Vedanta Limited

RISK MANAGEMENT

Managing and mitigating risks
in a volatile business scenario

As a global natural resources Company operating in multiple geographies, our businesses are exposed to a wide range of risks. Therefore, it is essential to have the necessary systems and a robust governance framework in place to manage risk, while balancing the risk-reward equation expected by stakeholders.

ENTERPRISE RISK MANAGEMENT

The Group has a multi-layered risk-management framework that aims to effectively manage the risks that our businesses are exposed to in the course of their operations, as well as in their strategic actions. We identify risks at the individual business level for existing operations as well as for ongoing projects through a well-crafted methodology. Formal discussion on risk management takes place at business level review meetings at least once in a quarter. Every business division of the Group has evolved its own risk matrix, which gets reviewed by the Business Management Committee. In addition, business divisions have developed their own risk registers.

Respective businesses review the risks, changes in the nature and extent of major risks since the last assessment, control measures and further action plans. The control measures stated in the risk matrix are also periodically reviewed by the business management teams to verify their effectiveness. These meetings are chaired by the businessCEOs and attended by CXOs, senior management and functional heads concerned. The role of risk officers at each business and at the Group level is to create awareness on risks at the senior management level, and to develop and nurture a risk-management culture within the businesses. The Company’s risk-mitigation plans are integral to the KRAs / KPIs of process owners. The governance of risk management framework in the businesses is anchored with the leadership teams.

The Audit & Risk Management Committee aids the Board in the risk management process through identification and assessment of any changes in risk exposure, review of risk-control measures and by approval of remedial actions, wherever appropriate. The Committee is, in turn, supported by the Group Risk Management Committee, which helps the Audit & Risk Management Committee in evaluating the design and operating effectiveness of the risk-mitigation programme and the control systems. The Risk Management Committee meets at least four times annually to discuss risks and mitigation measures. The Committee reviews the robustness of our framework at individual businesses and progress against actions planned for key risks.

Our risk-management framework is simple and consistent and provide clarity on managing and reporting risks to our Board. Together, our management systems, organisational structures, processes, standards and code of conduct and ethics represent the system of internal control that governs how the Group conducts its business and manages the associated risks.

The Board shoulders the ultimate responsibility for the management of risks and for ensuring the effectiveness of internal control systems. It includes the Audit Committee’s report on the risk matrix, significant risks, and mitigating actions that we have put in place. Any systemic weaknesses identified by the review areaddressed by enhanced procedures to strengthen the relevant controls, and these are reviewed regularly.

The Audit Committee is, in turn, assisted by the Group-level Risk Management Committee in evaluating the design and effectiveness of the risk-mitigation programme and control systems. The Group Risk Management Committee (GRMC) meets every quarter and comprises the Group Chief Executive Officer, Group Chief Financial Officer and DirectorManagement Assurance. The Group Head-Health, Safety, Environment & Sustainability is invited to attend these meetings. GRMC discusses key events impacting the risk profile, relevant risks and uncertainties, emerging risks and progress against planned actions.

Since it is critical to the delivery of the Group’s strategic objectives, risk management is embedded in business-critical activities, functions and processes. The risk management framework helps the Company by aligning operating controls with the Group’s objectives. It is designed to manage rather than eliminate therisk of failure to achieve business objectives and provides reasonable and not absolute assurance against material misstatement or loss. Materiality and risk tolerance are key considerations in our decisionmaking. The responsibility for identifying and managing risks lies with every manager and business leader.

Additionally, other key risk governance and oversight committees in the Group comprise the following:

Committee of Directors (COD) which comprises the Vice Chairman and Group CFO and supports the Board by considering, reviewing and approving all borrowing and investment-related proposals within the overall limits approved by the Board. The invitees to these committee meetings are the CEO, business CFOs, Group Head Treasury and BU Treasury Heads, depending upon the agenda matters

The Sustainability Committee reviews sustainability related risks

Additionally, there are various Group level Management Committees (ManComs) such as Procurement ManCom, Sustainability - HSE ManCom, CSR ManCom, and so on which work on identifying risks in those specific areas and mitigating them.

Each business has developed its own risk matrix, which is reviewed by its respective management committee/executive committee, chaired by its CEO. In addition, each business has developed its own risk register depending on the size of its operations and number of SBUs/ locations. Risks across these risk registers are aggregated and evaluated and the Group’s principal risks are identified, and a response mechanism is formulated.

