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BHP GROUP PLC - BHP Annual Financial Report 2021

Release Date: 14/09/2021 09:00
Code(s): BHP     PDF:  
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BHP Annual Financial Report 2021

 BHP Group Plc
 Registration number 3196209
 Registered in England and Wales
 Share code: BHP
 ISIN: GB00BH0P3Z91

Issued by:             BHP Group Plc


Date:                  14 September 2021


To:                    London Stock Exchange
                       JSE Limited


For Release:           Immediately


Authorised for         Prakash Kakkad +44 (0) 20 7802 4000
lodgement :

                     BHP Group Plc – Annual Financial Report 2021


 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 2021
 https://www.bhp.com/-/media/documents/investors/annual-
 reports/2021/210914_bhpannualreport2021.pdf

 - Economic Contribution Report 2021
 https://www.bhp.com/-/media/documents/investors/annual-
 reports/2021/210914_bhpeconomiccontributionreport2021.pdf

 - Climate Transition Action Plan
 https://www.bhp.com/-/media/documents/investors/annual-
 reports/2021/210914_bhpclimatetransitionactionplan2021.pdf

 - XML format of the Economic Contribution Report 2021
 https://www.bhp.com/-/media/documents/investors/annual-
 reports/2021/210914_bhpeconomiccontributionreport2021_xml.xml

 - BHP Group Plc Notice of Meeting 2021
 https://www.bhp.com/-/media/documents/investors/annual-
 reports/2021/bhpnoticeofmeetingplc2021.pdf?la=en

 - BHP Group Plc Proxy Form (UK Principal Register)
 https://www.bhp.com/plcagm
- BHP Group Plc Proxy Form (South Africa Branch Register)
https://www.bhp.com/plcagm

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 2021 (section references are
to sections of the Annual Report) and should be read in conjunction with the announcement
of BHP’s Results for the Year Ended 30 June 2021 issued on 17 August 2021. 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 2021 in full.
1. Principal risks and uncertainties
1.1 How we manage risk

Risk management helps us to protect and create value, and is central to achieving our
purpose and strategic objectives. Our Risk Framework has four pillars: risk strategy,
risk governance, risk process and risk intelligence.

Risk strategy

Risk classification
We classify all risks to which BHP is exposed using our Group Risk Architecture. This is a tool
designed to identify, analyse, monitor and report risk, which provides a platform to understand
and manage risks. Similar risks are considered together in groups and categories. This gives
the Board and management visibility over the aggregate exposure to risks on a Group-wide
basis and supports performance monitoring and reporting against BHP’s risk appetite.

Risk appetite
BHP’s Risk Appetite Statement is approved by the Board and is a foundational element of our
Risk Framework. It provides guidance to management on the amount and type of risk we seek
to take in pursuing our objectives.

Key risk indicators
Key risk indicators (KRIs) are set by management to help monitor performance against our
risk appetite. They also support decision-making by providing management with information
about financial and non-financial risk exposure at a Group level. Each KRI has a target, or
optimal level of risk we seek to take, as well as upper and lower limits. Where either limit is
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.

Risk culture
Our risk management approach is underpinned by a risk culture that supports decision-making
in accordance with BHP’s values, objectives and risk appetite. We use a common foundation
across BHP to build the tools and capabilities required to enable us to understand, monitor
and manage our risk culture. These include tailored cultural assessments, Group-wide risk
culture dashboards and the inclusion of behavioural auditing in our internal audit plan.

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. Our Risk Appetite Statement and KRIs 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 designed to protect
BHP from threats, we seek to implement controls to enhance and/or increase the likelihood of
opportunities being realised. For example, we might establish additional governance,
oversight or reporting to help ensure new initiatives remain on track.

Risk governance

Three lines model
BHP uses the ‘three lines model’ of risk governance and management to define the role of
different teams across the organisation in managing risk. This approach sets clear
accountabilities for risk management and provides appropriate ‘checks and balances’ to
support us in protecting and growing value.

The first line is provided by our frontline staff, operational management and people in
functional roles – anyone who makes decisions, deploys resources or contributes to an
outcome is responsible for identifying and managing the associated risks.
The Risk team and other second-line functions are responsible for providing expertise,
support, monitoring and challenge on risk-related matters, including by defining Group-wide
minimum standards.

The third line, our Internal Audit and Advisory team, is responsible for providing independent
and objective assurance over the control environment (governance, risk management and
internal controls) to the Board and Executive Leadership Team. Additional assurance may also
be provided by external providers, such as our External Auditor.

BHP Board and Committees
The Board reviews and monitors the effectiveness of the Group’s systems of financial and
non-financial risk management and internal control. 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 by reviewing and
considering BHP’s risk profile (covering operational, strategic and emerging risks) on a
biannual basis.

For more information refer to sections 2.1.7, 2.1.10 and 2.1.11.

Performance against risk appetite is monitored and reported to the RAC, as well as the
Sustainability Committee for HSEC matters, enabling the Board to challenge and hold
management to account where necessary.

Second-line risk-based reviews are undertaken to provide greater oversight and enhance our
understanding and management of the Group’s most significant risks, with outcomes reported
to management, the RAC and Sustainability Committee. These outcomes may be used to
develop remediation plans, adjust BHP’s Risk Appetite Statement or KRIs, enhance our Risk
Framework or inform strategic decisions.

Additional information on risk management and internal controls is shared between the Board,
the RAC and, for HSEC matters, the Sustainability Committee, and is 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 2.1.
Risk process

Our Risk Framework requires identification and management of risks (both threats and
opportunities) to be embedded in business activities through the following process:
   • Risk identification – threats and opportunities are identified and each is assigned an
       owner, or accountable individual.
   • Risk assessments – risks are assessed using appropriate and internationally
       recognised techniques to determine their potential impacts and likelihood, prioritise
       them and inform risk treatment options.
   • Risk treatment – controls are implemented to prevent, reduce or mitigate threats, and
       enable or enhance opportunities.
   • 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) to evaluate performance.

Our Risk Framework includes requirements and guidance on the tools and process to manage
current and emerging risks.

Current risks
Current risks are risks that could impact BHP today or in the near future, and comprise current
operational risks (risks that have their origin inside BHP or occur as a result of our activities)
and current strategic risks (risks that may enhance or impede the achievement of our strategic
objectives).

Current risks include material and non-material risks (as defined by our Risk Framework). The
materiality of a current risk is determined by estimating the maximum foreseeable loss (MFL)
if that risk was to materialise. The MFL is the estimated impact to BHP in a worst-case scenario
without regard to probability and assuming all risk controls, including insurance and hedging
contracts, are ineffective.

Our principal risks are described in section 1.16.

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.

BHP maintains a ‘watch list’ of emerging themes that provides an evolving view of the
changing external environment and how it might impact our business. We use the watch list
to support the identification and management of emerging risks, 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 threats manifesting and
identifying options to increase our resilience to these threats.
Risk intelligence

The Risk team provides the Board and senior management with insights on trends and
aggregate exposure for our most significant risks, as well as performance against risk appetite.
Risk reports may also provide an update on the Risk Framework, overview of (and material
changes in) the risk profile and updates on emerging risk themes and risk culture. They are
supported by an opinion from the Chief Risk Officer (or other relevant individual).

We maintain a risk insights dashboard designed to provide current, data-driven and actionable
risk intelligence to our people at all levels of the business to support decision-making. This
tool empowers the business to manage risks more effectively, with increased accuracy and
transparency.

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.

