TORAY INDUSTRIES, INC.

The risk that stable supply of products in terms of quantity and quality becomes difficult due to tightness in the procurement of raw materials and components caused by crude oil price trends, geopolitical turmoil, climate change, human rights issues, and other factors. This could result in liability for damages arising from default on supply contracts, or lead to difficulties in business continuity for final product manufacturers. This has been positioned as a priority risk continuing from the 6th fiscal period, and risk mitigation measures such as diversifying procurement sources, changing recipes, and building inventory stockpiles are being expanded across the entire group.

As cyberattacks targeting the manufacturing industry become increasingly sophisticated and elaborate, there is a risk that business activities could be halted due to the shutdown of core systems and production facilities, or the leakage of confidential and personal information. Starting in fiscal 2026, this has been newly positioned as a priority risk, and the company is promoting company-wide strengthening of countermeasures and risk reduction efforts including the supply chain. The "Toray Group Information Security Promotion Committee" oversees this effort, conducting regular security assessments and monitoring.

The risk that demand for the Group's products declines due to global and regional fluctuations in supply-demand conditions, progress in material substitution, and changes in customers' purchasing policies. This includes significant demand fluctuations and price declines due to economic cycles and Japan's declining population, erosion of competitive advantage due to new market entrants, and weakening consumer sentiment due to rising prices. Medium-term management challenge

The risk that business operations, which extend broadly across Asia, Europe, the United States, and other regions, are affected by conflicts, political instability, deteriorating security conditions, as well as heightened geopolitical and economic security risks. Specific risks include import/export restrictions, tariff increases, leakage of sensitive technology related to economic security, and being found in violation of economic sanctions. Preventive initiatives led by the Overseas Crisis Management Committee, together with a dedicated team comprising members from legal, procurement, research, and other broad functions, continuously gather and analyze regulatory trends in each country.

The risk that fluctuations in foreign exchange rates affect various items in the financial statements through foreign currency-denominated transactions and the yen conversion of local currency-denominated financial statements of overseas operations. In addition, in fundraising through financial institution borrowings, commercial paper, and corporate bonds, interest rate fluctuations may affect funding costs. The company addresses this through a combination of measures such as promoting local production for local consumption, agile deployment of global operations, and hedging instruments such as forward exchange contracts.

The risk of declining competitiveness due to delayed response to GHG reduction, resource circulation, and biodiversity conservation, as well as the risk of declining corporate brand value due to worsening reputation of the petrochemical industry. There are also concerns about increased costs due to the global introduction of carbon pricing and similar measures.

The risk that manufacturing facilities suffer damage due to the increasing scale of wind and flood damage from typhoons and floods caused by climate change, infectious disease outbreaks, unforeseen accidents, and other factors, resulting in shortages of raw material supply and reduced functionality of power and logistics infrastructure. Centered on the Production Officers' Council, the company promotes regular disaster-prevention inspections, equipment maintenance, and safety activities for manufacturing facilities, and has established business continuity guidelines for major earthquakes and flood damage.

Against the backdrop of diversifying work styles and employment values, a shrinking working-age population, and accelerating longevity and aging, risks are increasing such as a shortage of personnel to support continued production and business expansion, increased wage cost burdens due to intensifying recruitment competition, and the discontinuation of technology and know-how transfer due to a shortage of key personnel. Under a human capital strategy linked to management strategy, the company has established basic policies on talent development, compensation and evaluation, work-style reform, and internal environment improvement, and is proceeding to build a talent portfolio to support future business competitiveness.

The risk arising from changes to or violations of various laws and regulations concerning the environment, commercial transactions, labor, intellectual property rights, antitrust laws, and other areas in the countries where the company operates, administrative sanctions by competition authorities, compliance violations such as data falsification by employees, and deficiencies in internal controls over financial reporting. Centered on the Ethics and Compliance Committee, the company promotes the development of an organizational culture that prevents misconduct, along with an internal whistleblowing system and the use of AI tools, and is working to improve the effectiveness of the Group's internal controls through more advanced internal audits.