Assessing, Monitoring and Reducing Risks
Audit Commitee Oversees Risk Management
The Audit Committee is the main responsible body for oversight of risks identified, including climate-related risks.
The ISO 31000, COSO ERM Framework and Task Force on Climate-related Financial Disclosures (TCFD) Framework serve as the foundation for our Enterprise Risk Management (ERM). Our risk management process involves the use of a risk matrix which helps with risk assessment, risk monitoring, and efforts to reduce risks.
The Task Force on Climate-Related Financial Disclosures (TCFD) guides our understanding on risks and opportunities that may arise from climate change. We have integrated climate-related considerations into our ERM as an aggravating factor for the risks listed in our risk universe and our existing risk management framework and processes include this and all related considerations. This ensures that the increasing relevance of such factors are properly considered. More details on ESG related risks can be found in our Integrated Annual Reports.
Decarbonisation trends in the near-term present transition risks and opportunities to expand and evolve business offerings along the energy value chain. In the long-term, physical risks could have substantial implications on our business activities. We are progressively building competence to understand and meet these climate-related risks. We also assess our risk framework, policies, and procedures regularly to ensure that we have appropriate and effective risk management and mitigation efforts in place to support our corporate strategy.
Risk Assessment
Identification Risks are identified in the course of business operations and added into our risk universe.
Boundary | Management | Responsibility | ||
Strategic and ExternalRisks associated with global markets and economy, geopolitical stability, climate, decarbonisation, cyber and data security. | Strategic and ExternalAddressed by business strategies managed through company’s annual strategy review. | Strategic and ExternalThe Executive Management reviews assessment of risks to ensure that the intended and actual business direction are reflected in corporate strategic planning which is presented and endorsed by the Board of Directors. | ||
Regulatory ComplianceRisks associated with i) ethical behaviour of employees and third parties; ii) security of sensitive information; and iii) laws and regulations, including climate-related regulations, sanctions and anti-bribery laws. | Regulatory ComplianceRegular monitoring and mandatory awarenesstraining, compliance reviews, legal due diligence, and internal audits. | Regulatory ComplianceInternal Audit and Compliance teams assess and updates a quarterly compliance and internal audit report for presentation to the Audit Committee. | ||
Commercial and OperationalRisks related to events occurring during planning and execution of business operations. This includes but is not limited to cargo and asset loss or damage, counterparty default, crew injury, or environmental damage | Commercial and OperationalControl measures are incorporated in operations and insurance planning, with ongoing monitoring during execution. | Commercial and OperationalIncidents and near misses are reviewed by business units and Management to ensure that root causes are comprehensively analysed. Suitable corrective actions are planned and implemented. | ||
FinancialRisks relating to volatility of financial markets, including increase in interest rates, financial stress, counterparty risks and tax exposure. | FinancialHedging exposures with financial instruments such as forex forward contracts, freight derivatives, interest rate and bunker swaps. | FinancialExecutive Management actively manages risks with guidance and input from the Board of Directors. |
Assessment – Risks are assessed to understand probability of occurrence and impact to business
Each year, a comprehensive risk assessment exercise is undertaken to assess the key risks faced by BW LPG through discussions with key department heads on risks that could impact our strategic objectives. These risks are assessed based on their potential financial impact, likelihood of occurrence in the short (0-2 years), mid (3-5 years) and long (> 5 years) term, and the effectiveness of the controls in place to mitigate them.
Recording – Risks are documented, prioritised and assigned to impacted departments
The findings are utilised as an input in identifying the top risks for the company, with each risk analysed with the Executive Management. Some of these top risks have a direct or indirect correlation with our significant ESG (Environmental, Social, and Governance) topics.
Mitigation –Mitigation plans are prepared, translated into strategic priorities and implemented
The adequecy of current mitigating actions are evaluated by the various business units, where gaps identified will be closed by improving measures or implementing new measures.
Monitoring – Risks are monitored in the course of business and operations
Besides this annual process, risks are regularly identified with best practice sharing available on our internal communications platforms for crew and employees.
Reporting – Quarterly review and reporting to Board of Directors on effectiveness of risk strategies
The results of the assessment are presented to the board as a component of the annual strategy development process where the Group’s risk profile is reviewed and guidance is provided on mitigation plans to ensure sufficiency of risk management actions and controls.
Enterprise Risk Management
Top risks identified as having a potential to substantially influence our business and operations.
| Risk Area | Climate-related Considerations | Mitigating Strategy | |
|---|---|---|---|
| Macroeconomic and Market | - Risks from geopolitical tensions can impact trade and supply chains. - Challenges associated with entering new infrastructure markets. - Risks from mis-timing market cycles when buying or selling assets. | - Global clean energy transition may impact LPG supply chain an LPG demand. - Global VLGC fleet size can fluctuate due to regulatory changes, shipping inefficiencies and new build orders. - Unprecedented weather changes such as unusually long droughts can add market volatility and increase counterparty exposures. | - Expand into trading and value chain assets. - Review and optimise contracts. - Improve market understanding. - Optimise operations and supply chain. |
| Regulatory | - Growing industry related compliances and business regulatory demands. - We must address additional compliance requirements as we enter new markets. | - Impact from new global ESG regulations. - Onerous emissions reporting requirements. - Additional climate- related clauses in charter-hire agreements. - Increased costs from use of fossil-based bunkers due to levies and limitations. - Reduced service capacity due to slow-steaming. - Early retirement of older inefficient assets. - Increase in charterhire charges to cover rising operational costs and investments in technology. | - Provide training and support on compliance requirements and regulatory changes. - Build IT systems that can manage regulatory changes. - Ensure accountability from all business units. |
| Human Capital | - Challenges from more complex businesses and operations, and from entry into new markets. - Loss of qualified staff to competitors. | - We need qualified staff with specialised competencies as shipping technologies evolve. - Extreme weather is a safety concern for crew. - Failure to address concerns can impact operations and our license to operate. | - Enhance our knowledge by working with external experts. - Retain talent with a positive work environment, by emphasising diversity and inclusion, and by offering competitive remuneration. - Promote collaboration. |
| IT and Cyber | - IT infrastructure challenges, including adapting to evolving technology and use of data for compliance, risk management, and decision-making. - The increased use of artificial intelligence (AI) raises concerns about potential security challenges and cyber risks. | - Rapid technological developments can outpace our ability to harness new information, resulting in inefficiencies and non-compliance with regulations. - Equipment may have to be retired prematurely, causing waste and incurring higher capital expenditure. - We must be assured of data integrity and competence with new reporting requirements. | - Optimise and improve data input processes by streamlining and digitalising operations. - Bolster in-house IT expertise to improve systems and data management. - Conduct routine IT controls and security testing, and provide training to foster awareness of cybersecurity measures and use of AI. |
| Financial | - Higher trading volumes can increase earnings volatility. • Unpredictable market fluctuations can impact profitability. | - Capital lenders may reduce financing and investments in shipping in favor of non-fossil based sectors. - Higher liquidity risk exposure and potential of downward asset repricing. - Increased cost of borrowing from declining investor base, and failure to comply with sustainability benchmarks. | - Conduct daily reviews and monitor positions to guarantee the availability of an adequate liquidity buffer and compliance with risk limits. - Perform stress tests to assess potential financial impacts, considering base and worst-case scenarios. |
Sustainability Approach
At the core of our sustainability approach is the vpurpose of BW LPG – where we deliver energy for a Better World.
Materiality
Our sustainability priorities are guided by what matters most. We triangulate data sources to map a materiality matrix and identify key material topics.
Engaging our Stakeholders
We identify our material stakeholders based on the impact our business has on them, and their involvement in our business