For information on our principal risks, robust risk assessment and viability statement, refer to
section 1.16


1.2 Risk factors

Our principal risks are described below and may occur as a result of our activities
globally, including in connection with our operated and non-operated assets, third
parties engaged by BHP or through our value chain.

Our principal risks, individually or collectively, could threaten our viability, strategy, business
model, future performance, solvency or liquidity and reputation. They could also materially and
adversely affect the health and safety of our people or members of the public, the environment,
the communities in which we or our third-party partners operate, or the interests of our
stakeholders leading to litigation (including class actions) or a loss of stakeholder and/or
investor confidence. References to ‘financial performance’ includes our financial condition and
liquidity, including due to decreased profitability or increased operating costs, capital spend,
remediation costs or contingent liabilities. While the risks described in this section represent
our principal risks, BHP is also exposed to other risks that are not described in this section.

Each of our principal risks may present opportunities as well as threats. We take risk for
strategic reward in the pursuit of our strategy and purpose, including to grow our asset portfolio
and develop the right capabilities for the future of our business. Potential threats and
opportunities associated with each of our principal risks are described below, along with the
key controls to manage them. These controls are not exhaustive and many Group-wide
controls (such as Our Code of Conduct, Risk Framework, mandatory minimum performance
requirements for risk management, health, safety and other matters, dedicated non-operated
joint venture teams and our Contractor Management Framework) help to support effective and
efficient management of all risks in line with our risk appetite. While we implement preventative
and/or mitigating controls designed to reduce the likelihood of a threat from occurring and
minimise the impacts if it does, these may not be effective.

Key changes to our principal risks in FY2021 are the introduction of risks associated with
inadequate business resilience and adopting technologies. The way in which we articulate our
other principal risks has also changed since our FY2020 Annual Report. For example, risks
associated with operational events have been consolidated into a single risk factor rather than
being discussed across two risk factors. We have also disaggregated and combined elements
of principal risks. For example, risks associated with third-party performance are embedded
throughout our principal risks and climate change risks have been separated to provide a
greater focus on transition risks, while risks associated with the potential physical impacts of
climate change are addressed alongside other business resilience risks (as well as across
other relevant principal risks). We have also simplified the presentation of our principal risks.
These changes are designed to provide greater accessibility and value to stakeholders in
understanding our principal risks.

With the exception of risks associated with operational events, exposure to all of our principal
risks increased in FY2021. These increases were largely driven by uncertainties in the external
environment, such as the continuing global impacts of the COVID-19 pandemic, heightened
geopolitical tensions and societal and stakeholder expectations of business (including in
relation to social, environmental and climate-related risks), and increasing frequency and
sophistication of cyberattacks against companies in the resources industry and governments.
While our influence over most of these aspects of our external environment is limited, we
continue to monitor signals and review our control environment to improve management of
associated risks

 OPERATIONAL EVENTS

 Risks associated with operational events in connection with our activities globally,
 resulting in significant adverse impacts on our people, communities, the environment
 or our business.

 Why is this important to BHP?
 We engage in activities that have the potential to cause harm to our people and assets,
 and/or communities and the environment, including serious injuries, illness and fatalities,
 loss of infrastructure, amenities and livelihood and damage to sites of cultural significance.
 An operational event at our operated or non-operated assets or through our value chain
 could also cause damage or disruptions to our assets and operations, impact our financial
 performance, result in litigation or class actions and cause long-term damage to our licence
 to operate and reputation. The potential physical impacts of climate change could increase
 the likelihood and/or severity of risks associated with operational events. Impacts of
 operational events may also be amplified if we fail to respond in a way that is consistent with
 our corporate values and stakeholder expectations.

 Examples of potential threats
 • An offshore well blow out, including at one of our assets in the US Gulf of Mexico,
   Australia, Trinidad and Tobago or Algeria, or at one of our appraisal and exploration
   options in Mexico, Trinidad and Tobago, Western and Central Gulf of Mexico or Australia.
 • Failure of a water or tailings storage facility, such as the tragic failure of the Fundão dam
   at Samarco in 2015 or a failure at one of our facilities in Australia, Chile, Colombia, Peru,
   the United States, Canada or Brazil.
 • Unplanned fire events or explosions (on the surface and underground).
 • Geotechnical stability events (such as an unexpected and large fall of ground at our
   underground or open pit mines, or potential interaction between our mining activities and
   community infrastructure or natural systems), including at our underground mines in
   Australia, the United States and Canada.
 • Air, land (road and rail) and marine transportation events (such as aircraft crashes or
   vessel collisions, groundings or hydrocarbon release) that occur while transporting
   people, supplies or products to exploration, operation or customer locations, which
   include remote and environmentally sensitive areas in Australia, South America, Asia
   and the United States.
•   Critical infrastructure or hazardous materials containment failures, other occupational or
    process safety events, or workplace exposures.
•   Operational events experienced by third parties, which may result in unavailability of
    shared critical infrastructure (such as railway lines or ports) or transportation routes (such
    as the Port Hedland channel in Western Australia).

Examples of potential opportunities
• Our focus on safety and the welfare of our people, communities and the environment
  may increase workforce and other stakeholder confidence, enhancing our ability to
  attract and retain talent and access (or lower the cost of) capital.
• Collaborating with industry peers and relevant organisations on minimum standards
  (such as the Global Industry Standard on Tailings Management and Large Open Pit
  Project guidelines on open-pit mining design and management) supports improvements
  to wider industry management of operational risks and may also identify opportunities to
  improve our own practices.

Key management actions
• Planning, designing, constructing, operating, maintaining and monitoring surface and
  underground mines, water and tailings storage facilities, wells and other infrastructure
  and equipment in a manner designed to maintain structural integrity, prevent incidents
  and protect our people, assets, communities, the environment and other stakeholders.
• Specifying minimum requirements and technical specifications, such as for
  transportation (including high-occupancy vehicles, aircraft and their operators), and
  compliance with operating specifications, industry codes and other relevant standards,
  including BHP’s mandatory minimum performance requirements.
• Defining key accountable roles, such as a dam owner (an internal BHP individual who is
  accountable for maintaining effective governance and integrity of each tailings storage
  facility), and providing training and qualifications for our people.
• Inspections, reviews, audits and other assurance activities, such as independent dam
  safety reviews and geotechnical review boards.
• Maintaining evacuation routes, supporting equipment, continuity plans and crisis and
  emergency response plans.
• Incorporating future climate projections into operational event risks through ongoing
  assessment of potential physical climate change risks.

FY2021 insights                                               Further information
While our overall exposure to risks associated with • section 1.13.4 Safety
operational events remained relatively stable in FY2021, our • section 1.13.15 Tailings
risk profile has adapted to changes in our operating context.    storage facilities
For example, a greater focus on exploration has increased • section 1.15 Samarco
our use of helicopters to conduct geophysical surveys and • bhp.com/sustainability
transport personnel. We have also had to adapt the way we
transport people to and from work due to the COVID-19
pandemic (for example, more buses have been scheduled
due to social distancing requirements).

ACCESSING KEY MARKETS

Risks associated with market concentration and our ability to sell and deliver
products into existing and future key markets, impacting our economic efficiency.

Why is this important to BHP?
We rely on the sale and delivery of the commodities we produce to customers around the
world. Changes to laws, international trade arrangements, contractual terms or other
requirements and/or geopolitical developments could result in physical, logistical or other
disruptions to our operations in, or the sale or delivery of our commodities to, key markets.
These disruptions could affect sales volumes or prices obtained for our products, adversely
impacting our financial performance, results of operations and growth prospects.

