Société Générale / Risk report 2021 - Pillar 3 2020

16 OTHER RISKS RESIDUAL VALUE RISK PILLAR 3 - 2021 | SOCIETE GENERALE GROUP | 230 RESIDUAL VALUE RISK 16.2 Through its Specialised Financial Services division, mainly in its long-term vehicle leasing subsidiary, the Group is exposed to residual value risk (where the net resale value of an asset at the end of the leasing contract is less than expected). Risk identification Societe Generale holds, inside its ALDA Business Units (automobile leasing activity) cars on its balance sheet with a risk related to the residual value of these vehicles at the moment of their disposals. This residual value risk is managed by ALD Automotive (ALDA). The Group is exposed to potential losses in a given reporting period caused by (i) the resale of vehicles associated with leases terminated in the reporting period where the used car resale price is lower than its net book value and (ii) additional depreciation booked during the lease term if the expected residual values of its vehicles decline below the contractual residual value. The future sales results and estimated losses are affected by external factors like macroeconomic, government policies, environmental and tax regulations, consumer preferences, new vehicles pricing, etc. ALDA gross operating income derived from car sales totalled EUR 61 million at 31 December 2020 versus EUR 75 million at 31 December 2019. Risk management The residual value setting procedure defines the processes, roles and responsibilities involved in the determination of residual values that will be used by ALDA as a basis for producing vehicle lease quotations. A Residual Value Review Committee is held at least twice a year within each operating entity of ALDA. This Committee debates and decides residual values, taking into account local market specificities, documenting its approach, ensuring that there is a clear audit trail. A dedicated central ALDA team controls and validates the proposed residual values prior to their being notified to the operating entities and updated in the local quotation system. This team informs ALD's Group Finance Director and Risk Manager in case of disagreements. Additionally, the fleet revaluation process determines an additional depreciation in countries where an overall loss on the portfolio is identified. This process is performed locally twice a year for operating entities owning more than 5,000 cars (once a year for smaller entities) under the supervision of the central team and using common tools and methodologies. This depreciation is booked in accordance with accounting standards. STRATEGIC RISKS 16.3 Strategic risks are defined as the risks inherent in the choice of a given business strategy or resulting from the Group’s inability to execute its strategy. They are monitored by the Board of Directors, which approves the Group’s strategic direction and reviews them at least once every year. Moreover, the Board of Directors approves strategic investments and any transaction (particularly disposals and acquisitions) that could significantly affect the Group’s results, the structure of its balance sheet or its risk profile. weekly without exception), by the Group Strategy Committee (which meets every two months) and by the Strategic oversight Committees of the Business Units and Service Units (which meet at least once a year for each of the 25 Units). The make-up of these various bodies is set out in the Corporate Governance chapter of the 2021 Universal Registration Document, Chapter 3 (pages 63 and following). The Internal Rules of the Board of Directors (provided in Chapter 7 of the 2021 Universal Registration Document, page 615) lay down the procedures for convening meetings. Strategic steering is carried out under the authority of the General Management, by the General Management Committee (which meets ENVIRONMENTAL AND SOCIAL RISKS 16.4 The Group’s approach in terms of environmental and social issues is set out in Chapter 5 of the Universal Registration Document (pages 267 and following).