On the matters such as the overview of business and financial information in the Annual Securities Report, the management identifies significant risks that may materially affect investors making decisions. Two significant risks described below are: “business risks,” which are risks associated with the business, and “operational risks,” which are other risks that may affect our entire Group. The forward-looking statements in the report are based on the judgment of the Group as of the end of the current fiscal year.
The Group promotes risk management for significant risks under the risk management system specified in the “basic policy on internal control.”
Business execution departments manage “business risks,” and special function departments manage “operational risks.” To monitor risks globally, we appoint regional managers for each major overseas geographic region to develop a regional monitoring function.
Each responsible department manages risk information and provides reports at the Corporate Strategy Meeting every month. The Meeting members, joined by Directors and Vice Presidents, deliberate the risk information. The results of the deliberations are immediately instructed to each responsible department, which promptly implements measures, strengthens controls. Eventually, those are reported back again to the Corporate Strategy Meeting with respective actions and remediation status, making the group’s risk management more effective.
The major risks in the current fiscal year, in addition to the remaining risks since the previous fiscal year, were selected by the officer in charge of risk management and the department in charge of risk management after gathering opinions from Directors, departments in charge, the audit firm, analyzing the agenda and deliberation topics at the Board of Directors and the Corporate Strategy Meeting, and deliberating at the Corporate Strategy Meeting.
We considered the relative significance of respective risks by categorizing in the following chart with two axes: the vertical axis showing the “impact” on the businesses when such risks arise and surface, and the horizontal axis showing the “probability” of the occurrence.
At the end of the fiscal year, those risks (business and operational risks) are self-assessed by the responsible departments, and independently evaluated by the department and the officer in charge of risk management, based on the assessment criteria, such as implementation systems, the implementation of controls and measures, and the occurrence of and response to incidents, etc. The results are reported to the Corporate Strategy Meeting and the Board of Directors.
The assessment result below indicates a change in risk from the beginning to the end of the fiscal year.
*The arrow indicates the change in risk from the beginning of the period
(↗: Increase in risk, →: No change, ↘: Decrease in risk)
| Overseas Transaction and FOREX risks |
| Related Materiality: Building resilient supply chains |
| The Group operates a global business, with more than 80% of total sales revenue earned outside Japan, and about 40 subsidiaries and affiliates conduct trade activities such as export and import.
Accordingly, in the various countries where we operate, there are risks such as interruption of electric power supply and transportation services, rising labor costs, deterioration of employment relationships, labor disputes, and risks arising by prolonged lead times caused by cyberterrorism and environmental issues. The Group’s performance may also be adversely affected by abrupt changes in the global economy triggered by events such as conflicts or outbreaks of infectious diseases. Furthermore, the Group’s performance may be adversely affected by unexpected exchange rates, volatility in equity and interest rates, financial instability, the rise of protectionism such as the U.S. tariff policy, and trade restrictions for the sake of national security. The Group manages distribution by increasing risk visibility in the supply chain and establishing a BCP (business continuity plan) for distribution to strengthen the supply chain. In addition to conducting timely monitoring of the Group’s internal fund balance, financing situation, asset and liability by currency, etc., we have established financial control centers in each area and are working to consolidate funds and hedge foreign exchange risks, among other measures. |
| Financial Position of Customers |
| Related Materiality: Enhancing management security |
| Serious financial problems could develop at some customers from whom the Group holds accounts receivable due to major changes in their operating environment.
Should such receivables become irrecoverable at any one of its largest customers in the fast-changing electronics and life science sectors, the amount to be written off could be enormous, which in turn could negatively affect the performance of the Group. The Group has established Credit Control Group and makes it a rule to closely investigate the financial positions of its customers before starting a business. The Group has also purchased credit insurance to mitigate risks. |
| Procurement of Raw Materials |
| Related Materiality: Building resilient supply chains |
| Some of the Group’s raw materials are sourced from specific individual suppliers.
