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BHP Group PLC - BHP Annual Financial Report 2020

RNS Number : 9640Y
BHP Group PLC
15 September 2020
 

Issued by:

BHP Group Plc

 

Date:

15 September 2020

 

To:

London Stock Exchange

JSE Limited

 

For Release:

Immediately

 

Authorised for lodgement :

Geof Stapledon +44 (0) 20 7802 4000

 

BHP Group Plc - Annual Financial Report 2020

 

Financial Conduct Authority Submissions

 

The following documents have today been submitted to the FCA National Storage Mechanism and will shortly be available for inspection at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism

 

-  Annual Report 2020

https://www.bhp.com/investor-centre/-/media/documents/investors/annual-reports/2020/bhpannualreport2020.pdf

 

- Economic Contribution Report 2020

https://www.bhp.com/investor-centre/-/media/documents/investors/annual-reports/2020/bhpeconomiccontributionreport2020.pdf

 

- XML format of the Economic Contribution Report 2020

https://www.bhp.com/investor-centre/-/media/documents/investors/annual-reports/2020/bhpeconomiccontributionreport2020.xml

 

The documents may also be accessed via BHP's website - bhp.com - or using the web links above.

 

Additional Information

The following information is extracted from the Annual Report 2020 (section references are to sections of the Annual Report) and should be read in conjunction with BHP's Results announcement issued on 18 August 2020. Both documents can be found at bhp.com and together, constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the Annual Report 2020 in full.

1.  Principal risks and uncertainties

1.1 Risk management

The identification and management of risks is central to achieving our strategic objectives. It protects us against potential negative impacts, enables us to take risk for strategic reward and improves our resilience against emerging risks. BHP believes effective risk management requires a single, consolidated view of risks across the business to understand the Group's full risk exposure and to prioritise risk management and governance activity. As such, we apply a single framework (known as the Risk Framework) for all risks.

 

There are four pillars in our Risk Framework: risk strategy, risk governance, risk process and risk intelligence.

 

 

Risk strategy

Group Risk Architecture

 

The Group Risk Architecture is a tool to identify, analyse, monitor and report risk, which provides a platform to understand and manage the risks to which BHP is exposed. It currently comprises 12 Group Risk Categories, which cover a number of Group Risks. Risks in BHP's risk profile are connected to a Group Risk. This gives the Board and management visibility over the aggregate exposure to risks on an enterprise-wide basis and supports performance monitoring and reporting against BHP's risk appetite.

 

For example, under the Group Risk of occupational safety, we have identified risks relating to the safety of our people in performing their work (such as vehicle incidents, falls from height and dropped objects) and, under the Group Risk of mental and physical health, we have identified risks to our people associated with the impacts of the COVID-19 pandemic on our assets and offices.

 

The Group Risk Architecture (as at 30 June 2020) is outlined in the diagram below. The left column shows the Group Risk Category and the columns to the right show the allocation of the Group Risks to each Category. This Group Risk Architecture changes over time to reflect our strategy, changing activities, organisational accountabilities and consideration of the external context. For example, Group Risks may be added, removed, renamed, merged or moved between Group Risk Categories if there is a more appropriate place for them in our continuously evolving Group Risk Architecture.

 

In FY2020, we added two new Group Risk Categories - Planning and technical, and Allocation of capital and group planning - which include new Group Risks, as well as Group Risks moved from other categories. The new Group Risks were created to provide additional visibility and oversight of some of the Group's most significant risks and better recognise the importance of managing certain strategic risks, including those relating to business planning, cash prioritisation and cash flow forecasts. In addition, changes were made to existing Group Risks to further clarify and streamline the Group Risk Architecture. To date, the COVID-19 pandemic has not required any changes to be made to the Group Risk Architecture, which is sufficiently broad to accommodate risks associated with the pandemic.

