## Principle 7: Recognise and manage risk 

Recommendation 7.1 – Companies should establish risk management policies for the oversight of material business risks 

Recommendation 7.2 – Companies should establish risk management and internal control systems to manage material business risk and require management to report to the Board on the effectiveness of these systems and the effectiveness of the material business risks 

## Risk Management Policies 

nature of its operations and the regions in which it operates. These risks include: 

## Supply risk making sure that AGL can source adequate 

volumes of gas and electricity on acceptable terms to meet customer needs. This includes making sure that we have effective electricity hedging policies and procedures in place. 

## Asset operating risk 

making sure that AGL’s assets, particularly electricity generation assets, operate reliably when required. 

## Regulatory risk 

the prices AGL can charge its customers for gas and electricity are regulated in most of the markets in which AGL operates. AGL faces the risk that the regulated prices will not increase at the same rate as the costs of acquiring energy to meet customer needs. 

## Compliance risk 

AGL operates in a heavily regulated industry. 

## Energy policy risk 

as an energy company, government policies on carbon emissions will affect AGL and its customers. 

## Financial risks 

making sure that AGL has the right capital structure to provide the financial capacity to implement its strategy. 

AGL systematically examines all operational and financial activities to identify major risk exposures using an enterprise-wide risk program based on ISO31000, the international standard on risk management. This program is supported by AGL’s Risk Management Policy. 

AGL has a number of other policies that directly or indirectly serve to reduce and/or manage risk. These include, but are not limited to: 

> Compliance Policy; 

> Market Disclosure Policy; 

> Code of Conduct; 

> Delegations of Authority Manual; 

> Health, Safety and Environment Policy; 

> Wholesale Energy Risk Management Policy; 

> Treasury Policy; and 

> Privacy Policy. 

## Roles and responsibilities 

The Risk Management Policy, and the other policies listed above, describe the roles and responsibilities for managing risk. This includes, as appropriate, details of responsibilities allocated to the Board or to the Audit and Risk Management Committee (Committee), Executives, the business units and AGL’s Group Audit function. 

## Board 

The Board is responsible for reviewing and approving changes to the Risk Management Policy and for satisfying itself that AGL has a sound system of risk management and internal control that is operating effectively. The Committee assists the Board in carrying out these responsibilities. Details of the operation of the Committee are included in the commentary on Principle 4. 

## Committee 

The Committee oversees the detailed analysis of the effectiveness of the system of risk management and internal control. The Committee receives an annual presentation of AGL’s material business risks and the controls in place to mitigate the consequences of those risks. The Committee also receives regular presentations from management throughout the year on specific risk topics. 

The Committee has responsibility for approving the audit plan submitted annually by Group Audit. The audit plan is based on an assessment of AGL’s main risk exposures. 

## Executive Team 

The CEO has primary responsibility for designing, implementing and reporting on AGL’s risk management framework. The Executive Team collectively has responsibility for promoting a risk management culture throughout AGL, including consistent application of the Risk Management Policy across AGL. 

## Business units 

AGL’s business units are responsible for maintaining effective internal controls, consistently applying the risk management framework, and reporting new or changed risk events. 

## Group Risk 

Group Risk is responsible for supporting the businesses to identify and implement effective risk management processes, for reporting details of material business risks and risk controls to the Committee, and for recommending changes to the Risk Management Policy. 

## Group Audit 

Group Audit provides assurance to the Committee on the effectiveness of AGL’s risk management framework and on the adequacy and effectiveness of the system of internal controls. 

## Recommendation 7.3 – CEO and CFO assurance on financial reporting risks 

The CEO and the CFO have provided the Board with written assurances that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. 

## Principle 8: Remunerate fairly and responsibly 

Recommendation 8.1 – The Board should establish a remuneration committee 

Recommendation 8.2 – The remuneration committee should be structured appropriately 

The Board has established a People and Performance Committee (equivalent to a remuneration committee) comprising three non-executive and independent Directors. Max Ould (Chairman) and Belinda Hutchinson were members throughout the year. In March 2012, John Stanhope replaced Sandra McPhee as a Committee member. 

