Risk Management
To effectively respond to the rapidly changing business environment, we make comprehensive, company-wide efforts to proactively detect and manage risks. The outcomes of risk monitoring and the corresponding response strategies are regularly reported to the Board of Directors. Risks are categorized into investment and financial risks, alongside non-financial risks such as safety, environment, human rights, and supply chain. Each responsible department prioritizes risk mitigation activities tailored to their specific areas.
Company-Wide Risk Management
Risk Management System (RMS)1)
POSCO has been operating its RMS, a company-wide process risk management system, since 2004 to systematically manage risks. The system is continuously improved by incorporating feedback from operational departments. Recently, we have integrated big data analysis with the RMS, allowing operational departments to autonomously inspect and address anomalies as soon as they are detected. When necessary, these inspections can be linked to internal audit activities.
1)
Risk Management System (RMS): A system designed to manage risk levels by selecting and evaluating individual risks within various business processes, including finance, purchasing, marketing, investment, production, and facility management.
Risk Management System
Continuous Monitoring of the Global Business Environment
POSCO conducts meticulous quarterly analyses and forecasts of external economic trends and fluctuations in the steel and raw material markets, which are essential for shaping its medium- and short-term management plans. To minimize risks, POSCO places particular emphasis on predicting key volatile factors such as exchange rates in major countries, Chinese steel prices, and prices for raw materials like iron ore, coking coal, and nickel, on twice a month basis. Through its business information system, the Global Information Hub (GIH), POSCO ensures continuous risk monitoring by providing daily updates on the steel business, new growth sectors, global economic trends, and competitor technology trends to all employees.
Sensitivity Analysis and Scenario Management
POSCO regularly monitors the potential impact on revenue and profit at least once a month, taking into account fluctuations in economic and industrial market indicators such as exchange rates, oil prices, iron ore and coking coal prices, and global steel prices. When significant changes in business performance are anticipated due to these fluctuations, we swiftly establish and implement appropriate response plans. Especially during investment decision-making, we integrate the results of scenario-based sensitivity analysis for key risk factors, including sales volume, sales prices, and raw material prices, to ensure informed and strategic decisions.
Management plans are formulated based on three scenarios: ‘base,’ ‘optimistic,’ and ‘pessimistic.’ Each month, performance is analyzed against these plans and reported during operational meetings chaired by top management. In these meetings, the root causes of any arising issues and corresponding improvement measures are discussed and implemented.
Management plans are formulated based on three scenarios: ‘base,’ ‘optimistic,’ and ‘pessimistic.’ Each month, performance is analyzed against these plans and reported during operational meetings chaired by top management. In these meetings, the root causes of any arising issues and corresponding improvement measures are discussed and implemented.
Internal Accounting Management System
POSCO operates an internal accounting management system annually. This system comprises two main evaluations: design assessment, which examines the appropriateness and completeness of control activities designed to prevent and detect errors and fraud in financial statements, and operational assessment, which verifies that these control activities function as intended. POSCO has established a dedicated organization that takes the lead in inspecting and managing the internal accounting management system. Each business year, design and operational assessments are conducted for POSCO and its major steel affiliates. The results of these assessments are reported to the Board of Directors, the Audit Committee, and the General Meeting of Shareholders. Any deficiencies identified during the evaluation process are addressed through mutual consultation between the dedicated internal accounting management organization and the departments responsible for performing the control activities.
-
Operational Failures
Establishing Inspection Plans
- Identify control activities that include improvement measures for deficiencies identified in the previous year and communicate the inspection direction and key schedule.
-
Control Activities
Design Assessment
- Select a specific transaction as a sample and trace the entire process from initiation to completion using the transaction documentation. Identify associated risks and review and evaluate whether the control activities are appropriately designed.
- Inspect whether organizational and process changes have been adequately incorporated.
-
Control Activities
Operational Assessment
- Verify the documentation and approval documents reviewed by both the control personnel and the control manager for key control activities.
- Confirm the evidence related to the process and outcomes of the control execution.
-
Internal Accounting Management System
Review, Audit, and Reporting
- The auditing firm conducts a review and audit of the design and operational assessments carried out by the company.
- The CEO reports the results of the operational status review of the internal accounting management system to the General Meeting of Shareholders, the Board of Directors, and the Audit Committee
ESG Risk Management for Investment Projects
Before proposing an investment, we perform a preliminary analysis of potential ESG risks associated with the project’s execution and mandate that the proposal includes strategies to minimize these risks.
During the investment review stage, in-house ESG experts serve as review committee members, assessing the adequacy of established risk prevention measures.
Post-approval, we incorporate ESG metrics into the investment performance evaluation criteria, ensuring that business execution considers ESG impact.
Key ESG Evaluation Metrics
| Category | Item | Metric | Unit | Definition |
|---|---|---|---|---|
|
Environment (E) |
GHG | GHG emissions | tCO2e | Total GHG emissions from business sites |
| Energy | Energy consumption | GJ | Total consumption of direct, indirect, and renewable energy | |
| Renewable energy usage percentage | % | Percentage of energy consumption from renewable sources | ||
| Pollutants | Air pollutant emissions | tons | Total air pollutants emitted from business sites | |
| Water pollutant emissions | tons | Total water pollutants emitted from business sites | ||
| Water Resources | Total water withdrawal | million ㎥ | Total volume of water withdrawn from water sources | |
| Waste | Waste generation | tons | Total weight of all solid and liquid waste, excluding wastewater, generated at business sites | |
| Management | Environmental law violations | cases | Number of disclosed violations of environmental laws | |
|
Social (S) |
Safety | Accident rate | % | Number of accidents ÷ Total number of employees × 100 |
| Number of accidents | person | Total number of general, serious, and occupational accidents | ||
|
Governance (G) |
Board of Directors | ESG agenda items submitted to the board | cases | Number of ESG-related reports |
| Ratio of non-executive directors | % | Number of non-executive directors ÷ Total number of directors × 100 | ||
| Ethical Management | Code of ethics violations | cases | Number of code of ethics violations |
Tax Risk Management
POSCO diligently works to prevent all potential tax risks associated with transactions of goods and services, mergers and acquisitions, corporate restructuring, international transactions, new business initiatives, and changes in transaction structures at all domestic and international business sites. When necessary, we collaborate with external tax experts and seek advice from tax authorities, ensuring a thorough review before making decisions.
Transparent Tax Payment
In 2023, POSCO’s profit before tax on a consolidated basis amounted to 1.9267 trillion KRW, with a nominal tax amount of 504.4 billion KRW, indicating a nominal tax rate of 26.2%. Conversely, the effective tax amount was 256.1 billion KRW, resulting in an effective tax rate of 13.3%.
POSCO’s average nominal tax rate for the past two years stands at 30.1%, while the average effective tax rate is 15.2%. Notably, the average effective tax rate for the past two years is 14.8 percentage points lower than the nominal tax rate. This discrepancy is due to several factors, including changes in deferred corporate tax resulting from temporary differences, the impact of non-taxable income, non-deductible expenses, tax credits and reductions, and unrealized gains and losses.
POSCO’s average nominal tax rate for the past two years stands at 30.1%, while the average effective tax rate is 15.2%. Notably, the average effective tax rate for the past two years is 14.8 percentage points lower than the nominal tax rate. This discrepancy is due to several factors, including changes in deferred corporate tax resulting from temporary differences, the impact of non-taxable income, non-deductible expenses, tax credits and reductions, and unrealized gains and losses.