Risk Management

Status of Establishment of Internal Audit System

1. (1)In accordance with the basic policy regarding system development necessary to ensure proper business operation, Nippon Soda establishes and implements systems that ensure compliance and efficient and sound company management, and provides information on relevant rules throughout the Company.
2. (2)We promote CSR (corporate social responsibility) practices in order to maintain the trust of society needed to continue our business activities.

Regulations on the Risk Management of Losses and Other Systems

1. (1)We ensure corporate activities are in compliance with laws, regulations and corporate ethics by ensuring all employees are fully informed of the Nippon Soda Group Code of Conduct.
2. (2)We have established a Corporate Social Responsibility Administration Meeting chaired by the President and executive officer to promote business activities taking into account environmental protection, occupational safety and health, process safety and disaster prevention/business continuity plan (BCP), logistics safety, and chemical and product safety. In addition, we implement risk management in accordance with Company regulations such as the Environmental Management Regulations and Security Management Regulations to prevent accidents from occurring.
3. (3)Should a serious accident occur, an accident response headquarters is established in accordance with corporate rules, including the Security Management Regulations, to address the accident in a crosssectional and systematic way.
4. (4)If a natural disaster, such as a large earthquake, or any other crisis that could have disastrous consequences occurs, we shall respond appropriately according to the BCP.
5. (5)Other risks associated with business execution are appropriately addressed by responsible departments in accordance with response manuals and other documents.
6. (6)The Internal Control & Audit Department has been established independently from business departments to assess the appropriateness and efficiency of business activities and the reliability of financial reports and to promote the appropriate functioning of the internal control system in business processes.

Internal Control Audits

The Company’s Internal Control & Audit Department, which is independent of the operating divisions, works closely with the directors who are also members of the Audit Committee, to assess the appropriateness and efficiency of business activities and the reliability of financial reports. The directors who are also members of the Audit and Supervisory Committee keep abreast of developments throughout the Nippon Soda Group and monitor and verify the proper execution of internal controls. Furthermore, to ensure the reliability of financial information and other information, they work in close cooperation with the accounting auditors, who report regularly and attend some of the audits.

Status of Establishment of Risk Management System

1. (1)Nippon Soda operates a Compliance Committee, which reports directly to the President, to ensure corporate activities in compliance with laws, regulations and corporate ethics throughout the Group.
2. (2)The Compliance Committee is comprised of executives. Also, each department, branch, worksite and Group company has its own compliance staff in place.
3. (3)The requirements that allow the Group to conduct sound business activities are specified in the Nippon Soda Group Code of Conduct, which is distributed to the management and all employees of Nippon Soda and its Group companies. In addition, training based on the Code of Conduct is regularly provided.
4. (4)A consultation hotline is available to employees of Nippon Soda and its Group companies who have violated internal policies or who have discovered violations committed by others to assist them in directly consulting with the Office of the Compliance Committee or an external lawyer or member of the Audit and Supervisory Committee.

Information Disclosure to Stakeholders

1. (1)We disclose management information, such as financial conditions and the status of business activities, in a timely and appropriate manner. As well, we provide clarifications on the Company’s management philosophy and policy.
2. (2)The director in charge of general affairs is responsible for investor relations, and plays a leading role in constructive communication with shareholders and investors to achieve the sustainable growth of Nippon Soda and improve its medium- to long-term value. If necessary, the Company offers opportunities for communication with the Representative Director & President, directors in charge and/or executive officers.
3. (3)Requests and opinions from investors and shareholders are conveyed to the Board of Directors and/or those concerned, as necessary, and reflected in business management.
4. (4)We have our own internal insider trading management rules. The Information Manager is primarily responsible for information disclosure.

CSR Activities

Nippon Soda’s basic policy is to contribute to society through its business activities by effectively using the technologies, knowledge and human resources accumulated since its foundation. Based on this policy, we engage in CSR practices to continue our business activities while earning the trust of society.

At every stage of the product lifecycle, from manufacturing to disposal, we practice Responsible Care (RC) to take environmental protection, occupational safety and health, logistics safety, and chemical and product safety into account in our business activities.

Information Security Management

Appropriate management and protection of our information assets is one of the priority issues in managing our business. Nippon Soda promotes information security management under the supervision of the director in charge of the Information Technology Department. In addition to the development of internal regulations such as the Information Security Policy, we are working to raise awareness of the importance of information assets by advocating the appropriate use of information systems in the Nippon Soda Group Code of Conduct. We are taking measures to strengthen the information security management system of the entire Group, including training at Group companies on how to deal with suspicious emails to prevent external viruses from infecting our computers.

Proper Management of Personal Information

In response to the adoption of the My Number system in January 2016, Nippon Soda developed the Basic Policy for Proper Handling of Specific Personal Information and the Specific Personal Information Handling Regulations to ensure the proper handling of personal information as an organization.

We collect, use, store and handle individual numbers (My Numbers) of executives, employees and their dependents in an appropriate manner, in compliance with laws and regulations related to the handling of personal information and individual numbers, and within the scope of use specified in the basic policy and handling regulations.

