Risk Management

• Serious compliance violation could result in criminal penalties and damages, as well as reputational damage, etc. With regard to compliance, it is also necessary to respond to new laws and regulations as we enter new businesses and to respond to the continual strengthening of laws and regulations.
  
• In recent years, there has been a trend toward changes in laws and regulations affecting business activities, such as moves to ensure economic security in major countries and strengthening of various systems, including legislation to reform work styles, etc., and failure to properly comply with necessary laws and regulations may lead to prosecution by authorities in countries, loss of business opportunities, and increased burden due to delays in implementation in society.

• This may lead to the growth of the Mitsui Chemicals Group, such as improving the superiority of our business base by appropriately and promptly responding to regulatory changes.
  

We will address these risks as follows:

• Improvement of compliance awareness through systematic promotion of Group compliance measures, strengthening of education and awareness-raising activities, and penetration of our Global Policy using the Mitsui Chemicals – Global Risk Management & Business Support Improvement Platform (M-GRIP)
• Improve the superiority of our business base by collecting and sharing information from government agencies, industry associations, etc., and by responding appropriately and promptly to regulatory changes, such as by reliably implementing measures to comply with new laws, regulations, etc.

• Recently, as markets have become more complex and diverse, business domains have become more ambiguous, and potential domains that cannot be addressed by the Group's existing assets alone have expanded, etc., it is becoming increasingly important for us to respond to the needs, customs, and changes in market structure specific to each country and region in which we operate. Failure to act appropriately in such situations and make continuous progress in creating new businesses could put us at a competitive disadvantage and result in missing opportunities for growth.
  
• When innovative technologies emerge and market conditions change, the Group may lose its technological advantages and its products may become obsolete and lose competitiveness.

• Creation of new business opportunities through the development of new products that meet changing needs, advancement of the global solutions-based business, expansion of new business pipelines through the appropriate establishment of a development system, continuous creation of new businesses, etc. may lead to our growth as a Group.
  

We will address these risks as follows:

• Create new businesses on a global scale by strengthening internal and external collaboration (with other companies, academia, our New Business Incubation Center, etc.), building a business development system that spans across domains, commercializing corporate research, developing business development bases in targeted markets and regions, and discovering business ideas originating from local regions, etc.
• Technological innovation through the formulation and review of medium- to long-term technological development plans, strengthening of development systems by utilizing interdepartmental collaborative projects, etc.

• Following the adoption of the Paris Agreement in 2015, efforts to realize a decarbonized society have become more active on a global scale, and social demands to reduce GHG emissions have been increasing. Such demands include progress in the introduction of carbon pricing systems in countries around the world and progress in green transformation (GX) policies in Japan. While our Group, which uses large amounts of fossil fuels and energy and emits GHGs, is also promoting measures to become carbon neutral, reputational damage due to delays in GHG emission reduction plans, increased costs associated with carbon pricing and difficulties in securing low-carbon raw materials and fuels, and lower product added value and slower sales growth due to delays in the development of Blue Value™/Rose Value™ products may occur.
  

• Corporate growth through the creation of new businesses that contribute to the decarbonization of society, reduction of the Group's carbon costs through GHG reductions, and reduction of our customers' carbon costs through the provision of low-carbon and decarbonized products may also lead to our Group's growth.
  

• Appropriate promotion of measures related to carbon-neutral strategies, such as conversion to low-carbon raw materials and fuels, energy conservation through the introduction of high-energy-efficiency equipment, introduction of renewable energy, development and introduction of carbon-negative technologies such as carbon capture, utilization, and storage (CCUS), development of biomass products and recycled products, expansion of Blue Value™ and Rose Value™ products and services, reduction of costs associated with carbon pricing, and others.

• As a material used in a wide range of applications, plastic has contributed to improving the convenience of life and solving social issues. Recently, however, challenges facing society such as resource depletion and environmental pollution caused by plastic waste leaked into the ocean have become more severe, so a shift to a recycling-oriented society is needed. The Group, which manufactures and sells chemical products, takes this issue seriously and aims to contribute to a recycling-oriented society by promoting measures such as conversion to biomass raw materials, expansion of biomass product lines, and promotion of recycling as a means of efficient use of resources and utilization of renewable resources. However, there is a possibility of an increase in plastic bashing, a decline in reputation due to delays in implementing measures, and an increase in costs due to difficulties in procuring raw materials such as waste plastics.
  
• Recently, social demands for the preservation and restoration of natural capital have also been increasing. The Group has also established basic approaches to conserving water resources and biodiversity, and is striving for efficient use of water resources in manufacturing processes, conservation and proper management of the water environment, and minimization of adverse effects on biodiversity throughout the life cycle of chemical products. However, there is a possibility that these measures will be delayed, resulting in reputational loss and an increase in costs due to a sharp rise in the price of water resources.

• This may lead to the growth of our Group by improving recycling technology, adding higher value to our products, securing a leading position in the industry regarding resource recycling such as establishing circles for procurement and supply of raw materials and products, and developing and building businesses that contribute toward resolving water issues.
  

