Sustainability

Risk Management

Risk Management

To achieve sustainable growth, it is necessary to establish and operate a risk management system to detect risks that may hinder the achievement of business objectives at an early stage and take prompt and appropriate measures against them when they materialize.
We ⑴ identify and evaluate the Group’s material risks, make a list of them, and ⑵ implement countermeasures against them. We examine and review the material risks and their countermeasures and report the status to the Internal Control Committee. ⑶ If the committee decides that improvements are necessary, it swiftly gives instructions for countermeasures.

1. Identification, evaluation, and formulation of countermeasures for Group-wide risks
2. Implementation of countermeasures
   
   1. Implementation of measures to prevent risks from occurring (occurrence of disasters, accidents, incidents, etc.)
   2. Formulation of emergency response procedures and implementation of drills, etc., to minimize damage when a risk actually occurs (occurrence of disasters, accidents, etc.)
   3. Promptly report to the management and the Board of Directors, etc., when a risk presents itself or may occur.
3. The Internal Control Committee checks whether the above ⑴ and ⑵ are properly implemented and gives instructions for improvement.

Major Risks

1　Risks Related to Management Decisions and Business Strategies

1. Market risks
   
   1. In the markets in which we develop our business, we predict that our product lines may continue to face a harsh pricing environment due to various reasons, such as entry into those markets by competitors from inside and outside Japan or inflows of cheap imported goods.
   2. In China, one of the major markets for super absorbent polymers, our Group’s competitive environment could intensify due to factors such as commoditization of super absorbent polymers resulting from quality improvements in locally manufactured products or other causes, and the lower number of babies being born.
2. Raw material procurement risks
   For some of the raw materials we purchase, we are reliant on specific suppliers. While we are endeavoring to reduce the risk of not being able to purchase major raw materials, such as by increasing the number of suppliers we use, the price at which we can buy in raw materials, fuels or other items is subject to rapid fluctuations in price due to changes in the supply-demand balance or market situations. If the price at which we buy in materials were to rocket, this could have an adverse effect on our business performance.
3. Exchange rate fluctuation risks
   
   1. We conduct production and sales activities globally and fluctuations in exchange exert an influence on our foreign-currency sales or procurement costs for raw materials. As a result, we strive to minimize such risks through measures such as exchange contracts.
   2. For our overseas consolidated subsidiaries, when we create our consolidated financial statements, the exchange rate at the point of conversion could impact the value in Japanese yen.
   3. In particular, fluctuations in exchange rates for the renminbi could impact our performance. For example, if the renminbi rate were to drop by 1%, our full-year net sales and operating income would fall by around 200 million yen.
4. Climate-related risk
   Problems connected to climate change will have a major effect on our business in the long term, and we believe working earnestly to tackle these issues will lead to our sustainable growth and improvements to our long-term corporate value.
   We are analyzing potential climate change scenarios, based on the framework laid out by the TCFD.

2　Risks Related to Disasters, Accidents, Compliance, Laws and Regulations, Quality, Etc.

1. Disaster and accident risks
   If a natural disaster, accident, or other factors cause harm to things or people in one of our plants or the vicinity, there is a risk that this could hinder our business activities, result in high costs, and have a major negative effect on our reputation.
2. Information security risks
   If a power outage, natural disaster, cyber-crimes such as attack by computer virus or hacking, damage our systems or networks, it may cause suspension or stagnation of business activities, information leakage, incur major costs, and have a negative effect on our reputation.
3. Legal or regulatory risks
   There is a chance that the countries in which we pursue business activities could, in the future, strengthen their laws and regulations toward environmental issues or chemical safety, and this could lead to new costs.
4. Personnel/labor risks
   Industrial accidents, the spread of infectious diseases or communicable diseases, have the potential to put a stop to our business execution, while worker human rights issues, mental health issues, or cases of harassment have the potential to worsen working environments. Any of these could lead to us being liable for damages.
5. Legal breach and compliance risks
   If an infringement of laws or regulations in Japan or overseas, or any other case of compliance breach were to occur, we would lose the trust of society and could have to pay damages or other financial penalty. This could have a negative effect on our business results and financial situation.
6. Product quality risks
   We follow very strict quality control standards, that are globally recognized, as we manufacture a range of products, but this is no guarantee that all of our products will be free from defects and that a product recall will not be required in the future. If an extensive product-related incident were to happen, it could result in high costs, or it could have a major negative effect on our reputation.