TIDMBHP
RNS Number : 9640Y
BHP Group PLC
15 September 2020
Issued by: BHP Group Plc
Date: 15 September 2020
To: London Stock Exchange
JSE Limited
For Release: Immediately
Authorised for lodgement Geof Stapledon +44 (0) 20 7802 4000
:
------------------------ -----------------------------------
BHP Group Plc - Annual Financial Report 2020
-------------------------------------------------------------
Financial Conduct Authority Submissions
The following documents have today been submitted to the FCA
National Storage Mechanism and will shortly be available for
inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
- Annual Report 2020
https://www.bhp.com/investor-centre/-/media/documents/investors/annual-reports/2020/bhpannualreport2020.pdf
- Economic Contribution Report 2020
https://www.bhp.com/investor-centre/-/media/documents/investors/annual-reports/2020/bhpeconomiccontributionreport2020.pdf
- XML format of the Economic Contribution Report 2020
https://www.bhp.com/investor-centre/-/media/documents/investors/annual-reports/2020/bhpeconomiccontributionreport2020.xml
The documents may also be accessed via BHP's website - bhp.com -
or using the web links above.
Additional Information
The following information is extracted from the Annual Report
2020 (section references are to sections of the Annual Report) and
should be read in conjunction with BHP's Results announcement
issued on 18 August 2020. Both documents can be found at bhp.com
and together, constitute the material required by DTR 6.3.5 to be
communicated to the media in unedited full text through a
Regulatory Information Service. This material is not a substitute
for reading the Annual Report 2020 in full.
1. Principal risks and uncertainties
1.1 Risk management
The identification and management of risks is central to
achieving our strategic objectives. It protects us against
potential negative impacts, enables us to take risk for strategic
reward and improves our resilience against emerging risks. BHP
believes effective risk management requires a single, consolidated
view of risks across the business to understand the Group's full
risk exposure and to prioritise risk management and governance
activity. As such, we apply a single framework (known as the Risk
Framework) for all risks.
There are four pillars in our Risk Framework: risk strategy,
risk governance, risk process and risk intelligence.
Risk strategy
Group Risk Architecture
The Group Risk Architecture is a tool to identify, analyse ,
monitor and report risk, which provides a platform to understand
and manage the risks to which BHP is exposed. It currently
comprises 12 Group Risk Categories, which cover a number of Group
Risks. Risks in BHP's risk profile are connected to a Group Risk.
This gives the Board and management visibility over the aggregate
exposure to risks on an enterprise-wide basis and supports
performance monitoring and reporting against BHP's risk
appetite.
For example, under the Group Risk of occupational safety, we
have identified risks relating to the safety of our people in
performing their work (such as vehicle incidents, falls from height
and dropped objects) and, under the Group Risk of mental and
physical health, we have identified risks to our people associated
with the impacts of the COVID-19 pandemic on our assets and
offices.
The Group Risk Architecture (as at 30 June 2020) is outlined in
the diagram below. The left column shows the Group Risk Category
and the columns to the right show the allocation of the Group Risks
to each Category. This Group Risk Architecture changes over time to
reflect our strategy, changing activities, organisational
accountabilities and consideration of the external context. For
example, Group Risks may be added, removed, renamed, merged or
moved between Group Risk Categories if there is a more appropriate
place for them in our continuously evolving Group Risk
Architecture.
In FY2020, we added two new Group Risk Categories - Planning and
technical, and Allocation of capital and group planning - which
include new Group Risks, as well as Group Risks moved from other
categories. The new Group Risks were created to provide additional
visibility and oversight of some of the Group's most significant
risks and better recognise the importance of managing certain
strategic risks, including those relating to business planning,
cash prioritisation and cash flow forecasts. In addition, changes
were made to existing Group Risks to further clarify and streamline
the Group Risk Architecture. To date, the COVID-19 pandemic has not
required any changes to be made to the Group Risk Architecture,
which is sufficiently broad to accommodate risks associated with
the pandemic.
Group Group Risks
Risk
Categories
Strategy Strategy Commodities Asset
information exposure and growth
options
+
------------- ----------------- ------------ --------------- ----------------- ------------- ------------ -------------
Growth Political Expansions,
and stability organic
development and new growth
country and major
entry projects
------------- ----------------- ------------ --------------- ----------------- ------------- ------------ -------------
Production Operational Mine to Third Asset Transformational
and productivity port party integrity change
operations infrastructure performance
------------- ----------------- ------------ --------------- ----------------- ------------- ------------ -------------
Commercial Procurement Maritime Commodity Sales Counterparty
and inbound price security risk
supply and
chain concentration
management +
------------- ----------------- ------------ --------------- ----------------- ------------- ------------ -------------
Planning Exploration Resource Reserve Rehabilitation Tailings Geotechnical
and development reporting and closure storage stability
technical facilities +
+
------------- ----------------- ------------ --------------- ----------------- ------------- ------------ -------------
People Attract, Diversity, Industrial Labour
and culture retain inclusion and relations
and engage and equal employee
capability opportunity relations
------------- ----------------- ------------ --------------- ----------------- ------------- ------------ -------------
Health Aviation Process Non-process Physical Mental Occupational Contractor Occupational
and safety safety/hazardous fire security and physical safety managements health
materials and and company health exposures
containment explosion crisis
* +
------------- ----------------- ------------ --------------- ----------------- ------------- ------------ -------------
Environment, Biodiversity Human rights Climate Community Water
climate loss change * interactions
change and land *
and use impacts
community
------------- ----------------- ------------ --------------- ----------------- ------------- ------------ -------------
Technology, IT/OT Cybersecurity Automation Data
innovation service and protection
and systems management technology
innovation
------------- ----------------- ------------ --------------- ----------------- ------------- ------------ -------------
Financial Liquidity Tax Financial Balance
management control sheet
and
reporting
------------- ----------------- ------------ --------------- ----------------- ------------- ------------ -------------
Allocation Capital Corporate Licence
of capital allocation planning to invest
and group
planning
------------- ----------------- ------------ --------------- ----------------- ------------- ------------ -------------
Legal Geopolitics Ethics Legal
compliance and and compliance and
and stakeholder regulatory
stakeholder relations
management +
------------- ----------------- ------------ --------------- ----------------- ------------- ------------ -------------
Principal risks
The allocation of our principal risks to the Group Risk
Architecture is shown in a darker shade of blue. Our principal
risks are described further in the Risk factors section. These
include risks that could result in events or circumstances that
might threaten our business model, future performance, solvency or
liquidity and reputation.
In identifying our principal risks, we have considered the
potential impact and probability of the related events or
circumstances, and the timescale over which they may occur.
Changes to the principal risks in FY2020:
+ New
* Renamed
Changes are described further in the Risk factors section.
Risk appetite
BHP's Risk Appetite Statement has been approved by the Board and
is a foundational element of our Risk Framework. It is made up of a
qualitative statement for each Group Risk Category that describes
the nature and extent of risk we are prepared to take in pursuing
our objectives. When a new Group Risk Category is introduced, the
Board is asked to approve an updated Risk Appetite Statement that
includes a new qualitative statement for that new Category. The
Risk Appetite Statement provides guidance to management on the
amount and type of risk that is acceptable, and key risk indicators
are set by management to help monitor performance against our risk
appetite.
Key risk indicators
Key risk indicators (KRIs) assist in identifying whether BHP is
operating within or outside of our risk appetite, as defined in our
Risk Appetite Statement. They also support decision-making by
providing management with information about financial and
non-financial risk exposure at a Group level. KRIs are defined for
Group Risks to provide the data for proactive monitoring of BHP's
risk performance. Where upper or lower KRI limits are exceeded,
management will review potential causes to understand if BHP may be
taking too little or too much risk, and to identify whether further
action is required. Our current KRIs monitor data such as market
concentration based on the percentage of revenue linked to a single
jurisdiction, the number of critical cybersecurity incidents,
greenhouse gas emissions relative to the FY2017 baseline and trends
in the number of community complaints received.
Strategic business decisions
Strategic business decisions and the pursuit of our strategic
objectives can inform, create or affect risks to which BHP is
exposed. These risks may represent opportunities as well as
threats. The Risk Appetite Statement and KRIs are available to
assist in determining whether a proposed course of action is within
BHP's risk appetite.
Our focus when managing risks associated with strategic business
decisions is to enable the pursuit of high-reward strategies.
Therefore, as well as having controls to protect BHP from the
downside risk, we will implement controls to increase the
likelihood of the opportunity being realised. For example, we might
establish additional governance, oversight or reporting to ensure
new initiatives remain on track.
Risk governance
Risk management accountability and oversight is an integral part
of BHP's governance. The Board and senior management (including the
Executive Leadership Team) provide oversight and monitoring of risk
management outcomes. They are ultimately responsible for ensuring
BHP maintains a robust Risk Framework and an effective internal
control environment.
BHP uses the 'three lines of defence' model of risk governance
and management to define the relationships and clarify the role of
different teams across the organisation in managing risk. This
approach is illustrated in the diagram below and integrates risk
management, control definition, control improvement, governance and
assurance frameworks into one governance model.
For example, for a loss of containment risk within the Group
Risk of process safety/hazardous materials containment, our first
line operations personnel would be responsible for implementing
pipe thickness checks to ensure corrosion is within acceptable
limits. Second line functions, such as our engineering teams, would
define and assure minimum standards for pipe materials and
acceptable levels of corrosion. Our Internal Audit and Advisory
team audits the effectiveness of the standards and their
application as the third line of defence.
BHP Board and committees
The Board reviews and considers BHP's risk profile, covering
operational, strategic and emerging risks, based on the material
risk report. The report includes an overview of the risk profile,
summary of material changes to the profile, performance against
KRIs, summaries of our priority Group Risks and, with the
introduction of our enterprise-level watch list in FY2020 (as
described in the Emerging risk section), updates on emerging risk
themes. The contents of this report are further described in the
diagram in the Risk intelligence section.
The broad range of skills, experience and knowledge of the Board
assists in providing a diverse view on risk management. The Risk
and Audit Committee (RAC) and Sustainability Committee assist the
Board with the oversight of risk management. For more information,
refer to sections 2.7, 2.10 and 2.11.
The Risk Appetite Statement is the mechanism by which the Board
sets boundaries for taking risk. It enables management to make
risk-informed decisions within the risk appetite that has been
determined by the Board. Performance against risk appetite is
monitored and reported to the RAC and the Board, as well as the
Sustainability Committee for HSEC matters. This includes reporting
of performance that is outside upper or lower limits to indicate
whether management is taking sufficient or excessive risk, enabling
the Board to hold management to account where necessary.
