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Annual report and accounts 2016

190 Spanish corporate

190 Spanish corporate governance report continued E. RISK CONTROL AND MANAGEMENT SYSTEMS E.1 Describe the company’s risk management system, including tax risks. The Group has an Enterprise Risk Management Policy approved by the IAG Board of Directors. This Policy establishes a common framework within the Group to manage and control the financial and non-financial risks the Group is exposed to, establishing the risk level that is considered acceptable. The IAG Board has ultimate responsibility for risk management and internal control, including the determination of the nature and extent of the principal risks it is willing to take to achieve its strategic objectives. The Audit and Compliance Committee reviews all enterprise risk management matters on behalf of the Board. This includes a six monthly IAG risk map review containing a robust assessment of the principal risks facing the Group and how these risks are managed or mitigated to reduce their incidence or their impact. The Audit and Compliance Committee also carries out deep dives on selected risks as and when requested. During such reviews the requirement for any changes to the Board’s risk appetite is considered. The Audit and Compliance Committee also monitors and reviews the risk management framework, satisfying itself that it is functioning effectively and that corrective action is being taken where necessary. Within this common framework, Enterprise Risk Management is led by the Management Committee of IAG supported by the Aer Lingus, Avios, British Airways, IAG Cargo, Iberia and Vueling Management Committees. Enterprise risk management There is a comprehensive risk management process and methodology ensuring a robust assessment of the principal risks facing the Group. All the operating companies have well established enterprise risk management systems that ensure that: a. Each risk is owned by a Senior Manager who is ultimately responsible for its management; b. All operating companies’ risks are discussed with the IAG risk management team. c. A central record is kept of all risks, their owners and mitigating actions in all of the operating companies. d. A risk map representing the likelihood and potential impact of each risk is reviewed at least every six months by the respective management committees; e. There are defined procedures for updating risks and the mitigating actions in place to manage those risks; and f. There is active participation from both the Senior Managers managing the risks and the management committees. Risks are classified by their source in: a. Strategic: risks arising from the competitive and regulatory environment, major projects and strategic decisions; b. Business and operational: risks encompassing emergencies, information technology operations, major project implementation and airline operations; c. Financial: risks including liquidity and financing; d. Compliance and regulatory: risks associated with compliance with laws and regulation. Enterprise risk management in the Company At the Group level, material risks from the airlines, together with Group wide risks, are maintained in a Group risk map. The IAG Management Committee reviews the Group risk map twice a year in advance of reviews by the Audit and Compliance Committee. The IAG Board also discusses risks at a number of meetings, including a specific annual review of the Group’s risk map and risk appetite as well as in the context of discussions around strategy and the business plan. Tax risk Tax risk is explicitly included within the Group’s Enterprise Risk Management Policy. Tax risk is owned by the IAG Head of Tax and is reported, as part of the overall risk review, to the IAG Management Committee and Audit and Compliance Committee twice a year. Tax risk is mitigated by an IAG Tax Policy which considers engagement between the tax department and the business; compliance with tax obligations; tax planning; reputation; and transparency. INTERNATIONAL AIRLINES GROUP Annual Report and Accounts 2016

191 E.2 Identify the bodies responsible for preparing and implementing the risk management system, including tax risks. The IAG Board has ultimate responsibility for risk management and internal control, including for the determination of the nature and extent of the principal risks it is willing to take to achieve its strategic objectives. The IAG Audit and Compliance Committee reviews all Enterprise Risk Management matters on behalf of the IAG Board. The management committees of Aer Lingus, Avios, British Airways, IAG Cargo, Iberia and Vueling review their respective risk maps. The Group Treasury Committee manages fuel and foreign exchange risk within the Financial Risk Management Policy approved by the IAG Board. The IAG Tax Department manages tax risk. E.3 Indicate the main risks, including tax risks, which may prevent the company from achieving its targets. The main risks classified by their source are listed below: Strategic a. Airports b. Brand reputation c. Competition d. Consolidation and deregulation e. Digital disruption f. Government intervention Business and operational a. Cyber attack b. Economic conditions c. Employee relations d. Event causing significant network disruption e. Failure of a critical IT system f. Landing fees and security charges g. Pandemic h. Safety/security incident Strategic Report Corporate Governance Financial Statements Additional Information Financial a. Debt funding b. Financial risk c. Tax Compliance and regulatory a. Group governance structure b. Non-compliance with competition, anti-bribery and corruption law E.4 Identify whether the company has a risk tolerance level, including tax risks. IAG has developed 19 risk appetite statements. These statements inform the business, either qualitatively or quantitatively, on the Board’s appetite for certain risks. Each risk appetite statement formalised how performance is monitored either on a Group wide basis or within major projects.. Risk tolerance is also considered, but not necessarily quantified, in assessing the risk of new projects when presented to the IAG Board for approval. www.iairgroup.com

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