If the supply of raw materials were to decrease or be disrupted due to unavoidable circumstances on the part of those suppliers, such as damage from natural disasters, accidents, or bankruptcy, the supply-demand balance could be disturbed, resulting in failure to procure necessary raw materials or an increase in costs. Any of these contingencies could influence the performance of the Group. The Group endeavors to reduce the risks involved in securing a sufficient supply of key raw materials through measures including sourcing materials from multiple suppliers and setting and managing inventory levels for a given period of time. We have launched the Supply Chain Committee with a cross-sectional team that aims for sustainable procurement in the supply chain. We have been addressing the risks involved in the upstream supply chain by visualizing geopolitical risks and risks related to chemical substance regulations, which have been increasing in recent years. During the current fiscal year, we established the Committee as a permanent structure within the Procurement Business Division and are working to further strengthen the supply chain. |
| Research and Development |
| Related Materiality: Creating PlanetFlags / Creating HumanFlags |
| The industry in which we operate our business experiences turbulent market changes that are not easy to predict.
New technologies or products from other companies can suddenly and unexpectedly cause our products to become obsolete. Situations like this can impact our future financial results. In order not to be influenced by trends in a given business, the Group works on R&D to develop new technologies and products focusing on the Sanshin (“three new”) Activities, which is to stimulate demand through the development of new applications and new products, as well as make relevant equipment investments. Furthermore, in accordance with the Group policies that place ESG at the center of management, we are concentrating our resources on themes which can be the options for our proprietary PlanetFlags/HumanFlags. We also practice rigorous intellectual property management to protect such products by creating barriers to entry. |
| Intellectual Property Rights |
| Related Materiality: Creating PlanetFlags / Creating HumanFlags |
| The Group owns, maintains, and manages a large amount of intellectual property rights for the purpose of enhancing its market competitiveness.
However, it is possible that a third party could claim that such rights are invalid, or such rights could be inadequately protected, imitated, or involved in litigation in some regions. Should the protection afforded by intellectual property rights be seriously lost, the performance of the Group may be adversely affected. The Group’s Technology and IP Strategy Division and business divisions work together to pay due attention to the intellectual property rights of other companies to ensure the Group does not infringe upon them while at the same time pursuing initiatives to uncover any products on the market that infringe upon the Group’s intellectual property rights. |
Business risks in each operating segment are as follows:
| Industrial Tape Business |
| Related Materiality: All Materialities |
| The Group globally supplies a diverse range of Functional Base Products to a broad range of industries, including its three focus domains of Information Device & Display, Semiconductor & Electronics Component, and Mobility. In each domain, customers are increasingly seeking products with high added value.
In the Information Device & Display and Semiconductor & Electronics Component sectors, fluctuations in the market conditions for electronic products and semiconductors due to factors such as price increases caused by the U.S. tariff policy and a worsening economic situation could adversely affect business performance. By creating Global Niche Top™ products and Area Niche Top™ products under our Niche Top Strategy and Sanshin Activities initiatives, we are working to create PlanetFlags/HumanFlags products as new axes for growth while developing a business constitution that is resilient to market forces. Furthermore, by understanding our customers’ processes and offering a lineup that meets their needs, we offer proposals that combine materials and facilities, thereby contributing to our customers’ productivity improvement. In Mobility, we offer adhesive materials for the automobile structure and sealing materials for airtight and waterproofing applications in the global market, and fluctuations in automobile production volumes due to factors similar to those of the electronics and semiconductor markets can therefore impact our financial results. By pushing expansion into growth areas such as EVs (electric vehicles) and CASE (Connected, Autonomous, Sharing/Service, and Electric) and working to add to our existing business by capturing new business in growth areas, we are, also in this sector, working to create a business constitution that is resilient to market forces. As part of our efforts in growth areas, we are strengthening collaboration among the Group companies and working to provide a wide range of product lines. In the markets that the Industrial Tape business serves, an increasing number of customers in the electronics and automotive industries are focusing their efforts on contributing to the environment. To this end, in Industrial Tape business, we are also working to develop and manufacture PlanetFlags products with a lower environmental impact while promoting the collection and recycling of materials discarded by customers to reduce CO2 throughout the supply chain and provide added value as an environmentally friendly product. |
| Optronics Business |
| Related Materiality: All Materialities |
| A major market for the Information Fine Materials sector is the display industry, which is rapidly changing and is exposed to fierce competition from a number of companies. The commoditization of products and technologies in which the Group’s components are incorporated, a decline in sales revenue due to market maturation, and pressure on profit margins due to the entry of competitors may negatively affect the Group’s performance. If higher tariffs are imposed on products related to the display sector due to changes in the U.S. tariff policy, trends in sales of these products and the supply chain could be affected. Price hikes and an unstable supply of materials affected by geopolitical risks and environmental regulations may also affect the Group’s production and supply of products.
