REG - Glencore PLC - 2021 Annual Report of Glencore plc

GlencoreAnnouncement

16/03/2022 07:00

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RNS Number : 9462E  Glencore PLC  16 March 2022

Baar, Switzerland

16 March 2022

 

2021 Annual Report of Glencore plc

Glencore plc ("Glencore" or the "Company") has today:

·   published its Annual Report for the year ended 31 December 2021
("Annual Report") on its website www.glencore.com (http://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
(http://www.fca.org.uk/markets/primary-markets/regulatory-disclosures/national-storage-mechanism)

Glencore will hold its 2022 Annual General Meeting on 28 April 2022. 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 15 February 2022 (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 135,000 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.

 

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       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
(http://www.youtube.com/glencorevideos)

 

 

 

 

 

APPENDIX

Risk Management section

The following has been extracted from pages 68 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 leadership's
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

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 assesses and approves our overall risk appetite, monitors our risk
exposure and overall evaluation of internal controls. This process is
supported by the Audit, HSEC and ECC Committees, whose roles include
evaluating and monitoring the risks inherent in their respective areas via
reporting from the Group corporate functions:

·      Industrial and Marketing risk functions (Group Risk Functions)

·      Compliance

·      Legal

·      Finance

·      Internal Audit

·      HSEC-HR/HSEC Audit

·      Sustainable Development

·      Human Resources

·      IT

 

The Committees' work concerning these various risks is set out in their
reports on pages 96 to 100.

The Board actively manages and monitors the Group's risks, financial exposure
and related internal controls to mitigate these risks.

Monitoring and reporting are the responsibility of the Group Risk Functions
and the Heads of corporate functions who provide regular updates to the Board
and its Committees covering various risks and the performance of the relevant
controls in place. These reports cover various topics, including Group VaR,
credit exposure, material risks from the risk register, internal audit
findings, compliance monitoring, HSEC-HR matters and HSEC Assurance.

The Board also receives updates from the ESG committee and on the Raising
Concerns programme.

As well as the ongoing work of the Board and its Committees on the various
major areas of risk, the Board undertakes a complete review of the Group's
principal and emerging risks in its main Q4 meeting, which is then updated and
considered in subsequent meetings for the purposes of this report and the
interim report.

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 of managing and mitigating risk across
the Group, as appropriate.

INDUSTRIAL RISK MANAGEMENT

Responsibilities for business risk management are decentralised across the
departments and assets and supported by the Industrial Assets' Risk Management
teams. We believe that all employees should be accountable for the risks
related to their roles. 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 industrial risk process is driven by ongoing risk assessment informing
risk registers maintained at asset, department and Group levels based on risk
rating and controls evaluation, with risks owned, escalated and approved
according to materiality and following the guidance contained in the Glencore
enterprise risk matrix.

HSEC-HR & SUSTAINABILITY RISK MANAGEMENT

These risk management processes are managed at asset level, with the support
and guidance from the central Sustainability and HSEC and Human Rights
(HSEC-HR) teams, and subject to the leadership and oversight of the HSEC
Committee. The Head of Industrial Assets drives the risk management framework
for all industrial assets, covering HSEC-HR, and his team monitors its
implementation across the Group.

Our risk management framework allows us to identify, assess and mitigate
HSEC-HR related risks. The framework identifies material matters and supports
our ongoing assessment of what matters most to our business and to our
stakeholders. The framework is supported by our HSEC assurance process. On a
quarterly basis we monitor and review the progress to close out the corrective
actions and address any outstanding issues with the local management teams.
The Group's internal HSEC assurance 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
97 and will be published in the Group's Sustainability Report for 2021.

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 recording and reporting of
resultant exposures, which provides the encompassing positional analysis, and
continued assessment of 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), back testing results and
various 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 continuously enhance its stress
and scenario testing as well as improve measures to capture additional risk
exposure within the specific areas of the business.

The Group makes 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 CRO, 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.

