Glencore (GLNCY) Risk Analysis

Risk movement in 2021 - Stable Risk appetite - High. We operate in many countries across the globe. Regulatory regimes applicable to resource companies can often be subject to adverse and short-term changes. 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 environments. 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. The tax codes of some countries can be uncertain in their application and the access to impartial administrative and judicial redress may be limited. In certain cases, a government authority may make material demands without robust justification with a view to negotiating a settlement. 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 rights are dependent on a number of factors, including compliance with regulations and 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 - The Group has increased its engagement, including due to Covid-19 with employees, relevant governmental authorities, regulators, and other stakeholders. Resource nationalism continues to be a challenging issue in many countries. Emerging uncertainty regarding global supply of commodities due to the Russia/ Ukraine conflict may disrupt certain global trade flows and place significant upwards pressure on commodity prices and input costs as seen through early March 2022. Challenges for market participants may include availability of funding to ensure access to raw materials, ability to finance margin payments and heightened risk of contractual non-performance. Ongoing scrutiny by governments and tax authorities has maintained potential tax exposures for the Group at elevated levels, with some tax authorities taking an aggressive approach to engaging with the Group, which has in some cases led to litigation. In 2021, we published our annual Payments to Governments report. This detailed total government contributions in 2020 of $5.8 billion. It also set out details of payments on a project-by-project basis. Also see Community Relations and Human Rights risk below. Mitigating factors - We endeavour to operate our businesses 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 essential to enable us to effectively manage these risks and to maintain our permits and licences to operate. We operate under a Group Tax Policy, annually reviewed by the Board, which sets out the Group's commitment to comply with all applicable tax laws, rules and regulations, without exception, and to be characterised as a 'good corporate fiscal citizen'. The Group's industrial assets are diversified across various countries. The Group has an active engagement strategy with the governments, regulators, and other stakeholders in 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.