Risk Management Activities

The Teijin Group has in place a Total Risk Management (TRM) systems targeting both strategic and operational risks to comprehensively manage risks, and the TRM Committee has been conducting total risk management.

Total Risk Management (TRM)

The Teijin Group has in place a Total Risk Management (TRM) system targeting both strategic and operational risks, as a preventative measure against the uncertainty that the Company may face, and the TRM Committee has been conducting total risk management. 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 formulates our stance on managing important risks and ensuring business continuity. Also, the statutory auditors conduct audits to check whether the Board of Directors is appropriately conducting policy decisions, supervising, and monitoring regarding TRM.

The CEO is in charge of assessing strategic risk and provides this assessment as materials valuable to the decision-making process to the Board of Directors and other bodies. The Chief Social Responsibility Officer (CSRO) is in charge of establishing a cross-sectional risk management system regarding operational risk, and shall identify and deal with problems and respond to crises when they occur.

Risk Recognition

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

Strategic risk

Strategic risks are primarily identified from factors that have the potential to significantly impact our business performance and financial position, and these risks are assessed based on the assumption of such impact. For risks related to market and competitive environment fluctuations, in particular, we create contingency plans in advance. At the same time, we conduct monitoring of these risks on an ongoing basis, including signs of potential risk occurrence, and prepare ourselves so that we can swiftly adapt our management strategies and other policies should such risks occur. Amid the current slowdown in the global economy and the decline in demand for automobiles and aircraft, two key markets, due to the impact of COVID-19, we are putting our contingency plans into action and implementing response measures with a focus on the medium to long term.

  Details on risks that impact business performance and financial position Business primarily impacted by risk
Macroenvironment risk Economic trends
  • Fluctuations in sales due to the economic trends and conditions in each country and region of operation as well as the trends in the automotive and aircraft markets, which are major markets where the Group supplies products and services
Materials/Fibers & Products Converting
Fuel prices
  • Fluctuations in costs due to changes in the prices of raw materials used for products and fuel used in the production process
Foreign exchange rates
  • Fluctuations in the exchange rates needed to reflect transactions in foreign currencies in the financial statements and convert the foreign currencies in the financial statements of overseas consolidated subsidiaries into yen (e.g., if the yen appreciates by ¥1 against the US$, over the year it will push down operating income by approximately ¥0.4 billion)
Interest rates
  • Fluctuations in interest rates for interest-bearing debt
Market and competitive environment fluctuation risk Competitive environment
  • Fluctuations in supply–demand structure due to changes in the competitive environment
Impact on demand in the supply chain
  • Inventory adjustments that exceed the real economy in each stage of the supply chain caused by changes in end-user demand within the materials, intermediate materials, and components supply businesses
Materials/Fibers & Products Converting
Resource investment risk
  • Forgo of or delay in the execution of capital expenditures or M&As due to the inability to find projects compatible with strategies
  • Major divergence of R&D results from targets against the R&D expenses invested
Policy change risk
  • Tightening of GHG emissions regulations, plastic product regulations, and other regulations to a greater extent than expected
  • Emergence of global protectionism including the recurrence of trade conflicts between the U.S. and China
  • Acceleration of domestic drug price revisions and other government policies to curtail medical costs
Financial soundness risk Impairment loss on noncurrent assets
  • Occurrence of an impairment loss on non-current assets owned by the Group, owing to such factors as a decline in profitability from an extreme worsening of the economic environment, among other factors
Reversal of deferred tax assets
  • Occurrence of loss on deferred tax assets in the event some or all deferred tax assets are deemed unrecoverable due to changes in estimated future taxable income

Operational risk

For operational risks that negatively affects the Company, we plot each specific risk item on a two-axis risk map by the occurrence frequency and the estimated amount of damage to identify the major risk items that have a large impact and manage them accordingly. Through this risk identification process, risk trends for the Group and each business group are summarized, and comparisons and analyses are conducted over the years. The risk extraction and evaluation methods are reviewed according to the changes in the business environment and the evolution of risk management methods in society.

