Approach to Risk Management
As a Group that operates globally across a wide range of fields, Kawasaki regards the management of serious risks that could impede its business activities as important and conducts integrated risk management.
Kawasaki’s overall risk management system entails the integrated execution of business segment-level risk management and Group-wide risk management. Based on the Group’s Risk Management Regulations, Kawasaki has established a Corporate Risk Management System and created manuals outlining specific risk management procedures. By comprehensively understanding potential risks based on shared Group standards, we work to avoid and minimize risks and loss caused by risks.
With regard to the risks associated with the execution of individual businesses, the relevant divisions carry out assessments and analyses and sufficiently examine countermeasures in advance in accordance with Kawasaki’s Board of Directors Regulations, Management Meeting Regulations, Approval Regulations, and other related rules. The Company practices even more thorough risk management for major projects with significant impact on operations in accordance with such corporate regulations as the Major Project Risk Management Regulations. This includes management at the time of bidding and concluding agreements for such projects as well as regular follow-up by the Head Office, internal companies, and business divisions as needed after a project begins.
Kawasaki Group Policy on Risk Management
The Kawasaki Group has established the Kawasaki Group Policy on Risk Management.
In line with its objective of achieving sustainable corporate growth and medium- to long-term improvement in its corporate value, the Kawasaki Group will put in place preemptive risk management measures against a variety of risks that could exert a significant impact on business operations while striving to ensure that, should such a risk materialize, the resulting damage is minimized. To this end, the Group has established the basic policies listed below with the aim of acting as a company worthy of the trust of society as envisioned in its Group Mission—“Kawasaki, working as one for the good of the planet.”
Fundamental Stance to Activities
As a corporate group handling the social infrastructure business on a global basis, the Kawasaki Group will address significant risks that could inhibit its business activities by taking a risk management approach that is consistent among all Group companies.
Risk Management Structures and Activities
The Kawasaki Group will develop an integrated risk management structure that encompasses its operations around the globe, with the Board of Directors acting as the highest decision-making body. Under this structure, all business units, officers, and employees will pay close attention to various risks in the course of their business operations and strive to identify both business risks that affect individual businesses and important risks that should be addressed from a Group-wide perspective to ensure the implementation of appropriate countermeasures.
In the event of a disaster, accident, or other emergency that could exert a major impact on its business continuity, the Kawasaki Group will promptly set up the Corporate Command Center and strive for the swift restoration of its operations, placing the utmost priority on the lives of customers, community residents, and employees and acting in collaboration with regional communities, customers, and other stakeholders.
Enhancement of Risk Assessment and Response Capabilities
The Kawasaki Group will engage in risk management and crisis management activities, employee training, and emergency drills on a regular basis in order to raise employees’ risk awareness and secure higher capabilities in terms of risk assessment and response.
Obligations and Responsibilities
The Kawasaki Group will comply with its corporate regulations on risk management and crisis management as well as relevant laws and regulations enforced in Japan and overseas to fulfill its obligations and responsibilities to stakeholders with regard to risk prevention and immediate crisis response.
Review and Correction
Should a shortfall in risk management or crisis management activities be detected or predicted, the Group will promptly correct said shortfall in order to improve the effectiveness of its risk management activities.
Risk Management System
The Kawasaki Group has established a risk management system to ensure a uniform level of risk management across the Group. Through this system, we identify and respond to major risks with the potential for serious impact on operations and work to enhance risk management as outlined in the Kawasaki Group Management Principles.
In order to appropriately handle diverse risks, Kawasaki designates internal committees and divisions as responsible for specific risk types to establish and operate management methods and systems. In addition, we have established a system for the centralized monitoring of the effectiveness and workability of such management systems, thereby managing risks both individually and comprehensively. Further, twice a year, the director in charge of risk management reports to the Board of Directors the information obtained by the Risk Management Department, an organization that is independent of operating divisions, through risk monitoring and analysis results of global risk trends surrounding the Company. After selecting the important risks that the Company should pay close attention to currently, they are reported to the Management Committee and reflected in the measures of the operating divisions.
Risk Management System
Director Responsible for Risk Management (CRO): Katsuya Yamamoto, Representative Director, Vice President, and Senior Executive Officer
Executive Officer Responsible for Risk Management: Takeshi Kaneko, General Manager of Corporate Planning Division and Executive Officer
Risks Covered and Risk Assessment Methods
The Kawasaki Group defines risks as “factors or phenomena that hinder the execution of business operations or the achievement of organizational goals” and works to manage all risks classified as either external risks or internal risks (with the latter further classified as strategic risk or business risk), while giving due consideration to the potential beneficial effects associated with strategic and other risks.
