Risk Management | ESG Initiatives | Sustainability

Basic Approach to Risk Management

We comprehensively identify various risk events surrounding each business in our Group and identify the risks of important businesses based on the degree of impact and frequency of occurrence of each risk item.
Depending on the nature of the identified risks, each division of Carlit will strive to minimize the impact on business continuity and management by taking appropriate measures to reduce the impact of manifested risks and the likelihood of their occurrence.
We conduct risk assessments on a regular basis to objectively verify the effectiveness of risk countermeasures and to recognize and evaluate new risks.

Risk Management Framework

With regard to management risks, the Group Risk Management Committee, chaired by the Representative Director and President, collects and analyzes risks and selects critical risks that have a significant impact on management.
The Sustainability Committee and the Compliance Committee also report to the Board of Directors as necessary for deliberation.

Selection of "Critical Risks"

The Board of Directors identifies critical risks from the risks identified through risk assessment, and discusses and decides on risk avoidance measures and policies to address them.

Risk assessment flow
Identify risks	Identify a wide range of potential risks once a year.
Conducting surveys	Create and conduct surveys for identified risks.
Tabulate survey results	Tabulate survey results and weigh risks. Offer recommendations to the Group Management Strategy Committee and the Group Risk Management Committee.
Workshops by the Group Risk Management Committee	Based on the recommendations, workshops are conducted by the Group Risk Management Committee.
Determine the Company's perception of risk.	Discuss results with the Board of Directors to formulate a risk map and identify key risks, and ways to avoid and address them.
Implement risk assessments	Implement and monitor defined risk responses.

Risk map

Based on the results of the workshops conducted by the Group Risk Management Committee, the Board of Directors formulated a risk map.
The risk map is revised annually according to the results of the risk assessment.
Significant risks that the Group is currently aware of are indicated in red.

Overview of Critical Risks and Countermeasures

*This table can be scrolled horizontally.

Risk Item	Overview	Countermeasures
Technological innovation	Risks that new technologies and innovations may render existing products and services obsolete and uncompetitive, thereby affecting our business performance and financial condition.	To collect and share information on market research, competitive analysis, and technological trends, we have established a system in which manufacturing, sales, and development regularly share information to properly manage risks.
Market trend fluctuations	Risks that could be fluctuations in product demand and supply, and changes in the strategies of competitors and business partners, thereby affecting our business performance and financial condition.	We monitor demand and competition, identify changes in market trends as early as possible, and take appropriate countermeasures. In addition, we manage risks by diversifying our business domain and diversifying risk by having four business segments.
Raw material procurement	Risks that could be supply disruptions of raw materials, price increases, and quality declines, which could affect product supply stability and quality, as well as business performance and financial condition.	In procuring raw materials, we manage risks by ensuring appropriate purchase channels and diversifying risks through the adoption of multi-company purchasing.
Foreign exchange rate fluctuations	Risks that could be currency fluctuations in international transactions such as raw material imports and product exports, which may affect our business performance and financial position due to cost increases and price competitiveness declines.	We manage risks appropriately by entering into sales contracts that reflect the impact of exchange rate fluctuations on prices and by using forward exchange contracts to fix purchase prices in advance.
Accidents and disasters	Risks that could be serious accidents such as fire, explosion, or chemical leakage due to the manufacturing process or the nature of the substances handled, which may cause danger to human life, property damage, environmental destruction, and consequent interruption of business activities.	We manage risks by establishing reasonable safety standards for each production site, installing appropriate equipment and protective devices, preventing accidents before they occur by conducting regular factory inspections, and establishing regulations for appropriate training such as firefighting drills.
Quality	Risks that could be the production of defective or faulty products and insufficient achievement of quality standards, which may reduce customer satisfaction and reliability and affect market share.	We have established a meeting body to share information within the group on preventive measures in quality control, such as signs of quality problems and improvement activities, to manage risks.
Legal restrictions	Risks that could be legal restrictions, regulatory changes, and noncompliance, which could result in suspension of production or sales of products, fines, loss of trust and reputation, and impact on business performance and financial position.	We manage risks by closely monitoring trends in legal restrictions and changes or amendments to laws and regulations and taking appropriate measures, while seeking advice from outside experts and other sources.
Lawsuits	Risks that we could be involved in legal disputes or lawsuits, including breach of contract, intellectual property infringement, labor issues, and product defects, which could result in loss of trust and reputation, and impact on financial condition and business continuity.	We manage risks through proper preparation and management of contracts, protection of intellectual property rights, compliance with labor laws, and product quality control by each department in charge, in accordance with regulations.
Changes in asset valuation	Risks that could be fluctuations in the value of assets held, such as stocks, real estate, and bonds, which may rise or fall depending on economic trends, thereby affecting the financial position of the company.	We appropriately manage risks by properly evaluating and maintaining assets, including periodic confirmation of the need for assets held, as well as by considering capital strategies in the context of mid- to long-term plans.
Natural disasters	Risks that could be earthquakes, typhoons, floods, tsunamis, etc. that cause serious damage to human life, property including production facilities, and infrastructure, which includes the risks that market and demand trends may change as a result of such natural disasters.	We manage risks by closely monitoring weather information and other indications, as well as by working to improve our resilience to disasters by formulating a BCP, introducing an employee safety confirmation system, and purchasing disaster insurance for our production facilities.
Information Security	Risks that could be unauthorized access, cyber attacks, and internal misconduct, which could result in the leakage, destruction, or falsification of information assets and the shutdown of information systems, which could affect business performance and financial conditions, in addition to loss of trust and reputation.	We manage risks by establishing a cyber security management system as an organizational measure and promoting the introduction of technology in accordance with our security policy as a technical measure.
Interest rate fluctuations	Risks that could be fluctuations in funding costs due to rising or falling interest rates, which may affect the company's financial condition.	In addition to appropriate funding strategies and review of borrowing terms, we manage risks by implementing interest rate swaps and other measures to diversify risk.
Poor governance at overseas bases	Risks that could be negligence or fraud due to poor governance or compliance at overseas locations, or cultural or legal differences, which could result in loss of trust and reputation as well as impact on business performance and financial condition.	In addition to establishing and clarifying appropriate organizational structures and implementing compliance programs, we manage risks through locally adapted and transparent management by seeking advice from outside experts and others to address cultural and legal differences.
Personnel shortages	Risks that could be the use of a small number of people in production, sales, and other business activities, and the severance of critical technology and know-how due to the absence of successors, which may affect product supply stability, competitiveness, and business performance.	We manage risks appropriately by properly implementing human resource activities, such as improving employee engagement and strengthening recruitment activities, and by considering human capital investment as part of our medium- to long-term business strategy.