Examples of potential threats
• Government actions, including economic sanctions, tariffs or other trade restrictions,
  imposed by or on countries where we operate or into which we sell or deliver our products
  may prevent BHP from trading or make it more difficult for BHP to trade in key markets.
  For example, China has imposed import restrictions and tariffs on some Australian
  exports, including energy and metallurgical coal. The imposition of further tariffs or other
  restrictions on any of our other products could adversely affect our financial performance.
• Physical disruptions to the delivery of our products to customers in key markets including
  due to the disruption of shipping routes, closure or blockage of ports or land logistics
  (road or rail) or military conflict. In some cases, physical disruptions may be driven or
  intensified by weather, climate variability or climate change.
• Legal or regulatory changes (such as royalties or taxes, port or import restrictions or
  customs requirements, shipping/maritime regulatory changes, restrictions on
  movements or imposition of quarantines, or changing environmental restrictions or
  regulations, including measures with respect to carbon-intensive imports) and
  commercial changes (such as changes to the standards and requirements of customers)
  may adversely impact our ability to sell or deliver, or realise full market value for, our
  products.
• Failure to maintain strong relationships with customers, or changes to customer
  demands for our products (such as vertical integration), may reduce our market share or
  adversely impact our financial performance.
• Increasing geopolitical tensions may adversely affect our strategic and business
  planning decisions and/or increase the time it takes us to manage our access to key
  markets, particularly if we fail to detect or anticipate deviations in the geopolitical
  environment in a timely manner.

Examples of potential opportunities
• Monitoring macroeconomic, geopolitical and policy developments and trends may reveal
  new markets or identify opportunities to strengthen secondary markets for existing
  products.
• Leveraging the opportunity to create value by developing strategic partnerships and
  strong, mutually beneficial relationships with our customers.
• Building a deep understanding of the geopolitical risks faced by BHP and their potential
  impacts on our business could enhance our strategy, business planning and response,
  providing a potential competitive advantage.
• Identifying the potential for weather, climate variability or climate change to disrupt
  delivery of products and implementing management measures may increase the
  resilience of our operations and supply chain.
• Signal monitoring and building relationships with and understanding the perspectives of
  influential stakeholders may improve our ability to understand, respond to and manage
  any impacts from policy changes (such as trade policies).

Key management actions
• Monitoring and assessing our ability to access key markets, and maintaining sales plans,
  product placement and business resilience strategies and relationships with relevant
    stakeholders (such as the Chinese, United States and Australian Governments, and our
    customers in China and elsewhere).
•   Maintaining response plans for various scenarios (including physical disruptions of
    logistics) to mitigate disruptions to our ability to access key markets.
•   Monitoring geopolitical and macroeconomic developments and trends, including through
    signal monitoring and our enterprise-level watch list of emerging themes, to provide an
    early indication of events that could impact our ability to access key markets.
•   Identifying weather and/or climate-related vulnerabilities and implementing controls to
    mitigate disruptions to our ability to physically access key markets.
•   Diversification of our asset and commodity portfolio, such as our ongoing investment in
    potash through the Jansen Potash Project, to reduce exposure to market concentration
    risks.

FY2021 insights                                              Further information
Exposure to risks associated with our access to key markets • section 4.10.2
increased in FY2021 as a result of tensions between            Shareholder information
Australia, the United States and China, and import             – Markets
restrictions and tariffs imposed by China on some Australian
exports (including energy and metallurgical coal). Although
our influence over these aspects of our external environment
is limited, adjustments to our portfolio may reduce exposure
to market concentration risk in the longer term.

OPTIMISING PORTFOLIO            RETURNS       AND     MANAGING       COMMODITY        PRICE
MOVEMENTS

Risks associated with our ability to position our asset portfolio to generate returns
and value for shareholders (including securing growth options in future facing
commodities) and to manage adverse impacts of short- and long-term movements in
commodity prices.

Why is this important to BHP?
We take decisions and actions in pursuit of our strategy to optimise our asset portfolio and
to secure and create growth options in future facing commodities (such as copper, nickel
and potash). A strategy that does not support BHP’s objectives and/or ill-timed execution of
our strategy (including as a result of not having sector-leading capabilities) or other
circumstances, may lead to a loss of value that impacts our ability to deliver returns to
shareholders and fund our investment and expansion opportunities. It may also result in our
asset portfolio being less resilient to fluctuations in commodity prices, which are determined
by or linked to prices in world markets. In the short term, this may reduce our cash flow,
ability to access capital and our dividends. A failure to optimise our asset portfolio for
structural movements in commodity prices over the long term may result in asset
impairments and could adversely affect the results of our operations, our financial
performance, and returns to investors.

Examples of potential threats
• Failure to optimise our portfolio through effective and efficient acquisitions, exploration,
  large project delivery, mergers, divestments or expansion of existing assets.
• Failure to identify potential changes in commodity attractiveness and missed entry or
  commodity exit opportunities, resulting in decreased return on capital spend for, or
  overpayment to acquire or invest in, new assets or projects, stranded assets or reduced
  divestment proceeds.
• Failure to achieve expected commercial objectives from assets or investments, such as
  cost savings, sales revenues or operational performance (including as a result of
  inaccurate commodity price assumptions or resources and reserves estimates), may
  result in returns that are lower than anticipated and loss of value (such as that
  experienced with US shale).
• Renegotiation or nullification of permits, increased royalties, or expropriation or
  nationalisation of our assets, or other legal, regulatory, political, judicial or fiscal or
  monetary policy instability may adversely impact our ability to achieve expected
  commercial objectives from assets or investments, access reserves, develop, maintain
  or operate our assets, or otherwise optimise our portfolio.
• Inability to predict long-term trends in the supply, demand and price of commodities and
  optimise our asset portfolio accordingly may restrict our ability to generate long-term
  returns from the portfolio.
• Commodity prices have historically been and may continue to be subject to significant
  volatility, including due to global economic and geopolitical factors, industrial activity,
  commodity supply and demand (including inventory levels), technological change,
  product substitution, tariffs and exchange rate fluctuations. Our usual policy and practice
  is to sell our products at prevailing market prices and as such fluctuations in commodity
  prices may affect our financial performance. 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 FY2021 profit after taxation of US$163 million and US$24
  million, respectively. Long-term price volatility or sustained low prices may adversely
  impact our financial performance as we do not generally have the ability to offset costs
  through price increases.

Examples of potential opportunities
• Acquisition of new resources in future facing commodities may strengthen our portfolio
  and protect and grow value over the long term.
• Ability to predict long-term commodity demand, supply and price trends may lead to BHP
  being able to identify and acquire new future facing commodities and assets ahead of
  our competitors or exit from declining commodities in a timely manner, strengthening our
  portfolio and leading to long-term portfolio returns.
• BHP may be perceived as a welcome and valued or preferred partner for the
  development of new resource opportunities, enabling us to secure new assets or
  exploration opportunities to create long-term optionality in the portfolio.

