Risk Analysis

sustainable procurement

Risk Management in the Supply Chain

The EDP Group procurement activity decisively contributes to ensure the recognition of EDP as a leader in sustainability, through the high ethical standards and environmental, social and economic responsibility of its practices, with the ongoing objective to increase productivity and develop competitive advantages.
The procurement activity promotes a low-risk and maximum efficiency business profile from a long-term perspective, and it is one of the pillars of the EDP 2014-2017 Strategic Agenda. Risk Management also complies with the Corporate Policy of Business Risk Management.

Approach to Risk Management

The goal of risk mitigation and maximum efficiency determines that the organizational model of the GPU is operated according to procurement categories and the decision making process obeys a strict procedural protocol. The risk mitigation goals can be viewed in the following diagram:

Contract Risk

The risk analysis begins by identifying the specific risks of the type of good or activity intended to be sourced. These risks may be technical, economic, reputational, environmental and social in nature and will define the requirements to be included in the specifications.

The EDP Group uses two main instruments to map the specific sustainability risks of each type of good or activity:

  • Economic Activity Risk – European Bank for Reconstruction and Development - list of environmental and social risks associated with each economic activity organized according to the European Union’s activity classification system NACE 2.0, revision 2014.

  • Impact Matrix – Matrix of risks that identifies potential negative impacts on EDP that should be mitigated by the specifications.

Supplier Risk

Companies invited to submit supply bids are selected according to the level of requirement of the specifications. The companies must be registered with EDP and, depending on the nature of the contract, may need to be qualified.

Greater value is placed on the following aspects, among others:

  • Risk analysis of the suppliers to be consulted;
  • Supplier assessment;
  • Results of audits conducted;
  • Information on Corporate Social Responsibility;
  • Experience / results of similar contracts with other entities;
  • Absence of litigation and / or debts to the EDP Group.

The EDP Group uses two main instruments to ensure the mitigation of risks in the selection of suppliers:

  • Supplier Assessment – based on the Supplier Registration System that includes a self-statement system of each company, the results of external assessments and assessments carried out by EDP. This system generates a risk and sustainability rating for each company. The following sources of external information, among others, are used: Dun & Bradstreet, RepRisk.

  • Supplier qualification and the good or service to be supplied – supplier qualification is the process of approval of suppliers with the skills for the supply of a particular category of goods or services in a context of greater technical, environmental, social and economic-financial requirements. Risk mitigation is pre-guaranteed in this way.

Country Risk

The country risk influences the risk assessment of the contracts and suppliers and has an impact on the procurement decision process. GPU uses Business Intelligence methods to access several credible external sources to develop an ongoing and sustained process of risk analysis. EDP favors the atypical crossing of risk information that complements conventional rankings. Two external sources for risk analysis are:

  • RobecoSam – this entity develops the Country Sustainability Ranking for the purpose of providing a new level of information to support investors' decisions in sovereign bonds. EDP uses this source to generate an inverse map of country risk and identify analysis subtopics.
  • RepRisk – this entity continuously monitors news for any negative economic, social and environmental impact and allows a country risk vision to be obtained related to business activities, covering the Global Compact topics. EDP uses RepRisk for both the risk assessment of companies and to assess country risk. RepRisk establishes a contrasting, up-to-date and very detailed view compared with the conventional rankings.