Amid significant changes in the external environment—from shifts in international affairs and rising geopolitical risks to the increasing prevalence of cyberattacks—as well as growing expectations of respect for human rights and environmental regulations, the business landscape is undergoing substantial transformation. Within the automotive industry specifically, a surge in protectionism is manifesting itself via the imposition of tariffs, while the pace of the spread of electric vehicles has become more subdued. In such a challenging business environment, characterized by a broad range of risks and unpredictable changes, achieving sustainable corporate value enhancement requires proactive adaptation to changes and the implementation of risk management on a global scale.

Furthermore, in recent years, the automotive industry has faced a series of certification fraud incidents, undermining trust in product quality. In addition, compliance issues arising from improper transactions within supply chains have also emerged. The importance of risk management is greater than ever as we strive to remain a trusted “company of choice” in the eyes of stakeholders and society.

For FY2025, we have selected four key Business Strategy Risks. Among these are the risk of failing to properly work toward achieving carbon neutrality and the circular economy, and the risk of being unable to build a value chain that keeps pace with trends in the growing adoption of BEVs, including the establishment of supply chains and production systems capable of adapting to fluctuations in BEV demand. Based on this situation, we have incorporated these risks into specific business activities, such as strategic investments and product development, to drive progress.

For Management Foundation Risks, we have selected risk factors that include, the need to respond to US-China trade tensions and US-government policies, with tariffs of particular concern, as well as potential supply chain disruptions arising from inadequate responses to national regulations such as export restrictions on critical minerals. We selected a total of eight key risks, including these additions, and are working on specific measures to mitigate these risks. The selected key risks are shared with both domestic and international Group companies. Each company conducts risk assessments and independent inspection activities in collaboration with head office, implementing a group-wide PDCA cycle. In terms of economic security, the working group established in FY2023 continues to implement measures addressing legal trends in various countries. Also, in response to the changing environment and evolving requirements, we are enhancing the supply chain to ensure stable procurement of raw materials and components.

Furthermore, discussions on key risks, including those related to economic security and sudden risks arising from political instability, are held at Board meetings. Through these discussions, we continuously implement improvements that align with changing circumstances.

Business strategy risks and operating foundation risks based on the business environment are assessed from the perspective of impact on operations (financial impact, etc.) and possibility of occurrence (frequency), and key risks are identified.

Key risks are reflected in company policy as important action items, and initiatives are made to mitigate or prevent risks.

A crisis management system has been put in place in the event of a massive disaster, such as the predicted Nankai Trough earthquake or natural disasters due to climate change. This system is based on the principles of human life first, community support, and early recovery. Specifically, in addition to infrastructure and system measures based on the Crisis Management Project, resilience training has been conducted more than 240 times for directors and members of disaster response departments since FY2013. These efforts are based on the Company’s belief that improving the skills of response personnel is essential. Specific procedures for the recovery of affected buildings, facilities, and processes have also been established, and for alternative production in a production recovery system.

Recovery training for design drawings and other data is also carried out so that product development can be continued even after disasters. In addition, workshops to enhance crisis management not only in Toyoda Gosei companies but also at Group companies and suppliers are conducted regularly. Assessments using earthquake preparedness measure checklists, clarification of weak points with graphs, presentation of responses taken at Toyoda Gosei and other companies, and collaborative preparation of business continuation plans (BCP) are carried out.

In response to global risks that occur not only in Japan but also in other countries (e.g., parts and raw material shortages and the international situation), we are taking necessary actions on a global basis to quickly assess the situation (weekly BCP reports) both in Japan and overseas. Standardization is also underway so that domestic and international locations can take measures on their own initiative, and we are enhancing our ability to respond to key risks seen in the business environment of each company.