This element is an important component of the overall internal control process from which the Board obtains assurance. The scope of work, authority and resources of the Management Assurance Services (MAS) are regularly reviewed by the Audit Committee. The responsibilities of MAS include recommending improvements in the control environment and reviewing compliance with our philosophy, policies and procedures. The planning of internal audits is approached from a risk perspective. In preparing the internal audit plan, reference is made to the risk matrix, and inputs are sought from senior management, business teams and members of the Audit Committee. In addition, we refer to past audit experience, financial analysis and the prevailing economic and business environment.

Despite COVID-induced disruptions Vedanta’s BUs dealt with its impact extremely well, resulting in an effective response. This was made possible owing to the following:

Our safety-first culture that prioritised people’s health and well-being
Our collaboration with communities, governments, and health experts ensure that leading practices are followed
Focusing on what is critical to operations and communities, while continuing to build longer-term resilience
Consistent response to the pandemic across the Group
Establishment of COVID-19 taskforces under seasoned leaders
Investments in new processes, procedures, protocols, healthtesting equipment and support for workforce

As a result, our facilities remained largely operational during the pandemic, despite challenges. Rather, the disruption created an opportunity for us to identify and work on certain transformational aspects for the future. We continue to remain committed to achieving our objectives of zero harm, zero wastage and zero discharge, thus creating sustainable stakeholder value.

The order in which the risks appear in the next section does not necessarily reflect the likelihood of their occurrence or the relative magnitude of their impact on Vedanta’s businesses. The risk direction of each risk has been reviewed based on events, economic conditions, changes in business environment and regulatory changes during the year.

While Vedanta’s risk management framework is designed to help the organisation meet its objectives, there is no guarantee that the Group’s risk-management activities will mitigate or prevent these or other risks from occurring.

The Board, with the assistance of the management, conducts periodic and robust assessments of principal risks and uncertainties of the Group, and tests the financial plans for each risk and uncertainty mentioned below.

SUSTAINABILITY RISKS

Health, safety and environment (HSE)

Impact	Mitigation	Direction
The resources sector is subject to extensive health, safety and environmental laws, regulations and standards. Evolving requirements and stakeholder expectations could result in increased cost or litigation or threaten the viability of operations in extreme cases. Emissions and climate change: Our global presence exposes us to a number of jurisdictions in which regulations or laws have been, or are being, considered to limit or reduce emissions. The likely effect of these changes could be increase in the cost for fossil fuels, levies for emissions in excess of certain permitted levels, and increase in administrative costs for monitoring and reporting. Increasing regulation of greenhouse gas (GHG) emissions, including the progressive introduction of carbon emissions trading mechanisms and tighter emission reduction targets, is likely to raise costs and reduce demand growth.	HSE is a high priority area for Vedanta. Compliance with international and local regulations and standards, protecting our people, communities and the environment from harm and our operations from business interruptions are key focus areas Policies and standards are in place to mitigate and minimise any HSE-related occurrences. Safety standards issued / continue to be issued to reduce risk level in high-risk areas. Structured monitoring and a review mechanism and system of positive compliance reporting are in place BU leadership continues to emphasise on three focus areas: visible felt leadership, safety critical tasks and managing business partners The process to improve learning from incidents is currently being improved with the aim of reducing re-occurrence of similar incidents A Vedanta Critical Risk Management programme will be launched to identify critical risk controls and to measure, monitor and report the control effectiveness The Company has implemented a set of standards to align its sustainability framework with international practice. A structured sustainability assurance programme continues to operate in the business divisions covering environment, health, safety, community relations and human rights aspects, and is designed to embed our commitment at the operational level All businesses have appropriate policies in place for occupational health-related matters, supported by structured processes, controls and technology To provide incentives for safe behaviour and effective risk management, safety KPIs have been built into performance management of all employees The carbon forum has been re-constituted with updated terms of reference and representation from all businesses. It has a mandate to develop and recommend to the ExCo and Board the carbon agenda for the Group Enhanced focus on renewable power obligations The Group Companies are actively working on reducing the GHG Emissions Intensity of our operations A task force is formulated to assess end-to-end operational requirement for FGD plant. We continue to engage with various stakeholders on the matter

