Sustainability

Risk Management

Basic Approach

The NGK Group considers uncertainties which may affect achievement of the Group Vision to be risks. We have established an approach of handling risks according to their type, which enables us to control these risks by appropriately recognizing and preventing them, and to minimize losses caused by risks that do materialize.
Moreover, when risks that have a big impact on management occur, the committee tasked with handling the risk according to the Basic Rules of Crisis Management, will lead the way in collecting information and ascertaining the situation. The NGK Group will then work to minimize the negative impacts, analyze the causes, and prevent recurrence. For extremely serious risks, the vice president in charge of the Corporate Planning Office will convene a response meeting attended by the President to respond to the risk.

Approaches to Risk Management

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Risk Management Structure

In FY2023, the NGK Group established a new Risk Management Committee chaired by the President for comprehensively handling the Group's significant risk issues in accordance with the risk management process described below. At least once a year, the Risk Management Committee reports to the Board of Directors about risk management activities. Through this, the Board of Directors is able to supervise these efforts and verify the effectiveness of the risk management structure. The risk management structure in question, is managed independently of the Audit & Supervisory Board.

Risk Management Structure

This is an organizational chart of our risk management system. The Risk Management Committee handles NGK Group-wide risks, and reports to the Board of Directors. Individual risks are handled by the relevant committee.

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Risk Management Process

The Risk Management Committee periodically analyzes and evaluates risks then identifies and reviews the material risks that should be managed based on changes in the internal and external environment, with reference to the concepts in the COSO-ERM Framework. It has also established a risk management structure and method for formulating and implementing countermeasures against risk and monitoring the manifestation of risks via the committees and departments in charge of managing risks. The Risk Management Committee manages the risks facing the NGK Group in an interdisciplinary manner based on the concept of risk management determined by the Board of Directors, and reports its activities to the Board of Directors.
In order to address risks that have suddenly increased in importance due to abrupt changes in the internal and external environment, we make sure we are able to respond by adding them in a timely manner to the list of targets to be handled by the Risk Management Committee. After the Noto Peninsula Earthquake in FY2023, we determined that the importance of natural disaster risk had increased and added it for review by the Risk Management Committee in addition to the material risks that had already been determined through committee deliberation and approval by the Board of Directors.

Material Risk Management Cycle

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, Summary, Response

Risks	Summary	Response
1. Business operation risks	All operations
	Demonstrations, terrorism, war, infectious disease, natural disasters, and other unforeseen matters	Construct globally distributed, alternative systems
	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
	Drop in market share due to increased 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
	Digital Society Business
	Greater than expected decline in semiconductor demand	Make revisions to equipment capacity and personnel and production systems, etc., where appropriate based on demand information from direct customers who manufacture semiconductor manufacturing equipment
	Drop in market share due to delayed responsiveness to customer needs	Improve our unique product responsiveness and 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
	Export restrictions on semiconductors from various countries	Carefully monitor regulatory trends, share information with related departments, and prepare necessary rules and manuals so that we can respond quickly
	Decreased demand for final consumer goods Decreased investment in mobile phone 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
	Energy & Industry Business
	Decrease in advantages of NAS batteries over competitors’ products, such as lithium-ion batteries, that use innovative technologies	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
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, and promote the creation and commercialization of new products through collaboration between Corporate NV Creation, Corporate R&D, and Corporate Manufacturing Engineering Review the distribution of research and development resources in the Development and Commercialization Committee Establish a new Corporate NV Creation based primarily on marketing
3. Personnel Risks	Securing and managing personnel
	If hiring and training personnel does not go as planned, we will not attain our business goals due to failure to improve business execution capabilities	Expand mechanisms and systems to secure and develop global personnel and personnel for digital transformation Establish an internal environment that encourages employees to take on challenges
	Support diversity and inclusion
	Loss of opportunities for innovation due to continued homogeneity of personnel Decreased competitiveness in recruiting due to being seen as a company that is reluctant to promote diversity and inclusion	Formulate various policies and implement personnel measures to ensure diversity Hire a broad range of personnel from both new graduates and mid-career personnel
4. Legal compliance, human rights and safety, and quality-related risks	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
	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 Conduct various types of training aimed at improving employee understanding of human rights Prevention and reduction of human rights violation risks through compliance with international norms related to human rights
	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
	Quality and product safety-related risks
	Damage to NGK's brand reputation due to business deficiencies such as serious market complaints, breaches of contract, and lawsuits.	Have Quality Management Department perform monitoring of each business group’s quality activities, in line with NGK Quality Policy Regarding serious issues, convene quality review meetings in order to find a solution quickly Establishment of Four Rules for Quality Activities, and expand process activities to eliminate quality risks to the entire Group Establish quality compliance programs in the workplace Formulate guidelines concerning the safety of products and services, establish appropriate risk assessment methods for each business group, and expand training
5. 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 the NGK Group Information Security Policy Conduct information security training for employees Appropriate application and management of internal information assets
6. 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
	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 and lateness in responding to changing laws and regulations in each country	Inventory control Diversification of suppliers Information collection and monitoring through overseas locations
7. Climate change and disaster-related risks	Climate change-related risks
	Deterioration in business performance due to increased costs in the event that a scenario comes to pass other than that forecast by the Task Force on Climate-Related Financial Disclosures (TCFD) Decline in reputation with stakeholders, damage to brand, and loss of business opportunities due to failure to achieve climate change response targets	Establish scenarios which maximize the risks and opportunities brought about by the transition to carbon neutrality, as well as the physical risks and opportunities, and formulate response strategies for each Perform a quantitative analysis of the financial impacts of the risks and opportunities identified according to the classifications of the Task Force on Climate-Related Financial Disclosures (TCFD) Development and introduction of products and services that contribute to the realization of a carbon-neutral society Formulate a roadmap for reaching net zero CO₂ emissions by 2050
	Large-scale disaster and infectious disease-related risks
	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	Promote business continuity plan (BCP) for entire Group by drawing up related rules, conducting drills, etc. 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.

Identifying and Preventing Risks Based on Questionnaire

As part of efforts to enhance risk management practices, in FY2022 NGK and its Group companies in Japan conducted the fourth 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 departments and headquarters in charge of handling risks formulate and implement measures to reduce risks.

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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 based on scenario plans presuming a major disaster such as a large earthquake in the Nankai Trough 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.

FY2023 Initiatives

Education	Distribute materials concerning evacuation in the case of a Nankai Trough earthquake, and survey employees at target sites
Awareness	Solicit ideas and hold discussions on disaster preparedness
Training	Conduct highly effective training through both face-to-face and online training sessions
Other	Revised the action plan based on insights gleaned from the prior fiscal year’s practical BCP activities

Future Initiatives

Improve the effectiveness of BCP by raising the level of training further (e.g., hold BCP training for operational units)
Ongoing support for home disaster prevention initiatives (dealing with those who are unable to return home after a disaster and providing drills for returning home in an emergency, etc.) from the perspective of respect for human life, which is the top priority of BCP
Continue to hold training and disaster preparedness events on each factory floor with the aim of improving the BCP/disaster prevention awareness of each and every employee

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