We immediately identify the evolving needs of our customers, the leader of the display industry, and continue to develop and launch new products built on our technology. We also expand markets for our products by accelerating product launches in non-display markets. In addition, to prepare for the various changes in the external environment, we implement BCP measures for our business, such as ensuring stable procurement, diversifying our production locations, and promoting digital transformation and data-driven management. In the circuit materials business, we are focusing our efforts on markets and products that support a data-driven society/smart society and are anticipated to grow and supply products with high market share. Soaring material/power costs caused by continued inflation worldwide, change in investment trends of data centers associated with the demand for generative AI services, and the U.S. tariff policy and overheating U.S.-China trade friction may temporarily affect our financial results. However, if market growth is sustained over the long term, our responsibility as a supplier to meet demand trends may affect. In response, we are planning and implementing to secure production capacity satisfying the demand trend, including establishing a manufacturing backup system across our multiple sites, creating a BCP for our procurement of materials, and implementing productivity innovations supported by automation, as well as by AI and DX utilization. |
| Human Life Business |
| Related Materiality: All Materialities |
| The Human Life business consists of Life Science, Membrane, and Personal Care Materials businesses.
In the Life Science business, we are strengthening our initiatives as a new business field for the Group, with a focus on the oligonucleotide therapeutics business. The oligonucleotide therapeutics market is forecast to grow in the future, with a rise in the number of late-stage clinical research topics and new drug approvals. Demand for contract manufacturing of oligonucleotide therapeutics, which we undertake in the Life Science business, fluctuates according to the progress of customer’s research and development and clinical trials. Accordingly, suspension or discontinuation of customer’s clinical trials based on scientific evidence may affect our performance. In addition, the U.S. tariff policy could impact the cost of procuring raw materials. Moreover, drug discovery of oligonucleotide therapeutics in this business provides technologies to customers in the pharmaceutical industry after our research and development is advanced. Therefore, depending on the progress of our research and development of technologies with competitive advantages, which leads to the provision of value to customers, our performance may be affected accordingly. The Group strives to mitigate the impact of demand fluctuations by handling a wide range of research and development activities and clinical trial projects commissioned by customers. To counter the U.S. tariff policy, we are working to mitigate its impact through measures such as further pursuing cost reductions for raw materials. Meanwhile, in drug discovery of oligonucleotide therapeutics, we are steadily advancing our research and development initiatives, including collaborations with external organizations, in order to ensure both safety and efficacy. The Membrane business primarily supply components for water processing equipments used across various industries, as well as those for wastewater treatment applications within those industries. Deteriorating market conditions in various industries, rising material prices, supply shortages, and other factors could delay plant construction plans and customer material procurement plans, or an intensified competitive environment could have an impact on sales volumes and prices, which could have an adverse effect on our business performance. In order to create a business structure that is resilient against the impact of market conditions, we are bolstering efforts to develop new markets and launch new products as quickly as possible and enhance cost competitiveness. There is a risk that production costs at production hubs in the U.S. may rise because of the U.S. tariff policy. We will mitigate the impact by adjusting production sites according to delivery destinations and passing increased production costs on to sales prices. The Personal Care Materials business offers hygiene materials, primarily diaper materials. The main market is for hygiene materials and daily necessities, of which demand is relatively stable. Meanwhile, as a commodity market, falling sales prices caused by circumstances where competitors could easily enter may affect our performance. Additionally, the loss of business opportunities due to changes in the U.S. tariff policy, rising energy costs associated with geopolitical factors (prolonged Russia-Ukraine war), and inflation-driven high prices (surging raw material costs), could impact our financial results. By making capital investments appropriately and promoting digitalization and reducing costs through improved productivity, we will strive to establish a production system that is less susceptible to changes in the external environment. The Group also aims to further improve profitability by expanding high-value-added products and developing environmentally friendly products. |
| Others |
| Related Materiality: All Materialities |
| The Group’s performance may be adversely affected if new businesses are not launched as planned.
