NNPC Limited Risk Strategy & Appetite PDF

NNPC Limited ERM Processes and Procedures 2.0 Risk Strategy & Appetite 2.1 Introduction NNPC Limited’s strategy for managing risk is to establish and sustain a robust ERM model that is proactive and embedded in all processes to ensure that responses to risks are effective and dynamic. The model wi...

NNPC Limited ERM Processes and Procedures 2.0 Risk Strategy & Appetite 2.1 Introduction NNPC Limited’s strategy for managing risk is to establish and sustain a robust ERM model that is proactive and embedded in all processes to ensure that responses to risks are effective and dynamic. The model will help structure and coordinate all risk management activities within NNPC Limited and ensure risks are managed within the risk appetite. Risk Appetite Risk appetite is the amount of risk NNPC Limited is willing to accept in order to be in alignment with its strategic objectives. The risk appetite would serve as:  A guide to determine how much risk is acceptable;  A benchmark for key risk indicators; and  A guide during the strategy and goal setting process. A risk averse Company will set conservative goals while a high-risk appetite company will set aggressive goals. The nature of NNPC Limited’s business, the risks inherent in it, the business objectives and strategies will guide the determination of its risk appetite. 2.2 Objectives The key objectives of risk management within NNPC Limited is to develop and implement effective strategies that will: a) Reduce operational surprises and losses; b) Integrate risk management into the decision-making process; Page 11 of 347 NNPC Limited ERM Processes and Procedures c) Develop a risk culture that encourages staff to identify risks and associated opportunities and to respond to them with cost effective actions; d) Enable the Board and Senior Management team confidently make informed decisions; and e) Improve stakeholders' confidence and trust. 2.3 Policies Policies S/N 1. Description ERM shall be an integral part of strategic and operational planning, performance management and governance across the Company. Consequently, we shall perform a detailed identification and assessment of risks as well as proposed mitigating action plans when we develop our strategies and annual plans. 2. NNPC Limited shall adopt a top-down approach to defining the Company’s risk appetite, by ensuring that its risk appetite will cascade from the Board. 3. The risk appetite shall be described using qualitative and quantitative measures and shall always be set at a level that minimizes erosion of earnings or losses from frauds and operational inefficiencies. Page 12 of 347 NNPC Limited ERM Processes and Procedures Policies S/N 4. Description Annually, we shall define acceptable limits of risks the Company is willing to accept to enable it meet its strategic, operational, reporting and compliance objectives. 5. It shall be the responsibility of the Head of Risk Management to develop and review the risk appetite statements, in consultation with Senior Management Committee. The Senior Management Team shall endorse it and the Board shall approve through the BAC. 6. Once the entity-wide risk appetite has been formulated and approved by the Board, the risk appetite for each Subsidiary shall be determined and derived from it, during their annual strategy/goal setting processes. 7. The following parameters can be considered when determining the risk appetite for NNPC Limited and its subsidiaries: a) Risk-return profile: Will we rather pursue a high-risk/highreturn businesses or a more conservative predictable business? b) Budget: How much of our budget can we subject to potential loss? c) Oil price: How much oil price volatility are we able to withstand? Page 13 of 347 NNPC Limited ERM Processes and Procedures Policies S/N Description d) Safety: What is our willingness to experience operational hazards? e) Community: To what extent do we want to limit business shutdown arising from community issues.? f) Operational downtime: To what extent can we tolerate operational losses? g) Are there specific risks we are not willing to accept? 8. It is the responsibility of the Company’s Senior Management Team to communicate NNPC Limited’s risk appetite to all staff within NNPC Limited, its Subsidiaries and key stakeholders (as deemed necessary). However, the ERM Function primary responsibility for ensuring such shall have information is communicated and that staff are aware of the Company’s risk appetite. The Function shall also ensure risks are mitigated with consideration for the Company’s risk appetite. 9. Definition of the risk appetite NNPC Limited would state its risk appetite based on the following broad corporate objectives: • Strategic objectives • Operational objectives • Compliance objectives • Reporting objectives Page 14 of 347 NNPC Limited ERM Processes and Procedures Policies S/N 10. Description Re-evaluation of the risk appetite NNPC Limited’s risk appetite will need to be re-evaluated: a) As part of Its strategy planning cycle and goal-setting process; b) When significant changes are made to NNPC Limited’s organisational structure; c) When changes are made to Its overall strategy and goals; and d) When there are changes in the expectations and risk preferences of key stakeholders. The following considerations shall be made in the course of the review:  Changes to the Company’s strategic objectives and risk preferences  Changes in prevailing market realities and economic conditions  The output shall be the revised risk appetite statements and key risk indicators. 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