Key management actions
• Strategies, processes and frameworks to grow and protect our portfolio and to assist in
  delivering ongoing returns to shareholders include:
  o our exploration and business development programs, which focus on replenishing our
     resource base and enhancing our portfolio (including creating and securing more
     options in future facing commodities)
  o our long-term strategic outlook and ongoing strategic processes to assess our
     competitive advantage and enable the identification of threats to or opportunities for
     our portfolio through forecasting and scenario modelling
  o monitoring signals to interpret external events and trends, and designing commodity
     strategies and price protocols that are reviewed by management and the Board
  o our Capital Allocation Framework, corporate planning processes, investment approval
     processes and annual reviews (including resilience testing) of portfolio valuations
  o our balance sheet and liquidity framework, which is designed to maintain a robust
     balance sheet with sufficient liquidity and access to diverse sources of funding
• Pursuing a considered approach to new country entry, including development of
  capability to operate in higher-risk jurisdictions, in order to support portfolio opportunities
  in new jurisdictions.
 • Further developing BHP’s social value proposition to position BHP as a preferred partner
   for the development of resource opportunities in line with the expectations of local
   communities, host governments and other global stakeholders.
 • Managing commodity price exposure through the diversity of commodities, markets,
   geographies and currencies provided by our portfolio, as well as our financial risk
   management practices in relation to our commercial activities.

 FY2021 insights                                              Further information
 Our exposure to risks associated with optimising our • section 1.5 Positioning for
 portfolio and managing commodity price movements                future
 increased in FY2021 as a result of volatility and • section 1.17 Performance by
 uncertainty across global economies, including due to           commodity
 the continuing effects of the COVID-19 pandemic. We • note 23 'Financial risk
 announced the sale of Cerrejón in June 2021 as part of          management' in section 3
 our intention to consolidate our portfolio of coal assets to
 higher-quality metallurgical coal, and remain open to all
 options for BMC and NSWEC. Heightened societal
 expectations regarding the use of coal will continue to be
 a portfolio consideration. On 17 August 2021, we also
 announced our intention to merge our Petroleum assets
 with Woodside,(1) which is designed to unlock synergies
 and increase value and choice for BHP’s shareholders.

(1) On 17 August 2021, BHP announced it had entered into a merger commitment deed with Woodside to combine their respective
oil and gas portfolios by an all-stock merger. Completion of the merger is subject to confirmatory due diligence, negotiation and
execution of full form transaction documents, and satisfaction of conditions precedent including shareholder, regulatory and other
approvals, and expected to occur in the second quarter of CY2022.


 SIGNIFICANT SOCIAL OR ENVIRONMENTAL IMPACTS

 Risks associated with significant impacts of our operations on and contributions to
 communities and environments throughout the life cycle of our assets and across
 our value chain.

 Why is this important to BHP?
 The long-term viability of our business is closely connected to the wellbeing of the
 communities and environments where we have a presence. At any stage of the asset life
 cycle, our activities and operations may have or be seen to have significant adverse impacts
 on communities and environments. In these circumstances, we may fail to meet the evolving
 expectations of our stakeholders (including investors, governments, employees, suppliers,
 customers and community members) whose support is needed to realise our strategy and
 purpose. This could lead to loss of stakeholder support or regulatory approvals, increased
 taxes and regulation, enforcement action, litigation or class actions, or otherwise impact our
 licence to operate and adversely affect our reputation, ability to attract and retain talent,
 operational continuity and financial performance.

 Examples of potential threats
 • Engaging in or being associated with activities (including through our non-operated joint
   ventures and value chain) that have or are perceived to have individual or cumulative
   adverse impacts on the environment, biodiversity and land management, water access
   and management, human rights or cultural heritage.
 • Failing to meet stakeholder expectations in connection with our legal and regulatory
   obligations, relationships with Indigenous peoples, community wellbeing and the way we
   invest in communities.
• Political, regulatory and judicial developments (such as constitutional reform in Chile that
  could result in adjustments to water and other resource rights, or the Dasgupta Review
  in the United Kingdom that could result in government actions that impact the
  management of biodiversity and ecosystems) or changing stakeholder expectations
  could result in more stringent operating requirements on our business. For example,
  changes to regulations or stakeholder expectations may delay the timing or increase
  costs associated with closure and rehabilitation of assets, or expose BHP to
  unanticipated environmental or other legacy liabilities.
• Failing to identify and manage potential physical climate change risks to communities,
  biodiversity and ecosystems. For example, changes to species habitat or distribution as
  a result of sustained higher temperatures could result in land access restrictions or
  litigation, or limit our access to new opportunities.

Examples of potential opportunities
• Our support for responsible stewardship of natural resources may enhance the resilience
  of environments and communities to potential threats (including the potential physical
  impacts of climate change).
• Strong social performance, including sustainable mining and a focus on the wellbeing of
  communities, could generate competitive advantage in the jurisdictions where we
  operate.
• Our global social value strategy may improve stakeholder relations, build community
  trust and increase investor confidence and demand for our commodities.
• Greater clarity, transparency and standards associated with regulatory regimes that
  support and protect communities and the environment may increase requirements
  across our sector, generating competitive advantage for companies that have already
  invested in social performance.

Key management actions
• Our Requirements for Community and Our Requirements for Environment and Climate
  Change standards provide requirements and practices that are designed to strengthen
  our social, human rights and environmental performance. Our Human Rights Policy
  Statement, Water Stewardship Position Statement, Climate Change Position Statement
  and Indigenous Peoples Policy Statement set out our commitments and approach to
  these matters.
• Engaging in regular, open and honest dialogue with stakeholders to better understand
  their expectations, concerns and interests, and undertaking research to better
  understand stakeholder perceptions.
• Building social value into our decision-making process, along with financial
  considerations.
• Building stakeholder trust and contributing to environmental and community resilience,
  including through collaborating on shared challenges (such as climate change and water
  stewardship), enhanced external reporting of our operated assets’ potential impacts on
  biodiversity and maximising the value of social investments through our social
  investment strategy.
• Conducting regular research and impact assessments for operated assets to better
  understand the social, environmental, human rights and economic context. This supports
  us to identify and analyse stakeholder, community and human rights impacts, including
  modern slavery risks and emerging issues. We also complete due diligence screening
  on suppliers through our Ethical Supply Chain and Transparency program.
• Integrating closure into our planning, decision-making and other activities through the
  life cycle of our operated assets, as set out in our mandatory minimum performance
  requirements for closure.
FY2021 insights                                              Further information
Our exposure to risks with potentially significant social or • section 1.12 People and
environmental impacts increased in FY2021 due to                culture
environmental, political and regulatory developments, • section 1.13.8 Community
and increasing societal expectations, including of • section 1.13.10 Indigenous
regulators and other stakeholders on Indigenous                 peoples
peoples’ rights and potential impacts of our operations • section 1.13.11 Social
throughout the asset life cycle. We believe the nexus           investment
between water, climate change, biodiversity and society • section 1.13.12 Environment
is becoming increasingly clear as a driver of social • section 1.13.13 Water
expectations.                                                • section 1.13.14 Land and
                                                                biodiversity
                                                             • bhp.com/sustainability

LOW-CARBON TRANSITION

Risks associated with the transition to a low-carbon economy.

Why is this important to BHP?
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. As a world-leading resources company, BHP is exposed to a range of transition
risks that could affect the execution of our strategy or our operational efficiency, asset values
and growth options, resulting in a material adverse impact on our financial performance,
share price or reputation, including litigation. The complex and pervasive nature of climate
change means transition risks are interconnected with and may amplify our other principal
risks. Additionally, the inherent uncertainty of potential societal responses to climate change
may create a systemic risk to the global economy.