MANAGING RISK FOR JOINT VENTURES (JVs)

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 the
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.

LEGAL AND COMPLIANCE

For legal and compliance risk, see Ethics and Compliance section on page 43,
and the laws and enforcement risk on page 75.

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, internal 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. On an annual basis, Internal
Audit also performs reviews at the direction of senior management and the
Audit Committee. Internal Audit reviews these areas of potential risk, and
suggests controls to mitigate exposures identified.

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

One of the tools used by Glencore to monitor and limit its primary market risk
exposure, namely commodity price risk related to its physical marketing
activities, is the use of a value at risk (VaR) computation. VaR is a risk
measurement technique, which estimates the potential loss that could occur on
risk positions as a result of movements in risk factors over a specified time
horizon, given a specific level of confidence. The VaR methodology is a
statistically defined, probability based approach that takes into account
market volatilities, as well as risk diversification by recognising offsetting
positions and correlations between commodities and markets. In this way, risks
can be measured consistently across all markets and commodities and risk
measures can be aggregated to derive a single risk value.

Glencore's Board has set a consolidated VaR limit (one day 95% confidence
level) of $150 million (2020: $100 million) representing less than 0.4% of
total equity, which the Board reviews annually. Given 2021's elevated implied
market volatilities, together with statistically higher commodity correlations
and the nature / extent (e.g. increased size and tenor of the

LNG business) of transaction volumes, the Board approved an increase in the
VaR limit in H2 2021, initially to $130 million on a temporary basis and then
to $150 million going forward, with effect from 1 January 2022.

Glencore uses a one-day VaR approach based on a Monte Carlo simulation with a
weighted data history computed at a 95% confidence level. Average market risk
VaR (1 day 95%) during 2021 was $54 million, with an observable high of $126
million and low of $27 million, while average equivalent VaR during 2020 was
$39 million. There were no limit breaches during the period.

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 approved the Audit Committee's recommendation of a one day, 95%
VaR limit of $150 million for 2022.

 

 

 

PRINCIPAL RISKS AND UNCERTAINTIES

Our approach is framed by the ongoing understanding of the risks that we are
exposed to, emerging trends that could seriously impact our business model,
our risk appetite in respect of these risks, how these risks change over time
and ensuring risk monitoring takes place across multiple organisational
levels.

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.

The Group understands an emerging risk as a risk that has not yet fully
crystallised but is at an early stage of becoming known and/or coming into
being and expected to grow in significance in the longer term.

Emerging risks typically have their origin outside Glencore and there is often
insufficient information for these risks to be fully understood and prevention
by the Group may not be possible.

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 on page 72.

EVOLUTION IN PRINCIPAL RISKS

Covid-19

Globally, Covid-19 has continued to disrupt and affect our business. The main
issues this year have been:

·      the implementation of several new health and safety measures at
our industrial sites and offices   around the globe

·      further mandatory shutdowns imposed by governments and shifts to

·      remote working

·      the various restrictions in travel, domestically and
internationally, and strained supply chains.

Notwithstanding these challenges and their related impact on our risks,
Covid-19's impact on our industry and the Company has been uneven. Global
trading flows continue to operate and no critical infrastructure assets have
been suspended. The benefits of global policy responses to tackle the impacts
of the pandemic have helped reduce the negative consequences on the global
economy.

This year has also seen significant increases in energy prices.

Russia/Ukraine conflict

In February 2022, the Russian government commenced a war against the people of
Ukraine, resulting in a humanitarian crisis and significant disruption to
financial and commodity markets. The United States of America, European Union,
Switzerland and United Kingdom imposed a series of sanctions against the
Russian government, various companies, and certain individuals.

Glencore complies with all sanctions applicable to our business activities.

Given the importance of Russian/Ukrainian supply to a number of key
commodities including oil, natural gas, coal, grain, aluminium and nickel,
volatilities in all of these have spiked. Applicable Sanctions are also
significantly impacting traditional commodity trade flows.