The Company’s risk management process consists of a version of the COSO framework and ISO 31001, customized for the Company’s environment and circumstances.
Risk monitoring activities are reported to the Board of Directors twice a year, and based on the results, feedback is provided to the departments at risk. Further, for items judged to be high risk, we focus on risk monitoring activities called “checking the appropriateness of risk management activities.”
Risk Factors Currently Covered in the Scope of Risk Management
|Types of risks|
|External Environment||Government/Regulatory authorities||Laws and regulations||Internal Environment||Business strategy||Vision (strategies and policies)
Corporate governance, etc.
|Financial institutions/Investors||Raising capital||Business functions||Legal affairs (contracts and lawsuits)
Intellectual property, security
|Market expectations||Management and efficiency||Project management
Finance and accounting, personnel management, etc.
|Customers/Consumers/Competitor companies/New entrants||Emergence of competitors, market changes
|Technological innovation||Product development, etc.|
|Job seekers||Securing human resources||Product defects||Quality management and quality assurance, etc.|
|Suppliers||External procurement||Production capacity||Itinerary management etc.|
|Business partners||Supply chain and logistics||Governance and compliance||Organizational fraud, harassment, internal control etc.|
|Nature/Social culture/Population||Disasters, environmental pollution, SDGs, CSR, climate change, etc.|
Risks That the Company Should Pay Close Attention to Currently Based on Internal and External Circumstances
As a result of company-wide monitoring activities, the Kawasaki Group has determined the following risks that should currently be paid close attention to.
(1) The external environment: From global risks
|Carbon neutral countermeasures
→Climate change countermeasures
|Business management from the perspective of economic security
→Erosion of social cohesion (protectionism)
Response to Climate Change Risk
|Overview of Risk||
Many of the Kawasaki Group’s products use fossil fuels, and the net sales of three businesses—the Energy Solution & Marine Engineering Company (manufacture of power-generation facilities, various industrial plants, ships, etc.), Aerospace Systems Company (manufacture of aircraft, etc.), and Kawasaki Motors, Ltd. (manufacture of motorcycles, four-wheel utility vehicles, etc.)—account for 70% of our consolidated sales. In addition, more than 98% of CO2 emissions from the lifecycle of our Group’s products (from procurement of raw materials to disposal) are generated in the use of Scope 3 Category 11 products.
The Japanese government aims to reduce domestic CO2 emissions to 46% of the fiscal 2013 level by 2030, and other countries have set similar targets. Furthermore, since the major emitting countries, responding to the Paris Agreement, have stipulated the target of achieving carbon neutrality worldwide by 2050, such risks as major changes in energy composition, the tightening of regulations related to CO2 emissions, including the introduction of carbon taxes, a substantial increase in raw material costs, and customer demands for improvement of product performance can be expected. The Kawasaki Group regards these as risks stemming from climate change (climate change risks) and treats them as one of the principal risks with the potential to exert a significant impact on our business.
We conduct scenario analyses using the framework of the Task Force on Climate-related Financial Disclosures (TCFD) to identify the impact of climate change risks on our future financial standing.
In 2020 we conducted analyses for industrial plants, one of the business units in the Energy Solution & Marine Engineering Company, as a model case, with 2030 set as the target year. Presupposing the 2℃ scenario, while it is expected that demand for waste incineration plants will remain healthy as no sweeping reductions in the overall volume of waste by 2025 are foreseen, we predict that there will be major changes in energy demand, including a drastic decline in gasoline demand due to the adoption of electric vehicles and a doubling in the demand for low-emission liquefied natural gas (LNG). Based on this assumption, potential risks that could impact the Group’s business include, in the area of waste incineration plants, an increase in our product prices stemming from the adoption of supplementary CO2 reduction measures, such as the development of CO2 capture systems, and, in the area of industrial plants, risks stemming from reductions in new order opportunities and reputation risks associated with the securing of new orders.
Since 2021 we have completed an overview, based also on the results of our analyses for industrial plants, of the Kawasaki Group as a whole, identifying the businesses that will be significantly impacted by climate change and implementing business impact assessments. We have concluded that the Energy Solution & Marine Engineering Company, Aerospace Systems Company, and Kawasaki Motors, Ltd. will experience significant impacts from the perspective of net sales, CO2 emissions, and business risks and opportunities in the areas of climate change. Based on this finding, we are conducting analyses for these three businesses premised on 1.5℃ and 4℃ scenarios, with 2030 as the target year. We are also undertaking deliberations to disclose financial impacts for some businesses.
