Sumitomo Bakelite Company Limited

Against the backdrop of US-China trade friction, the situation in Russia and Ukraine, and the situation in the Middle East, economic security policies in various countries are being strengthened, creating risks such as import/export restrictions, suspension of transactions with sanctioned companies, threats to employees' lives and assets due to war or conflict, and disruptions to business continuity due to interruptions in logistics, procurement, or infrastructure. If not appropriately addressed, this could lead to criminal or administrative penalties, civil litigation, or loss of social trust in the brand. The Company is promoting information gathering from risk consultants and government agencies, developing crisis management manuals for overseas sites, and pursuing multi-fab and multi-sourcing strategies to mitigate impact.

With cyberattacks becoming increasingly sophisticated and advanced, unauthorized access and leaks of confidential information are occurring frequently, and security risks to factory OT equipment are also increasing with the advancement of smart factories. If subjected to a cyberattack, the Company could experience malfunction or shutdown of critical systems, and leaks of confidential information could lead to loss of social credibility, disruption of business activities, and compensation costs to business partners, potentially affecting business performance. The Company has established the cross-organizational body

The Company's products are used in applications involving human life, such as automobiles, aircraft, medical devices, and electronic materials. If a large-scale product incident were to occur, it could result in damages compensation and recall costs, as well as loss of credibility, potentially having an adverse effect on business performance. There is also a risk that advances in science and technology or changes in customer markets could lead to heightened quality control standards after products are launched, resulting in unforeseen quality issues. In response, the Company has established a consistent quality control system compliant with international quality management standards such as ISO 9001, IATF 16949, ISO 13485, and AS 9100, and is enhancing traceability using AI/IoT technology at four major domestic sites, with plans to expand to five major overseas sites.

As the Company operates globally, it is subject to a wide range of laws and regulations, including chemical substance regulations (response to the POPs Convention, amendments to European REACH/CLP, etc.) and regulations on waste, wastewater, and dust emissions. There is a risk of increased costs to respond to regulatory changes, and if compliance is not achieved, there is a risk of substantial losses and loss of credibility due to criminal penalties, fines, or civil litigation. The Company operates a chemical substance management system capable of responding to the latest chemical substance regulations in each country, has established a system through its Compliance Committee (held three times in fiscal 2025), and operates an internal reporting system (Compliance Reporting System). No material violations of laws or regulations were identified in the fiscal 2025 audits and evaluations.

Due to production cuts and withdrawals by suppliers resulting from economic downturns, supply issues caused by geopolitical factors, climate change, and natural disasters, the 2024 logistics problem, and price surges linked to yen depreciation and crude oil and non-ferrous metal market trends, there is an increasing risk of difficulty in obtaining upstream raw materials or their discontinuation, which could lead to decreased sales, deteriorated profitability, and disruption to business continuity. The Company has completed BCP discussions with approximately 100 key domestic raw material suppliers, secured safety stock of three months or more with approximately 80 suppliers in Europe, the US, and China, diversified its suppliers, and is promoting the application of a formula system (automatically reflecting raw material price fluctuations in product prices) to achieve stable procurement and reduce risk.

Due to the declining working population resulting from the falling birthrate and aging population, difficulty securing personnel necessary for promoting DX, turnover of key personnel and talented employees, and insufficient flexible organizational management for an unpredictable future, there is a risk that business continuity cannot be ensured, potentially affecting business performance. The Company is responding through promoting DE&I to enable diverse talent to thrive and foster innovation, promoting hybrid recruitment of new graduates and mid-career hires, introducing an internal data scientist certification system, enhancing management training using 360-degree evaluations, and implementing measures based on scientific analysis using engagement surveys.

The Company classifies earthquakes, explosions/fires, wind and flood damage, and pandemics as critical incidents. If any of these occur, there is a risk of adverse effects on business performance due to human casualties, facility damage, inability to continue product supply due to disruption of electricity, gas, water, and communication services, loss of business continuity due to supply chain disruption, and large-scale damages claims. The Company has formulated a BCP and implemented measures such as securing appropriate inventory levels, duplicating domestic and overseas production systems, increasing spare parts, and institutionalizing recovery systems. For explosions/fires, an abnormality prediction management system has been deployed at domestic and overseas business sites, and for pandemic response, the Company has established an emergency response headquarters system based on its

Climate change countermeasures, such as stricter greenhouse gas emission regulations and the introduction of carbon pricing, are accelerating globally, and delayed response could result in being driven out of the market. Achieving carbon neutrality is a critical challenge for the Company, which belongs to the chemical industry, and increased countermeasure costs could affect business performance. In fiscal 2023, the Company achieved the Japanese government's target of a 46% reduction in GHG emissions by fiscal 2030 (compared to fiscal 2013), set an SBTi-certified GHG reduction target (Scope 1+2: reduction of 48% or more by fiscal 2030, compared to fiscal 2021), and from fiscal 2025 introduced an internal carbon price (¥10,000/t-CO2) to promote capital investment.