Adaro Enterprise Risk Management (ERM) adopts a prudent and proactive approach in managing risks to achieve the company’s strategic objectives through a winning business concept, a winning system and a winning team.
Adaro’s ERM remains focused on strengthening the implementation to protect and maximize the organization’s / enterprise’s value. In this regard, the focus is placed on the key risks that may hinder target achievement.
The key risk management principles set forth in Adaro Group’s risk management policy are as follows:
understood before making key decisions
integrated into management cycle of the company and embedded in planning processes, at both the operational and strategic level
- Being part of decision making
used in selecting appropriate decisions by taking into account the information on the risk exposure of every option.
managed to address uncertainty, put control mechanism, maximize opportunity and minimize negative impact
- Systematic, structured and timely
applied in a systematic, structured and timely manner across the Adaro Group to ensure efficient and reliable results
- Based on the best available information
managed using the best available relevant information with the awareness that some key information cannot be obtained
- Transparent and inclusive
engaging internal and external stakeholders in each step of risk management process and being transparent about all mitigation actions and the progress
- Re-assessed periodically
re-assessed periodically to identify whether there are new risks and risks that are no longer relevant
communicated with the relevant stakeholders in order to obtain appropriate responses so that risks can be mitigated effectively
The Adaro Group’s ERM aims to protect and maximize organization/enterprise value. In this regard, the company focuses on the key risks that may lead to disproportionate deviation regarding target achievement.
Twice a year, Adaro Energy Indonesia’s Board of Directors conducts risk assessment by analyzing all strategic business units’ risk profiles, consolidating them at the group level and determining the appropriate response actions / strategy.
The risk profile submitted by subsidiaries from 8 (eight) business pillars covers 29 risk types under 3 (three) categories: external environment, operations and organization. All key / material risks (assessed to be at high and critical levels) will be populated on the Adaro Energy Indonesia’s risk profile. Risk Management Unit analyzes the risks population for aggregation and consolidation to build the risk profile of Adaro Energy Indonesia for the review and assessment by its BoD. The risk assessment is performed by the BOD twice a year, including the formulation of the response action / mitigation strategy for each key risk. The key risks indicate the areas / issues that the board needs to focus on. In this regard, priority is to be given to the agreed response action / mitigation strategy. PIC and timeline are also set to monitor the progress and the effectiveness of each mitigation program in the quarterly management meeting.
At the corporate level, the consolidated risk profile for the Adaro Group is summarized below:
- As at December 2021, there were 10 types of high risks treated as the main focus, two of them were new risks treated as the main focus, i.e. contractor risk and people risk.
- Macroeconomic risk, production cost risk, business process risk, and financial risk have now shifted to moderate level due to effective mitigation actions.
- Legal & regulatory compliance risk and land availability risk decreased from critical to high, while contractor risk and people risk level increased from medium to high, which was mainly due to the transition process of mining services contractors at AI and the increasing need for workers at the operator level.
- Compared to the previous year, the number of key risks decreased from 12 to 10 types of risks, while the other 19 types of risks at moderate and low levels were closely monitored and treated appropriately.
The risks treated as the main focuses in 2021:
- Health, Safety and Environment (HSE) risk
- Industrial risk
- Regulatory-changes risk
- Project risk
- Legal and regulatory compliance risk
- Business interruption risk
- Contractor risk
- Land availability risk
- People risk
- Governance risk
EFFECTIVENESS OF RISK MANAGEMENT IMPLEMENTATION
The implementation of risk management within the Adaro Group has been implemented effectively and consistent with the fundamental principles of risk management as described on the beginning part of this section.
The effectiveness of its implementation is illustrated in the Risk Profile of the end of 2021, where 4 (four) main risks decreased from high to moderate, i.e. macroeconomic risk, production cost risk, business process risk and financial risk.
The level of legal and regulatory compliance risk and land availability risk decreased from critical to high.
For more detail explanation on our risk management, please see in our 2021 Annual Report page 177.