In FY2019, we introduced an additional second line led review of
the Group's most significant risks (such as tailings storage
facility failure) to provide greater oversight and assurance of,
and identify any opportunities to improve, the management of these
risks. This process, referred to as the Priority Group Risk Review
process, reviews the analysis and controls for risks that could
impact the Group's viability or strategy, with findings and
recommendations reported to the RAC and Sustainability Committee.
Findings and recommendations are considered by management and the
Board and may inform strategic decisions on whether to accept,
reduce or eliminate risks to align with the Group's risk appetite,
and may be used to develop remediation plans, such as to improve
risk analysis or control definition.
Additional information on risk management and internal controls
is shared between the Board, the RAC and, for HSEC matters, the
Sustainability Committee and also provided by the Business Risk and
Audit Committees (covering each business region), management
committees, our Internal Audit and Advisory team and our External
Auditor. For more information, refer to section 2. Our approach to
risk reporting is outlined in the Risk intelligence section.
Risk process
Our Risk Framework requires identification and management of
risks to be embedded in business activities through the following
process:
-- risk identification - new and emerging risks are identified
and each is assigned an owner, or accountable individual, in the
part of our business where the risk is located.
-- risk assessments - risks are assessed using an appropriate
and internationally-recognised technique to determine their
potential impacts and likelihood, prioritise them and inform risk
treatment options.
-- risk treatment - controls are implemented to prevent, reduce
or mitigate downside risks and increase the likelihood of
opportunities being realised.
-- monitoring and review - risks and controls are reviewed
periodically and on an ad hoc basis (including where there are high
potential events or changes in the external environment, such as
the COVID-19 pandemic) to evaluate performance.
Our Risk Framework includes requirements and guidance on the
tools and process to manage all risk types (current and
emerging).
Current risks
Current risks may have their origin inside BHP or originate as a
result of BHP's activities. These may be strategic or operational
in nature and include material and non-material risks.
The materiality of a current risk is determined by estimating
the maximum foreseeable loss (MFL) if that risk was to materialise.
The MFL is not an estimate of the probable impact to BHP if the
risk was to materialise. Instead, the MFL is the estimated impact
to BHP in a worst case scenario without regard to probability and
assuming that all risk controls, including insurance and hedging
contracts, are ineffective. For example, when calculating the
number of fatalities to assess MFL in the event of an offshore well
blow out, we assume the personnel capacity of the drilling rig even
though there may be fewer people on it at the time of an incident
and despite controls such as emergency response plans and equipment
in place that are designed to reduce the number of fatalities.
Our focus for current risks is to prevent their occurrence or
minimise their impact should they occur, but we also consider how
to maximise possible benefits that might be associated with
strategic risks (as described in the Risk strategy section).
Current material risks are required to be evaluated once a year at
a minimum to determine whether our exposure to the risk is within
our risk appetite.
Emerging risks
Emerging risks are newly developing or changing risks that are
highly uncertain and difficult to quantify. They are generally
driven by external influences and often cannot be prevented,
although they can be prepared for. They also tend to be
interconnected and often require solutions that draw upon expertise
from across our organisation.
In FY2020, we introduced an enterprise-level watch list of
emerging themes that provides an evolving view of the changing
external environment and how it might have an impact on our
business. These themes represent areas of risk where a shift in
direction could have a significant impact on our operating
environment, with the potential to affect our strategy or business
continuity.
We maintain the watch list and use it to support the
identification and management of emerging risks through our normal
business activities and planning processes under our Risk
Framework, as well as to inform and test our corporate
strategy.
Once identified, our focus for emerging risks is on structured
monitoring of the external environment, advocacy efforts to reduce
the likelihood of the downside risks manifesting and, where
appropriate, considering emerging risks (including opportunities)
as part of our planning and strategy setting and review process. We
also apply contingency controls, such as response plans, to reduce
the impact should emerging risks that are outside our appetite
occur. These controls increase the resilience of BHP to shocks from
the external environment. Emerging risks are required to be
evaluated once a year at a minimum to determine whether the risks
remain emerging and if our exposure is within our risk
appetite.
Risk intelligence
The Board and senior management are provided with insights on
trends and aggregate exposure for our most significant risks, as
well as performance against risk appetite, by the Risk team. The
Board also receives reports from other teams to support its robust
assessment of BHP's emerging and principal risks, including
internal audit reports, ethics and compliance reports and the Chief
Executive Officer's report.
A summary of the risk reports delivered by the Risk team and how
these provide additional intelligence to the Board is outlined
below.
BHP Board
CEO/ELT Risk and Audit Committee Sustainability Committee
------------------------- -------------------------
Material risk report Material risk report Material risk report
------------------------- -------------------------
Financial Risk Management Robust risk assessment Priority Group Risk
Committee and viability statement Reviews
------------------------- -------------------------
Material risk report Priority Group Risk
(Finance focused) Reviews
------------------------- -------------------------
Viability statement
------------------------- -------------------------
Business Risk and
Audit Committee
------------------------- -------------------------
Material risk report
(Region focused)
------------------------- -------------------------
Other management
committees
------------------------- -------------------------
As required
------------------------- -------------------------
Material risk report includes:
-- Update on the implementation of the Risk Framework
-- Risk profile overview
-- Material changes in the risk profile
-- Key risk indicators
-- Chief Risk Officer opinion (or Head of Risk Business Partners
opinion for Business Risk and Audit Committee)
-- Priority Group Risk summaries
-- Update on emerging risk themes
Robust risk assessment and viability statement
The Board has carried out a robust assessment of BHP's emerging
and principal risks, including those that could result in events or
circumstances that might threaten BHP's business model, future
performance, solvency or liquidity and reputation.
The Board has assessed the prospects of BHP over the next three
years, taking into account our current position and principal
risks.
The Board believes a three-year viability assessment period is
appropriate for the following reasons. BHP has a two-year budget, a
five-year plan and a longer-term life of asset outlook. As
highlighted in the Risk factors section, there is currently
increased uncertainty in the external environment, including due to
heightened political and policy uncertainty, growing civil unrest
in some countries in which we operate and market volatility and
geopolitical tensions resulting from the COVID-19 pandemic. This
may increase the risk of commodity price and exchange rate
volatility and also affect the longer-term supply, demand and price
of our commodities. These factors result in variability in plans
and budgets. A three-year period strikes an appropriate balance
between long- and short-term influences on performance.
The viability assessment took into account, among other
things:
* BHP's commodity price protocols, including low-case * the reserve life of BHP's minerals assets and the
prices reserves-to-production life of our oil and gas assets
* the latest funding and liquidity update * the Group-level risk profile and the mitigating
actions available should particular risks materialise
* the long-dated maturity profile of BHP's debt and the
maximum debt maturing in any one year * any actual and further anticipated impacts of the
COVID-19 pandemic on BHP's two-year budget and
five-year plan
* the flexibility in BHP's capital and exploration
expenditure programs under the CAF
The Board's assessment also took into account additional stress
testing of the balance sheet against a number of scenarios that
model three hypothetical events occurring individually and together
in various combinations over the 3-year viability period. These
hypothetical events were:
1. an offshore well blow out involving a drilling rig that we operate
2. simultaneous, short-term production outages at some of our most significant assets
3. a low commodity price environment in FY2021 and FY2022,
followed by a gradual recovery by FY2025
A number of our principal risks may have impacts that are
embedded in these scenarios. For example, operational risks
associated with occupational and process safety, asset integrity,
tailings storage facilities and third party performance may have
comparable impacts to an offshore well blow out. Similarly, risks
associated with community, human rights and climate change (such as
civil unrest or a natural disaster, including the physical impacts
of climate change or a pandemic) may result in production outages
at one or more of our assets, while risks associated with commodity
prices, geopolitics and stakeholder relations may have impacts that
result in a sustained low commodity price environment (for example,
an economic slowdown may be caused by geopolitical events or
responses of governments and other stakeholders to a pandemic). For
further information on our principal risks, see the Risk factors
section.
Stress testing demonstrated that the Group's balance sheet was
put under the greatest stress by the least likely scenario that all
three hypothetical events occur together. In such circumstances,
the Board considered that the Group would have a number of
mitigating actions available to it, including deferral of
discretionary capital expenditure, issuance of debt and divestment
of certain assets. A further level of robustness is added given BHP
would also have access to US$5.5 billion of credit through its
revolving credit facility.
The Board was also mindful of key risk indicator performance,
regular balance sheet stress testing against low commodity prices,
and the assessment of our portfolio against scenarios as part of
BHP's strategy and corporate planning processes to help identify
key uncertainties facing the global natural resources sector
(including in relation to climate change, the COVID-19 pandemic and
commodity price volatility).
In making this viability statement, the Board has also made
certain assumptions regarding management of the portfolio, the
alignment of production, capital expenditure and operating
expenditure with five-year plan forecasts and the alignment of
prices with the cyclical low price case used in monthly balance
sheet stress testing.
Taking account of these matters (including the assumptions) and
our current position and principal risks, the Board has a
reasonable expectation that BHP will be able to continue in
operation and meet its liabilities as they fall due over the next
three years.
Risk factors
This section highlights our principal risks, as illustrated in
the Group Risk Architecture diagram in the Risk strategy section.
Our principal risks have changed since FY2019, largely due to
changes in our external environment and the continued evolution of
our Group Risk Architecture. These changes can be summarised as
follows.
Risks associated with tailings storage facilities, geotechnical
stability, non-process fire and explosion, and sales security and
concentration have been identified as principal risks to provide
additional visibility of some of the Group's most significant risks
and to better recognise the importance of managing certain
strategic risks. Tailings storage facilities risks are discussed in
this section with asset integrity. Geotechnical failures and
underground fires or explosions may pose significant threats to the
health and safety of our people and are therefore discussed with
occupational and process safety. Strategic risks associated with
gaining and maintaining access to the global markets that we rely
upon to trade our commodities are discussed with geopolitics and
stakeholder relations.
The scope of two of our principal risks was expanded in FY2020
and they have been removed from the Group Risk Architecture
diagram. Returns sustainability risks are now captured by assets
and growth options, which better supports and reinforces revisions
made to our purpose and strategy in FY2020. Risks associated with
geopolitics and macroeconomics now fall within geopolitics and
stakeholder relations in order to focus on broader macroeconomic
and geopolitical trends that may affect BHP and our stakeholders.
