Financial Risk Management Services

Our Chief Risk Officer (CRO), who reports to the Chief Financial Officer and President of Global Business Services, oversees our risk management programs and processes. As head of the Risk Management Team, the CRO is responsible for integrating and aligning risk management principles and activities; communicating risk intelligence to the Board and executive leadership; establishing and maintaining adherence to risk thresholds; monitoring emerging risks across the enterprise; and driving a culture of risk awareness and discipline throughout the company.

The Risk Management Team independently develops customized risk management programs across AES’ business and corporate functions. Businesses regularly report to a Risk Oversight Committee (ROC) and provide data on current risk factors, progress on benchmarks and updates on implementation of ongoing risk strategies. The ROC serves as an advisor to the Executive Leadership Team and other AES senior management. This advisory role focuses on the development of Enterprise Risk Management Strategies and risk monitoring.

Financial Metrics and Tools

To ensure continuous improvement, specific tools used to measure risk include:

Risk Diagnostic Survey: Consistent surveys of risk exposures that rate identified risks and compile them into business-specific and aggregate “heat maps.” This visual tool focuses attention on risks needing active mitigation strategies, as well as on potential emerging risks.
Risk Ownership Matrix: Provides clear lines of ownership, monitoring and reporting for risk factors.

AES Key Risk Metrics:

EBITDA At Risk: EBITDA measures earnings before interest, taxes, depreciation and amortization. This measurement quantifies the potential risk due to market factors, as well as foreign exchange rates, interest rates and commodities. It serves as an early warning system for a changing risk situation.
Market Sensitivities: By measuring market sensitivities, AES can monitor market indicators such as oil, natural gas and coal pricing for commodities, as well as foreign currency and interest rates, for potential increases in risk.
Scenario Analysis: AES uses quantitative analysis to evaluate ad hoc cases and their impact to the company under potential macro economic scenarios.
Sovereign Risk: AES measures the risk that central banks might alter their foreign-exchange regulations, potentially reducing the value. This serves as an early warning instrument for making portfolio management decisions.
Portfolio Exposure Guidelines: By monitoring the amount of risk that it possesses in each part of its business, AES can adjust its overall portfolio to manage exposure to market risk. Portfolio management, investment strategy and mitigation actions are key levers for managing in-market risk exposure.