TIDMGLEN
RNS Number : 9536R
Glencore PLC
11 March 2021
Baar, Switzerland
11 March 2021
2020 Annual Report of Glencore plc
Glencore plc ("Glencore" or the "Company") has today:
-- published its Annual Report for the year ended 31 December
2020 ("Annual Report") on its website www.glencore.com as required
by DTR 4.1.3 R and 6.3.5 R; and
-- submitted a copy of the Annual Report to the Financial
Conduct Authority's (FCA) National Storage Mechanism in accordance
with LR 9.6.1 R.
The Annual Report will shortly be available for inspection on
the FCA's National Storage Mechanism:
fca.org.uk/markets/primary-markets/regulatory-disclosures/national-storage-mechanism
Glencore will hold its 2021 Annual General Meeting on 29 April
2021. Further details will be available in the notice of meeting,
which will be released later this month.
The Appendix to this announcement contains the following
additional information which has been extracted from the Annual
Report for the purposes of compliance with DTR 4.1.12 R and 6.3.5 R
only:
-- a description of principal risks and uncertainties;
-- a note on related party transactions; and
-- the Directors' Responsibilities Statement.
The Appendix should be read in conjunction with Glencore's
Preliminary Results Announcement issued on 16 February 2021
(including the notice on forward looking statements at the end of
that announcement). Together these constitute the material required
by DTR 4.1.12 R and 6.3.5 R to be communicated to the media in
unedited full text through a Regulatory Information Service. This
announcement should be read in conjunction with and is not a
substitute for reading the full Annual Report.
Page and note references in the text below refer to page numbers
and notes in the Annual Report and terms defined in that document
have the same meanings in these extracts.
For further information please contact:
Investors
Martin Fewings t: +41 41 709 28 80 m: +41 79 737 56 42 martin.fewings@glencore.com
Media
Charles Watenphul t: +41 41 709 24 62 m: +41 79 904 33 20 charles.watenphul@glencore.com
Company Secretarial
John Burton t: +41 41 709 26 19 m: +41 79 944 54 34 john.burton@glencore.com
Nicola Leigh t: +41 41 709 27 55 m: +41 79 735 39 16 nicola.leigh@glencore.com
Lionel Mateo t: +41 41 709 28 47 m: +41 79 152 09 05 lionel.mateo@glencore.com
www.glencore.com
Glencore LEI: 2138002658CPO9NBH955
Notes for Editors
Glencore is one of the world's largest global diversified
natural resource companies and a major producer and marketer of
more than 60 responsibly-sourced commodities that advance everyday
life. The Group's operations comprise around 150 mining and
metallurgical sites and oil production assets.
With a strong footprint in over 35 countries in both established
and emerging regions for natural resources, Glencore's industrial
activities are supported by a global network of more than 30
marketing offices. Glencore's customers are industrial consumers,
such as those in the automotive, steel, power generation, battery
manufacturing and oil sectors. We also provide financing, logistics
and other services to producers and consumers of commodities.
Glencore's companies employ around 145,000 people, including
contractors.
Glencore is proud to be a member of the Voluntary Principles on
Security and Human Rights and the International Council on Mining
and Metals. We are an active participant in the Extractive
Industries Transparency Initiative. Our ambition is to be a net
zero total emissions company by 2050.
www.facebook.com/Glencore
www.flickr.com/photos/glencore
www.instagram.com/glencoreplc
www.linkedin.com/company/8518
www.slideshare.net/glencore
www.twitter.com/glencore
www.youtube.com/glencorevideos
APPIX
Glencore's Risk Management section
The following has been extracted from pages 70 to 84 of the
Annual Report:
Risk management is one of the core responsibilities of the
Group's leadership and it is central to our decision-making
processes. The Group's leadership fundamental duties as to risk
management are:
-- making a robust assessment of emerging and principal risks
-- monitoring risk management and internal controls
-- promoting a risk aware culture
The Board also assesses and approves our overall risk appetite
and monitors our risk exposure. This process is supported by the
Audit, HSEC and ECC Committees, whose roles include evaluating and
monitoring the risks inherent in their respective areas as
described below and to whom the Group's applicable corporate
functions (Risk Management, Compliance, Legal, HSEC, Sustainable
Development, HR and IT) report.
Effective risk management is crucial in helping the Group
achieve its objectives of preserving its overall financial strength
for the benefit of all stakeholders, and safeguarding its ability
to continue as a going concern, while generating sustainable
long-term returns.
The Board, through the ECC and HSEC Committees, reviews and
determines the appropriate level of risk management oversight for
the Group's material JVs. We ensure that our material risk
management programmes are implemented at all JVs that we operate.
In other JVs, we seek to influence our JV partners to adopt our
commitment to responsible business practices and implement
appropriate programmes in respect of their main business risks.
RISK MANAGEMENT FRAMEWORK
Our Group functions support senior management and those with
responsibilities for risk within the business in the development
and maintenance of an appropriate institutional risk culture
mitigating risk across the Group, as appropriate.
INDUSTRIAL RISK MANAGEMENT
We believe that every employee should be accountable for the
risks related to their role. As a result, we encourage our
employees to escalate risks (not limited to hazards), whether
potential or realised, to their immediate supervisors. This enables
risks to be tackled and mitigated at an early stage by the team
with the relevant level of expertise.
Led by the Head of Industrial Assets and the Industrial Leads
across each commodity department, management teams at each
industrial operation are responsible for implementing processes
that identify, assess and manage risk.
The risks that may impact on business objectives and plans are
maintained in business risk registers. They include strategic,
compliance, operational and reporting risks.
HSEC & SUSTAINABILITY RISK MANAGEMENT
These risk management processes are managed at asset level, with
the support and guidance from the central Sustainability and HSEC
and HR teams, and subject to the leadership and oversight of the
HSEC Committee.
The Group's internal HSEC Audit programme focuses on
catastrophic risks, assessing and monitoring compliance with
leading practices.
Further information is provided in the report from the HSEC
Committee on page 96 and will be published in the Group's
sustainability report for 2020.
MARKETING RISK (MR) MANAGEMENT
Glencore's marketing activities are exposed to a variety of
risks, such as commodity price, basis, volatility, foreign
exchange, interest rate, credit and performance, liquidity and
regulatory. Glencore devotes significant resources to developing
and implementing policies and procedures to identify, monitor and
manage these risks.
Glencore's MR is managed at an individual, business and central
level. Initial responsibility for risk management is provided by
the businesses in accordance with and complementing their
commercial decision-making. A support, challenge and verification
role is provided by the central MR function headed by the Chief
Risk Officer (CRO) via its daily risk reporting and analysis which
is split by market and credit risk.
The MR function monitors and analyses the large transactional
flows across many locations using its timely and comprehensive
transaction recording, ongoing reporting of the transactions and
resultant exposures, which provides all encompassing positional
reporting, and continually assessing universal counterparty credit
exposure.
The MR team provides a wide array of daily and weekly reporting.
For example, daily risk reports showing Group Value at Risk (VaR)
and various other stress tests and analysis are distributed to the
CEO, CFO and CRO. Additionally, business risk summaries showing
positional exposure and other relevant metrics, together with
potential margin call requirements, are also circulated daily. The
MR function strives to enhance its stress and scenario testing as
well as improve measures to capture risk exposure within the
specific areas of the business, e.g. within metals, concentrate
treatment and refining charges are analysed.
The Group continues to make extensive use of credit enhancement
tools, seeking letters of credit, insurance cover, discounting and
other means of reducing credit risk from counterparts. In addition,
mark-to-market exposures in relation to hedging contracts are
regularly and substantially collateralised (primarily with cash)
pursuant to margining agreements in place with such hedge
counterparts.
The Group-wide Credit Risk Policy governs higher levels of
credit risk exposure, with an established threshold for referral of
credit decisions by business heads to the CFO and the CEO (relating
to unsecured amounts in excess of $75 million with BBB
(or equivalent) or lower rated counterparts). At lower levels of
materiality, decisions may be taken by the business heads where key
strategic transactions or established relationships, together with
credit analysis, suggest that some level of open account exposure
may be warranted.
LEGAL AND COMPLIANCE
For legal and compliance risk, see Ethics and Compliance section
pages 38 - 43, and laws and enforcement risk pages 76 - 77.
INTERNAL AUDIT
Glencore's Internal Audit function reports directly to the Audit
Committee. Its role is to evaluate and improve the effectiveness of
business risk management, control, and business governance
processes.
A risk-based audit approach is applied in order to focus on
high-risk areas during the audit process. It involves discussions
with management on key risk areas identified in the Group's
budgeting process, emerging risks, operational changes, new
investments and capital projects. Internal Audit reviews these
areas of potential risk, and suggests controls to mitigate
exposures identified.
