Risk Management
Approach
We established the Kumiai Chemical Group Basic Policy on Risk Management based on the Kumiai Chemical Group Basic Policy on Sustainability. Our group believes that risk management is the key to internal control. In order to gain the trust of stakeholders, achieve continuous growth, and fulfill our social responsibility as a company, we recognize the importance of proper risk management. We endeavor to foster a risk culture through continuous engagement in risk management.
Kumiai Chemical Group Basic Policy on Risk Management
- The Kumiai Chemical Group understands that risk management is the cornerstone of internal control and that it is important to conduct appropriate risk management, including proper management to prevent the occurrence of risks and a prompt reporting system and sharing for risk information. We foster our risk management culture by implementing these practices to secure the trust of stakeholders, achieve sustainable growth, and fulfill our social responsibilities as a corporation.
- The Kumiai Chemical Group implements appropriate measures to control risks, taking into account the cost effectiveness of company-wide or cross-organizational risks, and consolidates the development and operation of risk management by the departments in charge to respond to risks during normal times. To respond to risks during emergencies, we establish a risk taskforce which makes decisions on countermeasures and implements external actions to mitigate risks.
Risk Management System
Aggregating and Sharing Risk Information
We have established the Risk Management & Compliance Committee (comprising full-time Directors and Executive Officers and department heads) chaired by the Representative Director, President to review and deliberate on matters related to risk management. The committee meets once a year and additionally whenever necessary and an appropriate management system for negative risks, including risk prevention measures and emergency responses, and positive risks based on opportunities is in place. In addition, the committee clarifies negative and positive risks in risk management. To support appropriate risk-taking by management, the committee conducts periodic review of business risks and other risks and consolidates and shares risk information. With regard to operational risk and supply chain risk, we have established the Basic Policy on CSR procurement and accompanying CSR Procurement Guidelines. We are implementing measures based on this policy and guidelines and review the related risks annually.
Moreover, we have established an internal control system that includes all group companies. Furthermore, the internal audit division conducts audits of overall operations of Group companies, and as part of the operational audit, monitors whether the internal control system is properly designed and effectively operated.
Major Risks and Countermeasures by our group
| Major risks | Overview of risk | Overview of countermeasure | ||
|---|---|---|---|---|
| 1 | Agricultural Chemicals and Agriculture- Related Business |
Japan | Decrease in net sales in Japan due to various external environmental factors (weather, competitive products, laws and regulations) | Proactively collecting information about changes of external environment and timely response to tightening laws and regulations |
| Outside Japan |
Decrease in net sales due to changes in the agricultural chemical market (weather, grain prices, crop acreage, resistance development, competitive products, generic products, laws and regulations) | Early identification of changes in the market environment through cooperation with sales partners in each country and overseas subsidiaries and implementation of measures to maintain sales | ||
| 2 | Fine Chemicals Business | Decrease in net sales due to a drop in demand for end products and decreased sales volume due to specification changes | Working with sales partners to respond quickly to changing needs, stable procurement through procurement from multiple sources, and promotion of market and application development | |
| 3 | Other businesses | Increased costs in the construction and logistics businesses, decline in trust and sluggish business due to serious accidents, and shortage of human capital Decrease in net sales in the bio-related business due to changes in the external environment |
Collecting accurate and relevant information about changes in the external environment, hiring and training human capital with the skills and experience to respond to those changes, and improving the workplace environment | |
| 4 | Developing new products | Due to the long development time for agricultural chemicals, loss of sales opportunities resulting from revisions to laws and regulations in each country and changes in the market environment, impact development success | Quickly and accurately grasping regulatory trends and market trends in each country, including revisions to laws, and responding to them | |
| 5 | Exchange rate fluctuation | Decrease in net sales and increase in procurement cost due to sudden exchange rate fluctuations | Creating a management plan that incorporates unification of currencies in sales and procurement, forward exchange contracts and impact of exchange rate fluctuations | |