We will address these risks as follows:

• Participate in cross-industry coalitions such as the Alliance to End Plastic Waste (AEPW) and the Clean Ocean Materials Alliance (CLOMA) to keep abreast of global issues, define and set targets for recycling volumes/ratios, secure a leadership position in the industry on plastic waste issues by improving recycling technologies, and develop product strategies that promote the value of recycling, etc.
  
• Raise awareness across the Group on the need to conserve and restore natural capital by deepening initiatives for water security, developing and building businesses that contribute to the conservation of water issues and biodiversity, and responding to TNFD, CDP, and other disclosure requirements

• In recent years, social demands for respect for human rights in corporate activities have been increasing, and companies are being required to appropriately address various human rights risks that may arise along the value chain. The Mitsui Chemicals Group recognizes respect for human rights in business activities as a foundation of its development and pursues just business throughout the supply chain from the viewpoint of "having a high regard for people." However, if the establishment and operation of a human rights risk management system is found to be inadequate, and procurement and purchasing with human rights issues or an inappropriate labor environment are found to exist in the value chain, our reputation decline, which in turn could harm our corporate value.
  

• This may lead to the growth of the Group, such as gaining the trust of stakeholders through initiatives that promote respect for human rights.
  

• Reduction of human rights risks by developing a system that responds human rights risks throughout the value chain, including implementation of human rights due diligence and establishment of a grievance mechanism

• Recruiting appropriate human resources is essential for the continuation and growth of the Group's business in the future. We promote human resource strategies that are linked to management strategies so we can recruit the people we need and develop both the Company and our employees. However, due to the decline in the working population and the mobility of human resources, as well as the increasing need for human resources in specific fields, we may not be able to hire and secure the necessary human resources and execute our growth strategy.
  
• Recently, social demands for organizations that are inclusive of diversity, where diverse human resources respect each other and can demonstrate their abilities, have been increasing. Although the Group promotes diversity not only to fulfill its social responsibility but also to ensure the sustainable growth of the Group, there is a possibility of experiencing reputational loss due to failure to achieve goals, weakened recruiting competitiveness, and reduced engagement.
• Corporate activities are based on the understanding of various stakeholders, but recently, the evaluation criteria used by stakeholders have been diversifying, and there is a possibility that insufficient information disclosure or lack of recognition and empathy toward the Company may diminish the Company's reputation, which in turn may damage our corporate value.

• The acquisition of talent may lead to a change in corporate culture, revitalization of the organization, and realization of management that also takes into account the opinions of stakeholders, which may lead to the growth of our Group.
  

We will address these risks as follows:

• Acquisition of new talent and corporate culture change through promoting the use of the Group's human resources, reskilling, and building internal systems that enable innovator human resources and human resources in specific fields to play an active role
• Brush-up of measures to empower women in the workplace, promotion of employment of people with disabilities throughout the Group, and revitalization of the organization through expanding the application of systems and creating the necessary environment for sexual minority employees
• Enhancement of corporate value by appropriately reflecting shareholder opinions in management through information disclosure and enhanced dialogue with major institutional investors, appealing stories of sustainable growth and corporate value creation to stakeholders, and promotion of management that integrates financial and non-financial aspects

• Recently, the speed of change in various aspects of business is accelerating due to the evolution of digital technology. The introduction and use of digital technology has become an essential element of business continuity and growth, as cases of existing businesses being disrupted by new business models in other industries have emerged. Yet the possibility exists that we will be slow to respond and be unable to reform our operations or bolster our development capabilities.
  
• In addition to an increase in system troubles due to the technical advancement and specialization of applications, cyber attacks are intensifying. If information system security is inadequately constructed, information systems may become dysfunctional or information may be leaked from within the Company, which may damage business performance and credibility.
• The Group's basic strategy under VISION 2030 is "corporate transformation through DX," and it is imperative to swiftly develop and strengthen the IT and data infrastructure that supports this strategy. As demands aimed at companies continue to diversify, continued use of current business operation systems may not achieve greater efficiency due to increased labor-hours related to new operations to be addressed, occurrence of human errors, and other factors.

• The use of optimal digital technology may lead to the Group's growth, such as strengthening development capabilities and productivity through the use of optimal digital technology, improving operational efficiency and productivity through the active use of new technologies such as generative AI, and improving management efficiency through the updating of business operation systems.
  

We will address these risks as follows:

• Improve organizational adaptability to DX and achieve a competitive advantage by maintaining and updating the Group's DX roadmap, sharing the latest trends and practices in each field through DX technology exchange within the Group, and establishing and adhering to company-wide guidelines for the utilization of GPT and other key technologies
  
• Reviewing operations, improving efficiency, production, and technical capabilities through utilization of digital technology
• Strengthening information system security by establishing a defense system against cyberattacks, improving Internet traceability, raising employee awareness and establishing learning opportunities and announcing company rules, etc. throughout the Group
• Improving business efficiency by introducing new business operation systems