Examples of potential threats
• Introduction or improvement of low-carbon technologies or changes in customer
  preference for products that support the transition to a low-carbon economy may
  decrease demand for some of our products (which may be abrupt or unanticipated),
  increase our costs or decrease the availability of key inputs to production. For example:
  o ‘Green steel’ technologies may reduce demand for our metallurgical coal or iron ore,
      or electric vehicle penetration may reduce demand for our petroleum products.
  o Implementing low-carbon processes or new investments to respond to market
      demand for products that support a low-carbon economy (such as potential capital
      spend at our Jansen Potash Project to deliver fertiliser products or at our Nickel
      West asset to supply the battery market) may increase operating or development
      costs.
• Failure to address investor concerns on the potential impact of climate change on and
  from BHP’s portfolio and operations may result in reduced investor confidence and/or
  investor actions seeking to influence BHP’s climate strategy.
• Social concerns around climate change may result in investors divesting our securities,
  pressure on BHP to divest or close remaining fossil fuel assets and on financial
  institutions not to provide financing for our fossil fuel assets, or otherwise adversely
  impact our ability to optimise our portfolio.
• Perceived or actual misalignment of the resources industry’s or BHP’s climate actions
  (goals, targets and performance) with societal and investor expectations, or a failure to
  deliver our climate actions, may result in damage to our reputation, climate-related
  litigation (including class actions) or give rise to other adverse regulatory, legal or
  market responses.
• Changes in laws, regulations, policies, obligations, government actions, and our ability
  to anticipate and respond to such changes (which may be abrupt or unanticipated),
  including emission targets, restrictive licencing, carbon taxes, border adjustments or
  the addition or removal of subsidies, may give rise to adverse regulatory, legal or
  market responses.

Examples of potential opportunities
• Our copper, nickel, iron ore and metallurgical coal provide essential building blocks for
  renewable power generation and electric vehicles, and can play an important part in
  the transition to a low-carbon economy.
• Our potash fertiliser options can promote more efficient and more profitable agriculture
  and alleviate the increased competition for arable land.
• Increased collaboration with customers and original equipment manufacturers, such as
  BHP’s partnerships with each of China Baowu, JFE and HBIS for research and
  development of steel decarbonisation pathways, can provide opportunities for
  development of new products and markets.
Key management actions
• Establishing public views and commitments on, and mandatory minimum performance
  requirements for managing, climate change threats and opportunities, which are set
  out in our Climate Change Position Statement, our Climate Change Report 2020, our
  Climate Transition Action Plan 2021 and the Our Requirements for Environment and
  Climate Change standard.
• Using climate-related scenarios, themes and signposts (such as monitoring policy,
  regulatory, legal, technological, market and other societal developments) to evaluate
  the resilience of our portfolio and inform our strategy.
• Considering transition risks (including carbon prices) when making capital expenditure
  decisions or allocating capital through our Capital Allocation Framework, supporting the
  prioritisation of capital and investment approval processes.
• Seeking to mitigate our exposure to risks arising from policy and regulation in our
  operating jurisdictions and markets by reducing our operational emissions and taking a
  product stewardship approach to emissions in our value chain.
• Advocating for the introduction of an effective, long-term policy framework that can
  deliver a measured transition to a low-carbon economy.

FY2021 insights                                              Further information
Our exposure to transition risks increased in FY2021 due • section 1.5 Positioning for
primarily to political developments – with the Biden            future
administration renewing the United States’ focus on • section 1.13.7 Climate
climate and net zero goals set by China, Japan and the          change and portfolio
European Union – and greater investor and other                 resilience
stakeholder interest in understanding how climate change     • BHP Climate Change
might impact our strategy and portfolio. Stakeholder            Report 2020
expectations of BHP regarding disclosure of climate • BHP Climate Transition
change-related information have grown accordingly (for          Action Plan 2021
example, Climate Action 100+ requested information from • bhp.com/climate
BHP to conduct its first net zero company benchmark in
FY2021). Actions by investors and proxy advisers seeking
to hold companies accountable for their climate strategies
also accelerated during FY2021. We anticipate these and
potentially other factors will continue to affect transition
risks in FY2022, following publication in August 2021 of the
 first part of the Intergovernmental Panel on Climate
 Change’s Sixth Assessment Report, Climate Change
 2021: The Physical Science Basis. However, our recent
 proposed portfolio changes would, subject to their
 completion, reduce our exposure to certain transition risks.

Sensitivity of our portfolio to demand for fossil fuels

We acknowledge there is a range of possible energy transition scenarios, including those
aligned with the Paris goals, that may indicate different outcomes for our individual
commodities. Our most recent portfolio analysis published in our Climate Change Report
2020 demonstrates the Group can continue to thrive over the next 30 years, as the global
community takes action to decarbonise, even under our Paris-aligned 1.5°C trajectory.(2)
There are inherent limitations with scenario analysis and it is difficult to predict which, if any,
of the scenarios might eventuate and none of the scenarios considered constitutes a definitive
outcome for the Group.
The long-term commodity price outlooks under our 1.5°C Paris-aligned scenario are either
largely consistent with or favourable to, the price outlooks in our current planning cases, with
the exception of energy coal, oil and natural gas.

The long-term commodity price outlooks under our 1.5°C Paris-aligned scenario, excluding
energy coal, oil and natural gas, reflect:
• copper and nickel benefiting from the dramatic pace of electrification over and above our
   current planning cases
• iron ore growth underpinned by the benefit to steel demand from the construction of
   renewables, particularly wind power.
• potash growth reflecting the potential for greater penetration of biofuels
• metallurgical coal supported by the limited alternatives in steelmaking over the scenario
   timeframe

Given these positive long-term price outlooks, a material adverse change is not expected
under our 1.5°C Paris-aligned scenario to the carrying values of our assets and liabilities
related to these commodities, including property, plant and equipment and closure and
rehabilitation provisions.

For energy coal, oil and natural gas, long-term commodity price outlooks under our 1.5°C
Paris-aligned scenario are unfavourable compared to the price outlooks in our current
planning cases. Price outlooks for these commodities published in the International Energy
Agency’s (IEA) Net Zero by 2050: A Roadmap for the Global Energy Sector Special Report
(May 2021) (IEA NZE) are also unfavourable to the price outlooks in our current planning
cases.

Despite recent progress, all 1.5°C pathways to 2050 represent a major departure from today’s
global trajectory and we do not believe the technological, regulatory, or economic foundations
for a rapid transition to net zero emissions are currently in place. Therefore, a 1.5°C Paris-
aligned scenario is currently not an input into our planning cases. This is consistent with the
IAE’s acknowledgement that the window for its Net Zero by 2050 roadmap is narrow, albeit
still achievable.
While the price outlooks under the IEA NZE and our 1.5°C Paris-aligned scenario are
unfavourable compared to the price outlooks in our current planning cases, recent portfolio
announcements and impairments recognised in FY2021 limit the exposure of the carrying
value of our assets to long-term commodity prices for energy coal, oil and natural gas, as:
• On 17 August 2021, we announced the proposed merger of our Petroleum assets with
  Woodside. The merger is subject to confirmatory due diligence, negotiation and execution
  of full form transaction documents, and satisfaction of conditions precedent, including
  shareholder, regulatory and other approvals. The preliminary terms of the merger did not
  provide an indicator of impairment for our Petroleum assets at 30 June 2021. The merger
  is expected to be completed during the first half of CY2022, following which, the Group's
  revenue would no longer be directly exposed to long-term oil and gas prices, including
  those under 1.5°C scenarios.
• In June 2021, we entered into a Sale and Purchase Agreement to divest our 33.3 per
  cent interest in the Cerrejón energy coal joint venture in Colombia, subject to the
  satisfaction of customary competition and regulatory requirements. The divestment is
  expected to complete in the second half of FY2022.
• Following the write downs taken by the Group in FY2021, the carrying value of our
  NSWEC assets is no longer material. Further, the profitability and cash flow of NSWEC
  assets is immaterial to the Group in FY2021.