The names of some of our principal risks have also changed in order
to better represent associated risks, although their scope remains
the same.
Our principal risks are further described in the risk factors
listed on the following pages. Each of these could materially and
adversely affect our business, financial performance, financial
condition, prospects or reputation, leading to a loss of long-term
shareholder and/or investor confidence. While these represent our
most significant risks, BHP is also exposed to other risks that are
important to us (for example, health, safety, environmental,
community, financial, reputational, legal or other risks) that are
not described in the risk factors.
We have considered the implications of the COVID-19 pandemic on
our business, including through event tree analysis to assess its
potential medium- to longer-term cascading impacts on the Group's
risk profile and our enterprise-level watch list of emerging
themes. We will continue to assess the implications of the pandemic
and have referenced impacts to our principal risks in the following
risk factors, where relevant. To the extent that our business is
adversely impacted by the COVID-19 pandemic, any such impacts may
also have the effect of heightening some of the risks listed on the
following pages.
Asset integrity and tailings storage facilities
Risks associated with operational integrity, tailings storage
facilities and performance of our assets.
Why is this important to BHP?
Maintaining the operational integrity and performance of our
assets is crucial to protect our people, the environment and
communities in which we operate. We have onshore and offshore
assets in a variety of geographic locations, all of which exist in
and around broader communities and environments. A tailings dam
failure, other serious incidents (for example, structural failure
of onshore or offshore production infrastructure or a vessel
incident through our supply chain, including groundings, collisions
and hydrocarbon release) or the failure to appropriately maintain
or develop our assets could have an impact on our people,
surrounding communities and environments, as well as our
reputation, cash flow, operations or the longevity of our
assets.
While we seek to design and implement the right strategy and
processes to maintain the operational integrity and performance of
our assets, we may not always be effective in doing so. The impacts
of any serious incidents that occur may also be amplified if we
fail to respond in an appropriate manner.
Threats
Failure to maintain the operational integrity and performance of
our assets may reduce their value and could lead to or exacerbate
operational incidents, such as structural failure of production
infrastructure, dam failure or a vessel incident. Such failures
and/or operational incidents could result in:
- multiple injuries and fatalities
- extensive community disruption, including impacts to personal
safety, livelihood and quality of life
- short- and long-term health and safety risks to our people or
the community (for example, exposure to diesel particulate matter,
silica or coal mine dust from our mining operations may result in
acute and/or chronic illness, such as coal mine dust lung
disease)
- environmental damage (for example, as a result of a dam
failure releasing tailings, a hydrocarbon release or a vessel
incident through our supply chain that affects air quality,
biodiversity, water resources or environmentally sensitive
areas)
- loss of licences, permits or necessary approvals to operate assets
- other adverse impacts on the communities in which we operate,
including loss of community infrastructure and services, such as
power, water or transport, and damage to cultural heritage
sites
- failure or redundancy of mining, processing or support
infrastructure or equipment, such as a structural collapse or
failure of a conveyor, petroleum platform or rail line
- disruption to essential supplies or delivery of our products
(for example, where channel blockage is caused by an owned,
chartered or third party vessel incident, including at Port Hedland
in Australia where our operations rely on a channel used by vessels
unrelated to BHP)
- significant repair, recovery or reparation costs
- interruption in production or other critical activities and
loss of revenue from operations that are directly or indirectly
affected by an incident (for example, a loss of power supply or
wider shutdown of operations pending safety reviews)
- litigation (including class actions), fines or investigations
by authorities, and reputational damage
- loss of workforce confidence
- impacts on our ability to access capital (for example, an
operational incident may affect our ability to retain the
confidence of shareholders and other stakeholders, including
financial institutions)
A failure to maintain the operational integrity and performance
of our assets may adversely impact asset value, including due to
production shortfalls, loss of development options or a delay in
asset development (for example, structural failure of critical ship
loading infrastructure, such as at our iron ore operations in Port
Hedland, could result in a production shortfall). Such failures may
also negatively impact cash flows and profitability, result in
financial write downs (for example, due to a need to abandon
remaining reserves where it is uneconomic to reconstruct or recover
the asset following a major incident) or increased costs or other
commercial impacts.
We take steps to maintain the operational integrity and
performance of our assets through planning, design, construction,
operation and closure. However, our projects are complex and may be
adversely impacted by factors out of our control, such as natural
disasters or national crises. The COVID-19 pandemic has resulted in
controls being implemented by BHP and third parties that may affect
the performance of our assets. For example, workplace entry and
travel restrictions may result in the delay of key personnel or
external consultants accessing our sites to undertake inspections
or other activities, potentially resulting in unidentified asset
integrity issues or production shortfalls.
Our risk financing approach is, where appropriate, to
self-insure for certain risks, including property damage and
business interruption, sabotage and terrorism, marine cargo
reinsurance, construction, public liability and applicable employee
benefits, or to not purchase external insurance for certain risks.
Business continuity plans may not provide protection for all costs
that arise from such events. Where external insurance is purchased,
third party claims may exceed the limit of liability of policies or
our insurers may become insolvent or otherwise unable to make
payments under our policies. Any uninsured or underinsured losses
could impact our financial position or the financial results of our
assets.
Management
We employ a number of measures designed to protect the
operational integrity and performance of our assets, and to detect,
eliminate, prevent and mitigate operational incidents and outages.
These measures include:
- BHP's standards on health, safety, the environment,
communities, water and tailings storage facilities, maintenance,
security, crisis and emergency management, and event and
investigation management
- planning, designing, constructing, maintaining and monitoring
mines, dams and equipment to avoid incidents
- maintaining and improving production infrastructure and
equipment to protect our people and assets (for example, controls
to maintain the structural integrity of dams)
- inspections and reviews (for example, independent dam safety
reviews to assess the management of significant tailings storage
facilities, both active and inactive as described in section
1.7.10)
- routine reviews of and revisions to management plans and
manuals (for example, to test and update for alignment with
operating specifications and industry dam codes)
- defining key accountable roles, and providing training and
qualifications for staff and contractors
- maintaining local availability of critical skilled personnel
within BHP, where possible, to increase operational resilience by
ensuring the continuity of critical inspections and other
activities (for example, this has mitigated the impacts of
workplace entry and travel restrictions imposed on our assets in
response to the COVID-19 pandemic)
- maintaining evacuation routes, supporting equipment, emergency
preparedness and response plans, and business continuity plans
- collaborating with industry peers and relevant organisations
on minimum standards (such as a minimum maritime standard for bulk
ore carriers) and improvement of third party risk management
practices to reduce exposure to external events, as well as
identifying opportunities to improve our own risk management
practices
For more information on our approach to risks associated with
tailings storage facilities, see section 1.7.10.
FY2020 insights
The Group's exposure to asset integrity and tailings storage
facilities risks is expected to remain relatively stable. While the
COVID-19 pandemic has not had significant impacts during FY2020 on
asset integrity and tailings storage facilities risks, management
of risk at each of our operated onshore and offshore assets will
continue to be reviewed to ensure we maintain an effective control
environment for the duration of the COVID-19 pandemic and safely
transition to post-COVID-19 operating conditions when it is
appropriate to do so.
Occupational and process safety (including geotechnical failures
and underground fires or explosions)
Risks associated with the safety of BHP employees and
contractors in performing their work and the containment of
hazardous materials.
Why is this important to BHP?
Our sites, offices and other places where our people are located
in connection with the performance of their work may be subject to
occupational safety and process safety/hazardous materials
containment incidents. These may include fires and explosions
(above and underground), road, vehicle, mobile equipment, port,
shipping, railroad, aircraft or airport incidents (including where
these services are contracted to third parties), falls from height,
lifting or crane incidents, food or water safety incidents, loss of
power supply, environmental pollution, geotechnical hazards,
mechanical equipment failures, mine-related accidents, personal
conveyance equipment failures or loss of primary containment of
hazardous materials. Our oil and gas operations may also experience
a loss of well control involving an uncontrolled flow of well
fluids or formation fluids from the wellbore to the surface,
including at our offshore operated and non-operated assets. Our
people may come into contact with electricity, work in confined
spaces, be exposed to conditions where air quality is unsafe, or
work with or in close proximity to hazardous materials, such as
flammable, explosive, toxic, corrosive or molten materials or other
materials at high pressure or temperature, which may lead to or
exacerbate operational accidents. Exposure to some substances, such
as diesel particulate matter, may also pose short- and long-term
health and safety risks to our people. In addition, the mental and
physical health of our people may be affected by events that take
place in connection with the performance of their work, including
threats to their physical security, workplace sexual harassment and
assault or other events or circumstances, such as controls
implemented in response to a pandemic.
We have onshore and offshore extractive, processing and
logistical operations in many geographic locations. Transporting
our people to the locations of our exploration activities and
operations often involves helicopters, aeroplanes or other high
occupancy vehicles. We have port facilities and four underground
mines, including underground coal and nickel mines, and the nature
of the activities performed at these facilities and mines can
involve safety hazards, such as geotechnical failures, underground
fires and/or underground explosions.
We operate in zones prone to natural disasters. This includes
our Western Australia Iron Ore, Queensland Coal and Gulf of Mexico
oil and gas assets, which are located in areas subject to cyclones
or hurricanes, and our Chilean copper and Peruvian base metals
assets and Global Asset Services office in Manila, which are
located in known tectonically seismic (earthquake- and
tsunami-prone) zones.
Threats
Occupational safety and process safety/hazardous materials
containment incidents (such as a geotechnical failure, an
underground fire or explosion in one of our mines or a well blow
out during operated or non-operated drilling activities) may lead
to serious injuries, loss of life or livelihood or quality of life
to BHP employees, contractors or members of the community. In
addition, these incidents may result in:
- interruption to production or other activities critical to our business
- disruptions to our supply chain
- failure of processing equipment or support infrastructure (for
example, relating to power, water, transport or technology)
- environmental damage (for example, due to the uncontrolled
release of hydrocarbons following an offshore well blow out)
- increased costs or other commercial impacts
- litigation (including class actions), fines or investigations
by authorities and reputational damage
- loss of workforce confidence
- short- and long-term health and safety risks to members of the
community, and adverse impacts on local communities' economic
position or human rights
Our response to occupational safety and process safety/hazardous
materials containment incidents, such as our emergency response or
engagement with affected stakeholders, may not be adequate and
could result in impacts being amplified.