Managing relationship with stakeholders

Impact	Mitigation	Direction
The continued success of our existing operations and future projects are in part dependent on the broad support and a healthy relationship with our respective local communities. Failure to identify and manage local concerns and expectations can have a negative impact on relations and therefore affect the organisation’s reputation and social licence to operate and grow.	CSR approach to community programmes is governed by the following key considerations: the needs of the local people and the development plan in line with the new Companies Act in India; CSR guidelines; CSR National Voluntary Guidelines of the Ministry of Corporate Affairs, Government of India; and the UN’s Sustainable Development Goals Our BU teams are proactively engaging with communities and stakeholders through a proper and structured engagement plan, with the objective of working with them as partners Business Executive Committees (Excos) factor in these inputs, and then decide upon focus areas of CSR and budgets while also aligning with strategic business priorities All BUs follow well-laid processes for recording and resolving all community grievances Every business has a dedicated Community Development Manager, who is a part of the BU Exco. They are supported by dedicated teams of community professionals Our business leadership teams have periodic engagements with the local communities to build relations based on trust and mutual benefit. Our businesses seek to identify and minimise any potentially negative operational impacts and risks through responsible behaviour - acting transparently and ethically, promoting dialogue and complying with commitments to stakeholders Stakeholder engagement is driven basis stakeholder engagement plan at each BU by CSR and cross-functional teams. Regular social and environment risk assessment discussions are happening at the BU level Strategic CSR communication is being worked upon for visibility. Efforts continue to meet with key stakeholders, showcase our state-of-the-art technology, increase organic followers and enhance engagement through social media CSR communication and engagement with all stakeholders – within and outside communities

Tailings dam stability

Impact	Mitigation	Direction
This signifies release of waste material leading to loss of life, injuries, environmental damage, reputational damage, financial costs and production impacts. A tailings dam failure is considered to be a catastrophic risk – i.e. a very high severity but very low frequency event that must be given the highest priority	The Risk Management Committee included tailings dams on the Group Risk Register with a requirement for annual internal review and three-yearly external review Operation of tailings dams is executed by suitably experienced personnel within the businesses Third party has been engaged to review tailings dam operations, including improvement opportunities/remedial works required and the application of Operational Maintenance and Surveillance (OMS) manuals in all operations. This is an oversight role in addition to technical design and guidance arranged by respective business units. Technical guidelines are also being developed Vedanta Tailings Management Standard has been reviewed, augmented and reissued including an annual, independent review of every dam and half-yearly CEO sign-off that dams continue to be managed within design parameters and in accordance with the last surveillance audit. Move towards dry tailings facilities has commenced Those responsible for dam management received training from third party and will receive on-going support and coaching from international consultants Management standards implemented with business involvement BUs are expected to ensure ongoing management of all tailings facilities with Exco oversight with independent third-party assessment on Golder recommendations implementation status y-o-y Digitalisation of tailings monitoring facilities is being carried out at the BUs Tailing management standard is updated to include latest best practices in tailing management. UNEP/ICMM Global Tailings Standard has been incorporated into Vedanta Standard during FY2021

OPERATIONAL RISKS

Challenges in Aluminium and Power business

Impact	Mitigation	Direction
Our projects have been completed and may be subject to a number of challenges during operationalisation phase. These may also include challenges around sourcing raw materials and infrastructure-related aspects and concerns around Ash utilisation / evacuation	Improved LME and improved aluminium demand has led to recovery from the fall which happened last year Alumina refinery expansion from 2 to 5 mtpa being pursued Continue to pursue new coal linkages to ensure coal security Inbound and outbound supply chain across rail, road and ocean including manpower are functioning well, with no major risks foreseen Local sourcing of bauxite and alumina from Odisha Jharsuguda facilities have ramped up satisfactorily Project teams in place for Ash pond, Red mud, railway infrastructure and FGD Dedicated teams working towards addressing the issue of new emission norms for power plants Global technical experts have been inducted to strengthen operational excellence Continuous focus on plant operating efficiency improvement programme to achieve design parameters, manpower rationalisation, logistics and cost reduction initiatives Continuous augmentation of power security and infrastructure Strong management team continues to work towards sustainable low-cost of production, operational excellence and securing key raw material linkages Talwandi Saboo (TSPL) power plant matters are being addressed structurally by a competent team

Discovery risk

Impact	Mitigation	Direction
Increased production rates from our growth-oriented operations place demand on exploration and prospecting initiatives to replace reserves and resources at a pace faster than depletion. A failure in our ability to discover new reserves, enhance existing reserves or develop new operations in sufficient quantities to maintain or grow the current level of our reserves could negatively affect our prospects. There are numerous uncertainties inherent in estimating ore and Oil & Gas reserves, and geological, technical, and economic assumptions that are valid at the time of estimation. These may change significantly when new information becomes available.	Dedicated exploration cell with continuous focus on enhancing exploration capabilities Appropriate organisation and adequate financial allocation in place for exploration Strategic priority is to add to our R&R by extending resources at a faster rate than we deplete them, through continuous focus on drilling and exploration programme. Exploration Executive Committee (Exco) has been established to develop and implement strategy and review projects Group-wide Continue to make applications for new exploration tenements in countries in which we operate under their respective legislative regimes Exploration-related systems being strengthened, and standardised Group-wide and new technologies being utilised wherever appropriate International technical experts and agencies are working closely with our exploration teams to enhance our capabilities

