Kao Corporation

Large-scale earthquakes, typhoons and floods associated with climate change, and fires or explosions at plants could cause damage to employees, facilities, and the supply chain, potentially resulting in significant disruption to product supply to the market. As a corporate risk theme, the Company is advancing impact analyses and response considerations assuming scenarios such as a major earthquake directly beneath the capital, a Nankai Trough earthquake, and an eruption of Mt. Fuji, and is working to strengthen safety capabilities and enhance BCP at overseas sites through periodic evaluations by external organizations and regular drills.

Increasingly diverse and sophisticated cyberattacks such as ransomware and targeted emails pose a risk of internal system outages or delays and leakage of confidential or personal information, which could affect net sales and profit through business interruption, recovery costs, damages, and loss of social trust. Indirect damage via business partners or outsourcing contractors is also a concern. In addition to technical measures such as multi-factor authentication, monitoring, detection, and vulnerability management, the Company is implementing measures including security checks across the entire supply chain, establishing offline backup environments, and taking out cyber insurance.

In multiple countries and regions where the Kao Group operates or procures raw materials, instability in political and social conditions, heightened diplomatic tensions, and conflicts could disrupt the supply chain, halt operations, or change consumer purchasing behavior, potentially preventing the achievement of targeted net sales and profit. As a corporate risk theme, the Company is creating risk scenarios for each country and region, monitoring political and social conditions, formulating guidelines to ensure employee safety, and strengthening the supply chain network.

Market prices of natural oils and fats and petroleum-related raw materials are affected by the global economy, geopolitical risk, supply-demand balance, abnormal weather, and exchange rate fluctuations, and sharp price fluctuations could prevent the achievement of targeted profit. There are also risks of supply disruption due to difficulty in stably procuring scarce raw materials or supplier troubles, as well as the risk of brand image deterioration if the Company's efforts toward sustainable procurement are perceived as insufficient. In addition to cost reduction, price pass-through, and securing second suppliers, the Company implements monitoring through Sedex, the CDP Supply Chain Program, and support for palm oil certification acquisition by small-scale farms in Indonesia.

Amid intensifying competition due to aggressive brand investment by major global companies and the rise of emerging and local manufacturers, changes in the digitally driven customer journey and tightening privacy regulations are making it more difficult to grasp customer needs, potentially leading to reduced brand competitiveness or failure to achieve business plans. Delayed responses to market characteristics unique to each country or region, such as demand fluctuations in the Chinese market or structural changes in the ASEAN market, also pose a risk of failing to achieve business plans. The Company is addressing this by concentrating management resources on focus brands, establishing a globally integrated operating structure, and enhancing customer understanding through the use of customer data.

The occurrence of a serious quality issue could lead to a decline in trust not only in the relevant brand but in the Kao Group as a whole, and delayed responses to rapid regulatory changes in each country or region could result in lost opportunities for timely product offerings. As the corporate risk theme "Response to Serious Quality Issues," the Company is strengthening company-wide response to minimize damage and promoting internal awareness activities to prevent serious quality issues, while working on thorough pre-launch testing and research, quality improvement through consumer consultation service, and building systems to quickly confirm regulatory compliance.

Heightened pressure to achieve performance targets amid intensifying competition may increase the risk of misconduct, and the spread of hybrid work may reduce workplace interaction, potentially increasing compliance risks related to harassment and labor management. If the Kao Group or its outsourcing contractors, etc., commit a serious compliance violation, this could affect credibility, financial position, and business results. The Company works to reduce risk through continuous education on the "Kao Business Conduct Guidelines," monitoring by the Compliance Committee, and dialogue promotion activities such as the "Dialogue Fest."

Amid intensifying global competition for talent and diversifying values regarding individual careers and work styles, failure to secure and develop highly specialized personnel or leaders capable of driving change could affect the execution of the medium-term management plan "K27." As a corporate risk theme, this is discussed monthly by the Human Resources Planning Committee, whose members include top management, and is addressed through flexible work arrangements, promotion of DE&I, establishment of internal open recruitment systems, and introduction of advanced education programs such as DX training.

If the Company's efforts to address social issues such as climate change, plastic waste, biodiversity loss, and human rights are deemed insufficient, this could result in failure to achieve net sales and market share targets or a decline in corporate value due to greenwashing criticism. On the other hand, greenhushing—withholding disclosure—also poses a risk of reduced trust, and as legal regulation of sustainability information disclosure advances, violations of laws and regulations could lead to lost business opportunities. Under the ESG Committee, the Company has established four ESG Steering Committees covering "Decarbonization," "Plastic Packaging and Containers," "Human Rights and DE&I," and "Chemical Substance Management," and is advancing response plans under executive officer-level leaders.

Foreign exchange fluctuations against the yen beyond expectations could affect foreign currency-denominated net sales, raw material procurement costs, and the yen-converted amounts of overseas subsidiaries' financial statements, thereby affecting financial position and business results. In addition, if market or business conditions fall below assumptions made at the time of investment decisions for capital expenditures or M&A, impairment of property, plant and equipment, goodwill, or intangible assets could affect financial position and business results. Foreign exchange risk is hedged through foreign currency deposits, forward exchange contracts, and currency swaps, while investment risk is managed through a system that confirms deviations from plans at each quarterly closing and reports to the Management Committee.