In relation to New South Wales Energy Coal (NSWEC), regulatory approvals required to
continue operations post FY2026 would be inconsistent with the IEA NZE scenario, which
assumes no new coal mine extensions are approved beyond CY2021. In isolation, and without
considering the impact of changes management would make to operating and investment
plans, bringing forward the majority of rehabilitation activities by one year could increase the
closure and rehabilitation provision at NSWEC by approximately US$10 million.
(2) This scenario aligns with the Paris Agreement goals and requires steep global annual emissions reductions, sustained for
decades, to stay within a 1.5°C carbon budget. Refer to the BHP Climate Change Report 2020 available at bhp.com/climate for
information about the assumptions, outputs and limitations of our 1.5°C Paris-aligned scenario. 1.5°C is above pre-industrial
levels.


 ADOPTING TECHNOLOGIES AND MAINTAINING DIGITAL SECURITY

 Risks associated with adopting and implementing new technologies, and maintaining
 the effectiveness of our existing digital landscape (including cyber defences) across
 our value chain.

 Why is this important to BHP?
 Our business and operational processes across our value chain are dependent on the
 effective application of technology, which we use as a lever to deliver on our current and
 future operational, financial and social objectives. This exposes BHP to risks originating from
 adopting or implementing new technologies, or failing to take appropriate action to position
 BHP for the digital future, which may impact the capabilities we require, the effectiveness
 and efficiency of our operations and our ability to compete effectively. We may also fail to
 maintain the effectiveness of our existing and future digital landscape, including cyber
 defences, exposing us to technology availability, reliability and cybersecurity risks. These
 could lead to operational events, commercial disruption (such as an inability to process or
 ship our products), corruption or loss of system data, a misappropriation or loss of funds,
 unintended disclosure of commercial or personal information, enforcement action or
 litigation. An inability to adequately implement new technology, or any sustained disruption
 to our existing technology, may also adversely affect our licence to operate, reputation,
 results of operations and financial performance. As we continue to leverage technology to
 improve productivity and safety, we expect the importance of safe, secure and reliable
 technology to our business will continue to grow.

 Examples of potential threats
 • Failure to achieve efficiencies through our investment in technologies, or to keep pace
   with advancements in technology, resulting in an inability to access systems or digital
  infrastructure required to support our operations or customers’ and other stakeholders’
  evolving expectations. For example, delays, costs and failures to achieve efficiencies
  arising from difficulties in integrating new technologies with existing technologies, or from
  failures of new technology to perform as expected.
• Failing to identify, access and secure necessary infrastructure and key inputs (including
  electricity, internet bandwidth, data, software, licences or other rights in intellectual
  property, hardware and talent) to support new technology innovations and advanced
  technologies may adversely affect our ability to operate or adopt those technologies. This
  includes artificial intelligence and machine learning, process automation, robotics, data
  analytics, cloud computing, smart devices and remote working. For example, adopting
  new technology to reduce emissions through the use of alternative energy sources may
  require new infrastructure (such as at our mines and ports), and effective implementation
  of new digital technologies will be heavily dependent on access to relevant data.
• Failure or outage of our existing or future information and operating technology systems.
• Cyber events or attacks (including ransomware, state-sponsored and other
  cyberattacks) on our existing or future information and operating technology systems,
  including on third-party partners and suppliers (such as our cloud service providers). For
  example, a cyberattack on our autonomous systems for haulage and drilling may reduce
  operational productivity and/or adversely impact safety.

Examples of potential opportunities
• Application of digital solutions across our operations and value chain may unlock greater
  productivity and safety performance. For example, using predictive analytics to enable
  operations to identify asset condition and efficiencies may improve safety, production
  and equipment availability, and reduce maintenance and other costs.
• Technology solutions to reduce emissions may support BHP and our suppliers and
  customers in achieving climate action targets. For example, BHP is collaborating with
  other miners and suppliers to develop new technology to electrify haul trucks.
• Developing and applying artificial intelligence in mine planning, remote operation and
  advanced robotic technologies may identify or provide access to previously unknown or
  inaccessible deposits and development of end-to-end autonomous mining systems.
• Using digital simulations and predictive trend modelling may enable us to optimise the
  deployment of new technologies, such as automation and electrification, support early
  identification of process variances and faults, and support the marketing of our products
  to customers.

Key management actions
• Our assets, functions and projects are responsible for managing localised or project-
  specific exposure to technology risks. Enterprise-level risks that are specific to
  technology, such as those that pose a greater threat to our wider business and strategic
  opportunities, are generally managed by our global Technology team and other relevant
  stakeholders to support delivery of our technology strategy.
• We collaborate with industry and research partners to develop technological solutions.
• Our Technology Risk Committee oversees the management and improvement of
  technology risks and controls, and supports the embedment of a sustainable risk culture
  in our Technology team.
• We employ a number of measures designed to protect against, detect and respond to
  cyber events or attacks, including BHP’s mandatory minimum performance requirements
  for technology and cybersecurity, cybersecurity performance requirements for suppliers,
  cybersecurity strategy and resilience programs, an enterprise security framework and
  cybersecurity standards, cybersecurity awareness plans and training, security
  assessments and monitoring, restricted physical access to hardware and crisis
  management plans.
FY2021 insights                                              Further information
Risks associated with technology and the pace of • section 1.6.2 How we
technological innovation continue to evolve rapidly. The        deliver value –
Group’s exposure to technology risks increased in FY2021        Technology
due primarily to an increase in the frequency and
sophistication of cyberattacks against companies in the
resources industry and governments. BHP continues to
leverage technology to deliver value while taking actions to
manage associated risks and strengthening cyber
capabilities. During FY2021, we implemented programs to
enable rapid technology development, improve operational
performance and to create new analytic capabilities.

ETHICAL MISCONDUCT

Risks associated with actual or alleged deviation from societal or business expectations of
ethical behaviour (including breaches of laws or regulations) and wider or cumulative
organisational cultural failings, resulting in significant reputational impacts.

Why is this important to BHP?
The conduct of BHP or our people or third-party partners could result in an actual or alleged
deviation from expectations of ethical behaviour or breaches of laws and regulations. This
may include fraud, corruption, anti-competitive behaviour, money laundering, breaching
trade or financial sanctions, market manipulation, privacy breaches, ethical misconduct and
wider organisational cultural failings. A failure to act ethically or legally may result in negative
publicity (including on social media), investigations, public inquiries, regulatory enforcement
action (including fines), litigation or other civil or criminal proceedings, or increased
regulation. It could also threaten the validity of our tenements or permits, or adversely impact
our reputation, results of operations, financial performance or share price. Impacts may be
amplified if our senior leaders fail to uphold BHP’s values or address actual or alleged
misconduct in a way that is consistent with societal and stakeholder expectations, and our
workplace culture may also be eroded, adversely affecting our ability to attract and retain
talent. Ethical misconduct risks and impacts are heightened by the complex and
continuously evolving legal and regulatory frameworks that apply to the jurisdictions where
we operate and potentially conflicting obligations under different national laws.

