How we manage risk

Galp is exposed to risks that may have a negative impact on its operational and financial performance, reputation and market capitalisation.

The management of these risks is based on a Risk Management Model, implemented through an integrated, continuous, and dynamic process that involves the business units and Galp's corporate areas, and which is supported by the Risk Management Policy, the Risk Management Governance Model and the Internal Control Manual, approved by the Board of Directors.

Galp’s risk management governance and organisational structure follows the COSO (Committee of Sponsoring Organizations of the Treadway Commission) methodology and is structured according to the three-lines-of-defence organisational model, in cooperation with the supervisory bodies, as represented in the image below:

Galp has a governance structure, procedures and systems that enable the Company to manage the risks to which it is exposed, so that risk management is an integral part of the decision-making processes.

In addition to the main risks and opportunities inherent to Galp’s activity, we identify below the emerging risks, defined as those that (i) are not currently having a significant impact on the Company, but which are highly uncertain due to their rapid evolution, non-linearity or both; or (ii) even if they have already started to impact the Company's business, they will continue to have an impact in the long term and may materially influence Galp's business model. The way the Company addresses and mitigates them is also described.

The results are discussed in greater detail in Part II of this report - Corporate Governance Report.

Some of these risks are sensitive to climate change phenomena and low-carbon economy transition scenarios, particularly those associated with regulation, future trends in demand, commodity price fluctuations and potential increase in competition. Given the emerging nature of climate change risks in the current energy context, and in accordance with the commitments undertaken, Galp includes them in the scope of its risk analysis, together with other emerging risks. The Sustainability Committee, supported by the Risk Management Committee, is the board level committee responsible for climate related issues, being key in assisting the Board in integrating sustainability principles into the decision-making process and ensuring that the main risks and opportunities that we face are identified and continually managed.

The risk analysis and the resulting risk matrix are regularly discussed with the Executive Committee and the Risk Management Committee.

Galp has defined a methodology that allows the Company to obtain an overview of its main risks, classifying them according to their materiality, characterizing them in a comprehensive and robust manner, assessing the probability of occurrence, quantifying their potential impact (in financial results, shareholder value, business continuity, environment, reputation, quality, health and safety, and human capital dimensions) in each business unit or corporate area, integrating them, and identifying, when appropriate, effective mitigation measures.

Galp has also been working on identifying climate-related risks, considered as strategic risks for the Company. From 2021, these risks are assessed for all business units and geographies on an annual basis using scenario-based modelling. This procedure aims to assess the resilience of the Company’s strategy to different climate scenarios and integrate the most relevant associated risks in the risk management framework.

Galp’s main & emergent risks are shown below, based on their criticality in terms of “probability x impact”.