Risk Management

Risk Governance

Basic Approach

The NGK Group addresses the issue of serious risk by empowering the following committees to facilitate risk avoidance and prevention, in accordance with the Basic Rules of Crisis Management. Additionally, in the event of some particularly significant risk, the Senior Vice President in charge of the Corporate Planning Office can call a meeting, which would include the president, to develop countermeasures.
In times of increasing socio-economic uncertainty, it is important to have a heightened awareness of risk and to act before risks turn into crises. Therefore, in addition to the five committees, which we maintain in order to oversee matters of day-to-day risk, we also have in place a system by which top management can coordinate a rapid response to growing risks.

Risk Management Framework

This diagram shows our risk management framework. In ordinary times, five committees including the Compliance Committee work to avoid and prevent risks. During emergencies they convene a response meeting to handle the issue.

Risk Identification Process

All risks discovered through the standard risk management process, which have the potential to affect the operational or financial situation of the Group are collected, reevaluated, and serious risks were identified in FY2019. The ESG Committee (former name in 2019) then deliberated and designated which identified risks need to be managed by the Group as a whole.
In FY2021 we began considering building a company-wide risk management framework which includes the risk identification process, and we aim to implement it in FY2022.

This figure shows the risk identification process. We identified the risks that should be managed as a group through the process of collecting, listing, and evaluating risks which were then deliberated on by senior management.

Risks, Risk Summaries, Risk Responses

Risks Summary Response
1. Business operation risks All operations
  • Demonstrations, terrorism, war, infectious or communicable disease, and other unforeseen matters
  • Construct globally distributed, alternative systems
(1) Environment Business
  • Changes linked to decline in demand for internal combustion engine vehicles
  • Develop and launch new and high-performance products in line with stronger exhaust regulations
  • Drop in market share due to rising competition from Chinese market
  • Strengthen competitiveness via technical responsiveness that anticipates environmental regulations, and via capacity to ensure supply stability
  • Decline in demand due to downturn in business, delayed timing of regulations, or other factors
  • Respond appropriately to the content and timing of environmental regulations and trends in demand
(2) Digital Society Business
  • Greater than expected decline in semiconductor demand
  • Work together with direct customers who manufacture semiconductor manufacturing equipment, and make revisions to equipment capacity and personnel and production systems, etc., where appropriate
  • Drop in market share due to delayed responsiveness to customer needs
  • Differentiation through our unique materials, design, and manufacturing technologies
  • Improve product supply capacity
  • Significant changes in semiconductor manufacturing process due to innovative invention
  • Carefully monitor semiconductor manufacturing process trends and revise production systems where appropriate to ensure quick response to changes in demand
  • Decreased demand for final consumer goods
  • Decreased investment in portable base stations and data centers
  • Carefully monitor customer trends and review personnel and production systems where appropriate to ensure quick response to changes in demand
  • Inability to develop new technology or release products in response to customer needs
  • Carefully monitor customer trends and pursue timely technological development
(3) Energy & Industry Business
  • Spread of competitors’ products, such as lithium-ion batteries, that use innovative technologies
  • Point out superior points of NAS batteries (large capacity, long life)
  • Strengthen partnerships with leading overseas companies
  • Utilize government support measures
  • Changes in the energy policies of each country
  • Capital investment cutbacks by electric power companies
  • Adoption of polymer insulators in the Japanese market
  • Carefully monitor energy policy trends in each country and revise production systems where appropriate to ensure quick response to changes in demand
  • Drop in market share due to growth of competition in kilns for lithium-ion battery cathode materials and electronic components
  • Carefully monitor customer trends and pursue production system innovation where appropriate to ensure quick response to changes in demand
2. R&D-related risks
  • Inability to achieve adequate results with the input received due to increasingly complicated technological competition
  • A total of 300 billion yen will be set aside for research and development expenses over the next 10 years, 80% of which will be allotted to the carbon neutrality (CN) and digital society (DS)
  • Set a target of 100 billion yen in sales from new products and new businesses (New Value 1000) by 2030
  • Establish a new Corporate NV Creation based primarily on marketing
3. Legal compliance, human rights and safety, and quality-related risks (1) Legal compliance-related risks
  • Decline in NGK Group’s reputation due to actions in opposition to societal norms with regard to legal and regulatory compliance, respect for human rights, contract compliance, etc
  • Utilize employee training and handbook distribution to ensure employees are familiar with relevant laws and regulations and have a more compliance-focused mindset
  • Establishment of the NGK Group Basic Guidelines for Compliance Activities in accordance with international standards
  • The Business Ethics Committee, which comprises outside directors and compliance officers, watches out for serious improprieties or legal/regulatory violations
  • Reduce the possibility of compliance violations through a whistleblowing system
(2) Human rights and safety-related risks
  • Human rights violations in the Group’s business activities
  • Formulation of the NGK Group Human Rights Policy
  • Issuance of statement on the UK Modern Slavery Act
  • Compliance with international regulations related to human rights
  • Provision of a safe and enjoyable work environment that is comfortable to work in for all
  • Employee occupational hazards, illness, or physical and mental health problems
  • In accordance with NGK Safety and Health Policy, identify serious hazard risks and use risk assessment to facilitate strengthening of preventative measures
  • Follow up on employees who work long hours, and conduct job grade-specific mental health education
(3) Quality-related risks
  • Quality-related risks such as loss of trust or profits, or contraction in growth, due to serious market complaints, contractual violation, or other unsatisfactory operations
  • Have Quality Management Department perform monitoring of each Business Group’s quality activities, in line with NGK Quality Policy and under direct supervision of senior management
  • Regarding serious issues, convene quality review meetings in order to find a solution quickly
  • Establishment of Four Rules for Quality Activities
  • Company-wide deployment of quality risk elimination process activities
4. Information systems-related risks
  • Negative impact on societal trust or business continuity due to shutdown of data processing, or to theft, destruction, manipulation, loss, etc., of data, following external cyber-attack or unauthorized system access, or after unexpected system failure or security issue
  • Establishment of an IT security system based on common standards within the Group
  • Conduct information security training for employees
  • Appropriate application and management of internal information assets
5. Currency exchange, capital, and procurement-related risks
  • Decreased sales and profits and deterioration of business performance due to strong yen
  • Risk of negative impact on business operations, performance, and financial situation of NGK Group as a result of financing difficulties stemming from serious regional financial crises and other factors
  • Keep production close to local demand centers, perform financing in local currency, and optimize purchasing according to currency exchange situation
  • Hedge risks with forward foreign exchange contracts and other financial instruments
6. Materials procurement and supply chain risks
  • Rise in prices of certain materials and energy in each region
  • Appropriately reflect risk in sale price
  • Reduce costs through competitive purchasing, design revisions, and other means
  • Delays in materials procurement and backlogged shipments to customers due to supply chain disruptions
  • Inventory control
  • Diversification of suppliers
7. Climate change and disaster-related risks
  • Deterioration in business performance due to additional costs incurred by future international GHG regulations, environmental taxes, carbon taxes, etc
  • Locations facing operational difficulties due to water damage from sea level rise, increased size and magnitude of typhoons, and increased frequency of local torrential rains caused by global warming, or major disasters, fire, or other serious incidents or accidents
  • Disclosure of information on risks and opportunities based on recommendations from the Task Force on Climate-Related Financial Disclosures (TCFD)
  • Formulation of NGK Group Environmental Vision
  • Development and introduction of products and services that contribute to the realization of a carbon-neutral society
  • Aim to achieve net zero CO2 emissions by 2050
  • Serious damage to facilities at production bases due to events beyond expectation
  • Long-term supply difficulties due to impacts on the local infrastructure where plants are located by events beyond expectation
  • Negative impact on manufacturing and sales due to emergence and spread of a major infectious disease like COVID-19
  • Promote business continuity plan (BCP) for entire Group
  • Decentralize production sites for main businesses
  • Increase number of suppliers
  • Reduce susceptibility of buildings and facilities to natural disasters
  • Guarantee safety of employees