Breaches in IT / cybersecurity

Impact	Mitigation	Direction
Like many global organisations, our reliance on computers and network technology is increasing. These systems could be subject to security breaches resulting in theft, disclosure, or corruption of key/strategic information. Security breaches could also result in misappropriation of funds or disruptions to our business operations. A cybersecurity breach could have an impact on business operations.	Group-level focus on formulating necessary frameworks, policies, and procedures in line with best practices and international standards Implementation and adoption of various best-in-class tools and technologies for information security to create a robust security posture Special focus to strengthen the security landscape of plant technical systems (PTS) through various initiatives Adoption of various international standards relating to Information Security, Disaster Recovery & Business Continuity Management, IT Risk Management and setting up internal IT processes and practices in line with these standards Work towards ensuring strict adherence to the IT related SOPs so as to improve operating effectiveness and continuous focus on employees to go through mandatory cybersecurity awareness training Periodic assessment of entire IT system landscapes and governance framework from vulnerability and penetration perspective in association with reputed expert agencies and addressing the identified observations in a time-bound manner

Loss of assets or profit due to natural calamities

Impact	Mitigation	Direction
Our operations may be subject to a number of circumstances not wholly within the Group’s control. These include damage to or breakdown of equipment or infrastructure, unexpected geological variations or technical issues, extreme weather conditions and natural disasters – any of which could adversely affect production and/or costs.	Vedanta has taken appropriate Group insurance cover to mitigate this risk and Insurance Council is in place that monitors adequacy of coverage and status of claims An external agency reviews the risk portfolio and adequacy of this cover and assists us in our insurance portfolio Our underwriters are reputed institutions and have capacity to underwrite our risk Established mechanism of periodic insurance review in place at all entities. However, any occurrence not fully covered by insurance could have an adverse effect on the Group’s business Continuous monitoring and periodic review of security function We continue to focus on capability building within the Group

Cairn related challenges

Impact	Mitigation	Direction
Cairn India has 70% participating interest in Rajasthan Block. The production sharing contract (PSC) of Rajasthan Block runs till 2020. The Government of India has granted its approval for ten-year extension at less favourable terms, pursuant to its policy for extension of Pre-NELP Exploration Blocks, subject to certain conditions. Ramp up of production vs envisaged may have impact on profitability.	RJ PSC 2020 extension was issued by the Directorate General of Hydrocarbons (DGH) subject to certain conditions. Ongoing dialogue and communication with the government and relevant stakeholders to address the conditions The applicability of the Pre-NELP Extension Policy to the RJ Block is currently sub judice Discussions within teams as well as with partners have been initiated with an objective to optimise cost across all spheres of operations Constant engagement with vendors / partners to ensure minimal project delay based on the current situation and plan to ramp-up The growth projects are being implemented through an integrated contracting approach. Contracts have built-in mechanism for risk and reward. Rigorous project reviews with execution partners / contractors to deliver volumes and returns Project management committee and project operating committee have been set to provide support to the outsourcing partner and address issues on time to enable better quality control as well as timely execution for growth projects

COMPLIANCE RISKS

Regulatory and legal risk

Impact	Mitigation	Direction
We have operations in many countries around the globe. These may be impacted because of legal and regulatory changes in the countries in which we operate resulting in higher operating costs, and restrictions such as the imposition or increase in royalties or taxation rates, export duty, impacts on mining rights/bans, and change in legislation.	The Group and its business divisions monitor regulatory developments on an ongoing basis Business-level teams identify and meet regulatory obligations and respond to emerging requirements Focus has been to communicate our responsible mining credentials through representations to government and industry associations Continue to demonstrate the Group’s commitment to sustainability by proactive environmental, safety and CSR practices. Ongoing engagement with local community/media/NGOs SOx-complaint subsidiaries Common compliance monitoring system being implemented in Group companies. Legal requirements and a responsible person for compliance have been mapped in the system Legal counsels within the Group continue to work on strengthening the compliance and governance framework and the resolution of legal disputes Competent in-house legal organisation is in place at all the businesses and the legal teams have been strengthened with induction of senior legal professionals across all Group companies Standard operating procedures (SOPs) have been implemented across our businesses for compliance monitoring Greater focus for timely closure of key non-compliances Contract management framework has been strengthened with the issue of boiler plate clauses across the Group which will form part of all contracts. All key contract types have also been standardised Framework for monitoring performance against anti-bribery and corruption guidelines is also in place