The Group strives to conduct sound business operations by regularly assessing the alignment of the Group’s position with that of relevant markets and customers. |
| Others / Additional Items: M&As |
| Related Materiality: All Materialities |
| The Group engages in mergers and acquisitions, business alliances, and strategic investments as necessary when such actions provide an effective means of acquiring technologies to enhance corporate value, expand into new business areas, or accelerate business growth.
However, if the Group is unable to achieve the results or synergies that it initially envisioned due to significant changes in the market or competitive environment or if acquired businesses are unable to secure revenue as planned, there is a possibility that the Group’s performance may be affected by impairment of goodwill and fixed assets. When forming partnerships with other companies, the Group bases its decisions on due consideration of market trends, customer needs, the business conditions of the counterpart company, and competitive advantage in the market. |
| Product Safety |
| Related Materiality: Safe manufacturing |
| The Group manufactures and supplies intermediate materials or products to our customers in accordance with strict quality control standards for the purpose of safe and quality-oriented manufacturing. Also, tightening regulations on chemicals such as fluorinated compounds has been demanded in recent years.
In the event of a product defect, such as a quality defect, or a violation of laws or regulations with respect to a chemical substance or quality compliance violation such as quality fraud, we are subject to obligations for compensation for the defect or a penalty for violation of laws or regulations, which may affect our performance. The Group strives to make continuous improvements by obtaining certification of strict international quality management systems in line with those required by industry. Regarding quality compliance issues, we are strengthening hardware measures, including those related to manufacturing and inspection environments, as well as audit initiatives utilizing the “three-line defense,” while implementing training to address those issues. We are also considering alternative products for PFAS, which is expected to be regulated more strictly, and working to strengthen management system for bisphenols and vinyl chloride. With regard to regulations on chemical substances, we have reinforced efforts to promote regulatory compliance throughout the industry by joining specific industry associations as part of advanced responses and obtaining regulatory information from the deliberation phase. |
| Environment (Decarbonized Society) |
| Related Materiality: Realizing a decarbonized society |
| As climate change and natural disasters grow increasingly severe, the Group is working to reduce CO2 emissions in the entire supply chain to realize a decarbonized society.
A sharp rise in renewable energy prices, carbon taxes, or soaring emissions trading prices could lead to an unavoidable increase in production costs, which could adversely affect the Group’s performance. In addition to complying with more stringent related laws and regulations, we are also working to reduce our customer’s CO2 emissions through our products and solutions by reducing energy consumption and introducing renewable energy in our manufacturing processes to meet societal demands for lower CO2 emissions. |
| Environment (Circular Society) |
| Related Materiality: Realizing a circular society |
| In response to the global environmental crisis, including the depletion of resources and marine pollution caused by plastics, the Group has designated the achievement of a circular society as a materiality issue and is committed to recycling resources such as plastic.
In the event that the Group faces a refusal to collect plastics, organic solvents, and other waste or a sharp rise in prices for collection of such waste, its production activities slow down due to difficulties in disposing of waste, which could adversely affect the Group’s performance. In addition, improper disposal of products or waste may lead to a loss of public trust and damage to the company’s brand image, which could adversely affect the Group’s performance. Besides ensuring compliance with relevant laws and regulations, the Group is working to establish a circular society by promoting the effective use of resources and recycling throughout its supply chain. |
| Environment (Biodiversity Conservation) |
| Related Materiality: Conserving biodiversity |
| While human activities are causing enormous damage to living things—leading to species extinction and ecosystem destruction—the Group has designated biodiversity conservation as a material issue and is committed to reducing emissions of polluting and harmful substances used in the manufacturing process.