Glencore has no operational footprint in Russia and our trading exposure is
not significant. We are reviewing all our business activities in the country
including our equity stakes in En+ and Rosneft (see note 35).

Over time, global commodity trade flows will need to adapt to some or all of
Russian/ Ukrainian supply being unavailable, whether due to infrastructure
damage, sanctions or ethical concerns.

2021 update

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.

The pages which follow provide a detailed analysis of each of the principal
risks and uncertainties with comments on changes of impact, mitigation,
controls, actions, and other relevant comments.

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 2022. 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 pages 24-25. 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 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 recent history, accounting for   Covid-19) are assumed to prevail
for the outlook period to 2025;

·       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 259.

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.

Our latest documentation for debt investors and their related risk disclosures
is available at: glencore.com/investors/debt-investors

 

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 2021 financial statements

·    a reference to the sustainability report is our 2021 Sustainability
Report to be published in April 2022

 

 

 

1. Supply, demand and prices of commodities

Risk movement in 2021 - Decrease

Risk appetite - Medium. Being a resources company, we are subject to the
inherent risk of sustained low prices of our main commodities, particularly
affecting our industrial business.

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 several 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, 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, e.g. commodity substitutions,
fluctuations in global production capacity, geopolitical events, 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 (e.g. 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 fossil fuels, given the drive towards net zero
emissions over the long term. Net zero emissions requires demand for unabated
coal and other hydrocarbon fuel sources to materially reduce over time, driven
on by political pressures, societal expectations, and generally increased
access to, and cost competitiveness of, lower carbon alternatives (i.e.
renewables) and the likelihood of increased and broader implementation of
carbon pricing/taxes across the geographies where the Group operates.

The new or improved energy production possibilities and/or technologies are
likely to reduce the demand for some commodities such as coal, however, at the
same time, are likely to materially increase demand for other commodities.

Any adverse economic developments, particularly those impacting China and fast
growing developing countries, could lead to reductions in demand for, and
consequently price reductions of, commodities, with particular risk to
commodities used in steelmaking such as iron ore, metallurgical coal and zinc.

Developments - Energy markets tightened significantly in H2 2021 leading to
energy price increases across the board. Industrial metals prices remained at
strong levels throughout the year.

In this environment, our long-term plans for our industrial operations
remained appropriate with no market-driven corrections required. Material
portfolio changes were the acquisition of the two- thirds of the Cerrejon
thermal coal business we did not already own, and the restart of the Mutanda
copper/cobalt operation.

Marketing operations benefited from underlying supply/demand tightness and
volatility spikes across a number of commodities, also leading to the Board
approving a temporary (and ultimately permanent) increase request to the
Group's Value at Risk limit.

The Russia/Ukraine conflict in 2022 has led to elevated volatility across many
asset classes, including commodities. Depending on the duration of the
conflict and the sanctions regime, global commodity flows may change
materially from their pre-2022 situation.

Mitigating factors - We continue to maintain focus on cost discipline and
achieving greater operational efficiency, and we actively manage marketing
risk, including daily analysis of Group value at risk (VaR).

We maintain both a diverse portfolio of commodities, geographies, currencies,
assets and liabilities and a global portfolio of customers and contracts.

We seek to 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
recycling, 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 conditions.

2. Currency exchange rates

Risk movement in 2021 - Stable

Risk appetite - Low. This affects us as a global company usually selling in US
dollars but having costs in a large variety of other currencies.

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.

Developments - Higher commodity prices supported a level of producer currency
strengthening versus the US dollar in 2021.

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 recovery and growth,
including U.S./China trade relationship, political/economic tension across the
CIS and the ongoing disruption caused by the coronavirus pandemic.

Mitigating factors - Ordinarily, where material, FX exposure to non-operating
FX risks is hedged. 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 continuously monitor and report on financial impacts resulting from foreign
currency movements.

3. Geopolitical, permits and licences to operate

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.