Scenario analyses involve, among other things, identifying financial impacts by means of tailored assessments of risks and opportunities and estimating the impact on our financial standing of trends in the legal frameworks by country; carbon taxes; the emissions trading market; future projections of energy costs; capital investment and environmental measures.
Based on the results of impact assessments using scenario analyses, the Kawasaki Group drafts and implements measures to mitigate climate change risks in the medium to long term and promotes initiatives to utilize them in management decision making.
Specifically, at a Business Direction Briefing in December 2021, we declared our commitment to achieving Scope 1 and 2 carbon neutrality by 2030 at domestic business sites (including Group companies). In addition, we are earnestly pursuing initiatives with a view to prompt development of a hydrogen supply chain for our businesses. As well as promoting the development of products with a low environmental load as part of the Kawasaki Ecological Frontiers system (formerly the Kawasaki-brand Green Products system), an internal system for certifying environment-friendly products, we are further working to minimize climate change risks by means of the parallel development of products that do not produce CO2 even during their use, such as 100% hydrogen-fueled gas turbine and hydrogen-fueled aircraft. Also, prior to this, in 2017, in the Kawasaki Global Environmental Vision 2050, we declared our commitment to achieving Group-wide zero CO2 emissions from business activities by 2050, since when we have promoted various initiatives to cut CO2 emissions.
(2) The internal environment: From our business activities
→Quality control and quality assurance risks
|Strengthening contract management
|Securing and developing human resources
→Risk of shortage of human resources and personnel
|Strengthening and maintaining appropriate levels of cyber security
→Cyber security risks
→Governance and compliance risks
Response to Cyber Security Risk
|Overview of Risk||Recently cyberattacks in Internet space are becoming more sophisticated worldwide, and the threats from cyberterrorism, large-scale information leakage, fraudulent business emails using computer viruses, and so on are increasing. In particular, smart factories utilizing digital technology are becoming common at plants and other production sites. But while such facilities substantially boost productivity, they also run the risk of exerting a major impact on business activities through, for example, the stoppage of production activities and suspension of operations due to cyberattacks.|
The Kawasaki Group is promoting the digital transformation (DX) of its plants and also pursuing initiatives to enable plant visualization by means of networks. We are also aiming for uninterrupted plant operations even in the event of accidents or other problems, as well as the connection of plants throughout the entire value chain. Meanwhile, cyberattacks on servers and malware attacks, which render illegal actions on company servers, are increasing year by year, and such cyberattacks have the potential to suspend production.
Furthermore, even if our own cyber security systems are foolproof, a cyberattack originating in our supply chain has a potential knock-on impact on Kawasaki Group operations. Therefore, we emphasize the necessity to implement cyber security measures not just at Kawasaki but throughout our supply chain. In particular, given that we manufacture products relating to public infrastructure and the defense industry, there is a danger that, in the event of a cyberattack, confidential information of not only the Kawasaki Group itself but also customers may be leaked, so we believe that cyber security measures are extremely important.
We are currently in the process of drafting a global security policy conforming with the National Institute of Standards and Technology (NIST) cyber security framework, and we plan to update all regulations relating to information security aligned with this policy as part of our measures to deal with cyber security risks.
We are steadily building a technical defense mechanism conforming with the NIST cyber security framework and a defense system that operates 24 hours a day and all year round. We are also steadily promoting education and awareness raising among employees with regard to these policies, regulations, and technical defense mechanisms.
In addition, we are implementing countermeasures for issues as they come to light following analyses of the current situations at respective production sites.
Kawasaki has completed a campaign to alert our major suppliers on cyber security measures for the supply chain through procurement departments and is preparing to publish information security guidelines for suppliers.
Risk Management Training and Awareness Building
Kawasaki explains the importance of risk management in its grade-specific training programs for employees. In addition, our commitment to improving our enterprise value based on the guiding principles of "selective focusing of resources," "emphasis on quality over quantity," and "risk management" is clearly stated in the Kawasaki Group Management Principles, part of the Kawasaki Group Mission Statement. We also post the Mission Statement at work areas and distribute Mission Statement cards to employees to build awareness of these principles.
Checking and Reporting of Potential Risks Caused by Employees
We have established and operate the Compliance Reporting and Consultation System for the domestic Kawasaki Group to identify any potential risks that may exist at the employee level.
The Kawasaki Group's Risk Management Regulations contain crisis management provisions set out in readiness for the emergence of a risk.
