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 | Key Mitigating Strategies | |
|---|---|---|---|
| Market and country | – Risks from geopolitical actions can impact trade and supply chains – Downward impact on vessels’ valuation, coupled with longer periods of depressed freight rates may cause liquidity issues | – Global clean energy transition may impact LPG supply chain and LPG demand – Global VLGC fleet size can fluctuate due to climate-related regulatory changes, shipping inefficiencies and newbuild orders – Unprecedented weather changes such as unusually long droughts can add market volatility and increase counterparty exposures | – Closely monitor market development – Expand value chain to ensure a natural hedge and access to market information – Maintain a robust balance sheet and prepare for stressed liquidity scenarios – Derisk strategies, for example, by entering into long-term time-charter contracts and Freight Forward Agreements |
| Qualified crew | – Availability of qualified and competent seafarers as new gas vessels are being delivered over the next five-year period – Ability to retain competent seafarers in the event of poaching – Sub-optimal operations due to the lack of qualified seafarers and onshore staff with competencies in technical and shipping operations could have knock-on effects such as spills and collision | – We need qualified staff with specialised competencies as shipping technologies evolve to cope with climate changes – Extreme weather is a safety concern for crew. Failure to address concerns can impact operations and our licence to operate | – Attract and retain talent by cultivating a positive working environment (e.g. diversity and inclusion initiatives) and benchmarking with competitive remuneration and benefits – Introduce retention schemes for key positions onboard – Encourage crew collaboration between BW affiliates to reduce impact from external competitors |
| Project planning and execution (business expansion) | – Business expansion into new markets and segments requires more thorough pre-planning and due diligence with regard to local partners and local regulatory landscape – Business expansion of Product Services division in increased trading volumes and in new segments – Risk of not achieving intended investment returns, delay in project implementation and local non-compliance risk – Inadequate resourcing to address the risks and compliance obligations arising from the new business activities and over-dependence on local partners | – Entering new markets may involve stricter or evolving climate regulations (e.g., carbon pricing, emissions caps) that necessitate additional due diligence – Investors, customers and partners may demand stronger climate-related commitments (e.g., emissions reduction targets), influencing investment returns and project feasibility – Expanding operations could expose the business to extreme weather events (storms, floods, heatwaves) that disrupt supply chains or project timelines | – Instill project management and approach – Obtain relevant approvals as per governance requirement – Have comprehensive SOPs and checklists in place when evaluating proposed transactions |
| Potential non‑compliance with rules and Regulations | – Increasing industry related compliances and other business regulatory requirements – Additional compliance requirements from change in regulations, expansion of business and entering of new markets | – Impact from new global ESG regulations – Onerous emissions reporting requirements – Additional climate-related clauses in charter-hire agreements – Increased costs from using fossil-based bunkers due to levies and limitations – Reduced service capacity due to slow steaming – Early retirement of older inefficient assets – Increase in charter‑hire charges to cover rising operational costs and investments in technology | – Set up processes and build internal capabilities (staff training and IT systems) to cope with regulatory changes – Engage external expertise to assist with immediate requirements where needed – Identification of critical roles and functions to ensure back-ups and succession plans are in place |
| Cybersecurity | – Changing technological landscape with increased use of artificial intelligence (AI) can pose a potential security and cyber risk on safeguarding of data | – Extreme weather events can damage physical infrastructure like data centers and critical IT systems, leaving them vulnerable to cyberattacks due to disruptions in power, network connectivity, and physical security measures, creating a window of opportunity for malicious actors to exploit damaged systems | – Regular IT governance control and testing according to the SOX IT annual wheel – Proactive implementation of cybersecurity counter measures, including employee training and awareness of IT policies and cybersecurity |
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