Examples of potential threats
• Failing to prevent breaches of international standards, laws, regulations or other legal,
  regulatory, ethical, environmental, governance or compliance obligations, such as
  external misstatements, inaccurate financial or operational reporting or a breach of our
  continuous disclosure obligations.
• Corruption (particularly in high-risk or less economically developed jurisdictions),
  market conduct or anti-competitive behaviour, including in relation to our joint venture
  operations.
• Failing to comply with trade or financial sanctions (which are subject to rapid change
  and may potentially result in conflicting obligations), health, safety and environmental
  laws and regulations, native title and other land right or tax or royalty obligations.
• Failing to protect our people from harm (including to mental and physical health) due to
  the misconduct of others that takes place in connection with their work, such as
  discrimination or sexual harassment and assault.
Examples of potential opportunities
• Our capability to manage ethical misconduct risks may expand portfolio growth options
  by providing greater assurance that we can operate legally and ethically in high-risk
  jurisdictions.
• Managing ethical risks in line with societal and stakeholder expectations may
  distinguish BHP from competitors and enhance our ability to raise capital, attract and
  retain talent, obtain permits, partner with external organisations or suppliers, or market
  our products to customers.




Key management actions
• Setting the ‘tone from the top’ through Our Charter, which is central to our business
  and describes our purpose, values and how we measure success.
• Implementing internal policies, standards, systems and processes for governance and
  compliance to support an appropriate culture at BHP, including:
  o Our Code of Conduct and BHP’s mandatory minimum performance requirements for
     business conduct, market disclosure and other matters
  o training on Our Code of Conduct and in relation to anti-corruption, market conduct
     and competition
  o ring fencing protocols to separate potentially competitive businesses within BHP
  o governance and compliance processes, including classification of sensitive
     transactions, as well as accounting, procurement and other internal controls, and
     tailored monitoring of control effectiveness
  o oversight and engagement with high-risk areas by our Ethics and Compliance
     function, Internal Audit and Advisory team and the Disclosure Committee
  o review and endorsement by our Ethics and Compliance function of the highest-risk
     transactions, such as gifts and hospitality, engagement of third parties, community
     donations and sponsorships above defined thresholds
  o automated counterparty and transaction screening against lists of entities subject to
     trade sanctions
  o our EthicsPoint anonymous reporting service, supported by an ethics and
     investigations framework and central investigations team
• Continuing to enforce Our Code of Conduct via appropriate investigations and
  responses including disciplinary action, in addition to deployment of appropriate safety
  controls to prevent harm.

FY2021 insights                                              Further information
Our exposure to ethical misconduct risks increased in • Our Charter and Our
FY2021, including due to continued exploration of potential     Code of Conduct
growth options in high-risk or less economically developed • section 2.1.15 Our
jurisdictions and escalating trade sanctions or equivalent      conduct – EthicsPoint
measures (in particular, among China and Australia and the • section 2.1 Corporate
United States). Societal expectations have also increased       Governance Statement
– stakeholder dissatisfaction in response to other • section 1.13.5 Health –
companies’ executive misconduct and failures to uphold          Sexual assault and sexual
corporate or societal values demonstrate the importance of      harassment
implementing and maintaining effective preventative • section 1.13.6 Ethics and
controls and responding to inappropriate conduct in a timely    business conduct
manner.


INADEQUATE BUSINESS RESILIENCE
Risks associated with unanticipated or unforeseeable adverse events and a failure of
planning and preparedness to respond to, manage and recover from adverse events
(including potential physical impacts of climate change).

Why is this important to BHP?
In addition to the threats described in our other risk factors, our business could experience
unanticipated, unforeseeable or other adverse events (internal or external) that could harm
our people, disrupt our operations or value chain, or damage our assets or corporate offices,
including our non-operated assets over which BHP has less control. A failure to identify or
understand exposure, adequately prepare for these events (including maintaining business
continuity plans) or build wider organisational resilience may inhibit our (or our third-party
partners’) ability to respond and recover in an effective and efficient manner. This could
cause material adverse impacts on our business, such as reduced ability to access
resources, markets and the operational or other inputs required by our business, reduced
production or sales of commodities, or increased regulation, which could adversely impact
our financial performance, share price or reputation, and could lead to litigation or class
actions.

Examples of potential threats
• Geopolitical, global economic, regional or local developments or adverse events, such
  as social unrest, strikes, work stoppages, labour disruptions, social activism, terrorism,
  bomb threats, economic slowdown, acts of war or other significant disruptions in areas
  where we operate or have interests (for example, in FY2020, stoppages associated with
  social unrest in Chile impacted copper production at Escondida).
• Natural events, including earthquakes, tsunamis, hurricanes, cyclones, fires, solar flares
  and pandemics (for example, earthquakes may affect the Andes region in South America
  where we undertake exploration activities and have operated and non-operated assets).
• Potential physical impacts of climate change, such as acute risks that are event-driven
  (including increased severity of extreme weather events) and chronic risks resulting from
  longer-term changes in climate patterns. Hazards and impacts may include changes in
  precipitation patterns, water shortages, rising sea levels, increased storm intensity,
  prolonged extreme temperatures and increased drought, fire and tidal flooding.
• Failure by suppliers, contractors or joint venture partners to perform existing contracts or
  obligations (including due to insolvency), such as construction of large projects or supply
  of key inputs to our business (for example, consumables for our mining equipment).
• Failure of our risk management or other processes (including controls) to prepare for or
  manage any of the risks discussed in this ‘Risk factors’ section may inhibit our (or our
  third party partners’) ability to manage any resulting adverse events and may disrupt our
  operations or adversely impact our financial performance or reputation.

Examples of potential opportunities
• Risk identification and management supports proactive, focused and prioritised
  deployment of resources to reduce exposure to adverse events. It may be used to inform
  priorities and strategies across BHP, supporting a proportionate and cost-effective
  response, which could provide a competitive advantage at a regional or global level.
• Building wider organisational resilience may help us to mitigate the impacts of
  unforeseeable adverse events. For example, processes may be redesigned to enhance
  resilience to adverse events, such as pandemics.
• Adapting to climate change across our operations and value chain could position BHP
  as a supplier of choice and provide competitive advantage (for example, by fulfilling our
  commitment to security of supply). Support for climate vulnerable communities and
  ecosystems may also improve our social value proposition.
 Key management actions
 • Implementing Group-wide controls to enhance business resilience, including BHP’s
   mandatory minimum performance requirements for security, crisis and emergency
   management and business continuity plans.
 • Monitoring our current state of readiness (preparedness, redundancy and resilience),
   including through scenario analysis, to respond to and recover from adverse events to
   support organisational capability in our operations, functions and senior management to
   effectively and efficiently respond to events should they materialise.
 • Monitoring the external environment, including political and economic factors through
   signal monitoring, our geopolitical monitoring and public policy frameworks and our
   enterprise-level watch list of emerging themes, to support early identification of policy
   changes or adverse events for which we may need to increase preparedness.
 • Identifying security threats that could directly or indirectly impact our operations and
   people in countries of interest to BHP. For example, a review of BHP’s global security
   program was undertaken in FY2021 to better understand our security position and
   identify potential improvements.
 • Implementing our Climate Change Adaptation Strategy, including requiring 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.

