To respond appropriately to various risks surrounding the Group and to operate its business stably by minimizing damages, the Group strives to improve risk sensitivity. In fiscal 2024, the Group built a more highly effective and reliable risk management system on the basis of ISO 31000 and is conducting risk reduction activities at all Group business sites globally.
The Group’s risk management activities are mitigation activities to prevent risks from occurring and aim to “Improve corporate value by minimizing damage when risks emerge.” To ensure that these goals are achieved, we are conducting activities under the following three basic policies:
While critical risks inherent to each field of business are identified by individual business divisions, each corporate department identifies and evaluates serious, high priority risks which share a high degree of commonality across the Group and which are expected to have a severe impact on the Group’s business management.
The identification and evaluation of each critical risk and the progress of action plans are discussed and monitored by the SCQ Promotion Office and the Strategic Management Committee. The CGO (Chief Governance Officer) is responsible for the implementation of these meetings, run independently of the Audit Committee. In addition, the Board of Directors verifies and reviews the effectiveness of the process and comprehensively supervises risk management, including ESG risks.
With regard to training, we are striving to boost our risk sensitivity by holding internal training sessions that feature an outline of risk management and guidance on how to proceed with the activities in detail.
The Group divides risks into the following categories and implements comprehensive risk management:
Each CR is evaluated on a 5-level scale of impact/Likelihood based on quantitative/qualitative evaluation criteria standardized within the Group.
Furthermore, according to the risk level (A, B, C, D), the priority of Risk Treatment is determined.
The table below shows the main risks the management of the Group has recognized, based on this system, as having the potential to significantly impact the Group’s business results and financial situation.
Name of risk | Probability of occurrence | Impact |
---|---|---|
Geopolitical situation, international situation, overseas economic situation | High | Large |
Market Trends | Medium | Large |
Fluctuations in raw material and utility prices | High | Large |
Procured Goods | Medium | Large |
Climate change | High | Large |
Natural disasters and abnormal weather | Medium | Large |
Occurrence of pollution and environmental laws violations | Medium | Medium |
Infection | Medium | Medium |
Information Security | High | Medium |
Human rights | Medium | Medium |
Finance | Medium | Large |
The following are excerpts from the “Business and other risks” section.
The Group has production and sales bases in 31 countries and regions overseas, and considers the overseas business to be an important basis for the Group's business growth.
Due to the situation in Ukraine and accompanying economic sanctions imposed on Russia by other countries, military assistance to Ukraine, and bilateral relations between the United States, China, and other countries, the outlook for international relations remains uncertain. If geopolitical risks such as political instability, conflict between countries, unilateral invasion or political upheaval become apparent in the countries or regions in which the Group operates, the Group's business activities may be disrupted and its performance and financial position may be affected.
In addition to the above risks, risks associated with global business development such as economic conditions in each country or region, unexpected policies or regulations, or changes in business strategies or product development of business partners may be assumed, which may hinder the Group's business activities and affect its business results and financial position.
With regard to these risks, the Group will further thoroughly implement existing risk reduction workarounds, BCPs and other measures. The Group will also constantly monitor the situation and review our business strategies and overseas investments. The Group also responds appropriately to these changes by sharing information from our local offices and cooperating with each business. The Group collects information on individual country risks, such as legal regulations outside Japan, and share and disseminate information within the Group.
In particular, the metals business is at risk of being affected by events beyond the control of the Group, such as intervention in resource businesses by national and local governments in copper producing countries, fluctuations in the global supply and demand balance of copper concentrate, and deterioration in the quality of copper concentrate. As part of our efforts to create a sustainable raw materials portfolio, the Group will promote the diversification of countries and regions where the Group purchases copper concentrate and invest in superior mine projects. At the same time, the Group will stably secure raw materials by actively using recycled raw materials such as E-Scrap (waste substrates for various electronic equipment).