Tax related matters

Impact	Mitigation	Direction
Our businesses are in a tax regime and changes in any tax structure or any tax-related litigation may impact our profitability.	Tax Council reviews all key tax litigations and provides advice to the Group Continue to engage with authorities concerned on tax matters Robust organisation in place at business and Group-level to handle tax-related matters Continue to consult and obtain opinion from reputable tax consulting firms on major tax matters to mitigate the tax risks to the Group and its subsidiaries.

FINANCIAL RISKS

Fluctuation in commodity prices (including oil) and currency exchange rates

Impact	Mitigation	Direction
Prices and demand for the Group’s products may remain volatile/ uncertain and could be influenced by global economic conditions, natural disasters, weather, pandemics, such as the COVID-19 outbreak, political instability, and so on. Volatility in commodity prices and demand may adversely affect our earnings, cash flow and reserves. Our assets, earnings and cash flows are influenced by a variety of currencies due to our multi-geographic operations. Fluctuations in exchange rates of those currencies may have an impact on our financials.	The Group’s well-diversified portfolio acts as a hedge against fluctuations in commodities and delivers cashflows through the cycle Pursue low-cost production, allowing profitable supply throughout the commodity price cycle Vedanta considers exposure to commodity price fluctuations to be integral to the Group’s business and its usual policy is to sell its products at prevailing market prices; and not to enter into price hedging arrangements other than for businesses of custom smelting and purchased alumina, where back-to-back hedging is used to mitigate pricing risks. Strategic hedge, if any, is taken after appropriate deliberations and due approval from ExCo Our forex policy prohibits forex speculation Robust controls in forex management to hedge currency risk liabilities on a back-to-back basis Finance Standing Committee reviews all forex and commodity-related risks and suggests necessary courses of action as needed by business divisions We seek to mitigate the impact of short-term currency movements on the businesses by hedging short-term exposures progressively, based on their maturity. However, large, or prolonged movements in exchange rates may have a material adverse effect on the Group’s businesses, operating results, financial condition and/or prospects Notes to the financial statements in the Annual Report provide details of the accounting policy followed in calculating the impact of currency translation

Major project delivery

Impact	Mitigation	Direction
Shortfall in achievement of expansion projects’ stated objectives leading to challenges in achieving stated business milestones – existing and new growth projects.	Empowered organisation structure has been put in place to drive growth projects. Project management systems have been streamlined to ensure full accountability and value stream mapping Strong focus on safety aspects in the project Geo-technical audits are being conducted by independent agencies Engaged global engineering partner to do complete Life of Mine Planning and Capital Efficiency analysis to ensure that the project objectives are in sync with the BP and growth targets Standard specifications and SOPs have been developed for all operations to avoid variability. Reputed contractors are engaged to ensure the completion of the project on indicated timelines Mines are being developed using best-in-class technology and equipment and ensuring the highest level of productivity and safety. Digitalisation and analytics help improve productivity and recovery Stage gate process to review risks and remedy at multiple stages on the way Notes to the financial statements in the Annual Report provide details of the accounting policy followed in calculating the impact of currency translation Robust quality control procedures have also been implemented to check safety and quality of services / design / actual physical work Use of reputed international agency for Geotech modelling and technical support, wherever required

Access to capital

Impact	Mitigation	Direction
The Group may not be able to meet its payment obligations when due or may be unable to borrow funds in the market at an acceptable price to fund actual or proposed commitments. A sustained adverse economic downturn and/or suspension of its operation in any business, affecting revenue and free cash flow generation, may cause stress on the Company’s ability to raise financing at competitive terms.	A focused team continues to work on proactive refinancing initiatives with an objective to contain cost and extend tenor The team is actively building the pipeline for long term funds for near to medium term requirements both for refinancing and growth capex Track record of good relations with banks, and of raising borrowings in last few years Regular discussions with rating agencies to build confidence in operating performance Business teams ensure continued compliance with the Group’s treasury policies that govern our financial risk management practices CRISIL and India Ratings have revised outlook to ‘Stable’ from ‘Negative’ while affirming the respective ratings

Managing and mitigating risks in a volatile business scenario

Managing and mitigating risks
in a volatile business scenario