 FY2021 insights                                              Further information
 Our exposure to risks associated with inadequate • section 1.16 Risk factors –
 business resilience grew in FY2021 due to the increasing        Robust risk assessment and
 frequency and scale of crisis events, such as extreme           viability statement
 temperatures and weather events being experienced            • bhp.com/climate
 globally and the continuing global impacts of the COVID-
 19 pandemic. While the impacts on BHP have been
 relatively minor to date, sustained or increased
 geopolitical tensions, the pandemic and nationalist
 sentiment may exacerbate the drivers of conflict,
 instability and unrest, including existing inequality within
 and between nations. This could increase the likelihood
 of more significant events that can have a greater impact
 on our business, such as social unrest and conflict
 (including war and terrorism).
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 considerable uncertainty in the external
environment (which has been amplified by the COVID-19 pandemic), including due to political
and policy uncertainty, evolving stakeholder expectations (for example, in relation to the
environment, climate change and human rights), civil unrest or reform in some countries in
which we operate, continued market volatility and geopolitical tensions that could affect our
ability to access key markets.
This could lead to changes to our regulatory environment and stakeholder expectations of our
business, increase the risk of commodity price 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             • the Group-level material risk profile
    • the latest funding and liquidity               (including climate-related risks) and
        update                                       the mitigating actions available
    • the long-dated maturity profile of             should particular risks materialise
        BHP’s debt and the maximum debt           • any actual and further anticipated
        maturing in any one year                     impacts of the COVID-19 pandemic
    • the flexibility in BHP’s capital and           on BHP’s two-year budget and five-
        exploration expenditure programs             year plan
        under the Capital Allocation
        Framework
    • the reserve life of BHP’s minerals
        assets and the reserves-to-
        production life of BHP’s oil and gas
        assets

The Board’s assessment also took into account reverse stress testing of the Group’s balance
sheet to determine the additional levels of debt it could support on forecast commodity prices,
as well as the cyclical low price case used in monthly balance sheet stress testing. Results
were compared against assessed financial impacts for all material risks recorded on the
Group’s risk profile, enabling the Board to consider the resilience of the balance sheet in the
context of identified threats.
In addition, the balance sheet was stress tested against three hypothetical scenarios. Each
scenario modelled two or three hypothetical events, based on our principal risks, occurring
simultaneously towards the start of FY2022. Scenarios were designed without regard to the
effectiveness of preventative controls and reflect market, operational, and a combination of
market and operational risks. The simultaneous occurrence of all four events was not
considered plausible. Further details are set out in the table below.

                                                                                    Scenario
   Principal risk     Hypothetical event
                                                                                    A B C
                      Offshore well blow out involving a drilling rig that we
                                                                                      - -
    Operational       operate in the US Gulf of Mexico
      events          Catastrophic failure of a tailings storage facility at an        -
                                                                                        
                      operated asset in Australia
                      Temporary physical or logistical disruption of access to
   Accessing key
                      key markets preventing the sale or delivery of                -    -
     markets
                      commodities to Asia
    Optimising
                      Low commodity price environment for two years,
  portfolio returns
                      commencing at the start of the second half of FY2022,
   and managing                                                                     -     -
                      followed by a gradual recovery by the end of the first half
  commodity price
                      of FY2026
    movements
A number of our other principal risks may have impacts that are embedded in these scenarios.
For example, a cyber event or attack may lead to an operational event, while responses of
governments and other stakeholders to a pandemic may result in an economic slowdown and
low commodity price environment. For further information on our principal risks, see the ‘Risk
factors’ section.
While scenario modelling was undertaken for the duration of BHP’s five-year plan, confidence
is higher in the first three years. Stress testing demonstrated the Group’s balance sheet was
put under the greatest stress by Scenario C, which reflects both market and operational risks,
with net debt expected to increase to approximately US$48 billion over FY2022 to FY2024
(assuming dividends would be suspended in accordance with our Capital Allocation
Framework). In such circumstances, the Board considered that the Group would have a
number of further mitigating actions available to it which would be expected to allow the Group
to limit net debt to approximately US$30 billion over that period, including deferral of
discretionary capital expenditure and divestment of certain assets. BHP would also have
access to US$5.5 billion of credit through its revolving credit facility. These mitigating actions
would be expected to be sufficient to support minimum investment-grade credit ratings over
FY2022 to FY2024.
For the purposes of stress testing, the Board made certain key 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.
In making this viability statement, the Board was also mindful of other relevant factors,
including key risk indicator performance, monthly balance sheet stress testing against the
cyclical low price case, the assessment of the Group’s portfolio against scenarios as part of
BHP’s strategy and corporate planning processes, a Board-level risk identification session to
help identify key uncertainties facing the Group, and the proposed changes to the Group’s
portfolio which are currently expected to complete in FY2022.(3)
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.
(3) Refer section 1.5 Positioning for the future, Petroleum business merger proposal and Update on our non-core coal
divestment process.


2. Related party transactions
There have been no related party transactions that have taken place during the year ended
30 June 2021 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 2021 are set out in notes 24 ‘Key management personnel’
and 33 ‘Related party transactions’ to the Financial Statements set out below.


24 Key management personnel


Key management personnel compensation comprises:
                                                                                              2021           2020            2019
                                                                                              US$            US$             US$
Short-term employee benefits                                                            14,081,625     12,564,637      11,557,506
Post-employment benefits                                                                   744,951      1,172,727       1,490,716
Share-based payments                                                                    11,601,866     13,514,588      15,821,972
Total                                                                                   26,428,442     27,251,952      28,870,194


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 FY2021
(2020: US$ nil; 2019: US$ nil).
There were no amounts payable by key management personnel at 30 June 2021 (2020:
US$ nil; 2019: US$ nil).
There were no loans receivable from or payable to key management personnel at 30 June
2021 (2020: US$ nil; 2019: 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 2021 (2020: US$ nil; 2019: US$ nil).
For more information on remuneration and transactions with key management personnel,
refer to section 2.2.

33 Related party transactions


The Group’s related parties are predominantly subsidiaries, associates and joint ventures
and key management personnel of the Group. Disclosures relating to key management
personnel are set out in note 24 '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 associates and
    joint ventures under co-funding arrangements. Such loans are made on an arm’s length
    basis.
•   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 2021 (2020:
    US$ nil), other than those with post-employment benefit plans for the benefit of Group
    employees. These are shown in note 27 'Pension and other post-retirement obligations'.
•   Related party transactions with Samarco are described in note 4 'Significant events –
    Samarco dam failure’.
Further disclosures related to related party transactions are as follows:
Transactions with related parties
                                            Joint ventures           Associates
                                              2021          2020     2021        2020
                                             US$M          US$M     US$M        US$M
Sales of goods/services                        -            -          -          -
Purchases of goods/services                    -            -    1,564.073    967.276
Interest income                                -            -        2.241      2.370
Interest expense                               -            -           -          -
Dividends received                             -            -      737.250    126.187
Net loans (repayments from)/made to related
                                               -            -     (12.108)     12.273
parties

Outstanding balances with related parties
                                                Joint ventures             Associates
                                                  2021          2020       2021         2020
                                                 US$M          US$M       US$M         US$M
Trade amounts owing to related parties             -            -        316.269       69.490
Loan amounts owing to related parties              -            -        17.097        5.097
Trade amounts owing from related parties           -            -         0.004        0.473
Loan amounts owing from related parties            -            -        40.651       40.759



3. Directors’ Responsibility Statement


The following statement which was prepared for the purposes of the Annual Report 2021 is
repeated here for the purposes of complying with DTR 6.3.5. It relates to and is extracted
from the Annual Report 2021 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 3.1 and 3.2, 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
                  2021 and of their performance for the year ended 30 June 2021

    (b) the Financial Statements also comply with International Financial Reporting
        Standards, as disclosed in section 3.1

    (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 2nd day of September 2021.”

Sponsor: UBS South Africa (Pty) Limited




BHP Group Plc Registration number 3196209
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

Date: 14-09-2021 09:00:00
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