Sumitomo Electric Industries, Ltd.

Changes in the geopolitical environment, import/export regulations, tariff increases, and tax system changes may lead to decreased sales or deteriorating cost ratios. There is also a risk that investment funds may become unrecoverable due to foreign exchange controls, hyperinflation, terrorism, infectious diseases, and similar factors. As countermeasures, the Group diversifies production bases across multiple countries, establishes regional corporate companies, and gathers information from experts and government agencies.

If violations of laws such as competition law violations or bribery occur, this could have a significant impact on management through fines imposed by authorities, criminal penalties against individual officers and employees, shareholder derivative lawsuits, suspension of transactions with customers, and loss of credibility. Because strict laws in various countries, including Europe and the United States, apply, the risk in the event of violations is particularly high. As countermeasures, the Group has established related regulations, conducts in-person training and e-learning, appoints compliance officers, and raises awareness of its internal whistleblowing system.

Due to the introduction of the EU's carbon border tax and LCA requirements under the Battery Regulation, cases have arisen where customers request reductions in carbon footprint, and inadequate response could result in lost business opportunities. There is a possibility that performance could be affected by the increasing need to install solar power generation facilities and purchase green electricity, and by rising energy procurement costs due to carbon tax increases. The GX Promotion Committee oversees the overall effort, and the Group has obtained SBTi certification as it works toward the goal of achieving carbon neutrality by 2050.

Some domestic sites are located in areas expected to be affected by a potential Nankai Trough megaquake or a Tokyo Metropolitan area earthquake, and could suffer significant damage from tsunamis, liquefaction, and similar events. In addition to production stoppages, decreased sales, and repair costs resulting from disaster damage, there are also concerns about impacts on production plans due to damage suffered by customers or disruption of logistics networks. The Group has implemented measures such as formulating BCPs, promoting BCM, conducting integrated disaster prevention drills twice a year, seismic retrofitting of buildings, and establishing backup centers.

Cyberattacks such as ransomware and unauthorized access are increasing and becoming more sophisticated. If information leakage or system outages occur, in addition to loss of public trust, damage to brand image, and liability for damages, fines of up to 4% of Group global sales could be imposed under the GDPR. The Group holds personal information of over 300,000 Group employees as well as confidential information of customers and business partners, and the risk is increasing with the expanded use of IoT and DX. The Group addresses this through the development of information security policies, separation of business and production equipment networks, and establishment of an incident response framework.

Because the Group conducts manufacturing and sales activities around the world, in addition to short-term foreign exchange fluctuation risk for each currency, there is also translation risk when converting the financial statements of overseas consolidated subsidiaries into yen. Significant exchange rate fluctuations over the medium to long term could affect consolidated performance even if there is no change in performance on a local currency basis. The Group seeks to minimize short-term impacts through means such as matching transaction currencies for buying and selling and using forward exchange contracts.

Many products use copper as a main raw material, and because some products do not employ pricing methods that hedge against market price fluctuation risk, a sharp rise in market prices could affect performance. For rare metals, there is a risk that procuring the necessary quantities could become difficult due to export restrictions or supply limitations imposed by producing countries, as well as risk of supply disruption due to natural disasters, war, terrorism, and similar events. The Group implements measures such as strategic stockpiling of critical materials that cannot be substituted and strengthening advantageous purchasing activities through Group joint procurement.

If unexpected quality problems occur, this could lead to delays in product delivery, decreased factory productivity, large-scale recalls, and product liability, and could affect performance through loss of public trust, damage to brand image, product recall costs, and liability for damages. Each division has established a systematic quality control framework based on Group-wide quality control standards, and conducts business audits and quality control education in a systematic manner. The Group also maintains product liability insurance to prepare for unforeseen circumstances.

For the Group, which operates globally across a wide range of business areas, failure to secure necessary personnel or prevent attrition could affect its performance and financial condition. Securing manufacturing personnel and personnel with advanced expertise and technical skills is a particularly important challenge. The Group addresses this through promoting diversity and inclusion, establishing competitive compensation and treatment systems, strengthening engagement measures, and conducting global recruitment activities around the world.

With the evolution of product technology, expansion of overseas business, and progress of digitalization, if Group products unintentionally infringe on the intellectual property rights of other companies, the Group could be forced to discontinue sales or change designs. On the other hand, due to differences in legal systems and enforcement conditions across countries, sufficient protection against infringement of the Group's intellectual property rights by other companies is not always guaranteed, which could also make it difficult to secure markets. The Group works to prevent problems from occurring and to mitigate their impact by gathering the latest information on the intellectual property environment in each country and region, building an effective network of rights, and concluding appropriate contracts with relevant parties.