Material Risks

Brambles’ risk management framework incorporates effective risk management into its strategic planning processes and requires business operating plans to effectively manage key risks. The key risks to Brambles’ ability to achieve its strategic, financial and sustainability objectives (in no order of significance), and respective mitigating actions, including our response to the Covid-19 pandemic are:

Risk	Implication	Mitigating actions
Macro-economic conditions including, for FY20 and FY21, economic uncertainty arising from the Covid-19 pandemic	Macro-economic conditions, or economic conditions affecting the supply chain or industries in which Brambles’ customers operate, may affect demand for Brambles’ services and/or its financial performance. In addition, the impact of the Covid-19 pandemic on global and regional economic conditions could also affect the operations of its customers or the demand for their products which, in turn could affect the demand from Brambles services	Responded to the Covid-19 pandemic through a range of actions to enable Brambles to continue to operate through the initial phases of the pandemic and to respond to potential changes in the economic and business environment arising from the pandemic. Details of specific actions are described in various places in this table Continued focus on driving growth through investment in expanded customer value proposition, targeted diversification in opportunities with attractive long‑term characteristics and the adoption of plant automation project in CHEP Americas Adoption of pricing and cost-recovery strategies to mitigate the impact of cost inflation, with enhanced focus on cash generation Scenario-based strategic planning covering different recessionary scenarios, including identifying actions to further de-risk and exploit opportunities
Industry trends in the retail, grocery and consumer goods supply chains	Industry trends (e.g. fragmentation of the retail supply chain, growth of e-commerce and hard discounters, demand for different pooling equipment materials or designs) could affect demand for Brambles’ current service offerings, the value of its existing assets, and/or its financial performance	Ongoing programmes to: Drive customer intimacy throughout the supply chain and uncover opportunities to leverage the Group’s unique global scale and value proposition Create new products and service lines to meet customers’ requirements Drive innovation to identify and respond to emerging trends in platforms, material science, new technologies and sustainability practices
Maintaining the quality of pooled equipment in line with customer needs	A failure to maintain adequate quality standards may result in reduced customer satisfaction, additional costs and affect the Group’s financial performance	Strict adherence to equipment quality standards, including continuous monitoring of critical-to-quality metrics to assess and ensure quality of products issued to customers
Maintaining control of pooling equipment	The loss of pooled equipment is inherent in Brambles’ business model. Failure to maintain appropriate asset control and recovery processes may result in additional costs and affect the Group’s financial performance	Dedicated asset control teams across all business units and the creation of a comprehensive system of processes to increase the timely collection of assets Regular schedule of customer equipment inventory audits to assess key asset recovery metrics and identify potential control issues In response to Covid-19 pressures, instituted additional field collection activities to reduce cycle times and meet volatile demand, whilst complying with local social distancing and travel restrictions
Network capacity	The scale and strength of Brambles’ network of service centre locations are inherent to its value proposition for customers and other stakeholders. A lack of capacity within the network in a major market could adversely impact service delivery, competitive position and financial performance	As an essential service provider, Brambles continues to run operations and support customers and their consumers across all our markets despite economic uncertainty and social restrictions arising from the Covid-19 pandemic Implemented a range of safety and contingency measures to ensure service centres remained fully operational Due to the Covid-19 pandemic, an element of the plant automation project in CHEP Americas has been deferred to FY21 in order to maximise the level of capacity across the US service centre network and avoid any potential disruption during peaks in demand caused by the pandemic
Customers and competitors	Brambles operates in competitive markets. Unmet customer expectations or increasing intensity of competitor activity could affect Brambles’ market penetration and financial performance	Leveraged Brambles’ unique global scale, network advantage and sustainable business model to support customers to meet the unprecedented volatility in consumer supply chains created by the Covid-19 pandemic Collaborating with customers to understand and meet their evolving needs and adopting digital and other technologies to innovate products and services, enhance customer experience and strengthen competitive advantage
Retailer acceptance of pooled solutions	Retailers are integral to Brambles’ operating model. A reduction or loss of retailer support for pooled solutions in their supply chains could result in a loss of customers and/or market penetration and adversely impact Brambles’ financial performance	Dedicated teams with executive-level responsibility for strengthening retailer relationships, identifying retailer‑specific product requirements and ensuring retailers understand Brambles’ value proposition Improving the value proposition for retailers through the implementation of joint business plans and adopting the value sharing concept to create win-win opportunities Implementation of programmes to facilitate manufacturer advocacy of Brambles’ pooled solutions