 

4. Laws and enforcement

Risk movement in 2021 - Stable

Risk appetite - Medium. Some of our existing industrial and marketing
activities are located in countries that are categorised as developing or as
having challenging political or social climates or where the legal system is
uncertain, 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, financial markets regulation and rules, 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 industrial asset and/or
impede our ability to develop new industrial assets.

As a diversified sourcing, marketing and distribution company conducting
complex transactions globally, we are particularly exposed to the risks of
fraud, corruption, sanctions, and other unlawful activities both internally
and externally. Our marketing activities 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 prevalent; and some of our counterparties have in the past,
and may in the future, become the targets of 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 in note 23
to the financial statements) 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 investigations and/or defending
proceedings can be 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 or collective action suits in connection with governmental and other
investigations and proceedings, and lawsuits based upon damage resulting from
our 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 - The Group has been cooperating extensively with the relevant
authorities in order to resolve as expeditiously as possible the government
investigations disclosed in note 23 to the financial statements. The
Investigations Committee ('Committee') of the Board manages the Group's
responses to these investigations. While the Committee cannot forecast with
certainty the cost, extent, timing or terms of the outcomes of the
investigations, the Committee presently expects to resolve the US, UK and
Brazilian investigations in 2022. Accordingly, and based on the Company's
current information and understanding, the Group has raised a provision as at
31 December 2021 in the amount of $1.5 billion representing the Committee's
current best estimate of the costs to resolve these investigations (included
in other expenses, see note 5).

Glencore continues to cooperate with a previously disclosed investigation by
the Office of the Attorney General of Switzerland (OAG) into Glencore
International AG for failure to have the organisational measures in place to
prevent alleged corruption. The timing and outcome of this investigation
remain uncertain.

Glencore has also been notified by the Dutch authorities of a criminal
investigation into Glencore International AG related to potential corruption
pertaining to the DRC and is in contact with the Dutch authorities in respect
of this investigation. The scope of the investigation is similar to that of
the OAG investigation. The Dutch authorities are coordinating their
investigation with the OAG and we would expect any possible resolution to
avoid duplicative penalties for the same conduct.

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 risk
assessments, a range of policies, standards, procedures, guidelines, training
and awareness, monitoring and investigations. See also the Ethics and
Compliance section of this report on page 43.

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, increasing our training and awareness
activities and strengthening the Group's Raising Concerns programme and
investigations function. We engage with reputable external legal firms and
consultants as necessary to support these efforts.

However, there can be no assurance that such policies, standards, procedures,
and controls will adequately protect the Group against fraud, bribery and
corruption, market abuse, sanctions breaches or other unlawful activities.

5. Liquidity

Risk movement in 2021 - Decrease

Risk appetite - Low. 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.

Description and potential impact - 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
suppliers, customers or ourselves.

Our failure to access funds (liquidity) would severely limit our ability to
engage in desired activities and 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.

Funding costs may rise owing to ratings agency downgrades and the possibility
of more restricted access to funding.

Developments - Note 28 details the fair value of our financial assets and
liabilities. Note 27 details our financial and capital risk management
including liquidity risk.

The Group's strong 2021 profitability and cash flows led to the reduction of
Net debt from $15.8 billion at 31 December 2020 to $6.0 billion at 31 December
2021. Our net funding at 31 December 2021 was $30.8 billion (31 December 2020:
$35.4 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 some $4.3 billion of long-term bonds in 2021 at
attractive interest rates, and the ongoing availability of supplier financing
arrangements in the form of extended letters of credit provided by the Group's
various banks.

During 2021 the Group issued $2.95 billion in US markets and EUR 1.1 billion
debt under its EMTN programme. Certain tranches of the refinancing were longer
dated than the instruments they replaced, up to 30 year maturities. This
provided the opportunity to lock in attractive funding rates for the long term
while maintaining our overall maturity profile of no more than approximately
$3 billion in any one year.

In September, Moody's affirmed its Baa1 rating for the Group and changed its
outlook to stable from negative. The outlook from S&P (BBB+) is also
stable.

