In addition to enhancing shareholder value, the mission of the Teijin Group is to conduct sustainable business activities that deliver value to its shareholders and all of its other stakeholders.

In light of this mission, the Group strives to comprehensively and effectively assess, evaluate, and manage the various risks that could threaten the realization of its mission. By doing so, the Group adopts an organizational and systematic approach to risk management that leverages its Groupwide management capabilities.

Specifically, the Group has in place a Total Risk Management (TRM) system targeting both strategic risks which relate to such factors as the formulation of management strategies and plans, the implementation of strategic actions, and the determination of individual investment projects and operational risks, which involve various adverse events that can negatively affect the Group's operations, in order to address the various risks that impact the sustainable growth of the Group.

Established in fiscal 2003, the TRM Committee, chaired by the CEO, serves under the Board of Directors. The Board of Directors deliberates and decides the basic policy and annual plan related to TRM proposed by the TRM Committee.

At the same time, the Board of Directors formulates systems for managing important risks and ensuring business continuity. Also, the statutory auditors conduct audits to check whether the Board of Directors is appropriately handling policy decisions, overseeing, and monitoring with regard to TRM.

The CEO is in charge of assessing strategic risks and provides this assessment as valuable information to the decision-making process of the Board of Directors and other bodies. The Chief Social Responsibility Officer (CSRO) is in charge of overall Groupwide operational risks, including risks facing overseas Group companies, and works on a cross-organizational level to ascertain and confirm the status of risk management in each business group and at each Group company as well as to formulate consistent response policies.

Through these efforts, the CSRO helps reinforce Groupwide risk management. In addition, the Group is working to clarify how risks and opportunities presented by trends in the macroeconomic environment relate to its materiality and follows up on such risks accordingly.

Amid the prolonged COVID-19 pandemic, we are monitoring the impact of the pandemic on the Group's operations and are executing response measures to address areas that have already been impacted by the pandemic. At the same time, we are preparing response measures on an ongoing basis in anticipation of the pandemic's prolongation.

The pandemic's impact on the global economy has had a major effect on our performance in the Materials Business Field, for which automotive and aircraft applications serve as the main market. In particular, demand for carbon fibers for aircraft remains sluggish, although a recovery trend is starting to emerge.

As part of our efforts to address this issue, we are working to enhance production and operational efficiency by expanding into other applications for which demand is robust. We are also striving to increase profitability by improving our sales mix.

Furthermore, while rigorously monitoring profitability, we are promoting development geared toward the acquisition of large-scale programs for carbon fiber intermediate materials for aircraft for which demand is expected to recover over the medium to long term.

In regard to the lockdowns and other policies in China following the country's zero-COVID policy, we are closely monitoring the impact on supply chains and the suspension of operations at our manufacturing facilities and those of our customers.

With regard to the Russian invasion of Ukraine in February 2022, we have set up an emergency response structure under which we have been providing humanitarian aid. We have also been carrying out appropriate measures to respond to the risks brought about by this invasion after analyzing and evaluating its direct and indirect impacts on our operations.

The details on the recognition of strategic risk and operational risk that the Group manages under the TRM Committee are as follows.

Strategic Risks: Identification and Analysis, and Relevant Response Measures

We have analyzed specific and recent strategic risks, including those already actualizing in our business strategies, from the perspectives of level of impact, period of actualization, and fluctuation trends, by making use of a risk map. Based on this analysis, we have established response measures in accordance with the level of urgency and impact and have swiftly begun to put these measures into action.

Identify and analyze strategic risks

Operational Risks: Identification and Analysis, and Relevant Response Measures

We have identified and analyzed recent operational risks based on their level of impact and frequency of occurrence. By doing so, we have positioned four categories of Groupwide risks as "serious Group risks" and are formulating policies to respond to these categories, which include: i) Climate change risks; ii) Risk of human rights infringements in the supply chain; iii) Information security risks; and iv) Geopolitical risks (see table below).

Identify and analyze operational risks

• *Materiality: 1 = Climate change mitigation and adaptation; 2 = Achievement of a circular economy; 3 = Safety and security of people and local communities; 4 = Realization of healthy and comfortable living for people; 5 = Further strengthening of our sustainable management base

We conduct Groupwide operational risk management including overseas subsidiaries based on the system below. The CSRO and the Corporate CSR and Compliance Department strengthens the risk management system for the entire Group by grasping and confirming the individual risk management conducted by each business group (unit) and Group company across the entire Group, and by establishing unified risk response guidelines.

In FY2021, through risk assessments (July-September) and the Chief Social Responsibility Officer Review (October), we checked the management status of serious material risk items in each business and functional area and confirmed that concrete responses were taken.

In the same fiscal year, in addition to the use of the risk management tool (ERMT) globally, we have positioned the four risks of climate change risk, risk of human rights violations, information security risk, and geopolitical risk as "significant Group risks", and have started examining response guidelines and the like with the Chief Officers.

Further, we are committed to improving the systems and maintenance of risk management-related regulations and frameworks. The Teijin Group's basic concepts of risk management, which have been included in the existing risk management regulations, have been summarized in the Group Risk Management Regulations, and the risk assessment methods and crisis management operation procedures common to the Teijin Group have been clarified as for the Risk Management Implementation Regulations , and reorganized as subordinate rules. Furthermore, as a risk management system for the entire Group, we have newly introduced the "three lines of defense^*" of an integrated framework for internal control.

• *The first line of defense (business units, Group companies, etc.); Basically business units and Group companies respond to risks as risk owners.
  The second line of defense (chief officers, CSR Committee, subcommittees, regional control etc.): Basically providing support and monitoring the first line of defense to prevent and reduce serious risks, etc. to the Group among other things.
  Third line of defense (Corporate Audit Department): From an independent standpoint from the first and second lines of defense, it provides rational advice and recommendations etc. on risk management.