Page 44 - Annual Report 2020

1.5.4 Risk management continued

Legal, regulatory, ethics and compliance
Risks associated with legal, regulatory, ethics and compliance obligations.

Why is this important to BHP?
Our operated assets and non-operated joint ventures involve material long-term investments that are dependent on long-term legal, regulatory,
political, judicial and fiscal stability. In addition, the nature of the industries in which we operate means many of our activities are highly regulated,
including through laws and regulations imposed at the local, state and regional levels as well as the federal, national and international levels in the
jurisdictions in which we operate. This includes laws and regulations relating to bribery and anti-corruption, trade and financial sanctions, market
manipulation, taxation, royalties, collusion, anti-competitive behaviour, anti-money laundering, data protection and privacy, controls on production,
trade, imports and exports, prices on greenhouse gas emissions, native title and other land rights, sexual harassment and assault, and health, safety
and the environment. Our Code of Conduct and our other internal policies, standards, systems and processes reflect these requirements.
Section 1.8 details our response and support in relation to the Samarco dam failure as well as progress on our commitments.

Threats
Certain action or inaction, whether intentional or unintentional, by BHP • litigation (including class actions), prosecutions or disputes (such as
or its Directors, executives, employees or third party partners (including in connection with ownership and use of land) and the associated cost
non-operated joint ventures) could result in actual or alleged breaches and disruption arising from such litigation, prosecutions or disputes
of laws or regulations relating to the matters set out in this risk factor • public inquiries such as Parliamentary inquiries or Royal Commissions,
above or other legal, regulatory, ethical or compliance obligations. which may adversely impact our reputation and ability to pursue
Actions of this nature, or changes in laws or regulations due to the projects or conduct operations and which may lead to changes
developing nature of government regulations and international to laws with cost or other impacts to financial performance
standards, could lead to (among others) the following threats to our • loss, uncertainty or changing conditions associated with land tenure,
business, reputation and operations: including in countries where compliance with laws is a condition of
• actions, investigations or inquiries by regulatory authorities or courts the underlying land tenure or for the renewal of that tenure. For
over actual or alleged legal or regulatory breaches (for example, over example, withdrawal of consent or support from Indigenous peoples
suspected facilitation payments or bribery and corruption, which are (as discussed in the Community and human rights risk factor)
prevalent in some of the countries where we do business or our assets The COVID-19 pandemic has led to increased government action around
are located) the world. Varying responses to the pandemic at all levels of government
• disgorgement of profits (for example, if bribery or corruption have amplified pre-existing differences in policy and standards between
is established) and within countries and may continue to do so. Increased government
• civil proceedings against or criminal prosecution of Directors, action has resulted in and may continue to result in heightened legal
executives, employees or third party partners obligations in relation to, for example, the provision of a safe and healthy
• loss of operating licences, permits or approvals workplace, management of personal health-related data, and public
• operational impacts, such as unforeseen closures, site rehabilitation health and emergency management. In addition, community, investor
expenses, delays or disruption and regulator expectations as to corporate governance requirements for
• increased compliance costs (for example, to meet new or more the Board to satisfy its fiduciary duties in response to the pandemic have
changed and may continue to change. Any actual or perceived failures
onerous operating or reporting standards)
• regulatory fines or settlements (for example, from a failure to comply to comply with these heightened legal obligations or changes to
policies, standards or other requirements or expectations, whether
with reporting standards or recognise royalties) intentional or unintentional, could result in litigation or enforcement
• increased costs in relation to taxation or royalties if laws or action, fines or penalties and reputational damage (such as criticism
policies change from our stakeholders, including investors).
• adverse change to regulatory regimes for access to government-
owned or privately-operated infrastructure or resources (for example, We conduct our business globally in numerous jurisdictions with
complex regulatory frameworks. Our governance and compliance
rail, electricity or water), resulting in additional costs, onerous terms processes may not identify or prevent misstatements or fraud or prevent
or limitations on access by BHP, which may adversely impact our
financial performance or disrupt operations potential breaches of law, accounting or governance practice.
• renegotiation or nullification of existing contracts, leases, permits
or other agreements, nationalisation of assets or other measures being
taken against our business or people
Management
We have internal policies, standards, systems and processes for • governance and compliance processes (including the review of
governance and compliance, including: internal controls over financial reporting and specific internal controls
• Our Code of Conduct in relation to trade and financial sanctions, market manipulation,
• BHP’s standards on business conduct, market disclosure, and competition, data protection and privacy, and corruption)
information governance and controlled documents • oversight and engagement with higher risk areas by our Ethics and
• training on Our Code of Conduct and in relation to anti-corruption, Compliance function, Internal Audit and Advisory team and the
market conduct and competition matters Disclosure Committee
• contractor due diligence and automated risk screening • EthicsPoint anonymous reporting service, supported by an ethics and
• global monitoring of compliance controls and higher risk transactions investigations framework and central investigations team (within the
by our Ethics and Compliance function Ethics and Compliance function) to investigate Our Code of Conduct
concerns. Material breaches of Our Code of Conduct are reported to
• ring fencing protocols to separate potentially competitive businesses the Board on a regular basis and individuals are encouraged to report
within BHP anything they believe may be misconduct or an improper state of
• classification of compliance sensitive transactions affairs or circumstance without fear of retaliation (EthicsPoint is
discussed in further detail in section 2.15)

FY2020 insights
The Group’s exposure to risks associated with legal, regulatory, ethics and compliance issues may increase given changes in the external
environment. These risks could be exacerbated by the COVID-19 pandemic, as well as by the continuing response of governments and society
to ethical and cultural failings within large corporates, including the financial services industry. Exposure to these risks may also increase in the
event of additional investment and activity in higher risk jurisdictions. The impacts of the pandemic on such jurisdictions may amplify those risks
(for example, adverse effects on local economic wellbeing may increase corruption risks).

42 BHP Annual Report 2020