In recognition of the need to conduct assurance on the global
Covid-19 related response across our operations, Corporate HSEC
worked with Internal Audit to develop a remote audit program, which
was implemented in May 2020.
The Audit Committee considers and approves the risk-based
Internal Audit plan, areas of audit focus and resources and is
regularly updated on audits performed and relevant findings, as
well as the progress on implementing the actions arising. In
particular, the Committee considers Internal Audit's main
conclusions, its KPIs and the effectiveness and timeliness of
management's responses to its findings. The Audit Committee has
concluded that the Internal Audit function remains effective.
VAR
The Group monitors its commodity price risk exposure by using a
VaR computation assessing "open" commodity positions which are
subject to price risks. VaR is one of the risk measurement
techniques the Group uses to monitor and limit its primary market
exposure related to its physical marketing exposures and related
derivative positions. VaR estimates the potential loss in value of
open positions that could occur as a result of adverse market
movements over a defined time horizon, given a specific level of
confidence. The methodology is a statistically defined, probability
based approach that takes into account market volatilities, as well
as risk diversification benefits by recognising offsetting
positions and correlations between commodities and markets. In this
way, risks can be compared across all markets and commodities and
risk exposures can be aggregated to derive a single risk value.
Last year, the Board approved the Audit Committee's
recommendation of a one day, 95% VaR limit of $100 million,
consistent with the previous year. This limit is subject to review
and approval on an annual basis. It was temporarily increased to
$120 million to reflect the exceptional trading conditions in oil
markets during part of Q2 2020. The purpose of this Group limit is
to assist senior management in controlling the Group's overall risk
profile, within this tolerance threshold. During the year
Glencore's reported average daily VaR was approximately $39
million, with an observed high of $102 million and a low of $14
million.
There were no breaches in the limit during the year.
The Group remains aware of the extent of coverage of risk
exposures and their limitations. In addition, VaR does not purport
to represent actual gains or losses in fair value on earnings to be
incurred by the Group, nor are these VaR results considered
indicative of future market movements or representative of any
actual impact on its future results. VaR remains viewed in the
context of its limitations; notably, the use of historical data as
a proxy for estimating future events, market illiquidity risks and
risks associated with longer time horizons as well as tail risks.
Recognising these limitations, the Group complements and refines
this risk analysis through the use of stress and scenario analysis.
The Group regularly back-tests its VaR to establish adequacy of
accuracy and to facilitate analysis of significant differences, if
any.
The Board has again approved the Audit Committee's
recommendation of a one day, 95% VaR limit of $100 million for
2021.
PRINCIPAL RISKS AND UNCERTAINTIES
Glencore is exposed to a variety of risks that can have an
impact on our business and prospects, future performance, financial
position, liquidity, asset values, growth potential, sustainable
development, reputation and licence to operate. Our principal risks
and uncertainties are highly dynamic and our assessment and our
responses to them are critical to our future business and
prospects.
In accordance with UK Financial Reporting Council guidance, we
define a principal risk as a risk or combination of risks that
could seriously affect the performance, future prospects or
reputation of Glencore. These include those risks which would
threaten the business model, future performance, solvency or
liquidity of the Group.
We define an emerging risk as a risk that has not yet occurred
but is at an early stage of becoming known and/or coming into being
and expected to grow greatly in significance in the longer
term.
The Board mandates its ECC, HSEC and Audit Committees to
identify, assess and monitor the principal and emerging risks
relevant to their respective remits. These Committees usually meet
five times a year and are always followed by a meeting of the Board
to review and discuss their work.
The assessment of our principal risks, according to exposure and
impact, is detailed on the following pages.
The commentary on the risks in this section should be read in
conjunction with the explanatory text under Understanding our risks
information which is set out below.
EVOLUTION IN PRINCIPAL RISKS
Impact of Covid-19
Globally, Covid-19 has resulted in immense operational
disruptions. Challenges for Glencore have included safeguarding the
health and safety of employees, government enforced shut downs,
strained supply chains, liquidity constraints, counterparty
financial strains and abrupt shifts to remote working. Covid-19's
impact on us has been uneven. Key mining regions such as Australia
and Canada have been relatively unimpacted, while Peru, Colombia
and South Africa suffered significantly more disruption.
The continued high incidence of Covid-19 at the date of this
report make the outlook over the short-term uncertain and, notably
for various energy based business (coal and oil producing
companies), given the continued acceleration and momentum
surrounding decarbonisation, highly more uncertain over the medium
to longer term.
Consistent with the prior year, there are 11 principal risks for
the Group, of which, the 6 most significant and potentially posing
a material and adverse effect on the Group are:
1. supply, demand and prices of commodities,
2. geopolitical, permits and licences to operate,
3. laws and enforcement,
4. health, safety, environment, including catastrophic
hazards,
5. liquidity, and
6. climate change risks.
Further details on each risk is set out on the following
pages.
LONGER-TERM VIABILITY
In accordance with the requirements of the UK Corporate
Governance Code, the Board has assessed the prospects of the
Group's viability over the four-year period from 1 January 2021.
This period is consistent with the Group's established annual
business planning and forecasting processes and cycle, which is
subject to review and approval each year by the Board.
The Board also assessed the medium- and long-term impact of
climate change on the outlook for our commodity businesses, under a
range of possible scenarios, as set out on page 18. Such impacts
are uncertain, being particularly dependent on long- term changes
in the energy mix related to power generation and transportation,
as well as consumption efficiencies, behavioural change and
co-ordinated implementation of government policy and regulation
frameworks, which will materially fall outside the four-year period
selected for assessment of longer term viability. This analysis,
however, indicates stable or improving opportunities across the
portfolio in the Current Pathway scenario. In the Rapid
Transformation and Radical Transition scenarios, we project
significant coal demand decline over the longer term, more than
compensated however (from a financial perspective) by materially
stronger demand for battery and new energy infrastructure required
metals.
The Board has considered the potential risks arising from Brexit
and determined there to be no material impact on longer-term
viability.
The four-year plan considers Glencore's Adjusted EBITDA, capital
expenditure, funds from operations (FFO) and Net debt, and the key
financial ratios of Net debt to adjusted EBITDA and FFO to Net debt
over the forecast years and incorporates stress tests to simulate
the potential impacts of exposure to the Group's principal risks
and uncertainties.
For the 2021-24 plan these scenarios included:
-- a prolonged downturn in the price and demand of commodities
most impacting Glencore's operations. Prices and FX over Q2 2020
(lowest average quarter in 2020, accounting for Covid-19) are
assumed to prevail for the outlook period to 2024;
-- foreign exchange movements to which the Group is exposed as a
result of its global operations;
-- adverse consequences resulting from an increased regulatory environment;
-- actions at the Group's disposal to mitigate the adverse
impacts of the above, principally the ability to defer or cancel
capital expenditure, to manage the working capital cycle and to
reduce or stop distributions to shareholders; and
-- consideration of the potential impact of adverse movements in
macroeconomic assumptions and their effect on the above key
financial KPIs and ratios which could increase the Group's access
to or cost of funding.
The scenarios were assessed taking into account current risk
appetite and any mitigating actions Glencore could take, as
required, in response to the potential realisation of any of the
stressed scenarios.
Based on the results of the related analysis, the Directors have
a reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the
four-year period of this assessment. They also believe that the
review period of four years is appropriate having regard to the
Group's business model, strategy, principal risks and
uncertainties, and viability.
Understanding our risks information
There are many risks and uncertainties which have the potential
to significantly impact our business. The order in which these
risks and uncertainties appear does not necessarily reflect the
likelihood of their occurrence or the relative magnitude of their
potential material adverse effect on our business.
We have sought to provide examples of specific risks. However,
in every case these do not attempt to be an exhaustive list.
These principal risks and uncertainties should be considered in
connection with any forward looking statements in this document as
explained on page 244.
Identifying, quantifying and managing risk is complex and
challenging. Although it is our policy to identify and, where
appropriate and practical, actively manage risk, our policies and
procedures may not adequately identify, monitor and quantify all
risks.
This section describes our attempts to manage, balance or offset
risk. Risk is, however, by its very nature uncertain and inevitably
events may lead to our policies and procedures not having a
material mitigating effect on the negative impacts of the
occurrence of a particular event. Our scenario planning and stress
testing may accordingly prove to be optimistic, particularly in
situations where material negative events occur in close proximity.
Since many risks are connected, our analysis should be read against
all risks to which it may be relevant.
In this section, we have sought to update our explanations,
reflecting our current outlook. Mostly this entails emphasising
certain risks more strongly than other risks rather than the
elimination of, or creation of, risks. Certain investors may also
be familiar with the risk factors that are published in the Group
debt or equity prospectuses or listing documents. These provide in
part some differing descriptions of our principal risks.
