Sumitomo Mitsui Trust Group, Inc.

Regarding strategic shareholdings held for purposes such as strengthening relationships with business partners, if a significant decline in share prices occurs, this could adversely affect business performance and financial condition through impairment processing and deterioration of valuation gains/losses. The Group is accelerating the reduction of traditional-type strategic shareholdings under a policy of principled full elimination, and for some holdings has implemented hedging transactions to suppress fair value fluctuation risk. The status of valuation gains/losses is measured daily and reported periodically to the Financial Council.

If the creditworthiness of large borrowers to whom the Group has extended substantial credit deteriorates, significant credit-related expenses may arise, adversely affecting business performance and financial condition. Even where risk mitigation measures such as collateral have been taken, losses may still occur due to declines in collateral value and other factors. The Group manages credit concentration risk through transaction limit management based on credit ratings, monthly monitoring, and periodic stress testing.

Disruptions in domestic and overseas real estate markets could simultaneously cause an increase in credit-related expenses due to deterioration in the credit quality of loans to the real estate industry and a decrease in real estate brokerage and intermediary fee income, thereby adversely affecting business performance. The Group monitors the real estate market and the status of credit extended to the real estate industry on a monthly basis, and manages sector concentration risk through periodic stress testing.

In a rising interest rate environment resulting from shifts in domestic monetary policy and other factors, fluctuations in the value of held financial assets, increases in funding costs, and changes in customer investment behavior may occur, increasing the difficulty of ALM operations and adversely affecting business performance and financial condition. The CFO Committee formulates the ALM basic plan, and the status of market risk amounts, gains/losses, and compliance with various limits is reported daily to members of the Financial Council and deliberated on periodically.

Cyber attacks such as ransomware infections, DDoS attacks, BEC (business email compromise/email fraud), and supply chain attacks could result in service disruptions, information leaks, data destruction or tampering, and other incidents that adversely affect business operations and performance. Under the "Cybersecurity Management Declaration," the Group is promoting a variety of measures, including the introduction of integrated log monitoring, enhancement of DDoS attack countermeasures, and responses to emerging threats from AI and quantum computing, and reports periodically to the Board of Directors and the CRO Committee.

Failure to comply with various laws and regulations, including the Banking Act and the Financial Instruments and Exchange Act, could result in penalties, administrative sanctions, or loss of market trust, and there is also a risk of damages litigation arising from products and services. Following an insider trading incident involving a former employee, the Group is working to further strengthen its internal control framework, including initiatives to raise compliance awareness and strengthen management of insider information. The Group is also formulating and managing compliance programs and enhancing training across the entire Group.

As the methods used in financial crimes such as money laundering become more sophisticated, deficiencies in prevention systems could result in the Group's products and services being used for financial crimes, potentially leading to administrative sanctions or substantial fines imposed by domestic and overseas authorities. There are also risks of customers becoming victims, of transaction relationships arising with antisocial forces, and of reputational damage. The Group is working on risk-based approach evaluation and policy formulation, employee education and training, and the enhancement of prevention systems, including system-related measures.

Physical risks arising from medium- to long-term climate change (such as impairment of collateral assets due to natural disasters) and transition risks (such as carbon taxes, stricter regulations, and technological change) could adversely affect business performance and financial condition through the deterioration of business partners' operations and increased credit-related expenses. The Group recognizes these as risk drivers affecting not only financial impact but also business continuity, brand value, and growth potential, and is working on setting and managing GHG emission reduction targets for high-carbon sectors, scenario analysis, and updating and enhancing the review of sector policies.

The prolonged Russia-Ukraine conflict, instability in the Middle East, and tariff measures and export control tightening amid US-China tensions could lead to increased volatility in financial markets, fluctuations in resource prices and logistics costs, and supply chain disruptions, which in turn could adversely affect the Group's business performance through deterioration in business partners' performance and disruption of financial markets. There is also a risk that stricter regulations, including economic sanctions, could hinder the operation of international business. The Group addresses this through stress testing using multiple macroeconomic scenarios and the formulation of action plans.

If IT investments aimed at responding to changing customer needs and advances in digital technology cannot be executed as planned, or if delays in system development progress or postponement of releases delay the implementation of initiatives, this could lead to reduced customer convenience and diminished competitiveness of products and services, resulting in lost business opportunities. The Group is working to enhance IT investment management through monitoring and verification of investment effectiveness using indicators such as ROI, prioritization of projects and review of investment content, as well as strengthening the development framework through securing, developing, and appropriately deploying advanced IT talent.