Proactively Managing Risk
A culture committed to our Core Values of integrity, trust, respect and open and transparent communication is the foundation of effective risk management. Our Board of Directors play a key role in risk management by providing active oversight of management. The Board committees oversee corporate governance, risk management, regulatory compliance, financial and compensation risks, and ESG matters.
We utilize the "three lines of defense" model for risk management which integrates the identification, evaluation, mitigation and monitoring of risk throughout our business.
As the first line of defense, operational managers own and manage risks. Operational management identifies, assesses, controls, and mitigates risks, guiding the development and implementation of internal policies and procedures and ensuring that activities are consistent with goals and objectives.
The second line of defense — our Risk and Compliance functions — monitor various specific risks such as health, safety, environmental and regulatory (HSER) matters, supplier quality and internal controls over financial reporting. Company management has established these Risk and Compliance functions to ensure the first line of defense is properly designed, in place, and operating as intended. The Risk and Compliance functions work directly with operational management to modify and develop internal control and risk systems.
The third line of defense is Internal Audit, an independent and objective assurance group that reports directly to the Board's Audit Committee. Internal Audit conducts an annual independent risk assessment which is used to develop an audit program focused on the company's highest risk areas. Internal Audit conducts individual audits to achieve a broad range of objectives, including providing assurance on the effectiveness of governance, risk management, and internal controls, the efficiency and effectiveness of operations, and compliance with regulations, policies, procedures and contracts. To support transparency and good governance practices, material audit findings and any overdue unremediated findings are reported quarterly to the Audit Committee.
Internal Audit and our Risk and Compliance functions jointly manage our Enterprise Risk Management (ERM) program. Through ERM, internal risk committees comprised of senior management and subject matter experts across the company review and assess the company's risks.
Risk Mitigation Approach
Operational and senior management evaluate numerous risks as part of strategic planning and day to day operations of the company. Management oversees the development and execution of specific plans to identify and mitigate risk.
Our business continuity and disaster recovery process is an example of the implementation of enterprise-level risk mitigation processes and controls. Through this process, a cross-functional task force assesses business impacts of certain risks and develops enterprise response and recovery plans to reduce potential associated impacts.
Analyzing Climate-Related Risk
In December 2018, Chesapeake released a Climate-Related Risk Analysis, studying the company's projected performance in a lower-carbon future and highlighting the company's actions to manage and reduce emissions that could impact climate change. In studying our climate-related risks, we also presented our risk mitigation plans and concluded that our current operating processes — including short duration cycles, technological efficiencies, operational flexibility and cash cost leadership — will allow for continued efficient investment returns in the event of a drop in fossil fuel demand.
In any scenario, our commitment remains the same — to be constantly improving stewards of our assets and the environment. We will reinforce this commitment by updating our Climate-Related Risk Analysis by EOY 2020.
We believe our global energy future will include a number of forms of energy, and even with these additional energy sources, the vast majority of our most important energy and product needs will continue to be met by oil and natural gas.