| 6 | Compliance and changes of laws and regulations | Costs incurred in responding to serious non-compliance cases and loss of customer trust Increase in costs for responding to changes in laws and tightening of regulations in each country related to the handling of chemical substances | Conducting periodic compliance awareness surveys, promoting compliance awareness activities, and ensuring proper operation of the internal reporting system Collecting information on revisions of environment-related laws and regulations and responding to revisions, and making investments to prevent environmental accidents |
|
| 7 | Product quality | Problems with product quality due to unexpected quality issues, defects, incidents | Proper quality management based on ISO | |
| 8 | Production and procurement of raw materials | Insufficient supply of raw materials, delays and suspension of manufacturing, and an increase in procurements costs due to trouble or incidents in procurement of raw materials, production facilities, laws and regulations in particular countries where operations are located, geopolitical risks, etc. | Ensuring inventory by ordering raw materials early, arranging substitutes, diversification of supply sources for important raw materials, and maintaining production functions through systematic renewal of facilities | |
| 9 | Securing and training of human capital | Impact on operating results and financial position of inability to secure and train human capital as expected | Clarification of requirements for human capital, systematic and efficient acquisition of human capital, and enhancement of work-life balance | |
| 10 | Impaired asset accounting application | Worsening financial situation due to impairment loss as the value of group business assets declines | Accurate understanding of the operating conditions of each Group company, and sharing of the progress of important projects and issues | |
| 11 | Intellectual property | Decrease in net sales or leakage of technology and know-how due to infringement of our intellectual property Compensation for infringement of intellectual property rights of other companies Impact on sales and profit due to launch of generic products |
Establishing a patent network for substances, manufacturing methods, intermediates, intended use, formulations, and usage methods Monitoring patent applications by other companies and the application examination status Response to infringement of intellectual property rights, including legal action |
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| 12 | Information security | System outages due to cyberattacks or other unintentional incidents, leakage of confidential information | Reinforcing information security education and developing a response system in the event of occurrence of an incident | |
| 13 | Human rights | Decline in public trust or suspension of transactions in the event of a human rights issue occurring in our group’s supply chain | Conducting a survey of major suppliers based on the guidelines | |
| 14 | Digital transformation | Loss of new market opportunities and stagnation in business transformation and development capabilities due to delays in digital transformation and ineffective use of digital technologies | Promoting research and development and enhancing productivity by leveraging new technologies such as AI | |
| 15 | Climate change | Increase in costs for responding to stricter greenhouse gas (GHG) emission regulations, and decrease in agricultural land area and crop yields due to climate change | Identifying and responding to trends in laws and regulations in each country, making capital investment to reduce GHG emissions, developing products and technologies, and promoting information disclosure via TCFD and other frameworks | |
| 16 | Natural disasters and infection disease | Suspension of operations at business sites and disruptions to supply chains due to sudden large-scale natural disasters and pandemics caused by novel infection diseases | Regular drills, BCP updates, and implementation of preventive measures for facilities at each office | |
Risk and Compliance Education
Increased risk sensitivity and compliance awareness
In the significant changes of circumstances surrounding companies, risks become more diverse and complex, and the needs for risk management are increasing. In addition, as stakeholders' demands for compliance become more diverse and sophisticated, an employee's words or actions that deviate from social norms may lead to a loss of corporate social trust. Therefore, it is important to foster and deepen a risk culture, and foster a corporate culture based on compliance. For this purpose, our group published an original booklet on "compliance" in 2019, its second edition in 2021, a booklet on "risk management" in 2020, and distributed them to all executives and employees of our group.
"Comprehensive Labor Policy Promotion Act" is amended and the measures to prevent power harassment are legislated. News reports of the cases related to marijuana and other illegal drugs are increasing, involving famous comedians. Compliance awareness is needed to be strengthened. In addition to these circumstances, with our group compliance awareness survey, we recognized that there are problems in communication at workplace, which is the basis of compliance.
Through compliance education using these booklets at our group, we expect to increase risk sensitivity and lead high compliance awareness of personnel, and enhance shareholders' trust to our group and its sustainable corporate value as the result.
