open to the various Business Unit managers to facilitate the discussion, identification and evaluation of potential risks, as well as the development and definition of risk mitigation plans.

Adapted to the specific needs of the Group from the framework established by The Committee of Sponsoring Organizations of the Treadway Commission (COSO), the model was updated in 2010 to reflect experience acquired over the years and include best practices that emerged from a comparison with other industrial firms. In particular, risk drivers were remapped into new, refined or reformulated clusters to better respond to new requirements or emphasize significant issues (climate change, macroeconomic developments, joint ventures, etc.). Some 50 risk drivers have been identified, which are further broken down into approximately 85 potential events.

This process, which is aided by a dedicated information system, is based on a bottom-up approach that, beginning with individual business units, enables generation of a summary report for each sector/region, including any containment measures to be implemented. Sector Chief Executive Officers and Chief Financial Officers/Region Chief Operating Officers are required to approve these reports, while the Group Chief Financial Officer is responsible for their coordination and consolidation into the Group Risk Report. The Group Risk Report is submitted annually to the Internal Control and Risk Committee, which assists the Fiat S.p.A. Board of Directors in verifying the adequacy and effective functioning of the Internal Control System.
The 2013 assessment revealed various types of risk related to climate change, which include risks concerning regulations, consumer preferences for eco-sustainable products, reputational impact on the community where the Group operates and increase in energy costs. As in the past, the Group has demonstrated continuous appropriate management of these risks through the most effective tools, gearing research and investments toward products with an ever-decreasing environmental impact, promoting low emission vehicles, improving sales force skills to convey the benefits of the ecological features of the Group’s vehicles to customers, adopting efficiency projects for reducing plant energy consumption and using renewable energy sources.

Certain specific risks(1) are monitored by the appropriate organizational entities. For example, risks associated with the potential impact of the Group’s industrial activities on the environment and climate are monitored and proactively managed by the Environment, Health and Safety (EHS) function for each company in accordance with the Environment pillar of World Class Manufacturing. Plant managers are responsible for the operational aspects, and their activity is coordinated centrally by the Group EHS structures.
In addition, Fiat’s Risk Management S.p.A. and Chrysler Group’s Risk and Insurance Management Department are responsible for control of pure risks (e.g., fires, explosions, natural disasters) and insurance coverage for those risks. Both organizations play a central role in the management of events that could potentially impact the continuity of operations or the integrity of physical assets (in particular, the Group’s plants).

ERM

(1) For additional information on the management of financial risks, please refer to the 2013 Fiat S.p.A. Annual Report.