These regulations set forth behavioral guidelines and response systems that serve to protect lives and preserve assets, minimize damage and loss, and expedite the resumption of business activities in the event of unplanned interruption.
Paragraph 3 of the basic policy of the Risk Management Regulations lays out the Kawasaki Group's policy for responding to crises.
In addition to, of course, putting human lives first, the policy also clearly lays out the Company's priority of fulfilling its social responsibility as a company involved in infrastructure-related industries. Specifically, in the event of a major earthquake, we will help operate equipment used for disaster relief (such as aircraft and ships), work to quickly restore and maintain the operation of infrastructure (such as rolling stock, power generation facilities, and waste processing facilities), and support our customers and suppliers.
Crisis Management Structure (at Times of Crisis and Non-Crisis)
In readiness for risks, including large-scale disasters, we maintain a Group-wide horizontally integrated Crisis Management Organization at all times.
The president is the Group’s Chief Crisis Management Officer, while the head of each operating site or organizational unit acts as its crisis management officer. Crisis management offices are set up under the crisis management officers to assist them and are charged with the practical work of putting in place and maintaining a first response system for mobilization in the event of an emergency. Meanwhile, the heads of the various Head Office divisions and other staff members whom they designate form a dedicated support team for the crisis management offices.
In Times of Disaster or Accident
The disaster management system sets out in advance emergency reporting lines and organizations charged with responding when emergencies occur. Complementary to the emergency reporting lines, we have set up contact networks covering each internal company, business division, and operating site to ensure quick internal reporting and information promulgation.
In Times of Disaster or Accident
|Type of Command Center||Key Role||Location|
|Corporate Command Center||Set up in the event of a crisis that requires a Group-wide response; determines measures to be implemented throughout the Group and basic policy on action plans||
Office that has not sustained any damage
In principle, either the Kobe Head Office or the Tokyo Head Office
|Integrated Plant Command Center||Determines issues that affect the works as a whole; coordinates with internal companies operating in the same works||Works that belong to several internal companies|
|Company Command Center||Provides internal company support in areas devastated by disaster; determines response to affected suppliers and customers||Appropriate location at each internal company|
|Local Command Center||Determines measures according to business segment and business office||Office that sustained damage|
Emergency Communication System
The Kawasaki Group has introduced an emergency communication system for the entire domestic Group to rapidly confirm the safety of employees when a disaster occurs. Tests are conducted every year to ensure that employees are familiar with the system and know how to use it.
Business Continuity Plans
A business continuity plan (BCP) is itself a management strategy. In addition to typical measures related to response immediately after a disaster, such as setting up disaster-prevention supplies and running evacuation drills, a BCP requires consideration of measures to continue business operations with minimal interruption and fulfill the corporate mission.
Based on the basic policy of the Risk Management, the Kawasaki Group has formulated BCPs for major earthquakes, pandemics, and other disasters.
Business Continuity Plan Review
The lessons learned in the Great Hanshin Earthquake, which hit the Kobe area in January 1995, formed the basis of the Group’s disaster-prevention measures. In light of the Great East Japan Earthquake of March 2011, the Group significantly revised its BCP for large-scale earthquakes. In response to the COVID-19 pandemic in 2020, we have revised our pandemic response BCP to include, for example, remote working and other new workstyles. Furthermore, we regularly implement drills and use the results to revise BCPs on an ongoing basis.
- Basic Policy
Based on basic policy, determine course of action to be taken by the Kawasaki Group in the event of natural disasters.
- Head Office and Internal Company Priorities
With the basic policy in mind, designate functions to be maintained at the Head Office, internal companies and business divisions even in the event of disaster. We have identified priorities for the Head Office, internal companies and business divisions in line with our basic policy and have designated certain functions that must be maintained even in the event of disaster with due consideration given to the different business content of each internal company and business divisions and the features inherent in products and services.
- Response in Times of Disaster and Preparation during Normal Times
Consider responses appropriate in the wake of disaster and prepare for the eventuality of such events during normal times.
Many disaster scenarios indicate the possibility of a massive earthquake centered directly under Tokyo as well as a cascadelike triple megaquake event along the Tokai–Tonankai–Nankai segment of the Pacific Ocean coastline. Bearing these potential events in mind, we considered the responses necessary should such catastrophes occur and activities that could be undertaken during normal times to prepare for such eventualities.
We formulated a plan that designates specific divisions with specific tasks, and outlined preparations necessary to achieve the desired objectives. Preparations are moving ahead in line with this plan.
- Drills and Revisions
Run drills regularly and revise BCP content based on the results.
We are constantly running BCP drills and revising BCP content based on how the drills were performed.