Mitigating factors - It is the Group's policy to operate a strong BBB/Baa
rated balance sheet and to ensure that a minimum level of cash and/or
committed funding is available at any given time.

Diversification of funding sources is sought via 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.

In support of this, Glencore targets a maximum 2x Net debt/Adjusted EBITDA
ratio through the cycle, and a c.$10 billion net debt cap in the ordinary
course of business. The net debt cap may be extended to $16 billion for
M&A opportunities with swift deleveraging back to the $10 billion level
being a key part of our assessment of any such opportunity. Deleveraging below
the $10 billion cap is periodically returned to shareholders. Our financial
policies seek to ensure access to funds, even in periods of elevated market
volatility.

It should be noted that the credit ratings agencies make certain adjustments,
including a discount to the value of our Readily Marketable Inventories, so
that their calculated net debt is higher.

 

6. Counterparty credit and performance

Risk movement in 2021 - Decrease

Risk appetite - Low. We are subject to non-performance risk by our suppliers,
customers, and hedging counterparties, in particular via our marketing
activities.

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.

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 governed by the Group-wide Corporate
Credit Risk Management procedure for higher levels of credit risk exposure,
with an established threshold for referral of credit decisions by department
heads to the CEO, CFO and CRO, relating to unsecured amounts in excess of $75
million with BBB- or lower rated counterparts.

Developments - Some of our customers and suppliers are experiencing
financial difficulties particularly arising from Covid-19 or the recent
material price volatility in some commodity markets.

However, the overall credit quality of our counterparty portfolio
significantly improved in 2021 as global economic growth improved, Covid-19
restrictions eased and, in particular, energy prices rebounded strongly. 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.

The Group's accounts receivable balance, including assessment of doubtful
accounts, is set out in note 14.

Mitigating factors - We seek to diversify our counterparties and to ensure
adherence to open account limits.

The Group makes extensive use of credit enhancement tools, seeking letters of
credit, insurance cover, discounting, and other means of reducing credit risk
with counterparts. Where desirable and possible, credit exposures are to be
covered through credit mitigation products.

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.

Specific credit risk rules apply to open account risk with an established
threshold for referral of credit positions by departments to central
management.

 

7. Operating

Risk movement in 2021 - Stable

Risk appetite - Low. Our industrial activities are subject to a level of
significant residual risk throughout each operation's life cycle, from
initiation through development, operation and/or expansion and ultimate
closure.

Description and potential impact - Notwithstanding our enterprise risk
management practices, some of these risks are beyond our control. These
include a level of geological risk relating to factors such as structure and
grade as well as geotechnical and hydrological risks, 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 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 other
shareholders in these entities may have interests or goals that are
inconsistent with ours and 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 7.

Developments - Businesses continued to be affected by the Covid-19 pandemic.
The response to the pandemic has varied by jurisdiction, with authorities
imposing different requirements, often changing as the pandemic evolves.

Operations sought to develop protocols/ working practices to minimise virus
transmission risks in the workplace. Some businesses continued to be affected
as a result of new outbreaks which led to challenges such as the inability to
mobilise skilled resources when required.

Glencore's Nickel operations in New Caledonia continued to face particular
operating challenges; in 2021 there was a significantly extended shutdown on a
furnace because of the pandemic leading to an extended run time on the other
furnace resulting in difficulties being experienced with this furnace. We
continue to experience challenges with this complex operation.

Following a detailed business review, Glencore disposed of its majority stake
in Mopani in Zambia. The structure of the transaction should result in some
recovery of the residual economic value in the asset whilst reducing operating
and country risks that had proven to be challenging.

Cost control remains a significant area of management focus, noting that in
the context of mineral resources, absolute costs tend to increase over time as
incremental resources are likely further away from the processing plant and/or
deeper with sometimes decreasing grades. A number of operations have adopted
structured programmes to analyse their costs and identify marginal savings
which are then implemented. Maintenance and, where possible, reduction of unit
costs is regularly reviewed by management.