The release of volatile organic compounds into the atmosphere or rivers due to equipment malfunction or other causes could cause pollution of the local environment, resulting in loss of public trust and damage to the company’s brand image, which could adversely affect the Group’s performance. In addition to ensuring compliance with relevant laws and regulations, we have established our own stringent management standards to control pollutants and hazardous substances and are working to reduce the amount of such substances used. |
| Information Security |
| Related Materiality: Enhancing management security |
| Information systems play a crucial role in every aspect of the Group’s business activities. On the other hand, cybercrime is becoming increasingly sophisticated, and human-caused risks such as internal fraud and negligence are also increasing.
In the event that the Group’s information systems suffer a malfunction or leakage or unauthorized use of information such as technical, customer, transaction, or personal information occurs, regardless of intent or negligence, the Group’s performance may be adversely affected. The Group implements a range of information security measures against cyberattacks from both a hardware and software perspective, including implementing multilayered protection, a rapid detection and response system, as well as providing BCP training in preparation for emergencies. Moreover, to prevent negligence such as information leakage and unauthorized use, we strive to enhance management security by educating executives and employees on the importance of information security, strictly enforcing our information management rules, such as conducting targeted e-mail attack trainings and restricting the means of taking out information. |
| Changes in Laws, Regulations, and Compliance |
| Related Materiality: Enhancing management security |
| The Group promotes compliance not only with laws, regulations, and internal rules but also with social norms and ethics. Moreover, the Group operates in 27 countries and regions, each with its own laws and regulations, social norms, and ethical standards, which makes compliance a multifaceted issue.
Compliance violations by a company not only impact its corporate value but can also affect its stakeholders, including its customers’ procurement and consumption, its supplier’s production, and the livelihood of local residents. We have translated the “Nitto Group Business Conduct Guidelines,” which underpin our commitment to compliance, into 18 languages and thoroughly communicated them to all officers and employees of the Group. In addition, we are operating a whistle-blowing system in all regions and working to detect legal violations and ethical breaches at an early stage. We have also completed the establishment of an external contact point for reporting from suppliers across all regions during the current fiscal year and are undertaking activities to ensure that it is widely recognized. |
| Governance of Group Companies |
| Related Materiality: Enhancing management security |
| The Group conducts business globally across a wide range of fields and maintain operations in 27 countries and regions worldwide, including Nitto Denko Corporation, its 88 subsidiaries, and four affiliates.
If officers or employees of these affiliated companies engage in misconduct or if they engage in transactions or make decisions that do not comply with our management policies, governance and internal control functions may not work properly, which could result in losses for the Group and adversely affect its business performance. The Group operates a matrix-based management approach, in which three axes complement and support each other: the business axis, which includes the business execution departments consisting of Functional Base Products, Information Fine Materials, Circuit Materials, Life Science, Membrane, Personal Care Materials, etc.; the regional axis, which divides global operations into seven regions; and the functional axis, which consists of special function departments such as human resources and accounting. The business axis establishes governance and internal control systems, whereas the regional and functional axes audit and monitor their control status appropriately at the regional and operational levels. Any business or operational issues or risks reported or discovered at these audits and monitorings are shared at monthly corporate strategy meetings, where prompt improvements are implemented to strengthen governance and enhance internal controls. To promote procurement activities that support ESG-based management, the Procurement Business Division revised the Procurement Basic Policy, Supplier Code of Conduct, and Procurement Basic Rules while also developing other policies and rules. The Global Procurement Department, which reports directly to the Procurement Division, works alongside regional procurement leaders stationed overseas to strengthen governance by applying these policies, rules, etc. and ensuring that they are widely recognized. |
| Natural Disasters and Climate Change |
| Related Materiality: Enhancing management security |
| The Group operates a global business and thus has a number of production sites and sales sites in Japan and overseas.
