Risk Management

Basic Approach

Basic Approach to Risk Management

With the aim of maintaining and enhancing corporate value, the Group manages risk by appropriately identifying various risks associated with our business activities and mitigating the damages and losses through appropriate crisis management if any risks materialize.

Policy

Risk Management Basic Policy

  1. 1.We manage risk while paying attention to trends in financial conditions and business environments.
  2. 2.We manage risk in accordance with the relevant laws and regulations and from the perspective of Nabtesco Group’s social responsibilities, while also striving to disclose information promptly to minimize the impact and losses attributable to incidents that have occurred.
  3. 3.We validate concrete risk management processes after the occurrence of incidents and strive to prevent their recurrence.

System

Risk Management Systems

We have systems in place to ensure that profits, losses, asset efficiency, quality and disasters, among other matters, are reported to the Board of Directors properly and in a timely manner with respect to the execution of duties. By leveraging these systems, we strive for the early identification of risks and the minimization of losses.
With an eye on the sustainable enhancement of corporate value, we established the Risk Management Committee as an organization under the direct supervision of the CEO that is responsible mainly for deliberating important matters. The committee members are appointed by the CEO. In addition, the Chairperson of the Risk Management Committee (Managing Executive Officer) consults and coordinates with the members of the Management Materiality Committee, Quality & PL Committee and Environment, and Safety and Health Committee, as required, and provides reports at management meetings such as Executive Officers Committee attended by CEO and Board of Directors meetings regarding the risk management initiatives periodically (approximately twice a year).

Administrative organizations of the Committees

  • Management Materiality Committee (administrative organization: Corporate Planning Dept.)
  • Risk Management Committee (administrative organization: Legal & Compliance Dept.)
  • Quality & PL Committee (administrative organization: Quality Promotion Dept.)
  • Environment, Safety and Health Committee (administrative organization: Environment & Safety Dept.)

Measures

Risk Management Methods

Risk Management

The Risk Management Committee has been identifying serious risks related to the entire company based on the results of risk assessments made by the administrative departments, in-house companies and Group companies, discussing countermeasures for these risks, and also following up on the progress made for the implementation of the countermeasures. We also analyze the factors that have caused the risk to materialize in the past. Then we prioritize the risks to be addressed and check our tolerance for the risks, make plans to deal with them, discuss the plans, and implement them. Furthermore, specialized staff at head office departments, such as the internal control department, carry out audits on the operational risk management situation of our workplaces, give necessary and appropriate expert advice for operational improvements, and report the details to the Board of Directors to ensure the appropriate monitoring of the responses made to risks at each of the workplaces. To deal with risks, Nabtesco implements the following procedures: (1) risk analysis, (2) risk assessment, and (3) risk judgment. In risk analysis, we analyze the materiality of each risk based on its occurrence frequency (by five-grade evaluation) and level of impact (by four-grade evaluation). Based on the results gained from the risk analysis, we give the risk an overall score (by four-grade evaluation) and then specify the level of necessary countermeasures for the risk (also by four-grade evaluation).

Risk Management Cycle

Risk Management Cycle

Principal Risks

The following lists principal risks that are deemed to have potential impacts on the Group’s business performance and financial position.

  1. 1.Risks relevant to the economy and markets
  2. 2.Risks relevant to overseas operations
  3. 3.Risks relevant to large-scale disasters
  4. 4.Risks relevant to exchange rate fluctuations
  5. 5.Risks relevant to procurement
  6. 6.Risks relevant to product quality
  7. 7.Risks relevant to competition
  8. 8.Risks relevant to information security
  9. 9.Risks relevant to intellectual property
  10. 10.Risks relevant to laws, ordinances and regulations
  11. 11.Risks relevant to environment
  12. 12.Risks relevant to corporate acquisition etc.
  13. 13.Risks relevant to impairment loss of fixed assets
  14. 14.Risks relevant to secure human resources

Serious Risks and Countermeasures

Every year, we assess the risks faced by the entire Group in Japan and in other countries to identify serious risks. Then, for the identified serious risks, each department in charge of risk formulates and implements countermeasures based on their expertise.

