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BHP Annual Financial Report 2020
BHP Group Plc
Registration number 3196209
Registered in England and Wales
Share code: BHP
ISIN: GB00BH0P3Z91
Issued by: BHP Group Plc
Date: 15 September 2020
To: London Stock Exchange
JSE Limited
For Release: Immediately
Authorised for Geof Stapledon +44 (0) 20 7802 4000
lodgement :
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 Risk Group Risks
Categories
Strategy Strategy Commodities Asset and
information exposure growth
options
+
Growth and Political Expansions,
development stability and organic growth
new country and major projects
entry
Production Operational Mine to port Third party Asset Transformational
and productivity infrastructure performance integrity change
operations
Commercial Procurement Maritime Commodity Sales Counterparty
and inbound price security and risk
supply chain concentration
management +
Planning and Exploration Resource Reserve Rehabilitation Tailings Geotechnical
technical development reporting and closure storage stability
facilities +
+
People and Attract, Diversity, Industrial and Labour
culture retain and inclusion and employee relations
engage equal opportunity relations
capability
Health and Aviation Process Non- Physical Mental and Occupational Contractor Occupational
safety safety/hazardous process fire security and physical health safety managements health
materials and company crisis exposures
containment explosion
* +
Environment, Biodiversity Human rights Climate Community Water
climate loss and land change * interactions
change 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 and sheet
reporting
Allocation of Capital Corporate Licence to
capital and allocation planning invest
group
planning
Legal Geopolitics Ethics and Legal and
compliance and compliance regulatory
and stakeholder
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 and Priority Group Risk Reviews
Committee viability statement
Material risk report Priority Group Risk Reviews
(Finance focused)
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:
- the reserve life of BHP’s
- BHP’s commodity price
minerals assets and the
protocols, including low-case
reserves-to-production life of our
prices
oil and gas assets
- the latest funding and liquidity
- the Group-level risk profile and
update
the mitigating actions available
- the long-dated maturity profile of
should particular risks
BHP’s debt and the maximum
materialise
debt maturing in any one year
- any actual and further
- the flexibility in BHP’s capital
anticipated impacts of the
and exploration expenditure
COVID-19 pandemic on BHP’s
programs under the CAF
two-year budget and five-year
plan
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 1.5°C 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
4.851 12.539 - - 12.273 14.547
parties
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.”
Sponsor: UBS South Africa (Pty) Limited
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
Date: 15-09-2020 07:05:00
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