The COVID-19 pandemic has created challenges for health and
safety systems across our operations, such as the implementation of
social distancing measures at our sites. A failure to adequately
respond to these challenges could affect our ability to operate in
specific jurisdictions and may result in health and safety impacts,
legal action or reputational impacts. In addition, the pandemic may
amplify impacts associated with the occupational safety and process
safety/hazardous materials containment risks described above. For
example, the ability of emergency services to respond to
operational incidents at our sites (including those described
above) may be affected by diversion of resources by local or
national governments or additional safeguards that have been
implemented to protect emergency responders.
Our risk financing approach is to self-insure or not purchase
external insurance for certain risks. For more information, refer
to the Asset integrity and tailings storage facilities risk
factor.
Management
We employ a number of measures designed to detect, eliminate,
prevent and mitigate occupational safety and process
safety/hazardous materials containment incidents, including:
- BHP's standards on aviation, health, safety, the environment
and community, crisis and emergency management
- compliance with quality assurance standards (for example, the
Drilling and Completions Quality Assurance Standard for Petroleum
offshore drilling and completion activity)
- selection and design of mine plans (in compliance with our
global geotechnical standards), wells and equipment to prevent
incidents (including slope design and underground support
systems)
- inspection, maintenance and improvements of infrastructure and
critical equipment to protect our people and assets (for example,
cyclone resilience, pressure vessels designed to contain fluids or
gas at pressure and emergency response equipment)
- implementing controls at our operated assets to comply with
applicable local laws and regulations on safety (for example,
relating to the safe storage, handling and use of explosives, fuels
and other flammable substances)
- training and qualifications for staff and contractors
(including drill rig contractors and aircraft operators)
- specifying minimum technical specifications for aircraft
- influencing joint venture partners to align with internationally recognised standards
- monitoring adverse weather conditions, ground stability (based on early alert systems) and pressure/temperature of materials
- continuity plans and crisis and emergency response plans
- self-insurance for losses arising from property damage,
business interruption and construction
- applying our experience in safety frameworks to the issue of
sexual harassment and assault in order to prevent and respond
appropriately to such events, and create an inclusive workplace
- implementation of a global COVID-19 control framework across
BHP, which includes health and hygiene controls for our workforce,
partners and the communities in which we operate
FY2020 insights
The Group's occupational safety performance continued to improve
in FY2020 compared to FY2019, with higher hazard identification and
lower high potential injuries, and the identification of process
safety/hazardous material containment incidents across our business
also improved over this period. Exposure to these risks is expected
to remain relatively stable in FY2021. Our response to the COVID-19
pandemic is intended to support the safety of our workforce and
maintain the confidence of key stakeholders (such as local and
national governments and the communities in which we operate), and
to enable the continuation of BHP's operations in a safe and
sustainable manner. Notwithstanding our efforts and the efforts of
local and national governments where we operate, it is possible
that the COVID-19 pandemic may continue to impact the communities
where our assets are located, which may jeopardise the health,
safety and wellbeing of our workforce.
Geopolitics and stakeholder relations (including access to
markets)
Risks associated with geopolitical changes and government
actions that affect the macroeconomic outlook, commodity demand and
supply and/or impact our ability to access resources, markets and
the operational or other inputs needed to realise our strategy; as
well as relationships with key stakeholders whose support is needed
to realise our strategy and purpose.
Why is this important to BHP?
Geopolitical developments and changes in our relationships with
key stakeholders (such as investors, governments, employees,
customers and suppliers) have the potential to cause a wide range
of impacts in locations where we operate or may wish to operate, or
where our customers and suppliers are located. In addition, we may
be affected by changes to bilateral relationships, the frameworks
and global norms that govern international trade, and other
geopolitical developments (such as multilateral agreements on
climate change and freedom of navigation). This includes acute
shocks (such as civil unrest or sanctions) and chronic stresses
(such as political or business disputes and other forms of
conflict, including military conflict) that may pose longer-term
threats to our business.
Disruptions or unanticipated changes of the nature described
above may affect our ability to sell our commodities for optimum
value or access inputs required for the effective pursuit of our
strategy, including access to markets, resources, technology,
talent and capital. For example, our mining operations in Australia
rely on equipment, consumables (such as tyres) and specialised
fabricated parts for ongoing operations, expansion and development.
We need to maintain access to international markets to source these
items. Changes in the external environment (such as increased
protectionism, changes in stakeholder expectations regarding our
role in society, or requirements to reduce emissions) may also
impact our ability to realise our strategy as competition for
resources grows, existing reserves are depleted and supply sources
become increasingly expensive to develop.
Threats
Unilateral action by, or changes in relations between, countries
in which we operate, may consider operating or where our customers
or suppliers operate, and such countries' approach to
multilateralism, trade protectionism and political uncertainty, can
impact our ability to access resources, markets, technology, talent
and capital, shape the external environment, and adversely affect
our financial performance. For instance:
- the challenging global political and economic conditions
arising from the impact of the COVID-19 pandemic, including the
relative damage to national economies and the speed at which they
recover from the effects of the pandemic, may exacerbate existing
tensions between countries and introduce a high degree of
uncertainty in domestic and international policy settings. These
conditions, as well as protectionism, interventionist industrial
policy and restrictive trade policies (such as tariffs, sanctions
or other measures that amount to import restrictions on our
products), may adversely affect our ability to trade and impact
demand for our products, as well as impact our access to resources,
markets, technology, talent and capital
- our ability to obtain and retain licences to explore or
develop resources or access markets for sales or supply may be
inhibited if there are tensions between a country where we operate
or sell our products and other countries with which we are
connected. Such tensions may result in trade remedies (such as
punitive tariffs or quotas on inputs or outputs), rescission of
licences, nationalisation of assets or limitations on markets or
customer access that could affect our financial performance and
reputation
- our operations may be disrupted or our access to customers and
suppliers and their facilities may be restricted through
disruptions to shipping lanes, ports, land logistics or other
facilities as a result of civil unrest, conflicts, embargoes or
other measures
- geopolitical events, such as a shift in the relationship
between the United States and China or Australia and China, may
affect the supply, demand and price of our commodities and
therefore our financial performance. Shifts in great power
relations may also introduce greater uncertainty with respect to
issues requiring global co-ordination (such as climate change,
trade agreements, tax regulation, freedom of navigation and
technology regulation), as well as raise questions on the efficacy
of and trust in international institutions, including those that
underpin international trade. These types of changes may cause
restrictions or impose costs on our business, and may inhibit our
future opportunities
- evolving government responses to the COVID-19 pandemic may
create challenges for us. For example, government responses to the
pandemic have varied significantly across the globe and have
resulted in and may continue to result in restrictions on our
operations, including mandatory lockdowns or self-imposed temporary
suspensions at our mines to allow effective systems to be
implemented to meet government requirements, such as the temporary
suspension of operations at Cerrejón in the June 2020 quarter.
There may also be impacts on associated activities and the broader
supply chain (such as measures affecting suppliers, essential
services and transport of goods and our commodities) that could
affect production or our financial performance
A failure to meet the expectations of or maintain strong
relationships with key stakeholders (including investors,
governments, employees, suppliers and customers) whose support is
needed to realise our strategy and purpose could negatively affect
our business. Such failures could damage our reputation, our social
value proposition and/or negatively affect our ability to operate
our assets and sell our products, which may adversely impact
financial performance. For example, not meeting growing societal
expectations of corporations to deliver value to all stakeholders
can damage our reputation and impact our ability to operate in
jurisdictions where we have a presence or to enter new
jurisdictions. Growing societal and government expectations,
including in relation to climate change, and their effect on our
business may also be influenced by the impacts of the COVID-19
pandemic (for example, if corporations such as BHP are expected to
play a larger role in the recovery of local and national economies
than we anticipate or if governments adjust climate change policy
to take into account economic recovery).
Management
The diversification of our portfolio of commodities, markets,
geographies and currencies is a key strategy intended to reduce our
exposure to geopolitical and macroeconomic shifts.
We actively monitor geopolitical and macroeconomic developments
and trends, including through our enterprise-level watch list of
emerging themes that provides an evolving view of the changing
external environment (see Emerging risk section for further
information). We also regularly assess our ability to access
markets, resources, technology, talent and capital, as well as
monitor the ongoing political and economic landscape required to
maintain trade and access for the effective pursuit of our
strategy. This enables an understanding of potential impacts on our
business and the identification of mitigating actions.
In addition, we monitor the sociopolitical environment in which
we operate and the stakeholders that influence that environment in
order to prioritise and manage the threats and opportunities that
could have the greatest impacts on our business and our social
value proposition. We also engage regularly and seek to maintain
strong relationships with governments and other key stakeholders to
understand, respond to and manage any potential impacts from
changes to policy that could affect us, such as trade or resource
policies, or evolving expectations of BHP.
FY2020 insights
Our FY2019 Annual Report anticipated that the Group's exposure
to risks associated with geopolitics and macroeconomics would
increase in the short-term due to heightened political and policy
uncertainty. This trend has accelerated due to changes in
relationships and increased strategic competition at an
international level (for example, between the United States and
China, and Australia and China), a decline in multilateralism,
growing civil unrest in some countries in which we operate (as
further described in the Community and human rights risk factor),
and market volatility and geopolitical tensions resulting from the
COVID-19 pandemic. Our influence over most of these aspects of our
external environment is limited and the Group's exposure to the
risks described above may continue to increase in the
short-term.
On stakeholder relations, we anticipate risks associated with
changing expectations of stakeholders related to the role of
corporations in society are likely to increase in the short-term,
as governments and societies continue to deal with the COVID-19
pandemic and begin to realise the adjustments required for the
recovery of national economies.
Capital allocation, and assets and growth options
Risks associated with the allocation of capital through annual
planning and other processes, to make investment decisions and to
discover, maintain and grow assets suited to our capabilities and
strategy.
Why is this important to BHP?
Our strategy is to have the best capabilities, commodities and
assets to create long-term value and high returns. While we seek to
design and implement the right strategy at the right time, we may
not always be effective in doing so.
Our decisions and actions relating to the allocation of capital
across asset or reserve discovery, acquisition, maintenance,
growth, development or divestment, impact our financial performance
and financial condition, and therefore the sustainability of our
returns. This is particularly the case with commodities that we
view as attractive (for example, copper, oil and nickel
sulphides).
