Risk Management

The term "risk" has many meanings, but the MCG Group defines risk as "an uncertain event that may have a favorable, unfavorable, or both effects on the achievement of goals.
In response to the diversification and complexity of risk, the MCG Group introduced ERM (Enterprise Risk Management) in the fiscal year 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

The MCG Group has established a risk management system based on an organizational management system that emphasizes the "One Company, One Team" management line. The MCG Group ERM Committee is chaired by the MCG President, who is the Chief ERM Officer based on the "ERM Basic Regulations," and is composed of the Primary Supervising Officers (Vice Presidents) in charge of their respective risk category areas. The ERM Committee deliberates and decides on the status of management of Material Risks and risk management policies that affect the entire MCG Group, and it reports the details of these decisions to the Board of Directors as necessary.
The ERM Committee is held twice a year in principle and is also held on an as-needed basis.
In each organization connected to the ERM Committee, Person responsible for ERM, Manager of ERM, and Person in charge of ERM are assigned to each business group and function to promote ERM.

Risk Management System Conceptual Diagram: The Risk Management System has “MCG’s Board of Directors,” “MCG Risk Management Committee,” “Each company’s Board of Directors,” and “Each company’s Risk Management Committee.” 
                  “MCG Risk Management Committee” consists of “Risk Management Committee Chairperson: President (Chief Risk Management Officer)”  “Vice-Chairperson,” “Secretariat (Internal Control Office),” and “Committee members.”
                  “Each company’s Risk Management Committee” consists of “Risk Management Committee Chairperson: Each company’s President (Chief Risk Management Operating Officer),” “Vice-Chairperson,” “Secretariat” and “Committee members.” 
                  Each company’s “Risk Management Committee Chairperson: Each company’s President (Chief Risk Management Operating Officer)” participates in “MCG Risk Management Committee.”
                  “MCG Risk Management Committee” gives instructions to “Each company’s Risk Management Committee” and “Each company’s Risk Management Committee” makes reports to “MCG Risk Management Committee.”  
                  “MCG’s Board of Directors” supervises and receives reports from MCG’s “Risk Management Committee Chairperson: President (Chief Risk Management Officer),” and “Each company’s Board of Directors” supervises and receives reports from “Risk Management Committee Chairperson: Each company’s President (Chief Risk Management Operating Officer).”

ERM Promotion Process

1.Risk identification and risk scenario creation

MCG Group ERM selects risk categories of concern based on the internal environment, such as business type and business characteristics, and the external environment, such as political and social conditions in each country, and it identifies possible individual risks in each risk category. The Responsible Division under the supervision of a Primary Supervising Officer is established for each risk category to select individual risks and develop risk scenarios.

2.Risk assessment

The Responsible Division assesses individual risks based on risk scenarios developed by the Responsible Division, using a common set of risk assessment indicators for the MCG Group to evaluate risk in terms of impact and likelihood of occurrence. The impact is evaluated not only based on financial factors, but also on non-financial factors such as human life, reputation, management plans, business goals/plans, human capital, and social impact.

3.Determination of MCG Group Material Risks

The MCG Group ERM Committee determines the MCG Group Material Risks to be addressed in the next fiscal year, taking into consideration the risk management matrix created based on the results of the risk assessment.

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

The Manager of ERM formulates an action plan (RM Plan) to be implemented by the organization in the next fiscal year based on the risk response measures formulated by the Primary Supervising Officer (Responsible Division), and reports to the Person responsible for ERM.

5.Monitoring of Implementation of Risk Response Measures

The Responsible Division monitors the implementation of risk response measures in each organization based on the progress of the RM Plan, reports to the ERM Committee, and directs additional measures as necessary.

Initiatives for Material Risks

Based on the decision of the MCG Group ERM Committee, the MCG Group addresses nine Material Risks (supply chain risk, information security risk, etc.) with a focus on geopolitical risk, which is one of these Material Risks prioritized in the fiscal year 2023.
Since these risks are interrelated, each Primary Supervising Officer (Responsible Division) works together to address these MCG Group Material Risks and reports the status of the response to the ERM Committee on the status of the response.
The ERM Committee regularly evaluates the effectiveness of these risk response measures and issues instructions for additional measures as necessary.

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 situation in Russia and Ukraine appears to be protracted, and its effects are not only spreading to other regions and businesses but also affecting economic activities due to unstable raw fuel prices and rising transportation costs, etc., which may spread 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 (Purpose, Slogan, Our Way) 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.

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