Risk Management

We strive to build systems and take preventative measures to protect against damage to social trust and corporate value.

Risk Management System

The azbil Group faces various risks that may have a significant impact on its operations. These risks are identified by the Comprehensive Risk Management Subcommittee,consisting of the heads of relevant departments. The azbil Group Comprehensive Risk Committee, headed by the executive officer in charge of risk management, then compiles a list of “risks deemed important to the azbil Group,” which may then be determined to be key risks by the Board of Directors.
To minimize the key risks, we are building a management structure extending from the proposal of countermeasures to their implementation—handled by the Management Meeting and azbil Group CSR Promotion Committee—and the reporting of outcomes to the Board of Directors.
In addition to the above, the board of directors of each individual Group company determines its own important risks and implements measures to counteract them.

Risk Management System

Business-Related and Other Risks

Risks that may affect the business results and financial position of the azbil Group are summarized below. These risks are discussed by the azbil Group Comprehensive Risk Committee and the Board of Directors, and are addressed by our comprehensive risk management system. We also take measures to mitigate and respond to risks in the related business departments. Information contained in the table that pertains to the future is deemed valid by the Company as of March 31, 2020. In addition, risks stated in the table are described in the 98th Annual Securities Report (“Business-Related and Other Risks”), and each potential risk event has been adequately analyzed, evaluated,and addressed.

Business-Related and Other Risks

Category Risk Event Awareness Responses and Risk Mitigation Measures
Business environment
  • Risk that changing market conditions in specific regions and key business sectors, including construction and manufacturing, may have an impact on capital investments which, together with major economic recession, could have an adverse impact on the Group’s operations, business results, or financial position
  • Aim for growth in life-cycle business, demand for which is relatively resilient to economic fluctuations, to reduce their impact
Growth in competitive environments
  • Risk that inadequate responses to business opportunities that may arise from changes in societal conditions, technological innovations, and the like could lead to the loss of competitive advantage
  • Risk that the loss of competitiveness—caused by misreading of technological trends, slow R&D progress, or failure to respond to open innovation and technological developments, as well as delays in launching new products, sluggish sales, and the like—could affect the Group’s operations or business results
  • Recognize new risks, develop new subscription models, and the like, and engage in strategic collaborations
  • Emphasize business development by forming alliances with other companies, including M&As
  • Make appropriate technology R&D investments and build a new organizational structure dedicated to specialized fields, such as IT solutions and cloud services; take action to verify new business models; use the in-house educational organization (Azbil Academy) to help employees change jobs and establish an education-oriented system; continue pursuing M&A opportunities; update and strengthen core information system and roll out across Group; and take other measures to avoid delays in addressing changes in the environment and competitive disadvantages
Product quality
  • Risk that costs incurred by defective products, systems, or services and the resulting damage to our corporate reputation could affect the Group’s operations, business results, or financial position
  • Use a dedicated organization to check quality at the product development and manufacturing stages
  • Apply production line management and improvement activities to maintain proper inspection work processes; check legal compliance status related to factory operation; strengthen quality control support such as construction management and the like
  • In addition to checking at the design and production stages, conduct inspections using a dedicated organization that specializes in safety
Global operations
  • Risk that unforeseen situations, such as regional political and economic upheaval, changes to laws, and terrorism, as well as differences in business practices and the like, could have an effect on the Group’s operations, business results, or financial position
  • Risk that delays in planned business expansion due to regional peculiarities and the like could affect the Building Automation (BA) business
  • Risk that sharp foreign exchange fluctuations may impact net sales, prices of raw materials and parts, SG&A expenses, and the like
  • Make preparations using BCP and other tools
  • In the BA business, establish bases mainly in Southeast Asia and China; secure in-house engineers and partner companies to establish a robust business execution system; start providing services aimed at launching life-cycle business overseas
  • Appropriately hedge against foreign exchange fluctuations and expand overseas production to mitigate risk
Securing and developing human resources
  • Risk that obstacles to securing, educating, and smoothly deploying human resources needed to address business structural changes could lead to declines in productivity or other performance indicators
  • Risk that delays in securing, educating, or deploying personnel needed for overseas business development may inhibit achievement of business growth targets
  • Secure and allocate human resources necessary to address changes in business structure
  • Take steps to establish a new personnel system
  • Implement measures related to securing and training human resources for overseas business development
  • Strengthen bases and engage in other initiatives
Information leaks and IT security
  • Risk that leaking of confidential business information or personal information due to unforeseen circumstances could affect the Group’s business performance or financial position, or cause damage to its corporate reputation
  • Risk that terrorist events or unexpected cyber-attacks could affect the Group’s business operations
  • Ensure confidentiality of important information and comply with laws on personal information protection (establish and implement internal regulations and education for employees)
  • Develop a strong IT environment and implement employee education and the like
  • Establish a new inspection department that specializes in information security
Environment,climate change,and natural disasters
  • Risk of damage to production and supply of products and services stemming from large-scale disasters or other unforeseen events
  • Risk that events beyond those assumed in the BCP will have a negative impact on business continuation, which could have a major effect on the Group’s business results or financial position
  • Risk that climate change could lead to long-term market structural changes and impact the Group’s core businesses
  • Risk that long-term market structural changes or decline in sales generated by customers in core businesses could affect the Group’s business results
  • Decentralize the production network to reduce risk of concentration
  • Verify business continuity period (without limiting to specific events); prepare necessary funds, inventories of products and materials, personnel, production equipment, and the like
  • Formulate a long-term vision to reduce greenhouse gases associated with business activities to “net zero emissions” by 2050, and reduce our environmental impacts
  • Identify various events that may be caused by climate change, as well as the content of such risks and potential impacts on operations; undertake scenario analysis and respond accordingly
Compliance
  • Risk that violations of laws (antitrust laws, construction industry regulations, labor standards, bribery laws, and the like), including violations resulting from failure to address characteristics of newly entered regions and industries and delays in responding to new laws and revisions of existing laws, may result in administrative penalties and fines; risk that inappropriate acts by the Company and/or its business partners will lead to harmful rumors and damage the Group’s reputation
  • Conduct regular monitoring in Japan and overseas to confirm compliance with laws and internal rules; engage in rigorous compliance education activities
  • Placing top priority on compliance, conduct regular monitoring in Japan and overseas to check compliance; strengthen system for concluding contracts; disseminate to and educate all employees


