Managing Risks and Opportunities

The Nisshinbo Group has established a risk management system, shown in the diagram below, to appropriately address business risks and minimize any losses associated with those risks. Additionally, in order to turn business risks into opportunities that support sustained growth, the Nisshinbo Group routinely works to identify and analyze any changes in the operating environment, aiming to create new growth opportunities by contributing to society as an Environment and Energy Company group – a business strategy that aligns with the Group’s Corporate Philosophy.

Climate Change

Risks

  • Impact on supply chains from major natural disasters caused by extreme weather
  • CO2 emission costs due to introduction of carbon tax
  • Costs to reduce CO2 emissions
  • Costs to respond to tighter rules on SOx/NOx emissions worldwide
  • Impact on business activities from tighter rules on greenhouse gas emissions

Response (Risks)

  • Develop business continuity plan (BCP) based on assumption of major natural disasters, conduct training to improve Group’s response to risk of business disruption
  • Take steps to reduce CO2 emissions
  • Introduce SOx/NOx removal equipment
  • Increase sales ratio for “products that contribute to the creation of a sustainable society” to 70% by 2030

Opportunities

  • Greater demand for fuel cell vehicles as hydrogen society gains momentum
  • Growth in number of new ships built amid rising demand for biomass fuel transportation
  • Expansion in businesses providing disaster prevention/mitigation solutions to address rising wind and flood damage

Response (Oppotunities)

  • Improve technological capabilities for developing fuel cell parts and materials
  • Increase production capacity for marine wireless communication equipment to address rising demand for new biomass fuel transportation vessels
  • Sell water/river management systems, weather radars and other disaster prevention/mitigation solutions developed in Japan to customers overseas

Geopolitical Risk

Risks

  • Impact on operations from geopolitical developments

Response (Risks)

  • Consider country risks, etc., when determining appropriate investment levels for each country/region

Fluctuations in Product Markets, Exchange Rates and Raw Material Prices

Risks

  • Changes in supply-demand balance in product markets due to fluctuations in economy
  • Impact on earnings from significant volatility in raw material prices
  • Impact on earnings from fluctuations in exchange rates
  • Impact from changes in rules or regulatory frameworks governing products and services in each market

Response (Risks)

  • Use diversified business strategy to mitigate impact on earnings from sudden changes in operating environment
  • Build reliable relationships with multiple suppliers
  • Use forward exchange contracts, etc., to minimize exchange rate risk
  • Gather risk information from business sites in each country/region and feed back to management

Communicable Diseases

Risks

  • Impact on earnings from pandemics of previously unknown diseases such as COVID-19

Opportunities

  • Create new value by contributing to society through medical-related businesses

Response (Risks/Oppotunities)

  • Provide appropriate support to management by forming emergency response teams and aggregating and communicating information

Group Management

Risks

  • Management issues due to greater business diversity
  • Large number of duplicate functions among Group businesses

Opportunities

  • Harness Group’s diverse strengths by integrating businesses/organizations to drive innovation and increase resilience to changes in operating environment

Response (Risks/Oppotunities)

  • Reform business portfolio to align with changes in issues faced by society, improve cash flow
  • Improve efficiency by overhauling Groupwide organizations and using outsourcing
  • Maintain Group integration by consolidating oversight of Group company management at HD and establishing financial discipline

M&A/Major Investments

Risks

  • Mistakes with M&A deals and major investment plans

Opportunities

  • Use new business resources to capture opportunities that support sustained growth

Response (Risks/Oppotunities)

  • Form project teams for each M&A deal to strengthen PMI activities; Board of Directors to verify investment effectiveness while building up internal expertise
  • Separate capex budget approval and implementation approval functions, hedge risks by adjusting capex in response to changes in operating environment

Human Resources

Risks

  • Difficulties hiring and retaining talented people

Opportunities

  • Overlap between Corporate Philosophy and growing interest in ESG among younger people, leading to more hiring opportunities

Response (Risks/Oppotunities)

  • Use RPA, IoT and other tools to increase automation and realize labor savings
  • Implement strategic PR activities to improve corporate visibility and image
  • Provide human resources and financial support to joint research projects with academia
  • Use targeted local recruitment activities

Rapid Technological Innovation

Risks

  • Dramatic changes in existing markets due to technological innovation
  • Decrease in competitiveness due to delays in technology development and product development plans

Response (Risks)

  • Management decides to continue/cancel R&D projects based on regular assessments

Opportunities

  • Opportunities to develop groundbreaking technologies and tap into growth by combining resources from diverse businesses

Response (Oppotunities)

  • Form teams by flexibly assigning personnel from various Group businesses
  • In April 2020, the Digital Business Department was established at HD to promote the development of advanced technologies.
  • Alliances with other companies and start-ups

Human Rights Issues

Risks

  • Widespread sexual and power harassment that undermines the working environment

Response (Risks)

  • Establish human rights team at HD to maintain and raise awareness across the Group

Business Management

Risks

  • Increasing complacency in governance

Opportunities

  • Take risks based on balance between proactive and defensive governance

Response (Risks/Oppotunities)

  • Building on pioneering steps such as introduction of outside director system in 2006, adoption of HD system in 2009 and termination of advisor/consultant system in 2017, establish advanced governance system that balances management transparency with bold risk-taking

Quality Issues

Risks

  • Loss of trust, claims for damages or product recalls due to quality issues or defects with products or services

Response (Risks)

  • Use risk management system to minimize risk probability and potential impact
  • Establish quality assurance team at HD to oversee quality assurance and product safety activities at Group companies

Information Security

Risks

  • Unauthorized disclosure of personal information, customer information or trade secrets
  • Information leaks or data corruption caused by computer viruses

Response (Risks)

  • Continuous training and annual internal audits to assess information security
  • Use risk management system to minimize risk probability and potential impact

Compliance

Risks

  • Loss of trust and damage to corporate value caused by legal violations such as corruption or anti-competitive practices, or by corporate behavior that diverges from social norms

Response (Risks)

  • Messaging from president of HD to underscore importance of fair business practices
  • Continuous implementation of compliance training
  • Severe penalties for misconduct
  • Appoint outside directors with legal background

Fraud/Illegal conduct

Risks

  • Financial window-dressing, accounting irregularities, etc.

Response (Risks)

  • Use internal control system and corporate ethics reporting system to prevent misconduct
  • Regular rotation to prevent misconduct

Workplace Accidents

Risks

  • Impact on business of failure to ensure employee health and safety worldwide

Response (Risks)

  • HD and Group companies work together to roll out high-level health and safety approaches from Japan to sites worldwide

Business Reputation

Risks

  • Impact on business from misreporting in media, spread of rumors or online rumors
  • Labelled as target for divestment by investors

Response (Risks)

  • Routinely monitor situation as part of risk management
  • Continuously share information with major ESG investors and ESG index research firms to identify trends

Cross-shareholdings/Idle Real Estate

Risks

  • Fluctuations in market value

Response (Risks)

  • Steadily reduce exposure to cross-shareholdings in line with Corporate Governance Policy
  • Increase value by redeveloping real estate