Threats
Changes in our portfolio, failure to secure or discover new
reserves or resources, missed opportunities to invest or a failure
to effectively allocate capital or achieve expected returns from
existing assets or growth investments have impacted our performance
in the past and may in the future lead to:
- loss of value, for example, due to incorrect or changing
assumptions (including those related to commodity prices) used to
assess growth or investment opportunities
- failure to achieve expected commercial objectives from assets
or investments, including cost savings, sales revenues or
operational performance, resulting in value loss (such as that
experienced with US shale)
- poor performance of current assets due to over-investment in growth capital at the expense of non-discretionary sustaining capital (for example, delaying asset maintenance tasks to free up capital for growth projects resulting in production losses)
- unexpected costs or liabilities of an investment due to poor
regulatory conditions in a new region, inherited liabilities of
acquired assets or entities (such as legacy asset rehabilitation or
legal dispute costs)
- adverse market reactions (for example, to businesses
associated with production or use of energy coal) resulting in a
potential impact to our reputation, social value or our ability to
retain the confidence of external stakeholders and shareholders to
execute our strategy
- poor performance impacting our ability to deliver forecasted returns to shareholders
- not investing in opportunities due to increased debt levels
resulting in a lack of available growth capital
- missed investment opportunities due to a failure to understand
potential new developments or identify major trends (for example,
faster electrical vehicle penetration or hydrogen cost
competitiveness could impact whether we are well positioned for
these changes in copper, nickel, metallurgical coal or
petroleum)
- financial write-downs (for example, as a result of changes in
market, industry or prices, inability to recover reserves,
deteriorating demand/supply fundamentals, value migrating away from
where we are positioned in value chains, per our strategy as
described in section 1.4.1, or additional costs)
- loss of overall value at an asset due to the pursuit of the
incorrect strategy (for example, investing in growth projects in a
commodity that may have deteriorating demand fundamentals, such as
energy coal)
- lack of diversified production base, increasing exposure to
large single-event risks (for example, too much reliance on
Australian-based assets or particular commodities) that may result
in loss of value or reduced cash flows
- inability to retain or attract key staff who are critical to
the successful design and implementation of our strategy, including
in relation to the allocation of capital and growth in our
business
As evidenced by price volatility during CY2020, there are and
may continue to be potential short to medium-term impacts on
certain commodity prices due to the COVID-19 pandemic that could
impact values and result in growth project delays.
Management
We have a number of strategies, processes and frameworks in
place designed to grow and protect the strength of our portfolio
and to help deliver ongoing returns to shareholders, including:
- our exploration program, with a focus on replenishing our
resource base and enhancing our portfolio
- a long-term strategy that informs the decisions and actions in
capital allocation and which is embedded through a tested CAF
- an ongoing strategy process that assesses the competitive
advantage of our business and enables identification of threats and
opportunities for our portfolio using forecasting and
fit-for-purpose scenarios
- monitoring indicators to interpret external events and trends
- commodity strategies and commodity price protocols that are
reviewed and presented to the Executive Leadership Team and
Board
- corporate planning processes, including life-of-asset plans,
capital prioritisation and asset appraisals, which inform forecasts
for proposed investments and operations
- management reviews and governance activities to support
operational and project forecasts and planning
- our CAF, which provides the structure and governance for
prioritising capital allocation across the Group and adding growth
options to our portfolio (for more information, refer to section
1.4.5)
- investment approval processes that apply to investment
decisions, including mergers and acquisitions activity, overseen by
an investment committee as described in sections 2.14 and 2.15
- annual reviews of our portfolio valuations to identify any
value change and test internal value methodologies and assumptions
against external benchmarks
- embedding the social value framework designed to drive better
outcomes that benefit all stakeholders through strategy, planning
and investment processes (including emissions, water, other
environmental factors and community initiatives)
FY2020 insights
While the COVID-19 pandemic has affected commodity prices and
had significant impacts on businesses and national economies around
the world (as discussed in the Geopolitics and stakeholder
relations risk factor), it may also present opportunities for
growth options through acquisitions in attractive commodities that
align with our strategy. The discipline and competition for capital
stimulated through our CAF is designed to drive better
decision-making and capital efficiency. This helps to strike a
balance between returns to shareholders and reinvesting in the
business and is intended to enable us to be in a position to
consider acquisition opportunities that may arise.
Commodity prices
Risks associated with the prices of commodities, including
sustained price shifts relative to the price of extraction.
Why is this important to BHP?
The prices we obtain for our minerals, oil and gas are
determined by or linked to prices in world markets, which have
historically been and may continue to be subject to significant
volatility.
Threats
Fluctuations in commodity prices can occur in response to a
range of factors. These include price shifts triggered by global
economic and geopolitical factors, industry demand, increased
supply due to the development of new productive resources or
increased production from existing resources, technological change,
product substitution and national tariffs. The effects of the
COVID-19 pandemic have impacted and may continue to have an impact
on commodity price volatility due to rapid demand deterioration
from affected customers/countries, supply disruption from key
producing regions or logistical constraints impacting supply
chains, which may therefore affect our financial performance.
We are particularly exposed to price movements in minerals, oil
and gas. For example, a US$1 per tonne decline in the average iron
ore price and US$1 per barrel decline in the average oil price
would have an estimated impact on FY2020 profit after taxation of
US$163 million and US$24 million, respectively. For more
information on commodity price impacts, refer to section 1.5.2.
Commodity prices can also be affected by exchange rate fluctuation,
which impacts our financial results.
Long-term price volatility or sustained low prices may adversely
affect our future profitability. This could result in cost
pressure, as we do not generally have the ability to offset costs
through price increases. In addition, this impact may result in
lower than desired credit ratings for BHP, restricting our access
to debt funding or increasing our financing costs.
Management
Our usual policy is to sell our products at the prevailing
market prices. We manage our exposures primarily through the
diversity of commodities, markets, geographies and currencies
provided by our relatively broad portfolio of commodities. However,
this does not necessarily insulate us from the effects of price
changes.
Note 22 'Financial risk management' in section 5 outlines our
financial risk management strategy, including market, commodity and
currency risk.
FY2020 insights
Impacts from the COVID-19 pandemic and other geopolitical and
macroeconomic developments (mentioned in the Geopolitics and
stakeholder relations risk factor) are expected to increase
commodity price volatility. Volatility in the market will continue
to translate into profit variability.
Community and human rights
Risks that have the potential to impact human rights and/or
communities and affect support for our business with stakeholders,
including communities, governments or the general public.
Why is this important to BHP?
We recognise that our everyday interactions, activities,
behaviours and decisions are intricately linked to the long-term
viability of our business and to the social and economic wellbeing
of the communities where we have a presence.
Impacts could be in relation to our environmental, community,
legal and regulatory performance (such as human rights, community
wellbeing, water and biodiversity, climate change, Indigenous
peoples and local, regional and national economies), and also the
effect of shareholder or civil society activism on our business.
Changes in society and the evolving expectations of communities and
our other stakeholders have the potential to change and increase
these impacts.
Although our community and environmental performance is intended
to go beyond managing threats to actively contributing to the
resilience, rehabilitation and conservation of the natural
environment and communities with which we work, we may not always
be successful in doing so if our social value proposition is
inadequate or we are unable to implement it.
Threats
BHP may engage in activities that have or are perceived to have
adverse impacts on communities, society, cultural heritage, human
rights and the environment. These activities, such as exploration,
production, construction or expansion of our operations, vary
depending on the social, economic and environmental context of each
of our operations and may take place on or adjacent to Indigenous
peoples' territories or areas of importance for biodiversity or
cultural conservation.
These activities, or a failure to effectively engage with
communities and relevant stakeholders, can affect our relationships
with or be viewed negatively by the community and other
stakeholders and may result in adverse impacts on human rights (for
example, disruption of community access to water, including through
contamination of potable water supplies). In addition, they could
result in the following impacts to our business:
- loss of rights to explore, operate or expand our current asset
base, delays in approvals, increased costs or reduced production
for new or existing projects
- withdrawal of consent or support from Indigenous peoples
- opposition to our projects or our entry into new
jurisdictions, including through legal or social action
- increased costs for mitigation, offsets or financial compensatory actions or obligations
- loss of customer base or restriction of the countries to which we can supply products
- loss or limited access to commercial partners or employee talent
- increased taxes, royalties and other governmental or administrative charges
- reduced access to equity and capital markets
- civil unrest, industrial relations disputes or action,
negotiations, litigation or regulatory action, resulting in higher
costs and a loss of productivity
- reputational damage
The COVID-19 pandemic has affected community health, safety and
quality of life, and had economic impacts on livelihoods and supply
chains, particularly to regional communities and Indigenous
peoples. All of these impacts and our response to them may amplify
existing risks and have the potential to affect our business. This
may include production interruptions, delays or refusals of
regulatory approvals and reputational damage (for example, an
outbreak of COVID-19 in a community that is or is perceived to be
caused by BHP may result in criticism from our stakeholders,
including investors).
Heightened societal expectations can also result in changes to
legal requirements, as well as litigation, inquiries, regulatory
action or government responses against BHP. For example, the
transportation of our commodities by third parties or procurement
of materials needed for our mining operations, such as personal
protective equipment, tyres or conveyor belts, may be connected to
a breach of legislation intended to prevent modern slavery or a
breach of human rights within our supply chain by a direct or
indirect supplier.
Management
In FY2020, social value was integrated into asset plans, which
is intended to enhance our contribution to the natural environment,
communities and our many stakeholders at an asset and Group-wide
level.
BHP's standards for communications, community and external
engagement, and supply chain management provide mandatory minimum
requirements and practices that are designed to strengthen our
social and human rights performance. In addition, our Human Rights
Policy Statement, Climate Change Position Statement, Water
Stewardship Position Statement and Indigenous Peoples Policy
Statement set out our commitments to human rights, climate change,
water security and access to safe water for all, and the
traditional rights of Indigenous peoples (including our approach to
engaging with Indigenous peoples).
These requirements and our practices also include:
- conducting regular impact assessments for each operated asset
to understand the social, environmental, human rights and economic
context
- identifying and analysing stakeholder, community and human
rights impacts, including modern slavery risks
- engaging in regular, open and honest dialogue with
stakeholders to understand their expectations, concerns and
interests
- contributing to environmental and community resilience through social investment
- completing due diligence on all current and new suppliers
through our Ethical Supply Chain processes
These activities also assist us to identify, mitigate or manage
key potential social, environmental and human rights risks, as
described in section 1.7.
FY2020 insights
The Group's exposure to risks associated with the community and
human rights is expected to increase as societal, community and
political pressures continue to grow, as evidenced by recent civil
unrest in Chile, the United States and other countries where we
have a presence. The COVID-19 pandemic has amplified risks and
impacts associated with pre-existing factors that affect
communities and society across some of our locations (such as
inadequate community services and community health and safety).