  Details on risk that impacts business operations Main countermeasures
Natural disaster risk
  • Storm and flood damage and landslide damage due to typhoons, heavy rains, etc., stemming from climate change
  • Occurrence of large-scale earthquakes, tsunamis, etc.
  • Rapid spread of infectious diseases
Aim to minimize damages and promptly recover when a disaster occurs through revisions of BCPs as needed and the implementation of various disaster training programs
Manufacturing risk
  • Burden on the environment from the inappropriate handling of hazardous chemical substances, industrial waste, etc.
  • Explosions, fires, or other major accidents at chemical plants owned by the Group
Set KPIs and work to manage and reduce hazardous chemical substances and landfill waste. Also, carry out various measures such as disaster-prevention examinations and educational activities and training based on disaster-prevention guidelines
Product and quality risk
  • Occurrence of major quality issues such as product and service defects
Establish independent divisions dedicated to secure quality and reliability at Teijin Limited and major subsidiaries such as Teijin Pharma Limited, thereby setting up a system to ensure quality assurance across all business activities based on strict quality management standards
Legal and ethical risk
  • Occurrence of scandals such as violations of various laws/regulations, sexual harassment, power harassment, etc.
  • Occurrence of human rights issues within the supply chain
Amid increasing diversity of employees through M&As and other business activities, utilize Corporate Ethics Handbook to reinforce corporate ethics and the Code of Conduct on a global scale and thoroughly promote compliance. Also, strengthen efforts such as human rights due diligence and CSR procurement
Information security risk
  • External leakage of information due to disasters, cyberattacks, unauthorized access, etc.
Implement information security measures from both hard and soft perspectives in the handling of important information related to R&D, manufacturing, and sales as well as personal information

Groupwide system for operational risk management

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.

Operational risk management activities

In FY2019, we revised the operational policies of Chief Social Responsibility Officer Review, that plays an important role in risk management systems. The Chief Social Responsibility Officer Review enables the Chief Social Responsibility Officer to mutually confirm with business managers and others the status of operational risk management in business units and other organizations in accordance with the Regulations for the Teijin Group's Risk Management and is intended to ensure reliable implementation of the PDCA cycle in risk responses. Through the review, business units and other organizations are able to bolster their risk management completion capabilities, and the company enhance their Group-wide internal control capabilities in relation to oversight functions. Previously, the Chief Social Responsibility Officer Review was conducted in February, but this year it was changed to October so that the indications can be reported to and deliberated by the TRM Committee and necessary responses can be reflected in the annual plan for the following fiscal year, which starts in April.

Status of Business Operations Risk Responses and Business Continuity Plans

Response to natural disasters

Due to heavy rains in the Kyushu region in July 2019, Typhoon No. 19 in October, and other natural disasters, there were power outages at several factories in Japan and other minor impacts on facilities, but there was no direct harm to employees or their families. In the healthcare business, which supports home healthcare, we confirmed the safety of patients who use therapeutic oxygen concentrators in areas that incurred significant damage and delivered spare tanks and other necessary supports to them.

Implementation of business continuity drills

As a part of our Business Continuity Management (BCM) efforts, disaster prevention drills and earthquake evacuation drills are conducted annually at Teijin’s business locations and research facilities in Japan.

In FY2019, we augmented the Iwakuni Office general disaster preparedness drill by conducting a cooperation drill that included emergency contact via satellite telephone to the Tokyo headquarters. We confirmed procedures for the Headquarters to rapidly gather information on the emergency conditions at factories in Japan and connect to the public relations division.

Safety verification drills

Safety verification drills for a time of emergency were held from July 2018 to February 2019 utilizing a system (“Emergency Call”) provided by Infocom Corporation of the Teijin Group are conducted annually. In FY2016, we introduced a process to trace and re-confirm the safety of employees whose safety cannot be confirmed within 24 hours of reporting, and the rate for verifying employee safety within 48 hours after alarm activation in FY2019 was 99.8%, about the same as the 99.9% rate in FY2018.

Responses to COVID-19

In response to the global spread of COVID-19 infections, the Teijin Group established an Emergency Response Headquarters in January 2020 and continuously grabed circumstances throughout the Group, formulated and implemented countermeasures according to the stage of infection, and disseminated information and coordination of support materials within the Group.

The Group has actively responded to the spread of COVID-19 through various countermeasures and activities including the provision of pharmaceuticals and medical products manufactured by the Group, supply of medical gowns and other equipment to support medical fields, and other measures.