Page 40 - Annual Report 2020

1.5.4 Risk management continued

Climate change
Risks associated with changes in climate patterns, as well as risks arising from policy, regulatory, legal, technological, market or other societal
responses to the challenges posed by climate change.

Why is this important to BHP?
We are exposed to a broad range of climate-related risks arising from the physical and non-physical impacts of climate change. Climate-related
risks may affect our operations, the markets in which we sell our products, the communities in which we operate and our upstream and downstream
value chains.
Risks related to the potential physical impacts of climate change include acute risks resulting from increased severity of extreme weather events
and chronic risks resulting from longer-term changes in climate patterns.
Risks related to the non-physical impacts of climate change, or transition risks, arise from a variety of policy, regulatory, legal, technological, market
and other societal responses to the challenges posed by climate change and the transition to a low carbon economy. The production and use of
fossil fuels receive scrutiny from a range of stakeholders, including governments, investors, NGOs and communities. This is because the combustion
of fossil fuels is a significant source of greenhouse gas (GHG) emissions. We produce fossil fuels (energy coal, oil and gas) used primarily in the
transport and electricity generation sectors, as well as fossil fuels and other commodities that are used as inputs to emissions-intensive industrial
processes (including metallurgical coal and iron ore used in steelmaking). We also use fossil fuels in our mining and processing operations either
directly or through the purchase of fossil fuel-based electricity. We therefore have already been and may be further impacted by policies and
regulations that reduce GHG emissions, including from the resources, electricity generation, transport and industrial sectors. Technological and
market-related risks include the substitution of existing technologies with lower emissions options, such as renewables, particularly in the electricity
generation and transport sectors, which have the potential to reduce demand for fossil fuels.
Threats
Risks associated with climate change and the transition to a low carbon • we are impacted by current and emerging policy and regulation aimed
economy could affect the execution of our strategy, the expansion of at reducing GHG emissions from the resources, electricity generation,
our portfolio and the ability of our operated and non-operated assets to transport and industrial sectors, including the introduction of carbon
operate efficiently. pricing mechanisms. Climate policy and regulation, as well as changes
We are exposed to risks related to the physical impacts of climate to international reporting standards on climate change and pressure
change (for example, potential changes in precipitation patterns, water from society for more rapid and aggressive action from governments
and companies, may reduce demand for our products, increase our
shortages, rising sea levels, increased storm intensities, higher costs and affect our business and stakeholders, including by reducing
temperatures and natural disasters). These risks may affect us directly, investor confidence
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 • increased scrutiny of applications for licences, permits or
physical impacts of climate change may materially and adversely affect authorisations required to develop our assets and projects, including
our business, including through: third parties contesting such applications. This could delay, limit or
prevent future development of our assets or affect the productivity
• adverse impacts to the health and safety of our people of and costs associated with our assets
• adverse impacts to our assets, such as failures of mining or processing • the Group’s reputation and financial performance may be impacted
equipment, loss of containment, mining infrastructure failures by concerns regarding the contribution of fossil fuels to climate
(for example, power, water, rail and port) and support infrastructure change (for example, some financial institutions and other institutional
failures (for example, technology services and office buildings). investors have declared an intention to exit certain commodities that
Such adverse impacts may affect our business, including through are seen to be associated with climate change, such as energy coal).
reduced productivity, increased costs and project schedule delays Impacts could affect our share price, reduce investor confidence,
• disruptions to our supply chains, transport and distribution networks, constrain our ability to access capital from financial markets, or result
customers’ facilities and the markets in which we sell our products in an inability or increase in cost to insure our assets
In addition, assessments of the potential impact of future climate The following threats, which are common to risks related to both the
change policy, regulatory, legal, technological, market, societal and physical impacts of climate change and the transition to a low carbon
environmental outcomes are uncertain given the wide scope of economy, may also materially and adversely affect our business:
influencing factors and the countries in which we do business.
For example, countries will need to introduce new or strengthen • increased costs for mitigation, offsets or financial compensatory
existing policies and regulation in order to meet the goals of the Paris actions or obligations, including taxes and royalties
Agreement. Accordingly, the following risks relating to the transition • restricted access to capital or an inability to attract new or retain
to a low carbon economy have (in some instances) already affected existing employees
us and may in the future continue to affect us: • adverse impacts to the environment, communities, human rights
• the Group’s asset carrying values or financial performance may be and social wellbeing, which could affect our relationships with
affected by any adverse impacts to reserve estimates or market prices and be viewed negatively by the community and other stakeholders
that may occur if, for example, reserves are rendered incapable of and damage our reputation
extraction or demand for fossil fuel commodities (such as petroleum • opposition to new projects or our entry to new jurisdictions by
and energy coal) decreases due to policy, regulatory (including carbon communities, including through legal or social action, or other loss
pricing mechanisms), legal, technological, market or other societal of business opportunities
responses to climate change in our operating jurisdictions • the Group may be subject to or impacted by climate-related litigation
or markets (including class actions), associated costs and reputational damage
• 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

38 BHP Annual Report 2020