This highlights the need for a rapid and coordinated response by
BHP in partnership with relevant stakeholders and, along with
adjustments required for the recovery of local and national
economies, may present an opportunity for BHP as strong social
performance could generate competitive advantage in Australia and
other countries in which we operate. For information on our
community response to the COVID-19 pandemic, refer to section
1.4.6.
Climate change
Risks associated with changes in climate patterns, as well as
risks arising from policy, regulatory, legal, technological, market
or other societal responses to the challenges posed by climate
change.
Why is this important to BHP?
We are exposed to a broad range of climate-related risks arising
from the physical and non-physical impacts of climate change.
Climate-related risks may affect our operations, the markets in
which we sell our products, the communities in which we operate and
our upstream and downstream value chains.
Risks related to the potential physical impacts of climate
change include acute risks resulting from increased severity of
extreme weather events and chronic risks resulting from longer-term
changes in climate patterns.
Risks related to the non-physical impacts of climate change, or
transition risks, arise from a variety of policy, regulatory,
legal, technological, market and other societal responses to the
challenges posed by climate change and the transition to a low
carbon economy. The production and use of fossil fuels receive
scrutiny from a range of stakeholders, including governments,
investors, NGOs and communities. This is because the combustion of
fossil fuels is a significant source of greenhouse gas (GHG)
emissions. We produce fossil fuels (energy coal, oil and gas) used
primarily in the transport and electricity generation sectors, as
well as fossil fuels and other commodities that are used as inputs
to emissions-intensive industrial processes (including
metallurgical coal and iron ore used in steelmaking). We also use
fossil fuels in our mining and processing operations either
directly or through the purchase of fossil fuel-based electricity.
We therefore have already been and may be further impacted by
policies and regulations that reduce GHG emissions, including from
the resources, electricity generation, transport and industrial
sectors. Technological and market-related risks include the
substitution of existing technologies with lower emissions options,
such as renewables, particularly in the electricity generation and
transport sectors, which have the potential to reduce demand for
fossil fuels.
Threats
Risks associated with climate change and the transition to a low
carbon economy could affect the execution of our strategy, the
expansion of our portfolio and the ability of our operated and
non-operated assets to operate efficiently.
We are exposed to risks related to the physical impacts of
climate change (for example, potential changes in precipitation
patterns, water shortages, rising sea levels, increased storm
intensities, higher temperatures and natural disasters). These
risks may affect us directly, such as by causing damage to our
assets, or indirectly, such as through value chain disruptions (or
a combination of both). Risks related to the physical impacts of
climate change may materially and adversely affect our business,
including through:
- adverse impacts to the health and safety of our people
- adverse impacts to our assets, such as failures of mining or
processing equipment, loss of containment, mining infrastructure
failures (for example, power, water, rail and port) and support
infrastructure failures (for example, technology services and
office buildings). Such adverse impacts may affect our business,
including through reduced productivity, increased costs and project
schedule delays
- disruptions to our supply chains, transport and distribution
networks, customers' facilities and the markets in which we sell
our products
In addition, assessments of the potential impact of future
climate change policy, regulatory, legal, technological, market,
societal and environmental outcomes are uncertain given the wide
scope of influencing factors and the countries in which we do
business. For example, countries will need to introduce new or
strengthen existing policies and regulation in order to meet the
goals of the Paris Agreement. Accordingly, the following risks
relating to the transition to a low carbon economy have (in some
instances) already affected us and may in the future continue to
affect us:
- the Group's asset carrying values or financial performance may
be affected by any adverse impacts to reserve estimates or market
prices that may occur if, for example, reserves are rendered
incapable of extraction or demand for fossil fuel commodities (such
as petroleum and energy coal) decreases due to policy, regulatory
(including carbon pricing mechanisms), legal, technological, market
or other societal responses to climate change in our operating
jurisdictions or markets
- climate change may increase competition for and the regulation
of limited resources, such as power and water, which are critical
to the operation of our business. This could affect the
productivity of and costs associated with our assets
- we are impacted by current and emerging policy and regulation
aimed at reducing GHG emissions from the resources, electricity
generation, transport and industrial sectors, including the
introduction of carbon pricing mechanisms. Climate policy and
regulation, as well as changes to international reporting standards
on climate change and pressure from society for more rapid and
aggressive action from governments and companies, may reduce demand
for our products, increase our costs and affect our business and
stakeholders, including by reducing investor confidence
- increased scrutiny of applications for licences, permits or
authorisations required to develop our assets and projects,
including third parties contesting such applications. This could
delay, limit or prevent future development of our assets or affect
the productivity of and costs associated with our assets
- the Group's reputation and financial performance may be
impacted by concerns regarding the contribution of fossil fuels to
climate change (for example, some financial institutions and other
institutional investors have declared an intention to exit certain
commodities that are seen to be associated with climate change,
such as energy coal). Impacts could affect our share price, reduce
investor confidence, constrain our ability to access capital from
financial markets, or result in an inability or increase in cost to
insure our assets
The following threats, which are common to risks related to both
the physical impacts of climate change and the transition to a low
carbon economy, may also materially and adversely affect our
business:
- increased costs for mitigation, offsets or financial
compensatory actions or obligations, including taxes and
royalties
- restricted access to capital or an inability to attract new or retain existing employees
- adverse impacts to the environment, communities, human rights
and social wellbeing, which could affect our relationships with and
be viewed negatively by the community and other stakeholders and
damage our reputation
- opposition to new projects or our entry to new jurisdictions
by communities, including through legal or social action, or other
loss of business opportunities
- the Group may be subject to, or impacted by, climate-related
litigation (including class actions), associated costs and
reputational damage
Management
We have a Climate Change Position Statement that sets out our
views on climate change and our commitments to act in response to
climate change. The Our Requirements for Environment and Climate
Change standard establishes minimum requirements for managing
climate change threats and opportunities and supports the execution
of our climate change strategies and plans through our corporate
planning processes.
We work with globally recognised agencies to obtain regional
analyses of climate science to improve our understanding of the
potential climate vulnerabilities of our operations and communities
where we operate, and to inform resilience planning at an asset
level. We take a risk-based approach to adaptation, including
consideration of the potential vulnerabilities of our operated
assets, investments, portfolio, communities, ecosystems and our
suppliers and customers across the value chain.
Our operated assets are required to develop plans to build
climate resilience into their activities and we require proposed
new investments to assess and manage risks associated with
potential physical impacts of climate change.
Climate-related scenarios, themes and signposts are used to
evaluate the resilience of our portfolio and inform BHP's strategy.
Climate-related risks are assessed alongside the other threats and
opportunities that BHP faces when making capital expenditure
decisions or allocating capital through our CAF. Our Risk Framework
helps identify these risks for input to the prioritisation of
capital and to investment approval processes. Our investment
evaluation process has incorporated market and sector-based carbon
prices for more than a decade.
In CY2020, we published the BHP Climate Change Report 2020 that
describes our latest portfolio analysis, including a 1.5degC Paris
Agreement-aligned scenario. We continue to monitor climate-related
developments that could impact the resilience of our portfolio and
remain alert to policy, regulatory, legal, technological, market,
societal and environmental developments that may indicate changes
to our signposts and the development of new uncertainties in our
portfolio analysis.
We seek to mitigate our exposure to risk arising from current
and emerging policy and regulation in our operating jurisdictions
and markets by reducing our operational emissions. In CY2020, we
set a medium-term target to reduce our operational GHG emissions
(Scope 1 and Scope 2 from our operated assets) by at least 30 per
cent from FY2020 levels(1) by FY2030. We also take a product
stewardship approach to emissions in our value chain. In CY2020,
for example, we set public goals to address Scope 3 emissions.
Identifying cost-effective and robust carbon offsets is
important to meeting our emissions reduction commitments and
managing reputational risk. We therefore also support the
development of market mechanisms that reduce global GHG emissions
through projects that generate carbon credits.
We also respond to our exposure to policy and regulatory risk by
advocating for the development of an effective, long-term policy
framework that can deliver a measured transition to a low carbon
economy.
The Group continues to monitor policy, market and technological
changes and community, investor and regulatory standards and
expectations as they develop, to inform appropriate management
actions.
For more information on our climate change risk management
strategy, refer to the BHP Climate Change Report 2020 available at
bhp.com/climate.
(1) FY2020 baseline will be adjusted for any material
acquisitions and divestments based on greenhouse gas emissions at
the time of the transaction. Carbon offsets will be used as
required.
FY2020 insights
During FY2020, community, investor and regulatory standards and
expectations in relation to climate change continued to increase.
Public response to severe natural disasters, including bushfires in
Australia this year, heightened scrutiny of potential links between
climate change and physical impacts and spurred calls for more
rapid and aggressive action from governments and companies. In
addition, the COVID-19 pandemic and the subsequent reduction in
economic activity decreased emissions, which may lead to
opportunities to restart economies with a greater focus on
sustainability.
Cybersecurity
Cyber-related risk events, including attacks on our enterprise
or incidents relating to human error, online and web-based
operations and infrastructure.
Why is this important to BHP?
Many of our business and operational processes are supported by
and dependent on technology. As automation and the speed of
technological innovation continues to increase, our dependence on
technology is likely to grow. We are moving towards an increased
reliance on autonomous systems for haulage and drilling. Throughout
our operations, we have substantial integration between our
information technology and operating technology systems. All such
systems may be subjected to cyber events or attacks and these can
have significant impacts, including on our business and
stakeholders.
Threats
Cyber events or attacks may lead to:
- operational or commercial disruption (such as the inability to process or ship resources)
- corruption or loss of system data
- a misappropriation or loss of funds
- unintended disclosure of commercial or personal information
- health and safety incidents, including fatalities (where cyber
events or attacks cause system error or malfunction, which result
in operational incidents)
- environmental damage (for example, a cybersecurity breach of
operational systems controlling pumps and valves resulting in
material being released into the environment)
- a hampered ability to respond appropriately to unrelated incidents
- regulatory fines and compensation to people impacted
- loss of licences, permits or necessary approvals to operate assets
- reputational damage
Management
We employ a number of measures designed to protect against,
detect and respond to cyber events or attacks, including:
- BHP's standards on technology and cybersecurity, communications and external engagement
- cybersecurity strategy and resilience programs
- enterprise security framework and cybersecurity standards
- cybersecurity awareness plan and training
- security assessments and monitoring
- restricted physical access to critical centres, servers and network equipment
- incident response and crisis management plans
FY2020 insights
There were no identified cybersecurity breaches to the Group's
technology environment during FY2020 despite an increase in
attempted cyberattacks during the COVID-19 pandemic. The Group's
exposure to cybersecurity-related risk events increased in FY2020
and is expected to increase further, primarily due to our growing
reliance on technology and the increasing sophistication and
frequency of external cyberattacks.