Natural disasters such as rainstorms, which are becoming more severe because of climate change, or earthquakes in any of these locations could damage the employees, sites, and facilities of the Group. Moreover, such an event could damage essential utilities including power, gas, and water, as well as land, sea, and air logistics networks, potentially cutting off our supply chain extensively, which could seriously impact our financial results. Such events could also cause considerable damage to our customers or suppliers, stalling orders or supply for an extended period and seriously affecting our financial results. Following our Corporate Philosophy “We place safety before everything else,” we have implemented disaster drills at each site and decision-making drills when setting up the Emergency Headquarters to prepare for accidents and disasters and have prepared a business continuity plan (BCP) as a measure for preventing disruptions to business functions, and we periodically update the BCP in order to enhance management security. |
| Retention of Human Resources |
| Related Materiality: Empowering diverse employees |
| In order for the Group to promote its business activities and develop into the future, it needs to recruit and train personnel in a variety of fields, including research and development, manufacturing, sales, and administration. It is vital to foster a corporate culture where every employee can enjoy taking on new challenges with motivation and promote DE&I (diversity, equity, and inclusion) to enable the Group to respond to rapid changes in the business environment. Additionally, against the backdrop of intensifying global competition to acquire human resources, as evidenced by the shrinking working population due to Japan’s declining birthrate and aging population, values in terms of work styles and careers are diversifying, and the mobility of human resources is increasing. To respond to these trends, reviewing personnel systems and treatment standards to retain human resources has become an ongoing issue.
Failure to continually hire necessary personnel or to prevent the drain of talent could negatively affect the performance of the Group. As the importance of human capital management increases, the Group is working to recruit and develop diverse human resources by sharing best practices for improving employee engagement; creating an environment in which employees can take on challenges in a variety of fields, such as proposing to the new business creation convention (Nitto Innovation Challenge) and taking on overseas traineeships; and strengthening its recruiting capabilities by improving its recruitment branding and expanding internships. We also build a workplace environment where diverse human resources can work comfortably through the provision of support for balancing work with childcare/nursing care, etc., teleworking systems, and the implementation of other measures, increase wages to ensure competitive compensation levels and take other measures, thereby retaining and motivating human resources. |
| Occupational Safety and Health |
| Related Materiality: Safe manufacturing |
| Aiming to realize a safety society, the Group places safety before everything else in its manufacturing under the slogan of “Zero Accidents and Injuries.”
The occurrence of an injury or illness resulting in death or permanent disability or other damage to human health or a fire that affects production could result in a loss of public trust, suspension of operations, or suspension of transactions with customers, which could negatively affect the Group’s operations. In order to reduce the risks of injury, illness, and fire, the Group is working to thoroughly identify all foreseeable risks and implement measures to reduce those risks. The Group is also working on permanent measures, such as implementing tangible countermeasures and intangible measures like respecting established rules. |
| Human Rights |
| Related Materiality: Upholding and respecting human rights |
| Stakeholders’ focus on companies’ human rights initiatives has been growing in recent years. The Guiding Principles on Business and Human Rights, approved by the United Nations Human Rights Council in 2011, stipulates that companies are responsible for and must commit to protecting and respecting human rights and remedying human rights violations. The scope of corporate responsibility is not only within its own company but also throughout its supply chain.
Customers and suppliers are increasingly reluctant to continue doing business with companies without mechanisms in place to address human rights issues such as child labor, forced labor, and discrimination against foreign workers, and the stock market is increasingly reluctant to invest in such companies. The Group communicates its policy on respect for human rights to its stakeholders through disclosure of the Nitto Group Basic Policy on Human Rights in 10 languages. Also, we carry out a compliance survey as one of its compliance management activities. We are working to visualize and reduce the risk level of each site. During the current fiscal year, we launched an education program on ESG issues, including respect for human rights, for all employees across Japan as part of our employee education and training initiatives. Going forward, we will expand this education program to all employees of our overseas group companies. Meanwhile, we hold a partnership meeting at global to inform our main suppliers about our CSR Procurement Policies and their activities. Also, we carry out a CSR Procurement Survey once a year under the Supplier Code of Conduct, which describes rules we expect our suppliers to follow, including respect for human rights and labor. Based on the survey findings, we assess their risk, suggest improvements to the suppliers whose risk is deemed high, and follow up on their improvement efforts. Additionally, to ensure the objectivity and validity of the assessment and to respond to external requirements, we introduced a new third-party CSR assessment by EcoVadis in the previous fiscal year and have been gradually implementing it in each region. For suppliers that handle raw materials with high risks of human rights violations, we ask them to survey the place of origin and answer the questionnaire on human rights policy to raise their awareness and cooperation in human rights in raw material procurement. |
영업시간 (한국시간) 09:00-17:00(토∙일 공휴일 제외)