Business and Other Risks

1．Market risks

1. (1)Some of the Group’s businesses include products and services that are subject to economic fluctuations. Therefore, if market conditions fluctuate significantly due to changes in the economic environment, the Group’s results of operations could be significantly affected.
2. (2)In the Agro Products Business, earnings tend to increase in the fourth quarter due to the seasonal nature of demand. In addition, the Group’s business results may be significantly affected by weather fluctuations, as the Group’s businesses tend to be susceptible to weather conditions.
3. (3)Predominantly through the Chemicals Business and the Agro Products Business, the Group conducts business on a global scale. Moreover, around 55% of our sales in the Chemicals Business and the Agro Products Business are overseas. As such, unforeseen changes in local laws and regulations in each country or region; large-scale epidemics; geopolitical risks such as wars, riots, or terror, or other unexpected factors; trade wars caused by national or regional conflict; and/or other factors could have a significant impact on our business performance. Tasked with collecting information on risks and analyzing business trends in each country and region we conduct business, we have therefore established local subsidiaries to act as our hubs in those areas.

2．Exchange rate fluctuation risks

1. (1)The Group operates on a global basis and foreign currency fluctuations affect net sales and materials procurement costs in foreign currencies. For this reason, we seek to mitigate the impact on operating results through forward foreign exchange contracts.
2. (2)Since the yen-translated figures of overseas consolidated subsidiaries and equity-method affiliates in the consolidated financial statements are influenced by foreign exchange rates, dramatic fluctuations in foreign exchange rates may have a significant impact on the Group’s performance.

3．Raw materials procurement risks

If the Group is unable to secure the materials used in its products, or if the price of materials fluctuates drastically, the Group’s performance could be significantly affected. For this reason, we strive to ensure stable procurement of materials and reduce the impact of rising material prices on our business performance by implementing measures such as lowering the cost of our products and appropriately shifting the costs to sales prices.

4．Legal and regulatory risks

While the Group conducts its business activities in compliance with the laws and regulations in Japan and abroad, growing global environmental awareness tends to tighten regulations on chemical products. Therefore, if environmental regulations become more stringent than expected and require substantial additional investments in the future, our business performance could be significantly affected.

5．Research and development risks

The Group invests a large amount of management resources in the development of new products. However, in research and development, particularly in the Agro Products Business, the development and period for validating the efficacy and safety of a product may take a long time, and the research and development costs and commission fees for studies involved in up-front investment are significant, so if the research theme is not put to practical use, the Group’s results of operations may be significantly affected.

6．Product liability risks

As a manufacturer of chemical products, the Group is working on Responsible Care (RC) activities (voluntary risk reduction activities) for quality management, and in particular, we are striving to improve management based on ISO 9001.
In addition, we conduct product liability (PL) risk assessments prior to the sale of new products and make quality improvements in accordance with ISO 9001 to ensure that PL problems are avoided. However, there is no guarantee that all products will be defect-free and free of PL issues. For this reason, the Group carries product liability insurance to protect itself in the event of an accident. However, if an unanticipated serious quality defect occurs, the Group’s business performance could be significantly affected.

7．Accident and disaster risks

As a manufacturer of chemical products, the Group is acutely aware of the risks associated with manufacturing. We engage in Responsible Care activities with respect to quality, environmental protection, occupational safety & health, process safety and disaster prevention, logistics safety, chemical and product safety, etc., and strive to prevent accidents at our production facilities and chemical product storage facilities. Nevertheless, if an unforeseen accident or a large-scale natural disaster were to cause damage to personnel or property at our manufacturing facilities, or if damage were to occur in the areas in the vicinity of our plants, there may be a significant impact on our business results due to a loss of trust from society in the Group, the cost of measures to deal with the accident and disaster, and lost opportunities due to the suspension of production activities.

8．Application of impairment accounting risks

If the value of the Group’s business assets substantially declines, or if the Group does not expect to recover its investment due to a decline in profitability or other factors, recording an impairment loss could have a material impact on the Group’s results of operations.

9．Retirement benefit obligations risks

The Group’s employee retirement benefit costs and obligations are calculated based on actuarial assumptions, such as the rate of return on plan assets and the discount rate, so if the actual results differ substantially from the assumptions due to abrupt changes in the market environment or other factors, the Group’s results could be significantly affected.

10．Intellectual property infringement risks

The Group manages its intellectual property rights strictly. However, it may not be able to fully protect its intellectual property rights in certain countries and may not be able to completely prevent infringement by third parties, which could have a significant impact on the Group’s business results.

11．Information security risks

The Groups holds a wide range of confidential and other information related to its businesses. Although we have a thorough information management system in place, in the event that an unforeseen circumstance causes this information to be leaked outside the company, the resulting stagnation in business activity and loss of trust could have a significant impact on the Group. We have thus formulated a set of internal rules regarding information management, and educate employees on these rules to boost their management awareness and promote understanding of information handling rules. We have also concluded non-disclosure agreements with stakeholders with whom we share our confidential information, and are striving to reinforce our information management system in other ways.

12．COVID-19 pandemic risks

As some of the Group’s businesses include products and services that are affected by economic fluctuations, significant fluctuations in market conditions due to changes in the economic environment caused by COVID-19, as well as stagnation of our business activities caused by the spread of infection among employees, could have a significant impact on the Group’s business results. In addition to accurately ascertaining and analyzing market trends, with employee safety as our foremost priority, we will implement telework systems and other measures to prevent the spread of infection, so that we can maintain our business activities.