Cyber security	The unauthorised access to or use of Brambles’ IT systems could adversely impact Brambles’ ability to serve its customers or compromise customer or employee data, resulting in reputational damage, financial loss and/or adverse operational consequences. The implications of this risk continue to increase as Australian institutions have become a specific focus of cyber-attacks from state actors, and ransomware attacks have increased globally	The ongoing security programme is delivering key capabilities to protect systems and to detect and promptly respond to unauthorised or inappropriate activity. Key controls include, but are not limited to, email and internet filtering, anti-virus software, multi-factor authentication, enterprise security architecture, security awareness training, as well as the use of penetration testing across its network In response to the Covid-19 pandemic, conducting additional risk-based assessments of Brambles’ critical IT systems and services to strengthen continuity processes Brambles continues to use the National Institute of Standards and Technologies Cyber Security Framework and the Australian Cyber Security Centre’s Essential 8 advice to monitor, track and report progress to senior management
IT data governance	Brambles relies on its IT systems, and the data stored on those systems, to operate its business. The identification and classification of Brambles’ key data assets are key components of its capacity to effectively carry on its businesses and to its cyber security strategy. The proper identification and classification of data assets allows Brambles to prioritise security technology implementations that offer targeted and appropriate protection. Incomplete or unsuitable identification and classification of key data assets could result in the misuse, loss of or unauthorised access to sensitive data due to incorrect storage, processing or disposal procedures. This, in turn, could result in financial loss, operational disruption and/or reputational damage	Data Classification and Handling Policy includes guidelines on the types of data and protection protocols for each data type During the Year, Brambles adopted an Acceptable Use Policy which outlines the standards by which all users must use information and technology assets and service Preventative controls are also in place to mitigate the risk of loss or misuse of data. These controls include the encryption of laptops, mobile devices. email data retention controls and the ability to store data in secure drives Ongoing development of an Information Management Strategy to define improved data governance and security
Hard Brexit	The United Kingdom (UK) left the European Union (EU) on 31 January 2020 and entered an 11-month transition period The UK Government has publicly ruled out any form of extension to the transition period, and hence the risk remains that the UK exits the transition period without a trade deal on 31 December 2020 (Hard Brexit) A Hard Brexit could result in Brambles incurring increased capital and operating expenses relating to asset efficiency, heat treatment of pallets, raw materials, transport and customers’ clearance costs as well as disruption to both Brambles’ and its customers’ businesses in Europe	Brambles has continued its preparations in the event of a Hard Brexit. The risks associated with Brexit, identified by the Brexit Taskforce, in FY18 and FY19 remain largely unchanged Mitigation plans are in place and, where necessary, budgeted for, to manage those risks
Timber supply	Access to sustainably certified sources of timber is essential for Brambles to carry on its businesses. A concentration of timber suppliers in any region, or a shortage of available certified sources of timber, could adversely impact Brambles’ ability to maintain its timber pallet pool at levels that will enable it to meet customer demand for those products. This could result in loss of customers and/or market penetration and adversely impact Brambles’ financial performance. Climate-related risks for forests and timber supply, including market, regulatory and physical risks, will emerge over a five-to-ten-year period	Adoption of regional and global dedicated timber procurement teams to manage timber procurement and to mitigate timber supply risks In line with Brambles’ sustainability goals, 100% of timber is sourced from certified sources, and Brambles has continued to meet year-on-year improvement targets of sourcing Chain of Custody certified timber
Regulatory compliance	Brambles operates in a large number of countries with widely differing legal regimes, legislative requirements and compliance cultures. A failure to comply with regulatory obligations and local laws could adversely affect Brambles’ operational and financial performance and its reputation	Dedicated Chief Compliance Officer responsible for monitoring the implementation and ongoing application of compliance management systems A Code of Conduct which provides a framework for detailed policies addressing regulatory compliance A vendor due diligence programme to assess the compliance of suppliers with various legal and regulatory requirements, such as bribery and corruption, sanctions violations, modern slavery and human rights practices Adoption of Group-wide online compliance training programmes to supplement face-to-face training
Attraction and retention of talent	A failure to attract, develop and retain high performing individuals could adversely impact Brambles’ ability to implement and manage its strategic objectives	Detailed talent management and succession planning processes to identify high potential employees and prepare successors for senior executive positions Adoption of development programmes for management, leadership and functional expertise through all employment levels Formal mentoring programmes offered to all employees Implemented a range of activities to support office-based personnel now working remotely due to the Covid-19 pandemic, including, but not limited to, provision of required IT, connectivity services and mental and financial wellbeing support programmes