A recent example is available on our website at: glencore.com/
who-we-are/governance
In addition, more information on our risks is available in the
relevant sections of our website.
To provide for concise text:
-- where we hold minority interests in certain businesses,
although these entities are not generally subsidiaries and would
not usually be subject to the Group's operational control, these
interests should be assumed to be subject to these risks.
"Business" refers to these and any business of the Group
-- where we refer to natural hazards, events of nature or
similar phraseology we are referring to matters such as earthquake,
flood, severe weather and other natural phenomena
-- where we refer to "mitigation" we do not intend to suggest
that we eliminate the risk, but rather it refers to the Group's
attempt to reduce or manage the risk. Our mitigation of risks will
usually include the taking out of insurance where it is customary
and economic to do so
-- this section should be read as a whole - often commentary in
one section is relevant to other risks
-- "commodity/ies" will usually refer to those commodities which the Group produces or sells
-- "law" includes regulation of any type
-- "risk" includes uncertainty and hazard and together with
"material adverse effect on the business" should be understood as a
negative change which can seriously affect the performance, future
prospects or reputation of the Group. These include those risks
which would threaten the business model, future performance,
reputation, solvency or liquidity of the Group
-- a reference to a note is a note to the 2020 financial statements
-- a reference to the sustainability report is our 2020
sustainability report to be published in Q2 of 2021
External RISKS
1. Supply, demand and prices of commodities
Risk movement in 2020 - Increase
Risk appetite - medium. Being a resources company, we are
subject to the inherent risk to the business of sustained low
prices of our main commodities. We seek to ensure this risk is
ameliorated through scale of sufficiently low cost operations and
diversity of product. For marketing activities, our market risk
appetite is relatively low and our positions are usually hedged,
when possible.
Description and potential impact - The revenue and earnings of
substantial parts of our industrial asset activities and, to a
lesser extent, our marketing activities, are dependent upon
prevailing commodity prices. Commodity prices are influenced by a
number of external factors, including the supply of and demand for
commodities, speculative activities by market participants, global
political and economic conditions, related industry cycles and
production costs in major producing countries.
The dependence of the Group (especially our industrial business)
on commodity prices, supply and demand of commodities, make this
the Group's foremost risk.
We are dependent on the expected volumes of supply or demand for
commodities which can vary for many reasons, such as competitor
supply policies, changes in resource availability, government
policies and regulation, costs of production, global and regional
economic conditions and demand in end markets for products in which
the commodities are used. Supply and demand volumes can also be
impacted by technological developments, fluctuations in global
production capacity, global and regional weather conditions,
natural disasters and diseases, all of which impact global markets
and demand for commodities.
Future demand for certain commodities might decline (e.g. fossil
fuels), whereas others might increase (such as copper, cobalt, and
nickel for their use in electric vehicles and batteries more
broadly), taking into consideration the transition to a low carbon
economy.
Furthermore, changes in expected supply and demand conditions
impact the expected future prices (and thus the price curve) of
each commodity and significant falls in the prices of certain
commodities (e.g. copper, coal, zinc and cobalt) can have a severe
drag on our financial performance, impede shareholder returns and
could lead to concerns by external stakeholders as to the strength
of the Group's balance sheet.
This risk is more prevalent in certain commodities, such as
steel, coal and oil.
In particular, it is a widely held view that demand for coal
will reduce due to political pressures, cost reductions for
alternatives (renewables and LNG) and possible carbon taxes. Oil
production/processing is significantly less material for the
Group.
New or improved energy production possibilities and/or
technologies can reduce the demand for some commodities such as
coal.
Any adverse economic developments, particularly impacting China
and fast growing developing countries, could lead to reductions in
demand for, and consequently price reductions of, commodities.
Developments - The demand shock to the global economy from
Covid-19 initially led to significantly lower commodity prices,
particularly in energy products. Notwithstanding a healthy level of
recovery in many commodities in the second half of last year,
markets continue to be uncertain and potentially volatile.
Due primarily to statistical modelling outcomes in oil
marketing, the Group temporarily increased its Value at Risk
tolerance limit by $20 million in Q2, cancelling this shortly
afterwards.
Industrial operations sought to reduce capital expenditure. For
certain operations that were cash negative, difficult decisions
were made to suspend some operations.
Major decisions by governments can also lead to lower demand for
our commodities in their countries or regions, for example China's
restrictions on certain Australian sourced commodities which began
in 2020.
See the Chief Executive Officer's review on page 2, our market
and emerging drivers on page 6 and the financial review on page
44.
Mitigating factors - We continue to maintain focus on cost
discipline and achieving greater operational efficiency.
We actively manage marketing risk, including daily analysis of
Group value at risk (VaR).
We maintain both a diverse portfolio of commodities,
geographies, assets and liabilities and a global portfolio of
customers and contracts.
We prepare for anticipated shifts in commodity demand, for
example by putting a special focus on the parts of the business
that will potentially grow with increases in usage of electric
vehicles and battery production, and by closely monitoring fossil
fuel (particularly thermal coal) demands. We can also reduce the
production of any commodity within our portfolio in response to
changing market condition.
2. Currency exchange rates
Risk movement in 2020 - Stable
Risk appetite - Low. Where possible, foreign exchange (FX)
exposure to non-operating FX risks is hedged. FX risk inherent in
the operating costs of industrial activities is typically naturally
hedged through movements in commodity prices.
Description and potential impact - FX changes happen all the
time but are often difficult to predict. Producer country
currencies tend to increase in correlation with relevant higher
commodity prices.
Similarly, decreases in commodity prices are generally
associated with increases in the US dollar relative to local
producer currencies.
The vast majority of our sales transactions are denominated in
US dollars, while operating costs are spread across many different
countries, the currencies of which fluctuate against the US dollar.
A depreciation in the value of the US dollar against one or more of
these currencies will result in an increase in the cost base of the
relevant operations in US dollar terms.
The main currency exchange rate exposure is through our
industrial assets, as a large proportion of the costs incurred by
these operations is denominated in the currency of the country in
which each asset is located.
The largest of these exposures are to the currencies listed on
page 55.
Developments - A level of producer country FX depreciation
occurred during 2020, providing some local currency cost relief
relative to the US dollar.
Near term confidence in stability of global demand (and thus
indirectly FX rates for relevant producer countries) hinges on many
factors, particularly those that relate to the prospects of global
economic growth, including the U.S./China trade developments,
political/economic stability in the Middle East and the ongoing
disruption caused by the coronavirus pandemic.
Mitigating factors - The inverse FX correlation (against USD
commodity prices) usually provides a partial natural FX hedge for
the industrial business. In respect of commodity purchase and sale
transactions denominated in currencies other than US dollars, the
Group's policy is usually to hedge the specific future commitment
through a forward exchange contract.
From time to time, the Group may hedge a portion of its currency
exposures and requirements in an attempt to limit any adverse
effect of exchange rate fluctuations.
We monitor internally financial impacts resulting from foreign
currency movements.
3. Geopolitical, permits and licences to operate
Risk movement in 2020 - Stable
Risk appetite - High. We operate in various countries with less
developed political and regulatory regimes. To be considered a
truly diversified commodities group, operations in these
jurisdictions are required.
Description and potential impact - We operate and own assets in
a large number of geographic regions and countries, some of which
are categorised as developing, complex or having unstable political
or social fabrics. As a result, we are exposed to a wide range of
political, economic, regulatory, social and tax environments. The
Group transacts business in locations where it is exposed to a risk
of overt or effective expropriation or nationalisation. Our
operations may also be affected by political and economic
instability, including terrorism, civil disorder, violent crime,
war and social unrest.
Increased scrutiny by governments and tax authorities in pursuit
of perceived aggressive tax structuring by multinational companies
has elevated potential tax exposures for the Group. Additionally,
governments have sought additional sources of revenue by increasing
rates of taxation, royalties or resource rent taxes or may increase
sustainability obligations sometimes in breach of existing
stability undertakings.
The terms attaching to any permit or licence to operate may be
onerous and obtaining these and other approvals, which may be
revoked, can be particularly difficult. Furthermore, in certain
countries, title to land and rights and permits in respect of
resources are not always clear or may be challenged.
Adverse actions by governments and others can result in
operational/project delays or loss of permits or licences to
operate. Policies or laws in the countries in which we do business
may change in a manner that may negatively affect the Group.
The suspension or loss of our permits or licences to operate
could have a material adverse effect on the Group and could also
preclude Glencore from participating in bids and tenders for future
business and projects, therefore affecting the Group's long-term
viability.