1) Raw materials prices
Procurement prices of non-ferrous metal raw materials, coal, etc. are affected by fluctuations in international commodity prices, exchange rates, ocean freight rates, etc. A rise in procurement prices due to a rise in raw material prices or other factors could affect the Group's business results and financial position. Large fluctuations in international commodity and exchange rates have occurred in the past, and it is assumed that they may occur once every few years.
For copper concentrate in the metals business, the Group will work to minimize the impact on raw material prices by double-tracking the raw material procurement route, securing stable suppliers, and investing in overseas mines. For non-ferrous metal raw materials such as tungsten raw materials in the Metalworking Solutions Business, the Group will expand the number of suppliers, and increase the ratio of recycled raw materials used.
2) Utility prices
The significant increase in the procurement costs of crude oil, coal and natural gas has also caused energy prices to soar, affecting the Group's business performance and financial position. Any further increase or increase in these prices may affect the Group's financial performance and condition. In light of the risk of rising energy prices, the Group will continue to reduce the amount of electricity the Group purchases by promoting the installation of energy-saving equipment and the installation of self-consumption solar power generation systems.
If policies and laws against climate change are strengthened, and carbon pricing systems (such as emission trading systems and carbon taxes) are introduced or strengthened, the incurrence of costs based on greenhouse gas (GHG) emissions may have an impact on the Group's business results and financial condition. In addition, with the transition to a decarbonized society, there are some areas in which the Company's conventional product market is expected to shrink. If the Company fails to respond to new areas of market expansion, the Group's business performance and financial position may be affected. With regard to climate change, there is a growing movement to become carbon neutral around the world, and with Japan declaring its commitment to carbon neutrality in 2050, the Group believes it is necessary to take prompt action to respond to the tightening of regulations that are expected in the near future.
For this reason, the Group is working to reduce GHG emissions from its business activities by reviewing its GHG reduction targets for fiscal 2030 and increasing the use of energy-saving equipment and renewable energy. In addition, to improve the market competitiveness of the Group products, the Group is promoting the development of technologies that reduce the environmental impact, such as improvement of manufacturing processes, development of environmentally friendly products, and CO2 capture, effective use, and storage (CCUS: Carbon Dioxide Capture, Utilization and Storage).
On the one hand, the Group expects that the demand for technologies, products, and services that contribute to energy saving and GHG emission reduction will expand due to the strengthening of climate change policies, and business opportunities will increase. The Group is developing materials, products and technologies that contribute to decarbonization, promoting the development and use of renewable energy such as geothermal power generation, promoting demonstration tests and technological development related to CO2 capture and use, and preserving the forests owned by the Group.
We are striving to strengthen our crisis management systems to facilitate prompt, accurate responsiveness to emergency situations, including natural disasters, accidents, terrorist attacks and pandemic events. Besides operating crisis management related rules that apply to the entire Group, we have formulated business continuity plans at all our consolidated subsidiaries in Japan and overseas. These plans are regularly updated to ensure their relevancy. In the event of a large-scale earthquake or pandemic, we have incorporated the identification of essential human and material resources to ensure the rapid recovery of critical operations. This includes stockpiling provisions, outlining plans for alternative supply of crucial products, and scheduling maintenance and repairs for vital facilities. The scenario assumptions are as follows:
Through these measures, even in the event of a crisis, we strive to swiftly recover and continue our operations to minimize the impact on our customers. Furthermore, we continuously receive up-to-date crisis management information and specialized advice from external consulting firms and others around the world. Our employees traveling abroad or stationed in various locations are equipped to make informed decisions in times of crisis and have access to safety assurance and medical services on-site. Additionally, we have established a framework that clearly outlines response structures, roles, responsibilities, and organized chronological response measures for various crisis situations, ensuring a robust capability to respond to crises effectively.
The Group implemented a crisis management system both in Japan and abroad in order to help quickly assess the safety of employees and the scope of damage at business sites in the event of a disaster or other crisis, and to share this throughout the Group.
This has made it possible to initiate a swift and appropriate initial response and has also allowed us to leverage the Group’s network to provide support, etc. from sites near disaster-afflicted areas.