 

Group Risks

Strategy

Strategy information

Commodities exposure






Growth and development

Political stability and new country entry

Expansions, organic growth and major projects







Production and operations

Operational productivity

Mine to port infrastructure

Transformational change




Commercial

Procurement and inbound supply chain management

Maritime

Counterparty risk




Planning and technical

Exploration

Resource development

Reserve reporting

Rehabilitation and closure



People and culture

Attract, retain and engage capability

Diversity, inclusion and equal opportunity

Industrial and employee relations

Labour relations





Health and safety

Aviation

Physical security and company crisis

Mental and physical health

Contractor managements

Occupational health exposures

Environment, climate change and community

Biodiversity loss and land use impacts

Water interactions




Technology, innovation and systems

IT/OT service management

Automation and technology innovation

Data protection





Financial management

Tax

Financial control and reporting





Allocation of capital and group planning

Corporate planning

Licence to invest






Legal compliance and stakeholder 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 Committee

Robust risk assessment and viability statement

Priority Group Risk Reviews

Material risk report

(Finance focused)

Priority Group Risk Reviews


Viability statement



Business Risk and Audit Committee



Material risk report

(Region focused)



Other management committees



As required



 

Material risk report includes:

·    Update on the implementation of the Risk Framework

·    Risk profile overview

·    Material changes in the risk profile

·    Key risk indicators

·    Chief Risk Officer opinion (or Head of Risk Business Partners opinion for Business Risk and Audit Committee)

·    Priority Group Risk summaries

·    Update on emerging risk themes

 

Robust risk assessment and viability statement

The Board has carried out a robust assessment of BHP's emerging and principal risks, including those that could result in events or circumstances that might threaten BHP's business model, future performance, solvency or liquidity and reputation.

The Board has assessed the prospects of BHP over the next three years, taking into account our current position and principal risks.

The Board believes a three-year viability assessment period is appropriate for the following reasons. BHP has a two-year budget, a five-year plan and a longer-term life of asset outlook. As highlighted in the Risk factors section, there is currently increased uncertainty in the external environment, including due to heightened political and policy uncertainty, growing civil unrest in some countries in which we operate and market volatility and geopolitical tensions resulting from the COVID-19 pandemic. This may increase the risk of commodity price and exchange rate volatility and also affect the longer-term supply, demand and price of our commodities. These factors result in variability in plans and budgets. A three-year period strikes an appropriate balance between long- and short-term influences on performance.

The viability assessment took into account, among other things:

-     BHP's commodity price protocols, including low-case prices

-     the latest funding and liquidity update

-     the long-dated maturity profile of BHP's debt and the maximum debt maturing in any one year

-     the flexibility in BHP's capital and exploration expenditure programs under the CAF

-     the reserve life of BHP's minerals assets and the reserves-to-production life of our oil and gas assets

-     the Group-level risk profile and the mitigating actions available should particular risks materialise

-     any actual and further anticipated impacts of the COVID-19 pandemic on BHP's 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.

 

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.

 

 

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.

 

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.

 

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

 

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.

 

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).

 

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.

 

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).

 

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.

 

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)

 

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.

 

 

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.

 

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.

 

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.

 

 

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.

 

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.

 

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.

 

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.

 

 

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.

 

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

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.

 

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.

 

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 

 

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

 

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.

 

 

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).

 

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.

 

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.

 

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.

 

 

Our operated assets and nonoperated joint ventures involve material longterm 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.

 

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.

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)

 

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).

 

 

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.

 

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)

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 

 

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

US$

2019

US$

2018

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

US$M

 2019

US$M

 2020

US$M

 2019

US$M

 2020

US$M

2019

US$M

Sales of goods/services

 −

 −

 −

 −

 −

 −

Purchases of goods/services

 −

 −

 −

 −

967.276

1,141.230

Interest income

1.306

1.532

 −

 −

2.370

0.826

Interest expense

 −

 −

 −

 −

 −

0.011

Dividends received

 −

 −

 −

 −

126.187

509.577

Net loans made to/(repayments from) related parties

4.851

12.539

 −

 −

12.273

14.547

Outstanding balances with related parties

Disclosures in respect of amounts owing to/from joint operations represent the amount that does not eliminate on consolidation.


Joint operations

Joint ventures

Associates


 2020

 US$M

 2019

US$M

 2020

US$M

 2019

US$M

 2020

US$M

 2019

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."

 

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

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