Legal Risk Management in Overseas Subsidiaries

The NGK Group is working on understanding better legal risk management by overseas subsidiaries to minimize risks which become global and varied due to overseas business expansion.
We ask all overseas subsidiaries to report information pertaining to the status of lawsuits, legal affairs and consultation with lawyers twice a year, and whistleblowing system usage, export controls and access to legal-related information once a year. Major issues mentioned in such reports are reported to and shared at the Compliance Committee. Consultations from overseas subsidiaries are handled by the legal department and by lawyers, if necessary, to avoid risks.

Global Risks Lecture

In January of FY2021 we held a Global Risks Lecture for those in management positions. In addition to touching on the diversification of global risks, governmental and societal risks, and their relationship to business, the lecture explained what global risks companies should focus on, and essential risk management for business management.

Identifying and Preventing Risks Based on Questionnaire

As part of efforts to enhance risk management practices, in FY2021 NGK and its Group companies in Japan conducted the third CRS (Corporate Risk Survey).
Combining the previously administered CSA (Control Self-Assessment) questionnaire and the compliance awareness survey, the CRS checks the understanding of respondents regarding the possibility of risk and its implications with the goal of grasping and preventing various potential risks arising from daily business operations. Based on the results of the survey, the relevant divisions and departments formulate and implement measures to reduce risks.

Business Continuity Plan (BCP) Initiatives

At NGK, we have established the BCP Countermeasures Headquarters under the direction of the president as an organization to carry out operation and maintenance of our business continuity plan, with the aim of respecting human life and cooperating with the local community. It promotes our business continuity plan (BCP) throughout the entire NGK Group. Measures taken in preparation for putting our BCP into operation include the establishment of multiple manufacturing bases and procurement sources, damage mitigation measures related to buildings and equipment, and employee safety assurance. We also conduct emergency drills presuming a major disaster with the aim of enhancing our ability to cope with a crisis in the event a disaster occurs. During these drills, participants are instructed to take real action according to the plan. This helps us to identify even small issues with each process and procedure and use our findings to improve the BCP. In addition, the BCP Secretariat leads the way in working to ensure business continuity by collecting information early on and implementing countermeasures in response to procurement difficulties stemming from the spread of infectious disease or changes in the global situation.

BCP Organizational Structure

This diagram shows our Business Continuity Plan, or BCP. The BCP Countermeasures Headquarters, led by the President, directs the Central Disaster Prevention and Control Headquarters and various committees.

In the event of an emergency or disaster, the Central Disaster Prevention and Control Headquarters will switch over to the Central Disaster Control Headquarters to respond to the disaster.

FY2021 Initiatives

Future Initiatives