Japan Pulp & Paper Co., Ltd.

Natural disasters such as earthquakes, typhoons, and floods may cause disruptions to manufacturing, logistics, and sales operations, physical damage to facilities and inventory, and disruption of the supply chain. Risk assessment has determined that the risk level is extremely high and that countermeasures require review, and it is classified as a "particularly important risk." The Group is currently conducting a comprehensive review of initial response procedures and rebuilding its BCP process under the guidance of specialist consultants, while also continuing to review insurance coverage and conduct disaster prevention drills.

The occurrence of war, civil unrest, terrorism, economic sanctions, etc. in countries where the Group operates or where major business partners and suppliers are located may constrain business operations through direct damage to facilities, import/export restrictions, disruption of logistics and financial systems, and sudden changes in exchange rates or resource prices. The assessment identified countermeasures against war and terrorism as the area with the greatest room for improvement, and this risk is classified as a "particularly important risk." The Group is undertaking a comprehensive review of its crisis management framework and overseas safety manual under the guidance of specialist consultants.

Aging deterioration, human error, or unforeseen malfunctions may cause fires, explosions, or mechanical accidents, particularly in the Paper Processing business, potentially leading to the suspension of manufacturing, logistics, and service provision, delivery delays or supply stoppages to business partners, loss of sales opportunities, and additional investment burdens. The assessment ranked the risk level of the Paper Processing business among the highest, and it is classified as a "particularly important risk." The Group aims to minimize damage through thorough regular inspections and preventive maintenance, planned replacement of aging equipment, insurance coverage, and horizontal sharing of accident information across the Group.

Against the backdrop of the declining birthrate and aging population, increased fluidity in the labor market, and growing demand for specialized talent, there is a risk that recruitment and retention of necessary personnel may become difficult, which could undermine mid- to long-term corporate value through delays in the execution of business strategy and declines in productivity and service levels. This is classified as a "particularly important risk," and the Group is working to foster a corporate culture in which diverse personnel can thrive, based on the OVOL Long-Term Vision 2030.

If unauthorized external access, ransomware attacks, disasters, or other events cause leakage of confidential information or system failures, this may affect not only business results and financial condition but also the Group's social credibility. This is classified as a "particularly important risk," and the Group has established a framework to minimize damage through regular updates of firewalls and antivirus defense systems, redundancy of systems and communication lines, incident response drills, and ongoing information security education.

Digitization of information media and the shift toward reduced packaging and alternative packaging materials are causing a structural decline in demand, particularly for the Group's core printing and communication paper, and there is a risk of a further decline in the volume and demand for waste paper. In addition, deterioration of the macroeconomic environment or intensified competition could lead to a loss of market share and business relationships with customers. The Group is addressing this through expanded sales of high value-added products, mutual complementarity across its business portfolio spanning upstream to downstream operations, and the development of its waste paper procurement network.

The Group has a high degree of dependence on specific manufacturers, with a procurement ratio of 44.8% from the three companies under Oji Holdings and 14.6% from Nippon Paper, creating a risk of lost orders if these paper manufacturers discontinue production of existing products. In addition, if oligopolization among paper manufacturers progresses, the Group's relative influence may decline. The Group is addressing this by globalizing and diversifying its procurement sources and creating functions and added value valued by both upstream and downstream parties.

Changes in the demand structure for paper and progress in digital transformation may lead paper manufacturers or customers to take over the wholesale functions and roles that the Group has traditionally performed, posing a risk of significant impact on the core wholesale business. The Group aims to reduce the impact of this risk through diversification of its business portfolio via expansion of businesses such as Paper Processing and Environmental Raw Materials, as well as expanded sales of high value-added products.

Foreign currency-denominated settlements in import/export and cross-border trade transactions, as well as the translation of financial statements of overseas consolidated subsidiaries, expose the Group to the risk that exchange rate fluctuations may affect its financial condition and business results. In addition, there is a risk that financial market turmoil, credit rating downgrades, or monetary policy changes driven by heightened geopolitical risk could constrain fund procurement and increase funding costs. For trade transactions, the Group in principle implements hedges such as forward foreign exchange contracts, and has established a funding framework combining diverse direct and indirect financing methods.

The introduction of carbon pricing, tightening of environmental regulations, and revisions to financial institutions' lending and investment criteria accompanying the transition to a decarbonized society may lead to increased carbon tax burdens and rising compliance costs, particularly in the Paper Processing business, which generates substantial GHG emissions. In addition, as a physical risk, the intensification of natural disasters associated with climate change could also affect business operations. The Group discloses information in line with TCFD recommendations, conducting qualitative and quantitative scenario analyses under multiple scenarios ranging from 1.5°C to 4°C or higher, and is advancing the estimation and disclosure of financial impacts.