Digital disruption	The development of cost-effective digital supply chain solutions has the potential to materially change supply chain dynamics. If a third-party was to develop such solutions before Brambles, it could adversely impact Brambles’ business models. This could result in loss of customers and/or market penetration and adversely impact Brambles’ financial performance	Brambles is innovating, developing, testing and refining digital solutions which have the potential to provide commercial digital services to its customers and to assist its businesses to more effectively and efficiently manage equipment losses and asset efficiency Through the establishment of BXB Digital, Brambles has developed unique functional capabilities and robust technical solutions to explore the role of technology in its businesses and customer offering and to engage in innovation of products and services in the digital space
Safety	Brambles is subject to inherent operational risks including industrial hazards, road traffic or transportation accidents that could potentially result in serious injury or fatality of employees, contractors or members of the public	The Zero Harm Charter, states that everyone has the right to be safe at work and to return home as healthy as they started the day Successfully executed a range of activities during Covid-19 to keep people safe. Established a Covid-19 global task force in February 2020 with Senior Health and Safety representation, supported by regional taskforces to establish processes and protocols in accordance with government advice in different geographies Implemented a number of processes and protocols in service centres, such as social distancing measures, more frequent cleaning and disinfecting, thermal scanning and distribution of personal protective equipment Continued to further enhance safety management systems, including focusing on human and organisation behavioural principles and implementing additional engineering and technology-based controls Use of safety metrics which, measure work-related injuries, lost time, modified duties and incidents requiring medical treatment, with regular reporting and monitoring to the Brambles Board
Inclusion and diversity	Brambles has a diverse workforce and believes that an inclusive work environment allows employees to realise their full potential, regardless of gender, race, religion, age, disability, ethnicity, sexual orientation or any other factor that makes an individual unique. Any activities or practices within its operations or in its supply chains that could undermine this intent violate Brambles’ values and are detrimental to the integrity and credibility of its brand	Brambles fosters a diverse and inclusive environment to be better able to relate to customers, suppliers, communities and co-workers Established a global Inclusion and Diversity Council with programmes and initiatives to encourage, celebrate and support all forms of diversity to ensure promoting all forms of diversity and inclusiveness are at the core of operations Continuing progress in improving gender diversity at all levels within the organisation including Board, executive leadership and management positions
Climate change	There are opportunities and risks from climate‑related physical events and policy (transitional) developments for Brambles’ businesses, including the organisation’s ability to create value over the short, medium and long term	In FY20, Brambles’ ‘share and reuse’ circular solutions reduced more than 2 million tonnes of CO₂ emissions in our customers’ supply chains Brambles is a sustainable business because of its circular ‘share and reuse’ model, which reduces demand on natural resources, regenerates forests, eliminates waste for customers and reduces carbon emissions from the world’s supply chains As a leader in the circular economy, Brambles understands its potential to address climate change by focusing on both its impact on climate change and the impact of climate change on Brambles Continued to reduce emissions impact, with 33% reduction in CO₂/unit since FY15 and 70% of electricity consumed from clean renewable sources Brambles’ demand for sustainably sourced timber addresses deforestation and its impact on climate change. Through afforestation, our 2025 strategy will increase forest cover Brambles will adopt a Science Based Target covering its direct emissions and those in our supply chain as part of our 2025 commitments Brambles has adopted the Task Force on Climate-related Financial Disclosures (TCFD) framework with a project to assess the risks and opportunities for the business using climate scenario analysis (further details on TCFD are on page 12 with a supporting TCFD supplement on Brambles’ website)

Managing climate-related risks at Brambles

Brambles recognises its external operating context is changing in response to climate-related issues.

During 2020, Brambles continued the process of assessing its exposure to climate-change risks by reference to the recommendations of the Financial Stability Board’s TCFD. Subsequent to commencing this work, the 4th Edition of the ASX Corporate Governance Principles and Recommendations was issued and included new commentary on Recommendation 7.4 suggesting that listed entities should consider reporting their exposure to climate-change risk by reference to the TCFD.

As part of this process, climate-related risk has been identified as a stand-alone risk and will be reassessed using Brambles’ risk management framework and approach. In addition, Brambles is evaluating existing strategic and operating risks in the context of climate-related risk in its external operating environment. Further details on Brambles’ approach to climate-related risks are set out on page 12 with a detailed TCFD disclosure on brambles.com