Enterprise-Wide Risk Management
MERALCO has a robust internal control and Enterprise Risk Management (ERM) framework to monitor and manage its strategic, regulatory, operational, and financial risks that are periodically reviewed by the Board of Directors to determine its effectiveness in the light of the Company’s corporate objective and business and regulatory landscape. The Company adopted ISO 31000 as its model for ERM framework. The Enterprise Risk Management Manual was approved and adopted by the Company to provide the methodology and processes for risk management including:
- identification, assessment, evaluation and mitigation of risks or exploitation of opportunities;
- definition of management responsibilities and accountabilities; and
- escalation and reporting of company’s key enterprise risks.
The risk management strategies were shown to be effective in the light of the operational and regulatory challenges brought about by the Covid-19 pandemic. These were detailed in the Annual Report, The Board, through the Risk Management Committee, oversees the Enterprise-Wide Risk Management framework, identifies and assesses top risks and reviews the effectiveness of risk mitigation strategies and treatment plans developed by management, particularly in the Message of the Chairman of the Board and President and CEO. The Enterprise Risk Management (ERM) framework helps manage risks by influencing and collaborating with internal organizations and external stakeholders to identify best practices, controls and process improvement opportunities to address risks.
ERM initiates the annual enterprise-wide assessment of the Company’s top risks. Risk assessment is conducted to substantiate existing and emerging risks brought about by changes in regulations, market structure developments, technological/operational issues and external forces, including changes in weather patterns, customer satisfaction measures and evolving environmental sustainability issues. Top risks are quantified, and designated risk owners are asked to develop risk treatment and mitigation plans to address potential issues. The results are presented and vetted with the One MERALCO Risk Management Committee and the Risk Management Committee of the Board.
Regulatory, Political, Human Resources, Power Supply and Demand, and Fuel Price Risks are the top five (5) Key Enterprise Risks of the Company and its subsidiaries as at December 31, 2023.
Meralco Group ERM Framework
The Company adopted the following framework and structure, based on ISO 31000:2018, to effectively manage its key enterprise risks.
One Meralco ERM Principles
Meralco Group ERM echoes the key risk management principles enumerated in the ISO 31000 that Enterprise Risk Management should be:
- Contributor to the achievement of the organization’s objectives of creating and protecting value for the organization
- Integrated in all organizational processes including strategic and operational decision making
- Systematic, structured, timely, and uses best available information to be relevant
- Dynamic, iterative, and responsive to change to be able to facilitate continual improvement of the organization.
- Tailored to the organization, taking into consideration the involvement, behavior, and culture of the all stakeholders
One Meralco ERM Oversight Structure
To help ensure the successful implementation of ERM across Meralco Group, the following risk governance structure was established. This structure is designed to ensure that an integrated and independent view of the risks across the different categories is realized. Integration of risk management functions across Meralco group also allow for stronger independent advice to management and the Board and aims to facilitate well-informed decision-making.
The Board of Directors, through the Risk Management Committee (RMC), provides the oversight over the company’s risk management activities and policies that governs the management of risks.
Meralco’s Executive Management, led by its Chief Executive Officer, is the primary responsible for the implementation of risk management procedures and activities within the respective business processes. They are responsible for direction setting and strategic decision making.
The Chief Risk Officer (CRO) of the company, assisted by the Enterprise-Wide Risk Management (EWRM) office, leads the implementation of the ERM Policies and initiatives to integrate risk management practices into the strategic and operational processes of the company.
Executive Management appoints Risk Owners for each of the key enterprise risks who will be responsible for further analysis and monitoring the assigned risks. They are also responsible for selecting and implementing the appropriate risk response strategies and action plans.
Internal Audit is responsible for the conduct of independent validation of the risk management processes and activities of the company.
Meralco Group Risk Management Process
Meralco Group ERM also adopted the ISO 31000 risk management process in identifying, assessing, and treating risks. One Meralco Risk Management Process shall include the communication of the risks through risk reporting dashboards or by incorporating the risk information into the operational reports of the different business units.
Optimizing Capital and Debt Structure for Strategic Goals
In Meralco, the Board of Directors evaluates, in an annual basis, the Company's capital and debt structure to ensure alignment with its strategic goals and associated risk appetite. This thorough assessment allows the Company to maintain a balanced financial position that supports its long-term growth objectives while mitigating potential risks. Through the regular review of its capital and debt structure, the Board aims to optimize the Company’s financial resources and maintain resilience in a dynamic business environment.
Moreover, Meralco puts a premium on maintaining the value of transparency with all its stakeholders. The Board believes that open and honest communication is essential to building trust and fostering strong relationships with investors, customers, regulators, and the general public. As part of this commitment, the Board provides insights into the Company’s financial position and risk management practices in its consolidated annual and sustainability report.
This dedication to prudent financial management and transparency underscores Meralco’s unwavering commitment to responsible and sustainable business practices, ensuring that it continues to create value for all stakeholders while upholding the highest standards of corporate governance.
For more details, please refer to Note 27 - Capital Management of Meralco's 2023 Audited Consolidated Financial Results.