Our licences to operate through mining or drilling rights are
dependent on a number of factors, including compliance with
regulations. It also depends on constructive relationships with a
wide and diverse range of stakeholders.
The continued operation of our existing assets and future plans
are in part dependent upon broad support, our "social licence to
operate", and a healthy relationship with the respective local
communities - see further Community Relations and Operating risks
concerning workforce disputes.
Developments - Covid-19 has given rise to new or increased
concerns with various stakeholders, including our workers, host
communities and governments, in relation to public health and the
broad economic impacts of reduced demand and potentially lower
production levels.
Resource nationalism continues to be a challenging issue in many
countries.
We published our latest annual Payments to Governments report
for 2019 which provided details on the total government
contributions of over $7.7 billion. It also set out details of
payments on a project by project basis. We expect to publish our
report on 2020 in the middle of this year.
A new law on procurement in the DRC is now being enforced
providing among other matters for obligatory contracting with DRC
majority-owned firms and payment of a 1.2% levy on the value of
contracts.
Also see Community and Human Rights risk on pages 83 - 84.
Mitigating factors - The Group's industrial assets are
diversified across various countries. The Group also continues to
actively engage with governmental authorities, particularly against
any backdrop of material upcoming changes and developments in
legislation and enforcement policies.
We endeavour to design and execute our projects according to
high legal, ethical, social, and human rights standards, and to
ensure that our presence in host countries leaves a positive
lasting legacy (see sustainability risks later in this
section).
This commitment is important in assisting in the management of
these risks and to maintain our permits and licences to
operate.
The Group has an active engagement strategy with the
governments, regulators and other stakeholders within the countries
in which it operates or intends to operate. Through strong
relationships with stakeholders we endeavour to secure and maintain
our licences to operate.
The Group has increased its engagement due to Covid-19 with
employees, relevant governmental authorities, regulators and other
stakeholders.
4. Laws and enforcement
Risk movement in 2020 - Increase
Risk appetite - Medium. The Group maintains programmes which
seek to ensure that we comply with the laws and external
requirements applicable to our business and products, and has
invested significant resources in enhancing these compliance
programmes in recent years. This investment reflects the fact that
the Group has a low risk appetite when considering entering into
transactions or business activities that present compliance
risk.
Nevertheless, some of our existing industrial and marketing
activities are located in countries that are categorised as
developing or as having complex political or social climates,
and/or where corruption is generally understood to exist, and
therefore there will always be residual risk in relation to our
compliance with laws and external requirements.
Description and potential impact - We are exposed to extensive
laws, including those relating to bribery and corruption,
sanctions, taxation, anti-trust, market conduct rules and
regulation, environmental protection, use of hazardous substances,
product safety and dangerous goods regulations, development of
natural resources, licences over resources, exploration, production
and post-closure reclamation, employment of labour and occupational
health and safety standards. The legal system and dispute
resolution mechanisms in some countries in which we operate may be
uncertain, meaning that we may be unable to enforce our
understanding of our rights and obligations under these laws.
The costs associated with compliance with these laws and
regulations, including the costs of regulatory permits, are
substantial and increasing. Any changes to these laws or their more
stringent enforcement or restrictive interpretation could cause
additional significant expenditure to be incurred and/or cause
suspensions of operations and delays in the development of
industrial assets. Failure to obtain or renew a necessary permit or
the occurrence of other disputes could mean that we would be unable
to proceed with the development or continued operation of an asset
and/or impede our ability to develop new industrial properties.
As a diversified sourcing, marketing and distribution company
conducting complex transactions globally, we are particularly
exposed to the risks of fraud, corruption, market abuse, sanctions
breaches and other unlawful activities both internally and
externally. Our marketing operations are large in scale, which may
make fraudulent, corrupt or other unlawful transactions difficult
to detect.
In addition, some of our industrial activities are located in
countries where corruption is more commonly seen; and some of our
counterparties have in the past, and may in the future, become the
targets of economic sanctions. Corruption and sanctions risks
remain highly relevant for businesses operating in international
markets, as shown by recent enforcement actions both inside and
outside the resources sector.
Governmental and other authorities have commenced, and may in
the future commence, investigations against the Group (including
those listed on page 212) in relation to alleged non-compliance
with these laws, and/or may bring proceedings against the Group in
relation to alleged non-compliance. The cost of cooperating with
the existing investigations and/or defending proceedings is
substantial.
Investigations or proceedings could lead to reputational damage,
the imposition of material fines, penalties, redress or other
restitution requirements, or other civil or criminal sanctions on
the Group (and/or on individual employees of the Group), the
curtailment or cessation of operations, orders to pay compensation,
orders to remedy the effects of violations and/or orders to take
preventative steps against possible future violations. The impact
of any monetary fines, penalties, redress or other restitution
requirements, and the reputational damage that could be associated
with them as a result of proceedings that are decided adversely to
the Group, could be material.
In addition, the Group may be the subject of legal claims
brought by private parties in connection with alleged
non-compliance with these laws, including class action suits in
connection with governmental and other investigations and
proceedings, and lawsuits based upon damage resulting from
operations. Any successful claims brought against the Group could
result in material damages being awarded against the Group, the
cessation of operations, compensation and remedial and/or
preventative orders.
Developments - On 19 June 2020, the Company was notified by the
Office of the Attorney General of Switzerland (OAG) that it had
opened a criminal investigation into Glencore International AG for
failure to have the organisational measures in place to prevent
alleged corruption in the DRC.
The current main investigations are summarised in note 31. The
Group is continuing to cooperate fully with each of the relevant
authorities concerning these investigations. The Investigations
Committee of the Board manages the Group's responses to these
investigations.
It is also possible that the various investigations may expand
and/or other authorities may open investigations into the
Group.
The final scope and outcome of the investigations listed above
is not possible to predict or estimate.
Mitigating factors - We seek to ensure compliance through our
commitment to complying with or exceeding the laws and regulations
applicable to our operations and products and through monitoring of
legislative requirements, engagement with government and
regulators, and compliance with the terms of permits and
licences.
We seek to mitigate the risk of breaching applicable laws and
external requirements through our risk management framework.
We have implemented a Group Ethics and Compliance programme that
includes a range of policies, standards, procedures, guidelines,
training and awareness, monitoring and investigations.
We have increased in recent years our focus on, and resources
dedicated to, the Group Ethics and Compliance programme, including
through increasing the number of dedicated compliance
professionals, enhancing our compliance policies and procedures and
controls and strengthening the Group's Raising Concerns programme
and investigations function - see pages 42.
However, there can be no assurance that such policies,
standards, procedures and controls will adequately protect the
Group against fraud, corruption, market abuse, sanctions breaches
or other unlawful activities.
5. Liquidity
Risk movement in 2020 - Stable
Risk appetite - Low. It is the Group's policy to operate a
strong BBB rated balance sheet and to ensure that a minimum level
of cash and/or committed funding is available at any given
time.
Description and potential impact - Liquidity risk is the risk
that we are unable to meet our payment obligations when due, or are
unable, on an ongoing basis, to borrow funds in the market at an
acceptable price to fund our commitments. While we adjust our
minimum internal liquidity threshold from time to time in response
to changes in market conditions, this minimum internal liquidity
target may be breached due to circumstances we are unable to
control, such as general market disruptions, sharp movements in
commodity prices or an operational problem that affects our banks,
suppliers, customers or ourselves.
Our failure to access funds (liquidity) would severely limit our
ability to engage in desired activities.
A lack of liquidity may mean that we will not have sufficient
funds available for our marketing and industrial activities, both
of which employ substantial amounts of capital. If we do not have
funds available for these activities then they will decrease.
Debt costs may rise owing to ratings agency downgrades and the
possibility of more restricted access to funding.
Developments - Note 27 details the fair value of our financial
assets and liabilities. Note 26 details our financial and capital
risk management including liquidity risk.
The Group's Net debt has reduced from $19.7 billion at 30 June
2020 to $15.8 billion at year end. The elevated debt position
earlier in 2020, coupled with the prevailing market uncertainty and
the adoption of a cautious approach from a broader stakeholder and
rating agencies perspective, led to the Board's decision not to
proceed with a 2020 cash distribution.
Our net funding at 30 December 2020 was $35.4 billion (31
December 2019: $34.4 billion).
The Group's business model relies on ready access to substantial
borrowings at reasonable cost, which has continued to be
forthcoming, noting the Group's successful issuance of circa $3.5
billion long-term bonds in Q3 2020 at attractive interest
rates.
Covid-19 initially resulted in lower commodity prices for many
of our key commodities, though this reversed during H2 as noted in
the section on our Marketing business. During the very volatile end
of Q1 period, Glencore refinanced and extended its core revolving
credit facilities, thereby maintaining and lengthening our
committed available liquidity levels at around $10 billion.
