National Grid 2014 Annual Report Download - page 24

Internal control
and risk
management
National Grid is exposed to a variety of uncertainties
that could have a material adverse effect on:
• the Company’s financial condition;
• our operational results;
• our reputation; and
• the value and liquidity of our shares.
The Board is committed to protecting and enhancing
our reputation and assets, while safeguarding
theinterests of our shareholders. It has overall
responsibility for the Company’s system of risk
management and internal control.
Below, we describe the main arrangements put
inplace so that the Board can carry out this
responsibility and so that its members can be
assured of the integrity of the Company’s risk
management and internal control systems,
financialinformation and financial controls.
Risk management approach
Our Company-wide corporate risk management
process provides a framework through which we
can consistently identify, assess, prioritise, manage
and report risks. It is designed to support delivery
ofour strategic and business objectives described
on pages 14 and 15.
The risks we identify are collated in risk registers and
are reported at functional and regional levels of the
Company. These registers include an assessment
ofhow likely it is that each risk will materialise.
They highlight the potential ‘worst case credible’
financial and reputational impact of the risk and
details of mitigation activities. The risk registers also
describe the adequacy of our existing risk controls.
The main risks for our UK and US businesses are
summarised and are reviewed, reported and
discussed regularly by our senior leadership team.
In addition, we also record the main strategic risks
for the Company which are developed through
discussions with the Executive leadership team.
These risks are reported and discussed with the
Executive Committee and Audit Committee every
sixmonths and by the Chief Executive through
quarterly performance reports.
During 2013/14 the Board reviewed the main
elements of our risk management process.
Thisincluded validating the risks included in our
corporate risk profile and consideration of how we
treat special categories of risks, such as potential
extreme catastrophic events and emerging risks
(uncertainties that are still developing). The results
ofthe Board review are being incorporated into
theongoing work of the Corporate Risk team.
Our Board also sets and monitors risk appetite
annually. We have a framework that differentiates
our appetite for risk by categories. At the annual
review meeting, the Board compares the decisions
the Company has taken to the appetite level in each
category. It then considers the appropriate appetite
levels to set for the year ahead.
Our principal risks
Accepting that it is not possible to identify,
anticipateor eliminate every risk that may arise
andthat risk is an inherent part of doing business,
our risk management process aims to provide
reasonable assurance that we understand and
manage the main uncertainties that we face in
delivering our objectives.
This includes consideration of inherent risks, which
exist because of the nature of day-to-day operations
in our industry. An overview of the key inherent
riskswe face is provided on pages 167 to 169.
Examples include:
• aspects of the work we do could potentially harm
employees, contractors, members of the public
orthe environment;
• we may suffer a major network failure or
interruption, or may not be able to carry out critical
non-network operations due to the failure of
technology supporting our business-critical
processes;
• changes in foreign currency rates, interest rates
orcommodity prices could materially impact
earnings or our financial condition;
• an inability to access capital markets at
commercially acceptable interest rates could
affect how we maintain and grow our businesses;
and
• customers and counterparties may not perform
their obligations.
22 National Grid Annual Report and Accounts 2013/14