Risk Management and Internal Controls

GRI 102-11, 102-30, 201, 403

The Board is responsible for evaluating and determining the nature and extent of the risks it is willing to take in achieving the Company’s strategic objectives and for ensuring that the Company establishes and maintains appropriate and effective risk management and internal control systems.

Risk Governance Framework

Under our risk management framework, the Board and management are responsible for identifying and analysing the risks underlying the achievement of business objectives and for determining how such risks should be managed and mitigated.

As summarised in the following diagram, the Board oversees management in the design, implementation and monitoring of risk management and internal control systems. Management provides confirmation to the Board, through its Audit Committee, on the effectiveness of these systems.

The management of risks is subject to audit by Swire group internal audit department (“GIAD”) with support from specialist external consultants, where necessary.

Ongoing Review of our ERM System

Our ERM System helps us identify, analyse and manage business risks. Risk identification, analysis and management processes are completed on a regular basis throughout the year and the results help to guide our business decisions.

After reviewing our ERM System in 2017, we updated our Corporate Risk Register in 2018 to incorporate additional SD-related risks, such as climate-related risks. We have also integrated SD factors into our corporate risk analysis.

In late 2019, a half-day “top-down” risk identification workshop for our EXCOM was held by external risk management consultants. Certain new risks were identified and an evaluation of their impacts to the business is in progress. Going forward, we also plan to enhance the presentation and format of our Corporate Risk Register so that the details of each risk area are set out more clearly.

Risk Profile

The following table provides an overview of our risk profile, including what we consider to be Swire Properties’ principal existing and emerging risks, possible associated impacts, and mitigation measures that are in place or under development. Many of these mitigation measures refer to activities discussed in more detail elsewhere in this report.

Existing Risks and Possible Impacts

Mitigation Measures

Economic and political volatilities could lead to adverse impacts on the property market and our development costs.

Differentiate our properties in the market and maintain a balanced tenant mix.

Pursue development schemes that do not require the payment of a land premium or, if the payment of a land premium is required, allow sufficient time to review the premium.

Arrange workshops for teams at building management offices to familiarise them with procedures for managing incidents arising from social unrest.

Change in government policies could adversely affect the property market and our financing costs.

Liaise closely with government authorities about property-related policies, closely monitor policy developments and seek to secure planning approvals as early as possible.

Adopt conservative budgeting assumptions when assessing new opportunities.

Explore alternative sources of funding.

Increase in development costs and delay in project completions could adversely affect our financing costs.

Closely monitor and manage construction progress and contractors to avoid delays in project development.

Implement stringent prequalification assessments of contractors and approval mechanisms for design changes.

Build in additional time during development planning to obtain statutory approvals and communicate with government authorities on a timely basis.

Health and safety issues could lead to casualties, property damage, construction delays and disruption to our business and/or damage to our reputation.

Ensure safety management to Occupational Health & Safety section] is part of property construction and management, including incident investigation, safety guidelines and training, contractor evaluation and maintenance programmes for fire-fighting systems and other building facilities.

Our BRP and other business compliance measures (including specific health and safety provisions) are in place.

Cyber-attacks on networks and systems could result in disruptions to our business, data breaches, damage to our reputation, and/or financial loss.

Conduct regular audits to assess compliance with our Information and Cyber Security Policy, provide training on information security awareness, test network security and conduct drills as part of the BRP.

A Cyber Incident Response Plan is in place to address cyber-attacks that may threaten our business.

Include data protection obligations in contracts with third-party data processors.

Emerging Risks and Possible Impacts

Mitigation Measures

Climate change, which may give rise to extreme weather conditions, could expose properties to increased risks of physical damage and could adversely affect property valuation.

A Climate Change Policy is in place.

Conduct climate risk assessments for all portfolios.

Science-based targets (“SBTs”) with a view to achieving long-term decarbonisation have been established.

Monitor and reduce carbon emissions from construction activities and embodied carbon from major building and construction materials.

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Risk Management and Internal Controls