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 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 FY 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 Sustainability Officer (CSO) 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 unit and at each Group company. Additionally, the CSO promotes measures toward risks that require a consistent response policy across the entire Group.

Furthermore, 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.

Risks are occurring much more frequently as the external operating environment continues to change at greater speed. To respond to these risks in a more resilient manner, we have been working to transform our management structure since FY2023 to accelerate management decision-making and business execution.

Specifically, we have centralized the business units under the direct control of the CEO in an effort to flatten our organizational layers. By doing so, we have been enhancing our head offices' ability to draft and monitor business strategies and plans. At the same time, we are making efforts to further delegate decision-making authority to the business units to strike a balance between swift business execution and risk management.

We are also prioritizing management of risks pertaining to the Reforms for Profitability Improvement initiative as strategic risks.

The COVID-19 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, there was a significantly delayed recovery in demand for carbon fibers for aircraft.

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, 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, and engaging in ongoing efforts to rigorously monitor profitability. As a result of such efforts, demand for aircraft has recovered and profitability has improved.

In regard to the lockdowns and other policies in China following the country's zero-COVID policy, which commenced at the end of March 2022, we closely monitored the impact on supply chains disruptions and the suspension of operations at our manufacturing facilities and those of our customers that have resulted from this policy, as well as the situation concerning sluggish demand since the policy's implementation.

With regard to rising geopolitical risks around the world, including the invasion of Ukraine and the circumstances surrounding North Korea and Taiwan, we have set up a Groupwide emergency response structure and emergency evacuation program, and 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 their 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 Policies

We have broken down strategic risks into five different categories: Macro environment risks, market and competitive environment fluctuation risks, policy change risks, fundraising and financial soundness risks, and individual strategic risks. We have also 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 strategic risk map. Based on this analysis, we have established response policies in accordance with the level of urgency and impact and have swiftly begun to put these policies into action.

In FY2023, in particular, we identified areas of our risk management structure that need to be improved, taking into account a review of our risk management activities in the previous fiscal year. In addition, we have been working to further enhance our monitoring of risks that require prioritized management, including those pertaining to progress of the Reforms for Profitability Improvement initiative, and to strengthen our response for when such risks actualize.

Identify and analyze strategic risks

Operational Risks: Identification and Analysis, and Relevant Response Policies

We have broken down operational risks into six categories: Natural disaster, manufacturing, product and quality, legal and ethical, information security, and others. We have also identified and analyzed recent operational risks based on their level of impact and frequency of occurrence. By doing so, we have positioned five categories of Groupwide risks as "serious Group risks" and are formulating policies to respond to these categories, which include: i) Climate change risks, ii) Human rights-related risks, iii) Information security risks, iv) Geopolitical risks, and v) Safety 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

The CSO is in charge of operational risk and conducts Groupwide operational risk management including overseas subsidiaries based on the system below. The CSO also works on a cross-organizational level to ascertain and confirm the status of risk management in each business unit and at each Group company. Additionally, the CSO promotes measures toward risks that require a consistent response policy across the entire Group.

In FY2022, we continued to focus on climate change risks, human rights-related risks, information security risks, geopolitical risks, and safety risks as "serious Group risks" for which the Group needs to take priority to address. We also commenced the rollout of response policies and measures for these risks, with each chief officers taking the lead.

Furthermore, through risk assessments (July-September) and the Chief Sustainability Officer Review (October), which are part of our conventional risk management process, we checked the management status of serious material risk items in each business and functional area and confirmed that concrete responses were taken. After being reviewed by the TRM Committee twice during the fiscal year, these activities were reported to the Board of Directors.

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 introduced the "three lines of defense^*" of an integrated framework for internal control.

• *First line of defense (business units, Group companies, etc.): Basically, business units and Group companies respond to risks as risk owners.
  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, the department provides rational advice and recommendations, etc., on risk management.

The Teijin Group formulates business continuity plans (BCPs) and promotes business continuity management (BCM) to ensure business continuity even in the event that a large-scale disaster or unexpected incident occurs, and to restore operations in the shortest time possible in the unlikely event that they are suspended due to such occurrences.

In FY2022, we commenced examinations on how to adopt a structure for enacting a swift response during an emergency, even in an environment where remote working has become commonplace following the COVID-19 pandemic.

There were no reports of damage to Teijin Group personnel or facilities in FY2022 due to earthquakes, storms, or floods in Japan. Roofing panels at some business sites were damaged due to flooding and heavy winds caused by Typhoon No. 14, which occurred in September 2022, but there were no casualties and operations were not impacted.

In the healthcare business that sustains home healthcare, we confirmed the safety of patients using therapeutic oxygen concentrators in areas that were severely affected and delivered spare cylinders.

As a part of our BCM efforts, disaster prevention drills and earthquake evacuation drills are conducted annually at Teijin's business locations and research facilities in Japan.

In FY2022, we conducted emergency response drills at our head offices in anticipation of a wide-area, large-scale disaster.

Safety verification drills for a time of emergency utilizing a system ("Emergency Call") provided by Infocom Corporation of the Teijin Group are conducted annually.