Mitigating factors - Diversification of our funding sources
(bank borrowings, bonds and trade finance, further diversified by
currency, interest rate and maturity).
In light of the Group's extensive funding activities,
maintaining investment grade credit rating status is a financial
priority. The Group's credit ratings are currently Baa1 (negative
outlook) from Moody's and BBB+ (stable outlook) from Standard &
Poor's. Glencore's publicly stated objective, as part of its
overall financial policy package, is to seek and maintain strong
Baa/BBB credit ratings from Moody's and Standard & Poor's
respectively. In support of this, Glencore targets a maximum 2x Net
debt/Adjusted EBITDA ratio through the cycle, augmented by an upper
Net debt cap of $16 billion, excluding marketing lease liabilities
(c.$650 million as at 31 December 2020). This financial policy
facilitates access to funds, even in periods of market volatility.
It is a priority to reduce the Net debt balance over the medium
term to the lower end of the $10-16bn range (below $13bn by the end
of 2021), which is being aided by the current healthy free cash
flow generation.
It should be noted that the credit ratings agencies make certain
adjustments, including a discount to the value of our Readily
Marketable Inventory, such that their calculated net debt is
considerably higher.
Business RISKS
6. Counterparty credit and performance
Risk movement in 2020 - Increase
Risk appetite - Medium. Where possible, credit exposures are to
be covered through credit mitigation products.
Description and potential impact - Financial assets consisting
principally of receivables and advances, derivative instruments and
long-term advances and loans can expose us to concentrations of
credit risk.
Furthermore, we are subject to non- performance risk by our
suppliers, customers and hedging counterparties, in particular via
our marketing activities.
Non-performance by suppliers, customers and hedging
counterparties may occur and cause losses in a range of situations,
such as:
-- a significant increase in commodity prices resulting in
suppliers being unwilling to honour their contractual commitments
to sell commodities at pre-agreed prices
-- a significant reduction in commodity prices resulting in
customers being unwilling or unable to honour their contractual
commitments to purchase commodities at pre-agreed prices
-- suppliers subject to prepayment may find themselves unable to
honour their contractual obligations due to financial distress or
other reasons
Open account risk is taken but this is generally guided by the
Group-wide Credit Risk Policy for higher levels of credit risk
exposure, with an established threshold for referral of credit
decisions by department heads to CFO/CEO, relating to unsecured
amounts in excess of $75 million with BBB or lower rated
counterparts, which occurs from time to time, in respect of various
key strategic relationships.
Developments - Many of our customers and suppliers are
experiencing uncertainty and in some cases, financial hardship. We
have regular contact with our key counterparties and, in the vast
majority of cases, deliveries and payments have continued in the
normal course of business.
Additionally, due to Covid-19 related uncertainties, certain
accounts receivable insurance limits have been significantly
reduced.
Exposures relating to material oil pre- payments are a
particular area of focus.
Our trade receivables were approximately $2 billion lower year
on year, in a generally higher commodity price environment,
reflecting steady collections.
The Group's accounts receivable balance, including assessment of
doubtful accounts, is set out in note 13.
Mitigating factors - We seek to diversify our counterparties. We
place limits on open accounts, and we monitor these.
The Group continues to make extensive use of credit enhancement
tools, seeking letters of credit, insurance cover, discounting and
other means of reducing credit risk with counterparts.
We monitor the credit quality of our physical and hedge
counterparties and seek to reduce the risk of customer default or
non-performance by requiring credit support from creditworthy
financial institutions.
Our teams monitor and report regularly to the management on
financial and operating results.
7. Operating
Risk movement in 2020 - Increase
Risk appetite - Low. It is the Company's strategic objective to
focus on its people and to conduct safe, reliable and efficient
operations.
Description and potential impact - Our industrial activities are
subject to numerous risks and hazards normally associated with the
initiation, development, operation and/or expansion of natural
resource projects, many of which risks and hazards are beyond our
control. These include unanticipated variations in grade and other
geological problems (so that anticipated or stated reserves, may
not conform to expectations). Other examples include natural
hazards, processing problems, technical malfunctions,
unavailability of materials and equipment, unreliability and/or
constraints of infrastructure, industrial accidents, labour force
challenges, disasters, protests, force majeure factors, cost
overruns, delays in permitting or other regulatory matters,
vandalism and crime.
The maintenance of positive employee and union relations and
engagement, and the ability to attract and retain skilled workers,
including senior management, are key to our success. This
attraction and retention of highly qualified and skilled personnel
can be challenging, especially, but not only, in locations
experiencing political or civil unrest, or in which employees may
be exposed to other hazardous conditions.
Many employees, especially at the Group's industrial activities,
are represented by labour unions under various collective labour
agreements. Their employing company may not be able to
satisfactorily renegotiate its collective labour agreements when
they expire and may face tougher negotiations or higher wage
demands than would be the case for non-unionised labour. In
addition, existing labour agreements may not prevent a strike or
work stoppage.
The development and operating of assets may lead to future
upward revisions in estimated costs, delays or other operational
difficulties or damage to properties or facilities. This may cause
production to be reduced or to cease and may further result in
personal injury or death, third party damage or loss or require
greater infrastructure spending. Also, the realisation of these
risks could require significant additional capital and operating
expenditures.
Some of the Group's interests in industrial assets do not
constitute controlling stakes. Although the Group has various
agreements in place which seek to protect its position where it
does not exercise control, the management of such operations and
other shareholders may have interests or goals that are
inconsistent with ours. They may take action contrary to the
Group's interests or be unable or unwilling to fulfil their
obligations.
Severe operating or market difficulties may result in
impairments, details of which are recorded in note 6.
Developments - Business continuity planning has been challenging
in many countries. The response to the pandemic has varied by
jurisdiction, with authorities imposing different requirements,
often changing as the crisis evolved. Almost all operations were
impacted by changed protocols / working practises, while many were
required to fully suspend production for a period of time.
The Group engaged with relevant government authorities and
advisors to seek to ensure that its responses and measures focused
on the health of its workforce and communities, while allowing its
operations to continue, where reasonably practicable. Management
ensured that Business Continuity Plans (BCP) were in place across
its business.
Cost control and reduction remains a significant area of
management focus, noting that in the context of mineral resources,
absolute costs will tend to increase over time as incremental
resources are likely further from the processing plant and/or
deeper, and dilution factors may be higher. A number of operations
have adopted structured programmes to analyse their costs, identify
marginal savings and implement these.
Maintenance and, where possible, reduction of unit costs is
regularly reviewed by management.
Infrastructure availability remains a key risk, though this has
been mitigated by certain long-term measures taken.
Katanga's metallurgical plant received sufficient continuous
high-voltage power to deliver on its ramp-up on schedule, although
we are not complacent and continue to monitor the situation. In
South Africa, the operations at our Ferroalloys smelters were
impacted by power disruptions and an explosion occurred at Astron
Energy refinery resulting in the loss of two lives and a lengthy
shutdown.
Despite the challenges created by the global pandemic, we have
maintained engagement campaigns with employees to receive direct
feedback on the Group's culture and practices.
Mitigating factors - Development and operating risks and hazards
are managed through our ongoing project status evaluation and
reporting processes and ongoing assessment, reporting and
communication of the risks that affect our operations along with
updates to the risk register.
We publish our production results quarterly and our assessment
of reserves and resources based on available drilling and other
data sources annually.
Conversion of resources to reserves and, eventually, reserves to
production is an ongoing process that takes into account technical
and operational factors, economics of the particular commodities
concerned and the impact on the communities in which we
operate.
Local cost control measures are complemented by global
procurement that leverages our scale to seek to achieve favourable
terms on high-consumption materials such as fuel, explosives and
tyres.
One of the key factors in our success is a good and trustworthy
relationship with our people and developing a direct engagement
with them. This priority is reflected in the principles of our
programme and related guidance, which require regular, open, fair
and respectful communication, zero tolerance for human rights
violations, fair remuneration and, above all, a safe working
environment as outlined on our website at: glencore.com/
careers/our-culture and in the Our people section on page 27.
8. Cyber
Risk movement in 2020 - Increase
Risk appetite - Low. Where possible, cyber exposure risks are
mitigated through layered cyber security, proactive monitoring and
routine penetration testing to confirm security of systems.
Description and potential impact - Cyber risks for firms have
increased significantly in recent years owing in part to the
proliferation of new digital technologies, increasing degree of
connectivity and a material increase in monetisation of
cybercrime.
A cybersecurity breach, incident or failure of Glencore's IT
systems could disrupt our businesses, put employees at risk, result
in the disclosure of confidential information, damage our
reputation and create significant financial and legal exposure for
the Group.
