This policy describes Encana's risk management principles and expectations applicable to all types of risk in all activities undertaken by or on behalf of Encana. It also outlines roles and responsibilities for the Board of Directors, the President & Chief Executive Officer, the Chief Risk Officer, the Divisional Presidents and Executive Vice-Presidents of Corporate Groups, and all staff. Definitions of significant terms in this Policy are outlined in the Encana Risk Glossary.
Risk is often defined as the chance of something happening, measured in terms of probability and impact. At Encana, a principal risk is defined as the chance of something happening, measured in terms of probability and impact, that may adversely affect the achievement of Encana's strategic or major business objectives.
Risk management is a structured and disciplined approach to assessing and managing the uncertainties that Encana faces as it creates value and preserves value.
Encana believes risk taking is a necessary and accepted part of our business. Effectively managing risk is a competitive necessity and an integral part of creating shareholder value through good business practices designed to ensure that Encana achieves its strategic, business and governance objectives, and protects its corporate reputation, values and integrity. In the context of realizing strategic objectives, some amount of failure is an accepted outcome of risk taking as long as risks have been properly assessed and managed.
Encana acknowledges that all activity has an element of risk and that not all risks can or should be transferred. Encana is committed to managing risks including strategic risks, at all levels in the organization and summarizes these risks into three broad categories: operational risk; financial risk; and safety, environmental and regulatory risk. Since many risks can impact our reputation, all risks must be evaluated in terms of the potential impact on our reputation.
Encana does not engage in speculative activity which is defined as a profit-seeking activity unrelated to Encana's primary business.
Risk management applies to and will be practiced in accordance with Article II, Encana's Risk Management Principles as a part of all of Encana's activities including developing strategic plans, preparing operational plans and capital budgets, completing detailed project approval requests, designing and managing project plans, operating Encana's facilities and plants, as a part of other management systems and generally, in all decision making processes.
Encana's overall risk appetite and risk tolerance will be determined by the President & Chief Executive Officer in conjunction with the Senior Management and reported on by the Chief Risk Officer to the Board of Directors.
Risk will be evaluated, managed and documented consistent with guidelines, tools and framework advocated by this Corporate Risk Management Policy and other Encana risk management policies, guidelines or practices such as the Market Risk Mitigation Policy.
In all cases, risk will be evaluated in terms of the impact on the following areas: people, environment, assets, financial/business objectives, and reputation. The risk will be assigned a probability of occurrence, with a resulting risk level ranging from low to extreme.
Risks identified as extreme, high, or medium will require implementation of a risk transfer, reduction, elimination, or exploitation strategy to reduce the residual risk level to as low as reasonably practicable. Risks identified as extreme or high with an impact above a specified threshold will be reported to the President & Chief Executive Officer or appropriate Divisional President or Executive Vice-President of Corporate Groups, and the Chief Risk Officer.
The Encana Risk Matrix is a tool that may be used to assess, measure and report risks. The Encana Risk Matrix may not be readily applied to all risk areas but the concepts of impact and probability must be addressed in all cases. For example, emerging risks are those circumstances or factors which may be new to Encana and may lack quantifiable impact or probability at a particular time. Emerging risks should be separately identified, and qualitative assessments of their impacts and probabilities should be provided.
The Encana Risk Matrix will be the foundation for developing any risk sub-matrices in the Corporation. Sub-matrices will align with the Encana Risk Matrix and will require the approval of the Chief Risk Officer.
Risk management reports will be maintained by Divisions and Corporate Groups and provided to the Chief Risk Officer at least quarterly for consolidation.
The Senior Management, comprised of the President & Chief Executive Officer, the Divisional Presidents, the Chief Risk Officer, and the Executive Vice-Presidents of Corporate Groups, are collectively responsible for developing the Corporation's risk management principles and risk management expectations as well as defining the Corporation's risk appetite and tolerances, in addition to those specific responsibilities as outlined in Risk Management Roles and Responsibilities referred to above.
Risk management committees may be established by the President & Chief Executive Officer from members of Senior Management to address specific risk areas. For example, the Market Risk Mitigation Policy requires that a Risk Management Committee address the Corporation's hedging strategy and ensure that the Corporation is complying with that specific Policy.
Unless otherwise noted in this Policy, any significant exceptions to this Policy require the approval of Senior Management and these exceptions will be reported at the next regularly scheduled meeting of the Board of Directors.