BHP applies a single, Group-wide approach to the management of risk, known as the Risk Framework. Risks are assessed to determine their potential impacts and likelihood, enable prioritisation and determine risk treatment options. We then implement controls designed to prevent, minimise or mitigate threats, and enable or enhance opportunities.
Climate-related risks can be grouped into two categories:
- Transition risks arise from policy, regulatory, legal, technological, market and other societal responses to the challenges posed by climate change and the transition to a low-carbon economy.
- Physical risks refer to acute risks that are event-driven, including increased severity and frequency of extreme weather events, and chronic risks resulting from longer-term changes in climate patterns.
Transition risks are identified, assessed and managed in line with BHP’s Risk Framework. We consider these across short (up to two years), medium (two to five years) and long-term (five to 30 years) time horizons. See our approach to risk management in our latest Annual Report available in the ‘sustainability links and downloads’ section below, as well as Climate change portfolio analysis and capital alignment.
Our Climate Change Adaptation Strategy outlines the proactive and collaborative approach we need to take to build the safety, productivity and climate resilience of our operated assets, investments, portfolio, supply chain, communities and ecosystems by adapting to the physical risks of climate change.
We have analysed specific climate-related hazards and developed a more detailed approach to enable financial and economic evaluation of physical climate risks and adaptation measures in future years.
BHP requires operated assets and functions to identify and progressively assess potential physical climate change risks (including to our value chain) and build climate change adaptation into their plans, activities and investments. In FY2022, we progressed our Adaptation Strategy, conducting a physical climate risk identification process for our operated assets and supply chain. Risks associated with each hazard were prioritised in accordance with our risk process under BHP’s Risk Framework, including consideration of their materiality. Across our portfolio of operated assets and associated value chains, we have identified a number of common, high potential impact physical climate risks; where the below table presents the top eight1. The risk management column in the table describes our current approach, which is subject to review for new or additional climate-related measures arising from the subsequent risk evaluation work program planned for our operated assets (including legacy assets) in FY2023.
To underpin the subsequent risk evaluation work program planned across all of our operated assets (including legacy assets) and key supply chain infrastructure, we have sourced projections of acute and chronic climate variables from a leading climate science consultancy. The risk evaluation process will be a further step toward identifying and prioritising additional adaptation measures and reporting potential financial impacts in later years, including a value-at-risk range. We have already allocated US$200 million to studies on physical climate risk prevention and mitigation measures at our Minerals Americas operated assets.
We have also identified a number of opportunities to adapt to the potential physical impacts of climate change, primarily related to improving operational efficiency and innovation, taking collaborative action to grow the resilience of our value chain, and supporting local communities and ecosystems. In FY2023, we plan to undertake risk evaluations at our operated assets (including legacy assets) including assessment of chronic physical risks, implement any ‘quick win’ adaptation actions and initiate studies on measures expected to require significant capital investment. We also plan to further study prioritised value chain risks to understand with more specificity where risk is concentrated. We also intend to continue to build an understanding of how the communities where we operate may be impacted by future climate events and embed consideration of ecosystem-based adaptation, to contribute to both climate resilience and BHP’s biodiversity commitments and goals.
1 The first seven risks in the table were selected based on the number of operated assets that identified them as material in accordance with BHP’s Risk Framework and the average Maximum Foreseeable Loss severity rating assigned to each. The absence of a tick means either the risk was identified at the asset, but not rated as material under the Risk Framework, or that it was not identified for that asset. Legacy assets and non-operated joint ventures have been excluded from the analysis. Legacy Assets are to be included in the risk evaluations planned for FY2023. The eighth risk in the table is a collation of material value chain risks with implications across the regions; its position in the table does not indicate its level of potential impact relative to the other risks.