Our activities depend on technology for industrial production,
efficient operations, environmental management, health and safety,
communications, transaction processing and risk management. We
recognise that the increasing convergence of IT and Operational
Technology (OT) networks will create new risks and demand
additional management time and focus. We also depend on third
parties in long supply chains that are exposed to the same cyber
risks but which are largely outside our control.
The security of long interconnected commodity supply chains is
an area of increasing concern that we monitor closely. Although
Glencore invests heavily to monitor, maintain and regularly upgrade
its systems, processes and networks, absolute security is not
possible.
Developments - Our IT security monitoring platforms frequently
detect attempts to breach our networks and systems. During 2020,
none of these events resulted in a material breach of our IT
environment nor resulted in a material business impact.
In March 2020, we initiated our BCP to facilitate a significant
degree of remote working at our operations globally in response to
the Covid-19 pandemic. With more of our people working from home,
we are more reliant, not only on our own corporate network, but
also Internet service providers to the home. Our IT security
monitoring platforms also detected a material increase in phishing
fraud attempts linked to Covid-19.
The emergence of machine learning and artificial intelligence
will increase the volume and sophistication of fraud attempts. The
rise of "Deepfake" technology using machine learning makes it
easier to manipulate audio content that could be used in phishing
or fraud attacks by impersonating senior executives. We continue to
monitor developments in this space.
We also expect an increase in "supply chain attacks" through
which legitimate third party software is manipulated in an attempt
to spread malware or gain access to systems.
Mitigating factors - We publish IT security standards and
proactively educate our employees in order to raise awareness of
cyber security threats.
Where possible, cyber exposure risks are mitigated through
layered cyber security, proactive monitoring and cyber security
penetration testing to confirm the security of systems.
We seek to keep our system software patches up to date and have
global platforms to manage patch compliance. We have adopted strict
privileged access management to ensure administrator rights on
critical systems are protected. We have multiple layers of email
security and harden our computers and servers to protect against
malware. Corporate applications and communications are secured with
multiple layers of security including two-factor authentication and
VPN technology for remote access.
We use global IT security platforms in order to proactively
monitor and manage our cyber risks. We routinely conduct third
party penetration tests to independently assess the security of our
IT systems. We have a dedicated programme to enhance the monitoring
and security of our OT platforms.
Our IT Security Council sets the global cybersecurity strategy,
conducts regular risk assessments and designs cyber security
solutions that seek to defend against emerging malware, viruses,
vulnerabilities and other cyber threats. Our Cyber Defence Centre
is responsible for day-to-day monitoring of cyber vulnerabilities
across the Group and driving remediation of threats. We have an
incident response team that is responsible for coordinating the
response in the event of a major cyber incident.
Sustainability risks
9. Health, safety, environment
Risk movement in 2020 - Stable
Risk appetite - Medium. We impose HSEC policies and standards
designed to protect our people and ensure we comply with laws and
external regulations.
Description and potential impact - We are committed to ensuring
the safety and wellbeing of our people and the communities and
environment around us. Catastrophic events that take place in the
natural resource sector can have disastrous impacts on workers,
communities, the environment and corporate reputation, as well as a
substantial financial cost.
The success of our business is dependent on a safe and healthy
workforce. Managing risks to the safety and health of our people is
essential for their long-term wellbeing. It also helps us to
maintain our productivity and reduce the likelihood of workplace
compensation claims.
A number of our assets are in regions with little or no access
to health facilities and, due to cultural and/or historical
reasons, have poor working conditions, organisational cultures and
approaches towards personal safety. Our presence in these regions
can address these challenges through implementing strong
occupational health and safety management systems. Our operations
can have direct and indirect impacts on the environment. Our
ability to manage and mitigate these may impact our operating
licences as well as affect future projects and acquisitions.
Our operations are often located close to communities with
limited healthcare.
Local health services might be in the early stages of
development, or local authorities may not have the resources to
cope with the scale of need.
We work with national and regional authorities to identify how
Glencore's presence can support domestic healthcare programmes.
Environmental, safety and health regulations may result in
increased costs or, in the event of non-compliance or incidents
causing injury or death or other damage at or to our facilities or
surrounding areas, may result in significant losses. These include,
those arising from (1) interruptions in production, litigation and
imposition of penalties and sanctions and (2) having licences and
permits withdrawn or suspended while being forced to undertake
extensive remedial clean-up action or to pay for government-ordered
remedial clean-up actions.
Liability may also arise from the actions of any previous or
subsequent owners or operators of the property, by any past or
present owners of adjacent properties, or by third parties.
We operate in some countries characterised with complex and
challenging political and/or social climates. This results in a
residual risk for compliance with our HSEC policies and standards,
as well as with external laws and regulations.
Developments - In response to Covid-19, Glencore focused on
efforts to ensure the resilience of the business, including daily
monitoring of global conditions, anticipation of potential impacts,
and development of action plans and controls to mitigate risks. At
the start of the crisis, the corporate Covid-19 Global Response
Steering Committee and Incident Management Team were established to
maintain continuous communication and response support for our
global industrial and marketing teams, resolving potential threats
to business continuity, and focusing on the health and well-being
of our workforce.
During 2020, we have also remained focused on other significant
risks facing our industry, arising from operational catastrophes
such as the mining dam collapses in Brazil in the last five years.
During 2020, the HSEC Committee continued to sponsor and monitor
the Group's sustainability risks assurance process. Its focus
continues to be on the Group's HSEC catastrophic hazards. As well,
we continued implementation of our Group-wide Tailings Storage
Facility and Dam Management Standard, throughout the business and
participated in the development of the new Global Industry Standard
on Tailings Management (GISTM), in association with International
Council on Mining & Metals (ICMM) member companies.
We continue to take a flexible local approach to transforming
our workforces' safety and health attitudes and culture. We review
and strengthen our policies as technology and methodologies change
and regularly assess their implementation. We continue to strive to
achieve our ambitions of zero workplace fatalities or catastrophic
environmental incidents.
We regret that we have recorded 8 fatalities at our operations
(2019: 17). Our Board and senior management are committed to
ongoing efforts to improve practices in order to provide a safe
working environment. To underscore these efforts and commitment, we
initiated a comprehensive review of our safety performance
expectations and aim to relaunch our SafeWork programme in early
2021 - see page 35. No major or catastrophic environmental
(category 4-5 and above) incidents have occurred during the
year.
Mitigating factors - Our approach to the management of health,
safety and environment, and our expectations of our workers and our
business partners are outlined in our policies and standards. These
underpin our approach towards social, environmental, safety and
compliance indicators, providing clear guidance on the standards we
expect all our operations to achieve.
In 2020 a new corporate Health, Safety, Environment, and
Community and Human Rights team was established under the Head of
Industrial Assets and Head of HSEC-HR. The objective of this team
is to enhance group-level HSEC-HR governance and technical
standards to ensure an efficient and consistent approach to
managing HSEC-HR related issues across the business. We conducted a
review of our SafeWork program, which is Glencore's approach to
eliminating fatalities. The programme focuses on identifying and
managing the hazards in every workplace and is built on a set of
minimum expectations and mandatory protocols, standards, behaviours
and safety tools. Well-led, consistent application of SafeWork will
drive operating discipline and prevent fatal accidents at our
assets. This will be launched in Q1 2021.
Our commitment to complying with or exceeding the health, safety
and environmental laws, regulations and best practice guidelines
applicable to our operations and products is driven through our
sustainability framework.
We remain focused on the significant risks facing our industry
arising from operational catastrophic events. For example, the
considerable verification work and enhanced monitoring of tailings
storage facilities is assisting in greater visibility and control
of these risks, and we continue to undertake work to improve the
safety and stability of these facilities.
We monitor catastrophic risks across our portfolio and operate
emergency response programmes. We are working towards creating a
workplace without fatalities, injuries or occupational diseases
through establishing a positive safety culture.
We work with local authorities, local community representatives
and other partners, such as NGOs, to help to overcome major public
health issues in the regions where we work, such as Covid-19,
HIV/AIDS, malaria and tuberculosis.
See also the Sustainability review on page 35 and the HSEC
Committee report on page 96. Further details will also be published
in our 2020 Sustainability Report.
There can be no assurances that our policies and procedures will
protect the Group against health, safety and environmental
risks.
10. Climate change
Risk movement in 2020 - Increase
Risk appetite - High. Climate change is a material issue that
can affect our business through regulations to reduce emissions,
carbon pricing mechanisms, extreme climatic events, access to
capital, permitting risks and energy costs, as well as changing
demand for the commodities we produce and market. We consider our
risk appetite as high due to our significant exposure to coal
producing assets.
