Our principal risks and assessment
Our risk management framework is structured around the principal risks facing British Land. We use a risk scoring matrix to ensure risks are evaluated consistently; we assess the likelihood, the financial impact (to both income and capital values) and the reputational impact. From this we identify both the external and internal strategic and operational principal risks which currently have a higher likelihood and potential impact on our business. Whilst the Board recognises that it has fairly limited control over the external principal risks, it reviews their potential impact on our business, and these are taken into account in our decision making. For our internal principal risks the Board makes sure that appropriate controls and processes are in place to manage these risks.
The Board confirms that a robust assessment of the principal and emerging risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity, as well as the Group’s strategic priorities, was carried out during the year taking into account the Covid-19 risk and the evolving economic and geopolitical environment.
In the year, following a thorough review exercise involving the Risk and Audit Committees, we have refreshed our principal risks to take into account how our strategy and markets are evolving, together with combining several interrelated risks.
The key changes and assessments are summarised here, and in the principal risks table above, including the key impacts on our business, our mitigating actions and our key risk indicators.
Operational and Compliance risks
The combination of several key operational risks to our business involving information systems and cyber security, health and safety, third party relationships and financial crime compliance have been elevated into a new principal risk category, reflecting their significance to our business and the increased focus on these areas by both the Risk and Audit Committees.
Property Market risks
The key occupier and investment market risks to our sectors, together with the structural changes facing our markets, have been aggregated into a broader external Property Market risk. This will be assessed individually for our key sectors of Campuses, Retail and Urban logistics.
Portfolio Strategy risks
Our portfolio strategy risk has evolved to reflect the risks in executing our active management and development approach and our capital allocation plans in delivering performance.
People and Culture risks
Whilst our ability to recruit and retain people with the right skills to deliver our strategy was already recognised as a principal risk to our business, we have widened this to incorporate the cultural risks to our business.
Our income sustainability was previously considered a principal risk, but is now recognised as being a consequence of our overall customer risks incorporating our occupancy and income risks. This incorporates the risks of customer default or an inability to retain our customers and meet their evolving needs, together with our concentration and exposure risks to individual occupiers or sectors.
The interrelated financing risks of availability and cost of finance, our capital structure and our financing strategy have been combined into a broader single financing risk.
Our current assessment is that the general external environment in which the Group operates remains uncertain, albeit several principal risks to our business have reduced from their elevated position last year reflecting the lessened impact of Covid-19 and the reopening of the UK economy.
- Political, legal and regulatory risks
- Property market risk for our Campuses
- Major events/business disruption risks
- Customer risks
At the same time, our environmental sustainability and people and culture risks have increased slightly:
- Environmental sustainability risk continues to increase in prominence and importance to our business, our customers and other key stakeholders
- People and culture risk has increased in the year, reflecting the challenging operating environment caused by Covid-19 together with general rising wage expectations and a recent increase in employee mobility. See risk heat map above.