Third party performance
Risks associated with non-operated joint ventures and the
delivery of products and services by third parties engaged by BHP,
including contractors.
Why is this important to BHP?
The Group, through its affiliated entities, holds interests in
companies and joint ventures that we do not operate, primarily
within Minerals Americas (Samarco, Antamina, Resolution and
Cerrejón) and Petroleum (Algeria, Australia and Gulf of Mexico).
Joint venture partners or other companies managing non-operated
joint ventures may take action contrary to our standards or fail to
adopt or apply standards equivalent to our standards in relation to
health, safety, environment, communities and other aspects of
operations. In these situations, we may be unable to influence
non-operated joint venture activities and any incidents could
result in potential financial, legal and reputational exposure.
In addition, approximately 60 per cent of our workforce (around
40,000 people) are contractors, with approximately 80 per cent of
those contractors undertaking activities classified as high risk.
As a result, appropriate contractor selection and effective
management of contractors from a safety, business ethics, cost,
quality, schedule and performance perspective is important to the
success of our business. We also contract with many commercial and
financial counterparties, including end customers, suppliers, joint
venture partners and financial institutions, which may experience
financial difficulties (for example, in the context of global
financial markets that remain volatile).
Threats
Third party (including contractor) activities, including a
failure to adopt and apply standards, controls and procedures that
are equivalent to ours, could lead to material risks, including the
risk of:
- safety events that may result in injuries or fatalities, including among community members
- production downtime and damage to or loss of equipment or facilities
- delay in project delivery
- poor quality on service delivery
- failure to meet remediation and compensation requirements
(such as delays to community resettlements related to the Samarco
dam failure; see section 1.8 for information on our response,
support and commitments)
- litigation (including class actions) or regulatory action, inquiries and reputational damage
- shareholder activism (for example, to divest our interest in a
non-operated joint venture or stop using a certain supplier)
- industrial action, civil unrest or other adverse impacts on
human rights (for example, our joint venture partners may not
engage in appropriate consultation with communities or non-operated
joint venture operations may cause disruptions to community access
to water, including through contamination of potable water
supplies)
A failure by suppliers, contractors or joint venture partners to
perform existing contracts or obligations may lead to adverse
impacts, including:
- non-supply of key inputs, such as explosives, mining
equipment, petrol and other consumables important to our
business
- loss of access to third party owned or supplied infrastructure
- disruption to essential supplies or delivery of our products
(for example, where access to or use of BHP owned and operated rail
is disrupted by third parties)
- reduction in production at our assets
- litigation (for example, for contractual breach) and reputational damage
- loss of revenue
The potential effects of the COVID-19 pandemic on third parties
may increase the likelihood of or amplify the risks or impacts set
out above. For example, the operators of our non-operated joint
ventures may not implement effective standards, controls or
procedures in response to the pandemic, which may result in
production downtime. In addition, there is an increased likelihood
of disruptions to our supply chains, which may result in a shortage
of critical equipment and supplies in some geographical locations.
The mobility of our direct and indirect workforce (including
contractors) has been limited by restrictions implemented due to
the pandemic which, for example, may impact the delivery of
construction projects.
Our existing counterparty credit controls may not prevent a
material loss to us due to our credit exposure to certain customer
segments, or commercial or financial counterparties.
Our risk financing approach is to self-insure or not purchase
external insurance for certain risks. For more information, refer
to the Asset integrity and tailings storage facilities risk
factor.
Management
We manage our interests in non-operated joint ventures
through:
- dedicated non-operated joint venture teams
- development of formal influencing plans and key focus areas
specific to each non-operated joint venture
- governance frameworks that define how joint venture partners work together with operators
- where appropriate, governance improvement plans specific to non-operated joint ventures
- BHP and external reviews of non-operated joint venture
projects, risk management and governance activities
- internal audits and participation in joint venture partner
audits of non-operated joint ventures
In addition, we have global practices and standards for
operations and production that apply to contractors, including:
- BHP's standards on supply, safety, health, aviation and capital projects
- Our Code of Conduct, which sets out requirements related to
working with integrity, including dealings with third parties as
described in section 2.16
- our Contractor Management Framework, which specifies a
holistic approach to support regional alignment and is supported by
global training
- training on anti-corruption, competition and Our Code of Conduct
- independent inspections, assurance and verifications (in some
cases performed by regulatory bodies)
We are in the process of improving our Contractor Management
Framework by developing a globally integrated approach, enabled
through the introduction of a new BHP standard for contractor
management, delivery of a suite of technology solutions to support
the end-to-end contractor management process, building
organisational capacity and capability, and changing behaviours to
be more inclusive and integrated with our contractor workforce.
We maintain a 'one book' approach with commercial
counterparties, which means we aim to quantify and assess our
credit exposures on a consistent basis. We also have contingency
plans in place if production or shipping is interrupted.
FY2020 insights
While the COVID-19 pandemic may affect some third party
performance risks (as described above), it has also presented
opportunities to BHP. These include focusing on local supply chain
resilience by supporting small, local and Indigenous businesses
(for example, in March and April 2020 we made immediate payments of
outstanding invoices and reduced payment terms from 30 to seven
days for our small, local and Indigenous suppliers in Australia and
for those that support our Petroleum business), as well as
employing additional contractors to support our Australian
operations.
Legal, regulatory, ethics and compliance
Risks associated with legal, regulatory, ethics and compliance
obligations.
Why is this important to BHP?
Our operated assets and non -- operated joint ventures involve
material long -- term investments that are dependent on long-term
legal, regulatory, political, judicial and fiscal stability. In
addition, the nature of the industries in which we operate means
many of our activities are highly regulated, including through laws
and regulations imposed at the local, state and regional levels as
well as the federal, national and international levels in the
jurisdictions in which we operate. This includes laws and
regulations relating to bribery and anti-corruption, trade and
financial sanctions, market manipulation, taxation, royalties,
collusion, anti-competitive behaviour, anti-money laundering, data
protection and privacy, controls on production, trade, imports and
exports, prices on greenhouse gas emissions, native title and other
land rights, sexual harassment and assault, and health, safety and
the environment. Our Code of Conduct and our other internal
policies, standards, systems and processes reflect these
requirements.
Section 1.8 details our response and support in relation to the
Samarco dam failure as well as progress on our commitments.
Threats
Certain action or inaction, whether intentional or
unintentional, by BHP or its Directors, executives, employees or
third party partners (including non-operated joint ventures) could
result in actual or alleged breaches of laws or regulations
relating to the matters set out in this risk factor above or other
legal, regulatory, ethical or compliance obligations. Actions of
this nature, or changes in laws or regulations due to the
developing nature of government regulations and international
standards, could lead to (among others) the following threats to
our business, reputation and operations:
- actions, investigations or inquiries by regulatory authorities
or courts over actual or alleged legal or regulatory breaches (for
example, over suspected facilitation payments or bribery and
corruption which are prevalent in some of the countries where we do
business or our assets are located)
- disgorgement of profits (for example, if bribery or corruption is established)
- civil proceedings against or criminal prosecution of
Directors, executives, employees or third party partners
- loss of operating licences, permits or approvals
- operational impacts, such as unforeseen closures, site
rehabilitation expenses, delays or disruption
- increased compliance costs (for example, to meet new or more
onerous operating or reporting standards)
- regulatory fines or settlements (for example, from a failure
to comply with reporting standards or recognise royalties)
- increased costs in relation to taxation or royalties if laws or policies change
- adverse change to regulatory regimes for access to
government-owned or privately-operated infrastructure or resources
(for example, rail, electricity or water), resulting in additional
costs, onerous terms or limitations on access by BHP, which may
adversely impact our financial performance or disrupt
operations
- renegotiation or nullification of existing contracts, leases,
permits or other agreements, nationalisation of assets or other
measures being taken against our business or people
- litigation (including class actions), prosecutions or disputes
(such as in connection with ownership and use of land) and the
associated cost and disruption arising from such litigation,
prosecutions or disputes
- public inquiries such as Parliamentary inquiries or Royal
Commissions, which may adversely impact our reputation and ability
to pursue projects or conduct operations and which may lead to
changes to laws with cost or other impacts to financial
performance
- loss, uncertainty or changing conditions associated with land
tenure, including in countries where compliance with laws is a
condition of the underlying land tenure or for the renewal of that
tenure. For example, withdrawal of consent or support from
Indigenous land rights holders (as discussed in the Community and
human rights risk factor)
The COVID-19 pandemic has led to increased government action
around the world. Varying responses to the pandemic at all levels
of government have amplified pre-existing differences in policy and
standards between and within countries and may continue to do so.
Increased government action has resulted in and may continue to
result in heightened legal obligations in relation to, for example,
the provision of a safe and healthy workplace, management of
personal health-related data, and public health and emergency
management. In addition, community, investor and regulator
expectations as to corporate governance requirements for the Board
to satisfy its fiduciary duties in response to the pandemic have
changed and may continue to change. Any actual or perceived
failures to comply with these heightened legal obligations or
changes to policies, standards or other requirements or
expectations, whether intentional or unintentional, could result in
litigation or enforcement action, fines or penalties and
reputational damage (such as criticism from our stakeholders,
including investors).
We conduct our business globally in numerous jurisdictions with
complex regulatory frameworks. Our governance and compliance
processes may not identify or prevent misstatements or fraud or
prevent potential breaches of law, accounting or governance
practice.