Description and potential impact - A number of governments have
already introduced, or are contemplating the introduction of
regulatory responses to support the achievement of the goals of the
Paris Agreement and the transition to a low-carbon economy. This
includes countries where we have assets such as Australia, Canada,
Chile and South Africa, as well as our customer markets such as
China, South Korea, Japan and Europe.
A transition to a low-carbon economy and its associated public
policy and regulatory developments may lead to:
-- the imposition of new regulations, and climate change related policies
-- adverse to our interests in fossil fuels by actual or
potential investors, customers and banks, potentially impacting
Glencore's reputation, access to capital and financial
performance
-- increased costs for energy and for other resources, which may
impact the productivity of our assets and associated costs
-- the imposition of levies related to greenhouse gas emissions
-- increased costs for monitoring and reporting related to our carbon footprint
-- impacts on the development or maintenance of our assets due
to restrictions in operating permits, licences or similar
authorisations
Variations in commodity use from emerging technologies, moves
towards renewable energy generation and policy changes may affect
demand for our products, both positively and negatively.
Climate change may increase physical risks to our assets and
related infrastructure, largely driven from extreme weather events
and water related risks such as flooding or water scarcity.
There has been a significant increase in litigation (including
class actions), in which climate change and its impacts are a
contributing or key consideration, including administrative law
cases, tortious cases and claims brought by investors. In
particular, a number of lawsuits have been brought against
companies with fossil fuel operations in various jurisdictions
seeking damages related to climate change.
Developments - Due to falling demand for coal in Europe, and
fall in oil price respectively, during 2020, the Group wrote down
the value of its Colombian coal and Chad oil assets by c.$2.2
billion.
During the year, the Covid-19 global pandemic led to a projected
8% decrease in global energy demand for 2020-2021, which affected
all energy providers and resulted in a lower demand for coal,
including in Asia, as well as for seaborne coal. As global
economies recover from the pandemic's impacts, demand for coal is
expected to improve. However, the likely focus of government
stimulus packages on low carbon technologies and ongoing reductions
in the cost of renewables has the potential to accelerate the
reduction in demand for fossil fuels over the medium to long
term.
The commitments made by a number of countries, including China,
to achieve carbon neutrality by 2050 or 2060 are a strong indicator
of the pace of change and the longer-term global trajectory. New
European regulation, particularly the 'EU Taxonomy' and the "EU
Green Deal' is likely to accelerate the flow of capital to products
and technologies needed in the low- carbon economy, and place
greater scrutiny on the carbon footprint of European industrial
companies, as well as on those importing products into the
Eurozone. This is relevant for Glencore as a large producer of
seaborne thermal coal and a marketer of fossil fuels more
generally.
As a result of these factors, some market participants and
analysts take a bearish view (some strongly so) on the market
fundamentals for coal and oil. Some may choose not to invest in or
transact with us, due to our fossil fuels operations.
Mitigating factors - We integrate climate considerations, such
as energy and climate policies in countries where we operate and
sell our products, expectations of our value chains, and the
various commitments to achieve the goals of the Paris Agreement,
into our strategic decisions and day-to-day operational
management.
Our internal, cross-function and multi- commodity working group,
led by our Chairman, co-ordinates our understanding and planning
for the effects of climate change on our business.
We have set ourselves a 1.5degC pathway aligned target of an
absolute 40% reduction of our total emissions (Scope 1, 2 and 3) by
2035 on 2019 levels, consistent with the midpoint of
Intergovernmental Panel on Climate Change's 1.5degC scenarios. Post
2035, we have set ourselves the ambition to achieve, with a
supportive policy environment, net zero total emissions by
2050.
This commitment is supported by our diverse portfolio, which
uniquely allows us to reduce our Scope 3 emissions through
investing in our metals portfolio, reducing our coal production
over time and supporting deployment of low emission
technologies.
Through our focused climate change programme, we strive to
ensure emissions and climate change issues are identified,
understood and monitored in order to meet international best
practice standards, ensure regulatory compliance and meet the
commitments we have made in support of the goals of the Paris
Agreement.
We continuously monitor and report our Scope 1, 2 and 3
emissions, and use this data in managing our operational carbon
footprint, as well as the development and tracking of our
targets.
To understand better and plan for the effects of climate change
on our business, we have a framework for identifying,
understanding, quantifying and, ultimately, managing
climate-related challenges and opportunities facing our
portfolio:
-- Government policy: we take an active and constructive role in
public policy development of carbon and energy issues, both
directly and through our industry organisations. We seek to ensure
that there is a balanced debate with regard to the ongoing use of
fossil fuels
-- Lobbying activities: we acknowledge IIGCC Investor
Expectations on Corporate Climate Lobbying and recognise the
importance of ensuring that our membership in relevant trade
associations does not undermine our support for the Paris Agreement
and its Goals
-- Carbon pricing: we operate successfully in multiple
jurisdictions that have direct and indirect carbon pricing or
regulation. We have identified some parts of our business that
would likely experience financial stress in a high carbon price
environment. However, our conclusion is that our business overall
remains resilient. We consider local regulation and carbon price
sensitivities as part of our ongoing business planning for existing
industrial assets, new investments and as part of our marketing
activities. We are working with relevant industry organisations on
developing lifecycle analysis to calculate our commodities' carbon
footprint
-- Energy costs: we consider energy costs and our carbon
footprint in our annual business planning process. Commodity
departments are required to provide energy and GHG emissions
forecasts for each asset over the forward planning period and
provide details of mitigation projects that may reduce such
emissions, including identifying and developing renewable energy
generation opportunities.
-- Physical impacts: we track changing weather conditions and
amend operating processes as appropriate, as well as incorporate
climate risk into our design and planning. We regularly review the
integrity of our assets, including tailings storage facilities,
against the potential impact of extreme weather events.
-- Access to capital: we regularly review our banks' climate
change-related policies and evolving applicable restrictions, if
any. Through maintaining a strong relationship with our lenders, we
continue to have a broad range of sources from which to access
funds.
-- Permitting risk: we engage with a broad range of stakeholders
on diverse topics including climate change and related areas of
concern. Our engagement with our local communities and those
directly affected by our operations is transparent and honest.
Where we identify differing opinions, we look for opportunities to
find constructive solutions.
-- Product demand: we track and respond to regulatory and
technology developments. There are near-term opportunities in
positively repositioning many of our products that enable the
decarbonisation transition.
-- Litigation: our climate change programme strives to ensure
that we identify, understand and monitor our emissions and climate
change issues in order to meet international best practice
standards, ensure regulatory compliance and meet our commitments
that support the goals of the Paris Agreement.
Further information is available at:
glencore.com/sustainability/ climate-change
11. Community relations and human rights
Risk movement in 2020 - Increase
Risk appetite - Low. Our approach is to minimise the impacts of
our business, engage openly and honestly to build lasting
relationships and foster socio-economic resilient communities
Description and potential impact - Respecting human rights and
building strong relationships are fundamental to the current and
future viability of our business.
Due to the scale and nature of our business, we have the
potential to make a significant positive contribution to local
communities, countries and broader society. Positive impacts range
from the production of the raw materials for social progress,
payment of taxes and royalties to governments and provision of
employment and business opportunities. Conversely, we must also
identify, mitigate and manage any potential negative risks inherent
in our operations. Areas that we carefully monitor and manage to
avoid negative impacts include health and safety of our workforce
and surrounding communities, environmental management of air, land
and water and interactions with individuals and groups who live and
work in or near our local communities. Poor performance could
contribute to social instability and the perceived and real value
depreciation of our assets.
We have a geographically diverse business, operating in both
developed and developing countries in an array of different
contexts. In a number of regions where we operate, the
socio-political environment is complex which presents additional
business, social and security risks if not well understood and
managed. While our Group policies and standards apply to all our
businesses, we tailor our community approach to be relevant and
appropriate to the local context.
A perception that we are not respecting human rights or
generating local sustainable benefits could have a negative impact
on our ability to operate effectively, our ability to secure access
to new resources, our capacity to attract and retain the best
talent and ultimately, our financial performance. The consequences
of adverse community reactions or allegations of human rights
incidents could also have a material adverse impact on the cost,
profitability, ability to finance or even the viability of an
operation and the safety and security of our workforce and assets.
In addition, global connectivity means that local issues can
quickly escalate to a regional, national and global level
potentially resulting in reputational damage and social
instability.
Some of our mining operations are in remote areas where they are
a major employer in the region. This presents particular social
challenges when the mine's resources are depleted to an extent that
it is no longer economic to operate and must be closed. Robust
planning and stakeholder engagement are key to mitigate
environmental and social closure risks.
Developments - During 2020, Covid-19 impacted people's
quality-of-life and increased uncertainty around the world.