The following are some of the serious risks that have been identified and the measures taken to address them:

Risk priority:

Risks are prioritized based on the following criteria.

  • ★★★ : Measures need to be implemented promptly.
  • ★★ : Measures need to be implemented as appropriate.
  • ★ : Measures need to be implemented on a continual basis.

Risk tolerance:

The identified risks are categorized into the following risk tolerance levels.

  • Low: Should not be tolerated.
  • Medium: Should be tolerated as necessary, in consideration of the benefits and merits.
  • High: Should be tolerated proactively for the creation of opportunities, while implementing countermeasures as necessary.
Serious risk Risk priority Effects on the Group Risk tolerance Measures Link
Overseas business
development
Geopolitical risks
  • Delay or suspension of procurement, business and service activities
Medium to high
  • Collection of information in the local area
  • Distribution of suppliers
  • Enhancement of the effectiveness of BCP

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Environment Climate change
  • Increase in costs caused by carbon tax regulations, etc.
  • Physical damage caused by torrential rains, etc.
  • Increasing customer requests for the reduction of GHG emissions
Low to medium
  • Set long-term goals for SBT certification
  • Utilize renewable energy
  • Implement environmental education
  • Awareness raising activities regarding climate change risks for suppliers

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Work-related accident Occupational health and safety risk ★★
  • Suspension of business and service activities
Low
  • We have established a safety and health management framework in each office and allocated a manager of safety and health as well as a person in charge of safety management
  • Periodic health examinations are conducted twice a year
  • Industrial doctors visit the workplace

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Product quality Quality risk ★★
  • Increase in costs due to loss and damage compensation, etc.
  • Lower brand value
Low
  • Establish management rules
  • Obtain quality management system certification at production sites
  • Implement training

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Emerging Risks

For “emerging risks” caused by changes in the external environment and other factors, we conduct regular reviews to check and manage their impact on our business.

Serious risk Risk priority Effects on the Group Risk tolerance Measures Link
Emerging risk Procurement The functional failure or degradation of suppliers due to disaster ★★★
  • Suspension of products and services due to difficult or defective procurement
Low
  • Local support for affected suppliers
  • BCP training for suppliers

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Information security Information security breach ★★★
  • Suspension of business activities and services
Low
  • Establish management rules
  • Implement information security training
  • Establish and operate an information security system

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Crisis Management (In the Event of Emergency)

If a serious incident has a significant impact on the Group’s business activities, such as their termination or suspension, the department in charge of the risk reports to the CEO and related departments without delay. The CEO reports to the Board of Directors and Audit & Supervisory Board promptly, establishes an emergency response headquarters and takes command of risk management.
The emergency response headquarters, which will be headed by the CEO as the General Manager, deals with the incident quickly and works to solve it while at the same time reporting to the Board of Directors on the matter, including on countermeasures taken to address the issue.

The Emergency Response Division

Senior General Manager CEO
Deputy Senior General Manager President of a responsible In-house and Group company, Officer in charge of relevant corporate department or General Manager
Members Staff of responsible In-house and Group companies and of corporate departments
Administrative organization Departments in charge of relevant risks, and if necessary, relevant departments of responsible In-house and Group companies and relevant teams of responsible corporate departments.

Serious Incident Reporting Route

Incident Reporting Route

Specific matters that cause losses for the Group are defined as incidents. We seek to minimize the impact of incidents through the reporting and sharing of information on these incidents through a series of regular meetings.

Reports on the occurrence, details, and causes of incidents as well as measures to address them and the losses incurred, among other things, are provided to the administrative organizations, the Executive Officers Committee and the Board of Directors. By doing so, we share information on the measures to reduce the occurrence of incidents.

Incident Reporting Route

Incident Reporting Route