Risk Management

Basic Concept

The Nisshinbo Group's basic concept to risk management is clearly stated as action guidelines in the "Risk Management Regulations."

Action Guidelines for Risk Management

The Nisshinbo Group aims to fulfill its social responsibility, secure trust, and achieve lasting development by accurately addressing management risks that may have a significant impact on the smooth operation of its business. All officers and employees shall recognize the importance of risk management, set risk management targets, and strive to implement and improve them, while complying with the following items.

① Comply with laws, regulations, and rules, and conduct business activities in accordance with socially accepted norms.
② Protect the health, lives, and safety of its Group's officers, employees, and related parties.
③ Protect the activities and assets of its Group's stakeholders, shareholders, and customers.
④ Enhance the reputation of the Group in society by accurately responding to fair and reasonable social demands.

While the main objective of its risk management regulations is to minimize losses in the event of management risk, the Group will also consider it important to view management risk as an opportunity for sustainable growth. To this end, the Nisshinbo Group will create new growth opportunities by understanding and analyzing various changes in the business environment and contributing to society as an Environment and Energy Company group based on business policies derived from the Group's corporate philosophy.

Promotion System

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.

The President and the Director of Nisshinbo Holdings Inc. is the chief risk management officer, and the Chief Exective officer appoints a general manager from among the Managing officer of the Company. The general manager is usually the Director and the Chief of the Corporate Strategy Center of the Company. The Risk Management Secretariat is located in the Corporate Governance Department of Corporate Strategy Center.

The Risk Management Committee, consisting of the chief executive officer, the general manager, and members that include the presidents of each core company, meets annually in January. The committee reports on the previous year's review and deliberates on the formulation of plans for the new fiscal year (priority management risks for each business, etc.). Risk management activities are also defined as a key action items in the 5th Sustainability Promotion Plan, with the qualitative target of "operating a risk management system that responds to the external environment."

Risk Management Structure

Taking into account the economic impact of identified risks, the Nisshinbo Group strives to respond by category to any of the four types of risk that can be avoided, mitigated, transferred, and held.

Risk Analysis Steps

Risks that cannot be mitigated or transferred because the risk to return is too high will be avoided. For risks that can be alleviated, management risks will be identified and mitigated by establishing a management system as described below. For transferable risks, the Nisshinbo Group has insurance coverage against economic losses due to various types of disasters and liabilities unavoidably incurred in the course of business operations. The Group strives to reduce transferable costs by structuring a global insurance program.

Risks that can be owned or overcome and that can be absorbed by its own financing are retained as it is. On the other hand, risks that can be overcome by utilizing the Group's own technology, human resources, and other resources can be viewed as business opportunities. By providing a business model that includes products, services, and networks, the Nisshinbo Group will contribute to the realization of a sustainable society and enhance its corporate value, leading to sustainable growth.

Risk Mitigation Mechanism through Risk Management

For risks that can be mitigated, the Nisshinbo Group is working to reduce risks by implementing a one-year PDCA cycle. Specific procedures are managed based on the Group’s "Risk Management Regulations." Every fiscal year, management risks are identified for each business. Each risk is rated on a five-point scale, with the higher score given to the risk with the highest impact and probability of occurrence, and the management risks that exceed a certain level are identified by multiplying the impact and probability of occurrence.

Each business reports the identified management risks to the Risk Management Secretariat. The Risk Management Office confirms the reported management risks with the person in charge of risk management in each business and adjusts the management risk items as necessary, taking into account the risk trends and leveling of the entire Nisshinbo Group. The adjusted management risks are approved by the person in charge of each business (the president of the core company) to determine the management risks to be given special attention in the new fiscal year.

The secretariat reports the management risks approved by each business to the Risk Management Committee in January, and risk management activities for the new fiscal year begin. Each business will report its risk management activities as one of the reporting items in the monthly report. The secretariat supports the activities of each business by monitoring the reports and interviewing them on the updated progress and other matters as necessary. At the end of the fiscal year, each business reviews the activities for the year, evaluates whether the significance of impacts and probability of occurrence have decreased, and coordinates the evaluation results with the secretariat. By repeating this process every year, the Group will reduce risks.

In the "Fifth Sustainability Promotion Plan," the promotion of risk management activities is also a key action items, and "operating a risk management system that responds to the external environment" is a target to be monitored.

Major Risks and Opportunities

The followings are the major risks and opportunities that management perceives as having the potential to seriously affect the consolidated company's financial position, operating results, and cash flows, among other matters related to business conditions and accounting conditions.

Specific Initiatives of The Nisshinbo Group

Routine Risk Reduction Activities

The following are specific examples of the information in the report to the Risk Management Committee in January 2024, looking back to 2023, particularly those that have changed in the evaluation results.

・Prevention of COVID-19 and other infectious diseases
The global pandemic has subsided, and in Japan, the classification of infectious diseases was moved from Category 2 to Category 5 in May 2023, and the number of reported cases within the Group has subsided. As a result, both the probability of occurrence and the impact on the business have decreased for this risk. After May 2023, Nisshinbo Group will maintain a system whereby the Risk Management Office will be notified whenever there is an outbreak of severe cases or group infections in the workplace.
・Supply chain (procurement risk)
Geopolitical risks associated with pandemics and conflicts, challenges in sustainable procurement, semiconductor shortages, and other supply chain procurement risks were not as disruptive as they had been for a period of time, but they remained unstable, and the probability of risk occurrence and impact on business increased in some businesses. Nisshinbo　Group is continuing its efforts to fulfill all supply chain responsibilities by securing substitute products and maintaining a certain level of inventory while monitoring cash flow and capital efficiency.
・Environmental response (materials business)
In terms of compliance with regulations on chemical substances, the use of a database that enables confirmation of relevant laws and regulations in each country has enabled early checking of revisions to laws and regulations and advance countermeasures, thereby reducing the probability of occurrence of noncompliance with regulations. Regulations on chemical substances and other substances are becoming increasingly stringent, and Nisshinbo Group will continue to monitor the laws and regulations of each country.

Identification of Emerging Risks

Whenever an event that may affect the business occurs, the president, chief of the Corporate Strategy Center, senior manager of Finance, Accounting Department, senior manager of Human Resources and Administration Service Department, general manager of Legal Affairs Group, general manager of the Corporate Communication Group, and senior manager of the Corporate Governance Department receive reports by sending the information at the same email address.

In the risk management regulations, Nisshinbo Group established standards by listing specific examples of risks that should be reported. By identifying and sharing risks as soon as they become apparent, Nisshinbo Group is prepared to implement the necessary countermeasures before they have a significant impact on business. In FY2023, there were 41 reported risks, but fortunately the majority of events were at a level that could be handled by each company and did not have a significant impact on business continuity.

Nisshinbo Group will continue to ensure that the Group is well informed of this so that it can be used effectively as a tool to inform the first responders of risks that have emerged.