Page 36 - Annual Report 2020

1.5.4 Risk management continued

Geopolitics and stakeholder relations (including access to markets)
Risks associated with geopolitical changes and government actions that affect the macroeconomic outlook, commodity demand and supply and/
or impact our ability to access resources, markets and the operational or other inputs needed to realise our strategy; as well as relationships with
key stakeholders whose support is needed to realise our strategy and purpose.

Why is this important to BHP?
Geopolitical developments and changes in our relationships with key stakeholders (such as investors, governments, employees, customers and
suppliers) have the potential to cause a wide range of impacts in locations where we operate or may wish to operate, or where our customers and
suppliers are located. In addition, we may be affected by changes to bilateral relationships, the frameworks and global norms that govern international
trade, and other geopolitical developments (such as multilateral agreements on climate change and freedom of navigation). This includes acute
shocks (such as civil unrest or sanctions) and chronic stresses (such as political or business disputes and other forms of conflict, including military
conflict) that may pose longer-term threats to our business.
Disruptions or unanticipated changes of the nature described above may affect our ability to sell our commodities for optimum value or access inputs
required for the effective pursuit of our strategy, including access to markets, resources, technology, talent and capital. For example, our mining
operations in Australia rely on equipment, consumables (such as tyres) and specialised fabricated parts for ongoing operations, expansion and
development. We need to maintain access to international markets to source these items. Changes in the external environment (such as increased
protectionism, changes in stakeholder expectations regarding our role in society, or requirements to reduce emissions) may also impact our ability to
realise our strategy as competition for resources grows, existing reserves are depleted and supply sources become increasingly expensive to develop.

Threats
Unilateral action by, or changes in relations between, countries in which co-ordination (such as climate change, trade agreements, tax
we operate, may consider operating or where our customers or suppliers regulation, freedom of navigation and technology regulation),
operate, and such countries’ approach to multilateralism, trade as well as raise questions on the efficacy of and trust in international
protectionism and political uncertainty, can impact our ability to access institutions, including those that underpin international trade.
resources, markets, technology, talent and capital, shape the external These types of changes may cause restrictions or impose costs
environment, and adversely affect our financial performance. For instance: on our business, and may inhibit our future opportunities
• the challenging global political and economic conditions arising from • evolving government responses to the COVID-19 pandemic may
the impact of the COVID-19 pandemic, including the relative damage create challenges for us. For example, government responses to the
to national economies and the speed at which they recover from the pandemic have varied significantly across the globe and have resulted
effects of the pandemic, may exacerbate existing tensions between in and may continue to result in restrictions on our operations,
countries and introduce a high degree of uncertainty in domestic and including mandatory lockdowns or self-imposed temporary
international policy settings. These conditions, as well as protectionism, suspensions at our mines to allow effective systems to be
interventionist industrial policy and restrictive trade policies (such as implemented to meet government requirements, such as the
tariffs, sanctions or other measures that amount to import restrictions temporary suspension of operations at Cerrejón in the June 2020
on our products), may adversely affect our ability to trade and impact quarter. There may also be impacts on associated activities and the
demand for our products, as well as impact our access to resources, broader supply chain (such as measures affecting suppliers, essential
markets, technology, talent and capital services and transport of goods and our commodities) that could
• our ability to obtain and retain licences to explore or develop resources affect production or our financial performance
or access markets for sales or supply may be inhibited if there are A failure to meet the expectations of or maintain strong relationships with
tensions between a country where we operate or sell our products key stakeholders (including investors, governments, employees, suppliers
and other countries with which we are connected. Such tensions may and customers) whose support is needed to realise our strategy and
result in trade remedies (such as punitive tariffs or quotas on inputs purpose could negatively affect our business. Such failures could damage
or outputs), rescission of licences, nationalisation of assets or our reputation, our social value proposition and/or negatively affect our
limitations on markets or customer access that could affect our ability to operate our assets and sell our products, which may adversely
financial performance and reputation impact financial performance. For example, not meeting growing societal
• our operations may be disrupted or our access to customers and expectations of corporations to deliver value to all stakeholders can
suppliers and their facilities may be restricted through disruptions to damage our reputation and impact our ability to operate in jurisdictions
shipping lanes, ports, land logistics or other facilities as a result of civil where we have a presence or to enter new jurisdictions. Growing societal
unrest, conflicts, embargoes or other measures and government expectations, including in relation to climate change,
• geopolitical events, such as a shift in the relationship between the and their effect on our business may also be influenced by the impacts
United States and China or Australia and China, may affect the supply, of the COVID-19 pandemic (for example, if corporations such as BHP
demand and price of our commodities and therefore our financial are expected to play a larger role in the recovery of local and national
performance. Shifts in great power relations may also introduce greater economies than we anticipate or if governments adjust climate change
uncertainty with respect to issues requiring global policy to take into account economic recovery).

Management
The diversification of our portfolio of commodities, markets, of our strategy. This enables an understanding of potential impacts
geographies and currencies is a key strategy intended to reduce our on our business and the identification of mitigating actions.
exposure to geopolitical and macroeconomic shifts. In addition, we monitor the sociopolitical environment in which we
We actively monitor geopolitical and macroeconomic developments and operate and the stakeholders that influence that environment in order to
trends, including through our enterprise-level watch list of emerging prioritise and manage the threats and opportunities that could have the
themes that provides an evolving view of the changing external greatest impacts on our business and our social value proposition. We
environment (see Emerging risk section for further information). We also also engage regularly and seek to maintain strong relationships with
regularly assess our ability to access markets, resources, technology, governments and other key stakeholders to understand, respond to and
talent and capital, as well as monitor the ongoing political and economic manage any potential impacts from changes to policy that could affect
landscape required to maintain trade and access for the effective pursuit us, such as trade or resource policies, or evolving expectations of BHP.

FY2020 insights
Our FY2019 Annual Report anticipated that the Group’s exposure to risks associated with geopolitics and macroeconomics would increase in the
short-term due to heightened political and policy uncertainty. This trend has accelerated due to changes in relationships and increased strategic
competition at an international level (for example, between the United States and China, and Australia and China), a decline in multilateralism,
growing civil unrest in some countries in which we operate (as further described in the Community and human rights risk factor), and market
volatility and geopolitical tensions resulting from the COVID-19 pandemic. Our influence over most of these aspects of our external environment is
limited and the Group’s exposure to the risks described above may continue to increase in the short-term.
On stakeholder relations, we anticipate risks associated with changing expectations of stakeholders related to the role of corporations in society are
likely to increase in the short-term, as governments and societies continue to deal with the COVID-19 pandemic and begin to realise the adjustments
required for the recovery of national economies.

34 BHP Annual Report 2020