Management
We have internal policies, standards, systems and processes for
governance and compliance, including:
- Our Code of Conduct
- BHP's standards on business conduct, market disclosure, and
information governance and controlled documents
- training on Our Code of Conduct and in relation to
anti-corruption, market conduct and competition matters
- contractor due diligence and automated risk screening
- global monitoring of compliance controls and higher risk
transactions by our Ethics and Compliance function
- ring fencing protocols to separate potentially competitive businesses within BHP
- classification of compliance sensitive transactions
- governance and compliance processes (including the review of
internal controls over financial reporting and specific internal
controls in relation to trade and financial sanctions, market
manipulation, competition, data protection and privacy, and
corruption)
- oversight and engagement with higher risk areas by our Ethics
and Compliance function, Internal Audit and Advisory team and the
Disclosure Committee
- EthicsPoint anonymous reporting service, supported by an
ethics and investigations framework and central investigations team
(within the Ethics and Compliance function) to investigate Our Code
of Conduct concerns. Material breaches of Our Code of Conduct are
reported to the Board on a regular basis and individuals are
encouraged to report anything they believe may be misconduct or an
improper state of affairs or circumstance without fear of
retaliation (EthicsPoint is discussed in further detail in section
2.15)
FY2020 insights
The Group's exposure to risks associated with legal, regulatory,
ethics and compliance issues may increase given changes in the
external environment. These risks could be exacerbated by the
COVID-19 pandemic, as well as by the continuing response of
governments and society to ethical and cultural failings within
large corporates, including the financial services industry.
Exposure to these risks may also increase in the event of
additional investment and activity in higher risk jurisdictions.
The impacts of the pandemic on such jurisdictions may amplify those
risks (for example, adverse effects on local economic wellbeing may
increase corruption risks).
Balance sheet and liquidity
Risks associated with our ability to maintain a robust and
effective balance sheet, raise debt, return value to shareholders
and remain financially liquid.
Why is this important to BHP?
Fluctuations in commodity prices, operational or supply chain
disruptions and ongoing global economic volatility could materially
and adversely affect our future cash flows and ability to access
capital from financial markets at acceptable pricing. If our
liquidity and cash flows deteriorate significantly, it may
adversely affect our ability to fund our strategy.
Threats
If our key financial ratios and credit ratings are not
maintained, our ability to fund current and future capital projects
and acquisitions, cost of financing, solvency and our ability to
return value to shareholders may be impacted.
A number of risks across the Group Risk Architecture, including
our principal risks, could adversely impact the Balance Sheet and
liquidity to varying degrees should they occur and depending on
their severity. Examples of risks that may affect our short to
medium-term cash flow generation, profitability or the value of our
assets (including reserves) - and therefore the Balance Sheet
and/or liquidity - include:
- a significant reduction in production at our assets caused by
material third party performance issues and operational disruptions
due to the COVID-19 pandemic
- long-term commodity price volatility and sustained low prices.
For example, a prolonged low oil price may result in write downs to
our petroleum reserves, and a sustained decrease in the price of
iron ore may have significant impacts on liquidity (in FY2020, 48
per cent of our revenue was derived from iron ore), as discussed
further in the Commodity prices risk factor
- inability to sell our commodities (for example, caused by
physical blockages of shipping lanes, closure of ports or land
logistics, or other restrictions to trade, including as a result of
tensions between a country where we operate or sell our products
and other countries with which BHP is connected, as discussed in
the Geopolitics and stakeholder relations risk factor)
Management
The Financial Risk Management Committee (FRMC) oversees the
financial risks across our business and endorses or approves
financial risk management strategies, mandates and activities,
including those related to commodity, currency, credit and
insurance markets. The role of the FRMC is described in sections
2.14 and 2.15. Note 22 'Financial risk management' in section 5
outlines our financial risk management strategy.
We seek to maintain a strong Balance Sheet supported by our
portfolio risk management strategy. To achieve this, we:
- operate a diversified portfolio, which reduces overall cash flow volatility
- maintain access to key debt markets globally and a US$5.5
billion revolving credit facility (undrawn as at 30 June 2020)
- monitor target gearing levels and credit rating metrics under
a range of different stress test scenarios incorporating
operational and macroeconomic factors
- assess cash flow at risk to monitor sensitivities to market
prices and their impact on key financial ratios
- maintain target cash and liquidity buffers within ranges set
by the Board (which are designed to sustain BHP through periods
where there is limited access to debt markets)
- operate within credit limits set by frameworks approved by the FRMC
FY2020 insights
The global economy has been impacted by the COVID-19 pandemic.
Increased geopolitical uncertainty, including the impact on
national economies and the speed at which they recover from the
effects of the pandemic, has further weighed on the macroeconomic
outlook. There is a risk of heightened fluctuations in commodity
prices, operational or supply chain disruptions and ongoing global
economic volatility, which could affect short to medium-term cash
flow generation and profitability.
2. Related party transactions
There have been no related party transactions that have taken
place during the year ended 30 June 2020 that have materially
affected the financial position or the performance of the BHP Group
during that period. Details of the related party transactions that
have taken place during the year ended 30 June 2020 are set out in
notes 23 'Key management personnel' and 32 'Related party
transactions' to the Financial Statements set out below.
23 Key management personnel
Key management personnel compensation comprises:
2020 2019 2018
US$ US$ US$
============================= ========== ========== ==========
Short-term employee benefits 12,564,637 11,557,506 13,190,838
Post-employment benefits 1,172,727 1,490,716 1,506,108
Share-based payments 13,514,588 15,821,972 13,356,657
============================== ========== ========== ==========
Total 27,251,952 28,870,194 28,053,603
============================== ========== ========== ==========
Key Management Personnel (KMP) includes the roles which have the
authority and responsibility for planning, directing and
controlling the activities of BHP. These are Non-executive
Directors, the CEO, the Chief Financial Officer, the President
Minerals Australia, the President Minerals Americas, and the
President Petroleum.
Transactions and outstanding loans/amounts with key management
personnel
There were no purchases by key management personnel from the
Group during FY2020 (2019: US$ nil; 2018: US$ nil).
There were no amounts payable by key management personnel at 30
June 2020 (2019: US$ nil; 2018: US$ nil).
There were no loans receivable from or payable to key management
personnel at 30 June 2020 (2019: US$ nil; 2018: US$ nil).
Transactions with personally related entities
A number of Directors of the Group hold or have held positions
in other companies (personally related entities) where it is
considered they control or significantly influence the financial or
operating policies of those entities. There were no reportable
transactions with those entities and no amounts were owed by the
Group to personally related entities at 30 June 2020 (2019: US$
nil; 2018: US$ nil).
For more information on remuneration and transactions with key
management personnel, refer to section 3.
32 Related party transactions
The Group's related parties are predominantly subsidiaries,
joint operations, joint ventures and associates and key management
personnel of the Group. Disclosures relating to key management
personnel are set out in note 23 'Key management personnel'.
Transactions between each parent company and its subsidiaries are
eliminated on consolidation and are not disclosed in this note.
- All transactions to/ from related parties are made at arm's
length, i.e. at normal market prices and rates and on normal
commercial terms.
- Outstanding balances at year-end are unsecured and settlement
occurs in cash. Loan amounts owing from related parties represent
secured loans made to joint operations, associates and joint
ventures under co-funding arrangements. Such loans are made on an
arm's length basis. Such loans made to joint operations are payable
on demand and loans made to associates are due to be repaid by 16
August 2022.
- No guarantees are provided or received for any related party receivables or payables.
- No provision for expected credit losses has been recognised in
relation to any outstanding balances and no expense has been
recognised in respect of expected credit losses due from related
parties.
- There were no other related party transactions in the year
ended 30 June 2020 (2019: US$ nil), other than those with
post-employment benefit plans for the benefit of Group employees.
These are shown in note 26 'Pension and other post-retirement
obligations'.
Transactions with related parties
Further disclosures related to related party transactions are as
follows:
Joint operations Joint ventures Associates
================== ================ ==================
2020 2019 2020 2019 2020 2019
US$M US$M US$M US$M US$M US$M
============================== ======== ======== ======= ======= ======= =========
Sales of goods/services - - - - - -
Purchases of goods/services - - - - 967.276 1,141.230
Interest income 1.306 1.532 - - 2.370 0.826
Interest expense - - - - - 0.011
Dividends received - - - - 126.187 509.577
Net loans made to/(repayments
from) related parties 4.851 12.539 - - 12.273 14.547
============================== ======== ======== ======= ======= ======= =========
Outstanding balances with related parties
Disclosures in respect of amounts owing to/from joint operations
represent the amount that does not eliminate on consolidation.
Joint operations Joint ventures Associates
================== ================ ===============
2020 2019 2020 2019 2020 2019
US$M US$M US$M US$M US$M US$M
================================ ======== ======== ======= ======= ====== =======
Trade amounts owing to related
parties - - - - 69.490 169.773
Loan amounts owing to related
parties 33.812 40.513 - - 5.097 10.097
Trade amounts owing from
related parties - - - - 0.473 3.828
Loan amounts owing from related
parties 13.625 15.474 - - 40.759 33.486
================================ ======== ======== ======= ======= ====== =======
3. Directors' Responsibility Statement
The following statement which was prepared for the purposes of
the Annual Report 2020 is repeated here for the purposes of
complying with DTR 6.3.5. It relates to and is extracted from the
Annual Report 2020 and is not connected to the extracted and
summarised information presented in this announcement.
" In accordance with a resolution of the Directors of BHP Group
Limited and BHP Group Plc, the Directors declare that:
(a) in the Directors' opinion and to the best of their knowledge
the Financial Statements and notes, set out in sections 5.1 and
5.2, are in accordance with the UK Companies Act 2006 and the
Australian Corporations Act 2001, including:
(i) complying with the applicable Accounting Standards;
(ii) giving a true and fair view of the assets, liabilities,
financial position and profit or loss of each of BHP Group Limited,
BHP Group Plc, the Group and the undertakings included in the
consolidation taken as a whole as at 30 June 2020 and of their
performance for the year ended 30 June 2020;
(b) the Financial Statements also comply with International
Financial Reporting Standards, as disclosed in section 5.1;
(c) to the best of the Directors' knowledge, the management
report (comprising the Strategic Report and Directors' Report)
includes a fair review of the development and performance of the
business and the position of the Group and the undertakings
included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that the Group
faces;
[Paragraphs related to Australian regulatory requirements have
been omitted.]
Signed in accordance with a resolution of the Board of
Directors.
Ken MacKenzie Chair
Mike Henry Chief Executive Officer
Dated this 3rd day of September 2020."
BHP Group Plc Registration number 3196209
LEI 549300C116EOWV835768
Registered in England and Wales
Registered Office: Nova South, 160 Victoria Street, London SW1E
5LB United Kingdom
A member of the BHP Group which is headquartered in
Australia
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
ACSDBGDCXXBDGGS
(END) Dow Jones Newswires
September 15, 2020 02:00 ET (06:00 GMT)
Bhp (LSE:BHP)
Gráfica de Acción Histórica
De Mar 2024 a Abr 2024
Bhp (LSE:BHP)
Gráfica de Acción Histórica
De Abr 2023 a Abr 2024