Improving Disaster Prevention Capabilities and Business Continuity Plan (BCP)

BCP

The azbil Group takes various disaster prevention measures to minimize potential damage to its operations and improve its disaster response capabilities. For example, we regularly verify the earthquake resistance levels of our buildings and work to strengthen them. We also conduct hazard inspections, stockpile inspections, and disaster prevention drills, and we are developing an emergency communication infrastructure. Through our BCP, we aim to fulfill our responsibility to society by ensuring that the survival of the entire azbil Group is not threatened, while also preventing serious suspensions and delays in operations, with a top priority of guaranteeing the safety of human life. Our basic policy is to normalize corporate activities without causing delays to the restoration of society. We have created various disaster scenarios, based on which we analyze the current situation and formulate countermeasures for each business, production, and administrative function while conducting relevant training. We have also secured offices, restored important systems and networks, and performed financial simulations.With respect to the COVID-19 pandemic, we are making Group-wide responses based on plans that we have prepared so far, with a top priority on ensuring the safety and security of customers and employees. We will also continue working to improve our BCP responses.

Reinforcing Our Information Management System

We are using IT systems in various ways, such as enhancing the environments in which employees can work safely from external locations. Our aim is to maintain high levels of safety and security even for employees working from home.In addition, we conduct information security training annually for all Group employees. We also address information management issues identified via our compliance awareness survey, and we have a system to ensure proper compliance with laws and regulations on the protection of important information, including personal information, in each country/region. In these and other ways, we are working to improve and strengthen our Group-wide information management system.