Infrastructure availability remains a key risk. Exposures continue to include
the delivery of reliable electrical power to our DRC operations. This has
improved over the last several years but is not yet at a consistent level of
reliability, and management continues to work with local entities to improve
the service. Our South African operations have been significantly adversely
affected by local rail and power issues. Our Astron Energy refinery continues
to carry out repairs to the refinery following the 2020 explosion which
tragically also resulted in the loss of two lives. Improved governance and
operating management systems are being developed and implemented to address
the underlying issues that led to the incident.

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 continuous 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. This priority is reflected in the principles of our
sustainability 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 in the Our people section on page 34
and our website at: glencore.com/careers/our-culture.

8. Cyber

Risk movement in 2021 - Stable

Risk appetite - Low. A cyber security 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.

Description and potential impact - Cyber risks for firms have increased
significantly in recent years owing in part to the proliferation of new
digital technologies (e.g. ransomware), nation-state activity, increasing
degree of connectivity and a material increase in monetisation of cybercrime.

Our activities depend on digital capabilities for industrial production,
efficient operations, environmental management, health and safety,
communications, transaction processing and risk management. 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
concern that we monitor closely to reduce the impact on the Group.

The emergence of machine learning and artificial intelligence increases 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.

Although Glencore invests heavily to monitor, maintain, and regularly upgrade
its systems, processes and networks, absolute security is not possible.

Developments - Our cyber security monitoring platforms frequently detect
attempts to breach our networks and systems. During 2021, none of these events
resulted in a significant breach of our IT environment nor resulted in any
material business impact.

Covid-19 has increased the degree of remote working and the potential attack
surface area. We continue to witness a heightened level of sophistication and
frequency of cyberattacks against all firms.

We anticipate that 'supply chain cyberattacks' through which legitimate third
party software is manipulated in an attempt to spread malware or gain access
to systems will increase.

We also expect that ransomware will remain an area of heightened threat focus.

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 independent cyber security penetration
tests to confirm the security of systems.

We seek to keep our system software patches up to date and have global
platforms to proactively 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 virtual private network (VPN) technology for
remote access.

We use global IT security platforms 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 Operational Technology
(OT) platforms.

Our IT Security Council sets the global cyber security strategy, conducts
regular risk assessments, and designs cyber security solutions that seek to
protect 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 accountable for coordinating the
response in the event of a major cyber incident.

During 2021, we continued to implement new capabilities to further enhance
protection against ransomware, enhance perimeter security and enhance the
security of our OT platforms.

9. Health, safety, environment

Risk movement in 2021 - Stable

Risk appetite - High. Industrial operations are inherently dangerous.
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.

Description and potential impact - The success of our business is dependent on
a safe and healthy workforce. Identifying and 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.

A number of our assets are in regions with poor approaches towards personal
safety, little or no access to health facilities, and poor working conditions,
and organisational cultures.

Our operations around the world can have direct and indirect impacts on the
environment and host communities. Our ability to manage and mitigate these may
impact maintenance of our operating licences as well as affect future
projects, acquisitions, and our reputation.

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. Failure to perform well may have

long-term negative impacts for host communities and erode trust in the
integrity of our organisation. Examples include, those arising from (1)
interruptions in production, litigation and imposition of penalties and
sanctions, (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, and (3) paying compensation and
reparations to negatively impacted communities.

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&HR 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 Incident Management Team and Steering Committee 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. In
June 2021, Glencore developed its Covid-19 Vaccination Policy and Guiding
Principles, in consultation with leading medical experts and released it to
the business.

Starting In 2020 and continuing through 2021, we conducted a review of our
SafeWork programme, which is Glencore's approach to eliminating fatalities.
SafeWork 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 drives operating discipline and prevents fatal incidents.

Reflecting the review's findings, we launched a refreshed SafeWork in early
2021, which included performance expectations and 2022 and 2023 targets. The
Group continues to invest in its sustainability risks assurance process and
its focus continues to be on the Group's HSEC catastrophic hazards.