The ensuing economic impacts of Covid-19 have amplified existing
inequalities around the world, resulting in an escalation of civil
unrest in many countries. In the Espinar region of Peru, social
protests impacted our Antapaccay operation. The government deployed
public security to return law and order in the region around the
operation without harm to community members, security forces or our
workforce.
We expect the economic impacts of the pandemic to continue for
some time and our operations will continue to respond by providing
social support, in partnership with governments and development
organisations.
Artisanal and small-scale mining (ASM) continues to be a
challenge at certain operations, most notably in the DRC.
The destruction of Indigenous cultural heritage during mining
activities in Australia has highlighted the need for effective
management processes and engagement, to protect areas and items of
cultural significance, and to avoid business and reputation
risks.
Mitigating factors - We strive to uphold and respect the human
rights of our workforce, local communities and others who may be
affected by our activities, in line with the United Nations Guiding
Principles on Business and human rights (UN GPs). We have processes
to identify, prevent and mitigate human rights risks and impacts
across our business. In the event that we cause or contribute to a
negative impact on human rights, we strive to provide appropriate
remedy to those affected in line with the UN GPs.
We seek to apply the UN Voluntary Principles on Security and
human rights in regions where there is a high risk to human rights
from the deployment of public and private security forces.
We respect communities' perspectives and actively seek them to
inform our decision-making. Our ambition is to be a responsible,
engaged and valued company wherever we operate and contribute to
healthy, resilient communities. We support the advancement of the
interests of both our host communities and our assets.
We seek to build enduring and trusting relationships by engaging
openly and honestly and participating as an active member of
society. We focus our social investments on initiatives and
programs to deliver long-term benefits fostering socio-economic
resilience.
We implement locally appropriate complaints and grievance
processes and welcome feedback and comments on our performance. We
review all complaints received and take actions when necessary to
address the issues raised.
Our first and foremost priority during the Covid-19 pandemic has
been the health and wellbeing of our employees and communities,
especially vulnerable groups. At the beginning of the pandemic, we
responded to the immediate medical crisis in our communities by
augmenting communication programs to promote prevention measures,
providing basic sanitation and medical materials and supporting
local health systems and services. As time progresses, we will
adapt our programs to support economic recovery of our communities
and regions.
During 2020, we revised our approach to ASM to explore how ASM
and large-scale mining can sustainably co-exist as distinct yet
complementary sectors of a successful mining industry. We believe
that legal ASM can play an important and sustainable role in many
economies when carried out responsibly and transparently, including
the DRC. One manifestation of our new approach is our partnership
with the Fair Cobalt Coalition, an NGO aiming to positively
transform ASM in the DRC. It is working towards eliminating child
and forced labour, improving work practices in ASM operations and
supporting alternative livelihoods to help increase incomes and
reduce poverty.
Further information is available on our website at:
glencore.com/sustainability/ community-and-human-rights
Related Party Transactions
The following has been extracted from page 213 of the Annual
Report.
In the normal course of business, Glencore enters into various
arm's length transactions with related parties, including fixed
price commitments to sell and to purchase commodities, forward sale
and purchase contracts, agency agreements and management service
agreements. Outstanding balances at period end are unsecured and
settlement occurs in cash (see notes 11, 13 and 24).
There have been no guarantees provided or received for any
related party receivables or payables.
All transactions between Glencore and its subsidiaries are
eliminated on consolidation along with any unrealised profits and
losses between its subsidiaries, associates and joint ventures. In
2020, sales and purchases with associates and joint ventures
amounted to $2,710 million (2019: $3,727 million) and $5,033
million (2019: $4,923 million) respectively.
Remuneration of key management personnel
Glencore's key management personnel are the members of the Board
of Directors, CEO, CFO and the Head of the Industrial activities
segment. The remuneration of Directors and other members of key
management personnel recognised in the consolidated statement of
income including salaries and other current employee benefits
amounted to $19 million (2019: $18 million). There were no other
long-term benefits or share-based payments to key management
personnel (2019: $Nil). Further details on remuneration of
Directors are set out in the Directors' remuneration report on page
100.
Statement of Directors' responsibilities
The following responsibility statement is repeated here solely
for the purpose of complying with DTR 6.3.5. This statement relates
to and is extracted from page 115 of the Annual Report.
The Directors are responsible for preparing the Annual Report
and financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for the Company for each financial year.
The financial statements are prepared in accordance with
International Financial Reporting Standards (IFRS) adopted pursuant
to Regulation (EC) No 1606/2002 as it applies in the European Union
and IFRS as issued by the International Accounting Standards Board.
The financial statements are required by law to be properly
prepared in accordance with the Companies (Jersey) Law 1991.
International Accounting Standard 1 requires that financial
statements present fairly for each financial year the Company's
financial position, financial performance and cash flows. This
requires the faithful representation of the effects of
transactions, other events and conditions in accordance with the
definitions and recognition criteria for assets, liabilities,
income and expenses set out in the International Accounting
Standards Board's Framework for the preparation and presentation of
financial statements.
In virtually all circumstances, a fair presentation will be
achieved by compliance with all applicable IFRSs.
The Directors confirm that the Annual Report and accounts taken,
as a whole, is fair, balanced and understandable, and provides the
information necessary for shareholders to assess the performance,
strategy and business model of the Company However, the Directors
are also required to:
-- Properly select and apply accounting policies
-- Present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information
-- Provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the entity's financial position and financial
performance
-- Make an assessment of the Company's ability to continue as a going concern
The Directors are responsible for keeping proper accounting
records that disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies (Jersey) Law
1991. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities. The Directors are
responsible for the maintenance and integrity of the corporate and
financial information included on the Company's website. The
legislation governing the preparation and dissemination of the
Company's financial statements may differ from legislation in other
jurisdictions.
Important notice concerning this document including forward
looking statements
This document contains statements that are, or may be deemed to
be, "forward looking statements" which are prospective in nature.
These forward looking statements may be identified by the use of
forward looking terminology, or the negative thereof such as
"outlook", "plans", "expects" or "does not expect", "is expected",
"continues", "assumes", "is subject to", "budget", "scheduled",
"estimates", "aims", "forecasts", "risks", "intends", "positioned",
"predicts", "anticipates" or "does not anticipate", or "believes",
or variations of such words or comparable terminology and phrases
or statements that certain actions, events or results "may",
"could", "should", "shall", "would", "might" or "will" be taken,
occur or be achieved. Forward-looking statements are not based on
historical facts, but rather on current predictions, expectations,
beliefs, opinions, plans, objectives, goals, intentions and
projections about future events, results of operations, prospects,
financial condition and discussions of strategy.
By their nature, forward-looking statements involve known and
unknown risks and uncertainties, many of which are beyond
Glencore's control. Forward looking statements are not guarantees
of future performance and may and often do differ materially from
actual results. Important factors that could cause these
uncertainties include, but are not limited to, those disclosed in
the Risk Management section of this report.
For example, our future revenues from our assets, projects or
mines will be based, in part, on the market price of the commodity
products produced, which may vary significantly from current
levels. These may materially affect the timing and feasibility of
particular developments. Other factors include (without limitation)
the ability to produce and transport products profitably, demand
for our products, changes to the assumptions regarding the
recoverable value of our tangible and intangible assets, the effect
of foreign currency exchange rates on market prices and operating
costs, and actions by governmental authorities, such as changes in
taxation or regulation, and political uncertainty.
Neither Glencore nor any of its associates or directors,
officers or advisers, provides any representation, assurance or
guarantee that the occurrence of the events expressed or implied in
any forward- looking statements in this document will actually
occur. You are cautioned not to place undue reliance on these
forward-looking statements which only speak as of the date of this
document.
Except as required by applicable regulations or by law, Glencore
is not under any obligation and Glencore and its affiliates
expressly disclaim any intention, obligation or undertaking, to
update or revise any forward looking statements, whether as a
result of new information, future events or otherwise. This
document shall not, under any circumstances, create any implication
that there has been no change in the business or affairs of
Glencore since the date of this document or that the information
contained herein is correct as at any time subsequent to its
date.
No statement in this document is intended as a profit forecast
or a profit estimate and past performance cannot be relied on as a
guide to future performance. This document does not constitute or
form part of any offer or invitation to sell or issue, or any
solicitation of any offer to purchase or subscribe for any
securities.
The companies in which Glencore plc directly and indirectly has
an interest are separate and distinct legal entities. In this
document, "Glencore", "Glencore group" and "Group" are used for
convenience only where references are made to Glencore plc and its
subsidiaries in general. These collective expressions are used for
ease of reference only and do not imply any other relationship
between the companies. Likewise, the words "we", "us" and "our" are
also used to refer collectively to members of the Group or to those
who work for them. These expressions are also used where no useful
purpose is served by identifying the particular company or
companies.
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END
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