ORIX CORPORATION

Geopolitical risks are rising due to policy changes under the second Trump administration, the prolongation of the Russia-Ukraine conflict, escalating tensions in the Middle East, and US-China trade and technology frictions. These risks bring uncertainty to the ORIX Group's business environment through significant fluctuations in commodity markets and declines in consumer demand. Because the Group operates across multiple regions including Japan, the Americas, Europe, and Asia & Australia, deterioration in the political and economic conditions of a specific region may have wide-ranging effects on business activities, financial position, and operating results.

Although allowances for credit losses are recorded against finance leases and operating loans receivable, deterioration in the domestic and overseas economic environment or in the performance of specific industries or customers may render the current allowance insufficient. Depending on sharp interest rate fluctuations or economic trends, additional provisions may be required, and declines in the value of collateral or used equipment may increase credit-related expenses, potentially adversely affecting financial position and operating results.

In business expansion through M&A, joint ventures, and alliances both in Japan and overseas, there is a risk that post-acquisition earnings may fall significantly short of expectations, or that substantial impairment of goodwill and other assets may become necessary. If invested businesses fail, in addition to financial losses, it may become difficult to divest at the timing and price originally anticipated, and deterioration in the financial condition of partner companies could force additional investment or discontinuation of the business.

Price fluctuations in a wide range of domestic and overseas investment assets, including real estate, aircraft, ships, equities, and bonds, may result in valuation losses or losses on sale. If estimates of the residual value of leased assets diverge from actual conditions in the used equipment market, unrecoverable losses may occur. In the asset management business as well, market price fluctuations may reduce assets under management and fee income, thereby pressuring earnings.

When interest rates rise sharply, funding costs increase, while pass-through to new lease rates and lending rates may be delayed. For variable-rate loans, there is also a risk of asset reduction due to deterioration in customers' repayment capacity or promotion of early repayment. Not all foreign exchange risk associated with foreign-currency-denominated business transactions and overseas investments is hedged; although integrated management is conducted through ALM, significant fluctuations in interest rates and exchange rates may adversely affect financial position and operating results.

The Group holds a substantial amount of short-term liabilities such as commercial paper and short-term borrowings, and in the event of market disruption, new fundraising or rollover at maturity may become difficult, raising funding costs. In the event of a credit rating downgrade, there is a risk of significant impact on overall funding capacity, including higher costs for issuing bonds and commercial paper, reduced availability of bank borrowings, and deterioration in the terms of equity financing.

Against a backdrop of heightened geopolitical tensions, the frequency and sophistication of cyberattacks, including those involving state actors, are increasing. Attacks on information systems may result in leaks of customer information or business disruption. There is also indirect risk arising from vulnerabilities in third-party systems; if such risks materialize, they may result in recovery costs, fines, damages, and significant reputational harm.

Across its diverse business areas, the Group is required to comply with industry-specific regulations such as those governing money lending, financial instruments trading, insurance, and banking businesses, as well as laws in multiple countries concerning personal information protection, anti-corruption, and anti-money laundering. There is a risk that internal controls may not function effectively amid M&A and expansion into new businesses, and legal violations by partners, investees, or joint venture operators could indirectly affect the ORIX Group's reputation and financial position.

The enactment or amendment of laws and regulations in various countries may impose restrictions on how business is conducted, including products and services and investment, financing, and fundraising activities, and may increase the costs of compliance. Changes in accounting standards, even without any substantive change in profitability or financial soundness, may negatively affect related industries and financial markets, and the burden of simultaneously addressing differing regulations across multiple countries is expected to increase further going forward.

The Group is exposed to both physical risks—such as damage to operating facilities, business disruption, and increased recovery costs due to intensifying extreme weather and natural disasters—and transition risks, such as business constraints and cost increases arising from stricter climate policy, environmental regulation, and technological innovation. Increased credit costs resulting from damage to customers and investees or changes in the business environment, as well as declines in the value of held or invested assets, may adversely affect financial position and operating results. The Group is advancing disclosure and response efforts based on frameworks such as the TCFD.