The Group defines information security as one of the issues in management, and aims to conduct safe business by ensuring information management, including the handling of personal information.
The Group considers information security as one of its management issues, recognizes the personal information of customers and business partners to be one of the most important information assets, and strives to reduce the risk of information leakage, loss, and destruction.
In order to ensure compliance with the Group information security management policy, we have defined Group Information Security Management Regulations, Information Security Measure Standards, Confidential Information Management Regulations, and various implementation procedures that must be complied with.
Basic rules regarding the construction and operation of a management system for Group information security, for the goal of protecting the information assets owned or managed by the Group from theft, leakage, modification, or destruction, and minimizing corporate loss.
Standards defining information security countermeasures for electromagnetic information assets that the Group must follow.
Basic rules regarding the handling of personal information and basic indicators on management methods for maintaining the confidentiality of information assets in general.
In addition, “Information Security Panels” are set up to establish, adopt, operate, monitor, review, maintain and improve our information security policy, and information security managers are assigned to the Group and group companies to operate and monitor them.
Our information security activities involve enhancing and expanding our information infrastructure with an eye towards business continuity in the event of a large-scale disaster, strengthening our technical measures for information systems, and introducing and operating management systems. Technical efforts include enhancing our protective measures for preventing damage from attacks that leverage known vulnerabilities, as well as our risk reduction measures, which include enhancing defense in depth and the early detection of damage from new threats such as targeted attacks. In order to counter the rising threat of ransomware, we have introduced a system for forcibly applying updates and patches for vulnerabilities of the Group and all Group companies, including overseas companies.
On the management end, we strive to maintain and improve our level of security by implementing the PDCA cycle of performance evaluations and employee education on a continual basis.
As a measure of fiscal 2024, we will continue to promote the stable operation of and expand the monitored areas of the Security Operation Center (SOC), which completed the global expansion of monitored sites during fiscal 2023. In addition, we aim to establish the activities of the Computer Security Incident Response Team (CSIRT) while raising and unifying the level of security awareness through information security education and training.
Furthermore, in addition to complying with domestic personal information protection laws and the GDPR, we will comply with the personal information protection laws of relevant countries, while planning the implementation of new security measures in the OT field, where digitalization and the transition to smart factories are progressing, and a greater focus on supply chain risk management. As security threats continue to worsen, we will continue to comprehensively, efficiently, and appropriately investigate and implement a variety of technical countermeasures.
During the COVID-19 pandemic, the Group implemented various measures under a common group policy to prevent important business from stopping, which prioritizes preventing employee infections and stopping the spread of infections at business sites and in the local community.
In January 2020, the Group established a task force at the head office to direct a unified COVID-19 response across the Group. The task force formulated preventative measure guidelines and group action policies according to the status of the pandemic around the world and conducted monitoring to ensure that the Group can handle changes to the situation swiftly and appropriately by centralizing information on the health of employees, the situation of various countries and regions, etc. while sharing that information with top management.
In May 2023, COVID-19 was reclassified under Japan’s Infectious Disease Control Act as a Category 5 infectious disease, and the COVID-19 task force was disbanded as a result.
The Group implements various measures for ensuring the health of all employees and maintaining workplace safety in Japan and overseas, as well as preventing the spread of infection in the various regions where we conduct business.
In order to continue producing and supplying products and services that support society and important businesses of the Group such as the recycling business, thereby meeting the demands of our customers and society, the Group implemented various measures appropriate to the current status of the pandemic and requests from national and regional governments, based on business continuity plans for each of our business sites.
In May 2023, COVID-19 was reclassified under Japan’s Infectious Disease Control Act as a Category 5 infectious disease, but that does not mean that the risk of similar infections spreading has been completely eliminated. In addition to responding to the significant changes caused by COVID-19 in society, this business environment and business structure, the Group is taking the opportunity to implement various measures for increased competitiveness, such as further enhancing cooperation with markets and customers, migrating to new work styles such as teleworking, improving management speed via digital transformation, and rebuilding business models.