We continued the 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, in
association with International Council on Mining & Metals member
companies. In collaboration with industry tailings experts, we also initiated
the development of our Tailings Management Academy, to provide training and
capacity building for our employees in tailings management, and environmental,
closure, and community-related practices.

We regret that we have recorded 4 fatalities at our operations (2020: 8). Our
Board and senior management are committed to ongoing efforts to improve
practices to provide a safe working environment. No major or catastrophic
environmental, community or human rights incidents have occurred during the
year.

Mitigating factors - We are committed to ensuring the safety and wellbeing of
our people, communities, and environment around us.

We implement Health, Safety, Environment, Community and Human Rights
(HSEC&HR) policies and standards designed to (1) protect our people,
communities, and the environment, and (2) ensure we comply with laws and
external regulations.

Our approach to the management of health, safety and the 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, health, safety, and compliance indicators, providing clear
guidance on the standards we expect all our operations to achieve.

During 2021, the corporate HSEC&HR team continued its work in enhancing
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 are working towards creating a workplace without fatalities, injuries, or
occupational diseases through establishing a positive safety culture. We
strive to achieve our ambitions of zero workplace fatalities and no major or
catastrophic environmental incidents.

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 and policies
frameworks.

We remain focused on the significant risks facing our industry arising from
operational catastrophic events and take steps to implement appropriate
controls to mitigate them.

We work with local authorities, local community representatives and other
partners, such as NGOs, to help overcome major public health issues in the
regions where we work, such as Covid-19, HIV/AIDS, malaria and tuberculosis.

Further details will also be published in our 2021 Sustainability Report.

There can be no assurances that our policies, standards, procedures and
guidelines will protect the Group against health, safety, and environmental
risks

10.   Climate change

Risk movement in 2021 - 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 fluctuating
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, United States 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 on fossil fuels by actual or potential investors, customers, and
banks, that potentially impacts Glencore's reputation, access to capital and
financial performance

·   import duties / carbon taxes in our customer's markets potentially
affect our access to those markets as well as our commodities' delivery costs

·   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

·   impacts on the development or maintenance of our assets due to
restrictions in operating permits, licences, or similar authorisations

These cost increases are likely to reduce demand for fossil fuels and could
lead to coal assets no longer being economically viable.

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. Some may choose not to invest in or
transact with us, due to our fossil fuels operations.

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.

Implementing low-carbon processes and technologies at our assets may increase
our operating costs, while also potentially growing/changing our customer
base.

Social concerns may increase pressure to divest our coal assets, limit/stop
our access to finance, close assets and impact our ability to optimise our
portfolio.

Socio-economic concerns associated with the transition to a low-carbon economy
may increase expectations of our closure plans and increase closure
liabilities.

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 - The commitments made by a number of countries, including
China, Australia and the US, to achieve carbon neutrality by 2050 or 2060, and
subsequent introduction of supporting policies, such as import taxes and
carbon trading mechanisms, 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 because of the carbon footprint of our products.

While the transition to renewables technologies continues to accelerate, the
global economic recovery from Covid-19 has highlighted the ongoing importance
in the short term of traditional fuels in meeting global energy needs.

Mitigating factors - We seek to 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.

We balance our ownership of coal assets with our interests in our metals'
businesses which are considered crucial to the green economy such as copper,
nickel, and cobalt.

Our internal Climate Change Taskforce, led by our CEO, co-ordinates our
analysis and planning of the effects of climate change on our business.

We have set ourselves a short-term target of an absolute 15% reduction of our
total emissions (Scope 1, 2 and 3) by 2026, and a medium-term target of an
absolute 50% reduction of our total emissions by 2035. Our medium-term target
is consistent with the midpoint of Intergovernmental Panel on Climate Change's
1.5°C scenarios, and with the Net Zero scenario set out by the International
Energy Agency. Post 2035, we have set ourselves the ambition to achieve, with
a supportive policy environment, net zero total emissions by 2050.

