Risk Management

In order to respond to its increasingly complex and unstable business environment, the Mitsubishi Chemical Group defines risk as “uncertain events (manifested in the form of opportunities or threats) that may have a favorable, unfavorable, or both favorable and unfavorable impacts on the achievement of the goals of the Group’s corporate activities, and introduced enterprise risk management (ERM) starting in fiscal 2022. The MCG Group is promoting activities that contribute to maximizing corporate value through sound risk-taking by management and company-wide optimization of risk responses by taking appropriate countermeasures based on a bird's-eye view and visualization of the various risks surrounding the MCG Group from both negative and positive perspectives.

• Risk Management System
• ERM Promotion Process
• Response to Material Risks
• Response to Risks Expected to Expand in the Future

Risk Management System

 The MCG Group has appointed the president & chief executive officer as the supervising officer for ERM of the Group and established the ERM Committee, which consists of the president & chief executive officer and all corporate executive officers and executive officers. The committee deliberates on important matters such as the Group’s basic risk management policies, classifies and identifies material risks that could have a significant impact on the Group as a whole, and monitors the status of risk management. In addition, the status of risk management is reported to and supervised by the Board of Directors. Each corporate executive officer and executive officer responsible for supervision of an organization is designated as the primary supervisory officer for Companywide risks and promotes Companywide risk management under their direction. In each organization, each business group or corporate function head serves as the person responsible for ERM and, under their supervision, the manager of ERM and the person in charge of ERM promotes risk management on an organizational basis.

ERM Promotion Process

1.Risk identification and risk scenario creation

The Group’s risk management is predicated on the dual approach of Companywide perspective risk management activities, in which management identifies risks that may affect the Group’s business in advance and promotes measures on a Companywide basis, and organization-specific perspective risk management, in which each organization identifies risks and addresses them on an organization-by-organization basis.

2.Risk assessment

Under the supervision of the primary supervising officer, the responsible division assesses Companywide perspective risks according to their impact and possibility of occurrence based on an assumption of specific circumstances and events. For organization-specific perspective risks, the manager of ERM and person responsible for ERM in each organization identify and assess their own organization’s risks and examine and implement countermeasures. However, risks that could affect the entire Group are deliberated on by the ERM Committee and regarded as Companywide perspective risk activities, ensuring that there are no omissions in countermeasures and their scopes.

3.Determination of MCG Group Material Risks

From the Companywide perspective risks and organization-specific risks, the ERM Committee regularly identifies material risks that should be prioritized for management in light of international situations and the business environment.

4.Planning, Review, and Implementation of Risk Response Measures

The responsible division not only examines countermeasures to be taken on a Companywide basis and promotes them on its own; it also requests each organization within the Group (including subsidiaries) to take such countermeasures as necessary. In addition, each organization will work on action plans to be implemented by each organization under the direction of the manager of ERM.

5.Monitoring

The responsible division monitors the implementation status of Companywide perspective risk countermeasures taken by each organization and requests each organization to take additional countermeasures as necessary. The manager of ERM monitors the implementation status of organization-specific risks and reports to the person responsible for ERM. The person responsible for ERM requests implementation of additional countermeasures, as needed.

Response to Material Risks

 The ERM Committee strives to ensure that material risks are appropriately managed through the primary supervising officers’ reports on the status of responses, assessing the effectiveness of risk countermeasures, and requesting each organization to implement additional measures as necessary.
In fiscal 2024, the ERM Committee identified seven risks, including geopolitical risk, supply chain risk, and information security risk, as material risks. The Company is taking measures based on the specific circumstances to avoid and mitigate the impact of such risks on its business performance and financial position.

Response to Risks Expected to Expand in the Future

The MCG Group has developed a medium- to long-term strategy to address the following risks that are expected to grow in the future.

Risks Related to Climate change:

While the chemical industry is a sector generating a large amount of GHG emissions, it is also an industrial segment that can contribute to reducing GHG emission volume through its products.
In case the industry cannot meet requests for GHG reduction from customers giving priority to compliance with environmental standards for their products and energy-saving effects, it will run the risk of its earnings being adversely affected in the future.
Therefore, the MCG Group has set a quantitative target of "revenue from sales of sustainability-related products (products that improve sustainability themes, particularly those of climate change, circular economy, and food supply),” and we are developing products that contribute to the fight against these themes.

Risks Due to Changing Market Needs:

The MCG Group, with its core business in chemicals, is constantly required to improve the quality and performance of its products, especially in the area of performance products, and we must develop and provide products that meet market needs in a timely manner. In addition to this, many companies have recently been required to shift to alternatives for plastic products due to the impact of waste plastic in the oceans, etc.
In response to such changes in market needs, we are keeping a close watch on regulatory trends in the use of plastic products and changes in customer requirements based on such trends. However, if such trends change significantly beyond our expectations, our competitiveness may be adversely affected.
Therefore, we have positioned the circular economy as an important strategy and are pushing forward with green transformation to develop and provide products that meet market needs for reducing environmental impact in a timely manner, based on key technologies such as plastic recycling and biodegradable plastics.
We also participate in domestic and international initiatives such as CLOMA and AEPW to implement comprehensive efforts to solve the plastic waste problem.

Risks Associated with Changes in International Situations:

The MCG Group has a wide range of global operations, including exports of products and local production.
The destabilization of international affairs not only affects each region and business around the world; it also affects economic activities due to destabilization of raw material and fuel prices, rising transportation costs, and other elements, and such impacts could spread even further.
In addition, there is a possibility of supply chain fragmentation due to changes in the international situation regarding economic security. We consider this as a highly significant risk that may affect the business performance of the MCG Group and will establish a company-wide and cross-sectional response organization to strengthen our supply chain.

Risks Due to Changes in the Human Resource Recruitment Environment:

Securing Human Resources

With the rise of the millennial generation and other diversifying values, if we cannot clearly present the value of working for the MCG Group, we may not be able to secure the appropriate human resources, which will be a risk of delays in the realization of our management strategy and progress of our management plan.
In order to improve recruiting competitiveness and strengthen retention, we will enhance the value of working for the MCG Group and employee engagement by strengthening talent management, providing career development support to employees, creating an environment for growth, improving the workplace environment, and enhancing recruitment branding, etc.

Diversity Equity & Inclusion (DE&I)

While innovation is essential for corporate growth, a lack of diversity, which is the source of innovation, can hinder corporate growth and reduce resilience.
In order to foster an organizational culture that embraces and leverages diversity, we will maintain and improve diversity by continuously raising employees’ awareness, instilling a philosophy for leveraging diversity, abolishing personnel management based on attributes, and promoting measures that are appropriate to the situation of each segment.

Risks Related to Digital Technology:

As digital technologies such as AI and IoT develop rapidly, there is a risk that the MCG Group's competitiveness will decline due to delays in the promotion of DX and business process innovation, which could have a negative impact on business performance.
To cope with this risk, we will continue to strengthen our digital strategy promotion system. We will also aim to improve productivity, and we will maintain and acquire business competitiveness through business transformation by utilizing new digital technologies and expanding the project promotion system, as well as improve the digital literacy of employees and promote DX (citizen development) within each business group and function.