Risk Management

With the aim of maintaining and enhancing corporate value, the Group manages risk by appropriately identifying various risks associated with our business activities and mitigating the damages and losses through appropriate crisis management if any risks materialize.

We have systems in place to ensure that profits, losses, asset efficiency, quality and disasters, among other matters, are reported to the Board of Directors properly and in a timely manner with respect to the execution of duties. By leveraging these systems, we strive for the early identification of risks and the minimization of losses. Under the oversight of the Board of Directors, we have established the Risk Management Committee under the direct supervision of the CEO, who has ultimate responsibility for risks. The committee members are appointed by the CEO, and the chairperson is responsible for the structure and implementation of company-wide risk management. The Chairperson of the Risk Management Committee (Managing Executive Officer) consults and coordinates with the members of the Management Materiality Committee, Quality & PL Committee, Environment, and Safety and Health Committee, and Information Security Committee, as required, and provides reports at management meetings such as Executive Officers Committee attended by CEO and Board of Directors meetings regarding the risk management initiatives periodically (approximately twice a year).

At each in-house company and Group company, the head of the organization is responsible for risk management. Under the supervision of the risk management manager, the department and personnel in charge are responsible for risk management related to their business activities. Once a year, in-house companies and Group companies identify and evaluate the risks that may be assumed in the execution of the businesses under their jurisdiction, and they formulate and implement countermeasures to prevent materialization of the identified risks.

The Corporate Department, which is in charge of handling various risks, manages the risks under its control based on its expertise in the division's area of responsibility, and supports the risk management of in-house companies and Group companies.

In addition, the Risk Management Committee, which reports directly to the CEO and is chaired by the Managing Executive Officer, meets at least twice a year. As a cross-company organization, the Committee first identifies and reviews company-wide major risks based on the results of risk assessments conducted by corporate divisions and Management Materiality (Long-term issues in achieving long-term goals), in-house companies, and Group companies. Next, the Committee deliberates countermeasures for major risks and directs the implementation of countermeasures. After risk countermeasures have been implemented, the Committee evaluates them and conducts follow-ups appropriately.

In identifying major risks, each risk item affecting business activities is evaluated in terms of its occurrence frequency and impact, and the potential causes of its occurrence are analyzed. Then, after prioritizing risk responses and confirming the level of risk tolerance, we formulate risk response methods and implement them after deliberating the proposed countermeasures. Our risk assessment is conducted in the following order: (1) risk analysis, (2) risk assessment, and (3) risk judgment. In risk analysis, each risk is analyzed in terms of its severity with five levels of occurrence frequency and four levels of impact. Based on the results obtained from such risk analysis, a score is assigned to determine the risk level and countermeasure level from among four levels.

Our internal audit department, the Business Audit Department, is independent and conducts first and second line internal audits annually. The Business Audit Department investigates and evaluates the statuses of operational risk management, overall business processes, and asset management to ensure that they are being conducted properly. The results are compiled into an audit report, and follow-ups are conducted on the improvement statuses of items that have been pointed out and items for which improvement has been requested. Audit reports and follow-up reports are submitted directly to regular operational audit report meetings attended by the representative director, full-time corporate auditors, and some executive officers, and the contents of each report are posted to the audit report database for dissemination to all directors and corporate auditors, including those outside the company. In addition, the Internal Audit Department regularly reports on operations at Board of Directors meetings.

As a company with a board of auditors, Nabtesco's board of auditors, which consists of internal auditors and external auditors, is responsible for auditing the operations of the board of directors. By monitoring and providing opinions on the execution of duties, including risk management, from an independent and objective standpoint, we ensure management transparency.

The following lists principal risks that are deemed to have potential impacts on the Group’s business performance and financial position.

Through the Group Regulations on Responsibility and Authority, Nabtesco clearly defines the processes and responsible persons involved in the decision-making and business execution of the Nabtesco Group.

Risk appetite (Risk tolerance) is included in the above process, and it is determined by the final responsible party based on the degree of impact on the company after consultation with the responsible department.

The following are some of the major risks that have been identified and the measures taken to address them:

For “emerging risks” caused by changes in the external environment and other factors, we conduct regular reviews to check and manage their impact on our business. Typical emerging risks include the following:

Our group offers various products such as aircraft flight control actuation systems, brake components for railroad vehicles, remote control systems for marine vessels, platform doors for railroad stations, and automatic doors for buildings. Due to the very nature of these products, they pose serious risks to human life in the event of a malfunction-related worst-case scenario. Therefore, we prioritize safety and take proactive measures to prevent product accidents, earning high recognition for the reliability of our products. This high level of risk awareness is not something that can be achieved overnight. Every day, our directors and employees hone their risk sensitivity and work to establish a culture of risk reduction through activities such as the following.

The Group utilizes group training, e-learning, and other methods divided by rank and theme to foster compliance awareness, including risk awareness, among directors and employees (including contract employees, temporary employees, part-time employees, and trainees). Each year, we conduct a variety of training programs for all employees, including compliance training that contains risk management and information security training.

Once a year, we conduct training about the organization, our business, and finances as well as rules related to roles and responsibilities, legal responsibilities, compliance, and general risk management.

At Nabtesco, the business side and the Technology Division consider various risk factors for products and widely solicit opinions from related departments beyond the business side regarding the approval process, input resources, schedules, and other matters pertinent to clarifying development specifications. Risk assessments are conducted at each development stage from both qualitative and quantitative perspectives, and risk criteria are set separately per product group. To eliminate various risks, we also conduct environmental assessments for environmental conservation and chemical substances.

Nabtesco has introduced ROIC as an indicator that incorporates a risk management perspective, and the degree of improvement in this indicator is reflected in the compensation of directors (excluding outside directors). Compensation is based on the degree of improvement. All directors are aware of the cost of capital and dividend payout ratio, and they are committed to reducing the Group's risk and promoting management based on an awareness of sustainable growth.

If a serious incident has a significant impact on the Group’s business activities, such as their termination or suspension, the department in charge of the risk reports to the CEO and related departments without delay. The CEO reports to the Board of Directors and Audit & Supervisory Board promptly, establishes an emergency response headquarters and takes command of risk management.
The emergency response headquarters, which will be headed by the CEO as the General Manager, deals with the incident quickly and works to solve it while at the same time reporting to the Board of Directors on the matter, including on countermeasures taken to address the issue.

Specific matters that cause losses for the Group are defined as incidents. We seek to minimize the impact of incidents through the reporting and sharing of information on these incidents through a series of regular meetings.

Reports on the occurrence, details, and causes of incidents as well as measures to address them and the losses incurred, among other things, are provided to the administrative organizations, the Executive Officers Committee and the Board of Directors. By doing so, we share information on the measures to reduce the occurrence of incidents.