We monitor and report our Scope 1, 2 and 3 emissions, and use this data in
managing our operational carbon footprint, as well as for the development and
tracking of our targets.

To better understand 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 which covers Government policy, lobbying activities, carbon pricing,
energy costs, physical impacts, access to capital, permitting risk, product
demand and litigation risks.

Further information is available at: glencore.com/sustainability/
climate-change

 

11.   Community relations and human rights

Risk movement in 2021 - Stable

Risk appetite - Low. We have a geographically diverse business, operating in
both developed and developing countries in an array of different contexts. 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 reputation with stakeholders, our ability to secure access to
new resources, our capacity to attract and retain the best talent and
ultimately, our financial performance

Description and potential impact - Respecting human rights and building
strong relationships are fundamental to the current and future viability of
our business.

Areas that may be affected negatively include the health and safety of our
workforce and surrounding communities, environmental damage and interactions
with individuals and groups who live and work in or near our local
communities. Poor performance can contribute to social instability and the
perceived and real value 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.

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 mitigating environmental
and social closure risks.

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

Developments - During 2021, Covid-19 continued to impact people's
quality-of-life and contributed to localised areas of uncertainty around the
world. Our first and foremost priority during the pandemic has been the health
and wellbeing of our employees and communities, especially vulnerable groups.
We have sought to support our communities by augmenting communication
programmes to promote prevention measures, providing basic sanitation and
medical materials and supporting local health systems and services.

We continue where possible to work to support local health authorities in
encouraging and delivering vaccines, where needed.

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.

Artisanal and small-scale mining (ASM) continues to be a challenge at certain
operations, most notably in the DRC. An area of the Mutanda permits, Chabara,
has been illegally occupied by ASM cooperatives supported by semi-mechanised
operators. We have been engaging with DRC authorities to try to recover
control of Chabara following a peaceful relocation of the ASM cooperatives.

Mitigating factors - Our approach is to minimise the local detrimental impacts
of our business, engage openly and honestly to build lasting relationships and
foster socio-economic resilient communities.

In 2021, we enhanced our Closure Planning expectations and governance through
our new Closure Planning Standard to ensure consistent and proactive
performance in this important aspect of our operations' lifecycle.

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. 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 (UNGPs), and
support resilience and capacity within our host communities. We have processes
to identify, prevent and mitigate human rights risks and impacts across our
business, and are committed to understanding and documenting the social risk
and opportunities in the communities in which we operate. 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 UNGPs.

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 to consult with them to
inform our decision-making. Our ambition is to be a responsible, engaged and
valued company wherever we operate and to 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 programmes to deliver long-term benefits
fostering socio-economic resilience.

We implement locally appropriate complaints and grievance processes in line
with the UNGPs and welcome feedback and comments on our performance. We review
all complaints received and take actions when necessary to address the issues
raised.

During late 2020, our Social Performance and Human Rights policies were
updated following consultation with external subject matter experts and
internal and external stakeholders. In 2021 we reviewed and/or updated our
Social Performance, Human Rights and Security Standards.

Our approach to ASM considers 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. We partner 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.

We continue to review and implement new or revised policies concerning
cultural heritage management.

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 227 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 12, 14 and 25).

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 2021, sales and purchases with
associates and joint ventures amounted to $3,828 million (2020: $2,710
million) and $6,469 million (2020: $5,033 million) respectively.

 

The following has been extracted from page 228 of the Annual Report.

Remuneration of key management personnel

Glencore's key management personnel are the members of the Board of Directors,
CEO, CFO, General Counsel and 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 $27 million (2020: $19 million).
Amounts expensed relating to long-term benefits or share-based payments to key
management personnel amounted to $1 million (2020: $Nil). Further details on
remuneration of Directors are set out in the Directors' remuneration report on
page 101.

 

 

 

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 122 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 by the United Kingdom, 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 the 2021 Annual 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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