Business and Other Risks
The Tosoh Group identifies and analyzes risks that may have a significant impact on its operations and responds appropriately. Should risks arise, it takes measures to minimize their impact and protect corporate value. For more information, please refer to the “Governance” section of Tosoh Report 2020.
Risk Promotion System
Under the supervision of the Board of Directors, the Tosoh Group has established a system to analyze and respond to risks that could have a significant impact on the management of every aspect of its operations. Each operation is responsible for the systematic implementation of risk measures and for prompt response to crises.
Major Risk Items
The following are the principal risks that the Tosoh Group is aware of that could materially affect its business performance, financial position, and cash flow. Forward-looking statements in the text are based on the judgment of the Tosoh Group as of March 31, 2020.
Climate change
The adoption of the Paris Accord has led to worldwide efforts to reduce greenhouse gas emissions. These emissions are believed to be the cause of climate change and global warming.
The Tosoh Group’s business performance, financial position, and cash flow could be affected by the introduction of quantitative restrictions or the imposition of taxes related to CO2 and other emissions and the use of fossil fuels or emergence of nonfossil fuel alternatives, which could reduce demand for petroleum-related products. To this end, the Tosoh Group has established the CO2 Reduction and Effective Use Promotion Committee to promote technological improvements for CO2 reduction and use.
The occurrence of extreme weather events, such as typhoons and floods caused by climate change, could result in damage to Tosoh Group production facilities and to roads and other transportation routes. In preparation, the Tosoh Group is working on adaptation measures for its various facilities.
Quality issues
Defects in a product may lead to a loss of public trust in the product and its maker, to the discontinuation of sales of the product, or even to legal action against the product’s maker. Each or all of these could affect the Tosoh Group’s business performance, financial position, and cash flow. The Tosoh Group has, therefore, established a quality management system for its products and ensures that each of its members carries product liability insurance.
Environmental and other legal regulations
Legal regulations governing the environment and other matters are strengthening globally, as is the emphasis on corporate social responsibility. This may lead to restrictions on business activities, heightened capital investment, and unanticipated expenses that could have an impact on the Tosoh Group’s business performance, financial position, and cash flow. So the Tosoh Group conducts its business activities in the recognition that environmental protection and health and safety and the like are management issues of the highest priority.
Raw material and fuel procurement
The sources for raw materials and fuels are often specific to regions and suppliers. Anything that disrupts the procurement of those materials and fuels—from natural disasters to accidents, regional politics and conflicts, and supplier insolvencies—could affect the Tosoh Group’s business performance, financial position, and cash flow. To mitigate the risk of disruption, the Tosoh Group procures raw materials and fuels on a stable basis from a diversity of sources. It concludes medium- and long-term contracts with suppliers and makes purchases through the spot market.
Information security
Cyberattacks are an ever-increasing, ever-present issue that threaten the safety of production facilities and the sanctity of intellectual property. The hacking of a plant control system or other mission-critical system at a plant or office could force the Tosoh Group to suspend one or more key operation. That, in turn, could affect the Tosoh Group’s business performance, financial position, and cash flow and result in the loss of public confidence in the safety of the Tosoh Group’s operations.
Similarly, if select information is leaked to outside parties as the result of a cyberattack or other means the Tosoh Group’s public trust and competitiveness could be compromised. And this, too, could negatively affect the Tosoh Group’s business performance, financial position, and cash flow.
Given the risks to safety and to intellectual property, the Tosoh Group has implemented various measures to protect itself from cyberattacks and other forms of theft. Its commitment to the management of confidential and personal information, for example, takes the specific form of compliance with the European Union (EU) General Data Protection Regulation (GDPR).
Other risks are as noted below:
- Occurrences of accidents, disasters, and infectious diseases
- Fluctuations in international market prices for products and fuels
- Changes in inventory valuations
- Shifts in domestic and international economic conditions, supply and demand, and competition
- Increases, decreases, or issues with acquisitions, capital alliances, and business restructuring
- Fluctuations in exchange rates
- Troubles in domestic and overseas business activities
- Fluctuations in interest rates
- Increases, decreases, or problems with capital investments
- Increases in litigation
- Infringements and loss of intellectual property
- Innovations to technology
- Impairments in fixed assets
- Revaluation of securities
- Reversal of deferred tax assets
- Rises in retirement benefits
- Estimates based on construction progress standards