In order to make its risk responses more effective, the TOA CORPORATION Group has established a risk management system centered on the ESG Committee, which is working to continuously upgrade the Group’s risk responses through discussions in cooperation with the Board of Directors and executive officers.

Risk Management System

The risk management system established by the TOA CORPORATION Group consists of three Lines of Defense (LODs). In LOD 1, each risk is controlled by the department with primary responsibility for it based on the risk list (see Section “Business and Other Risks”). In LOD 2, the ESG Committee (with the President and Representative Director as its chairman and senior managers as its members) is convened twice a year. It identifies the status of risk responses in LOD 1, takes actions such as reviewing the risk list and instructing that measures be taken in response to the Risk Management Subcommittee’s suggestions, and reports the current status of risk management to the Board of Directors. From a standpoint of being independent from LODs 1 and 2, the Internal Audit Department in LOD 3 works with the relevant departments so that risk management is performed appropriately and reports the status of risk management initiatives to the Board of Directors. Any new risks and other matters to be discussed are brought before the Board of Directors by the Department as required in order to consider how to handle them.

Risk management initiatives

The Risk Management Subcommittee annually reviews the risk list from the viewpoint of risks’ frequency of occurrence and degree of impact based on external information and the results of risk responses that are reported periodically from LOD 1, and identifies and assesses new risks. The ESG Committee, which is convened twice a year, deliberates on a review of the list of risks proposed by the Risk Management Subcommittee. The ESG Committee and the Internal Audit Department report on matters including the results of deliberation and the status of risk responses to the Board of Directors. In addition, each department, branch, and group company in LOD 1 carry out risk management based on the reviewed risk list. The TOA CORPORATION Group is striving to make continuous improvements to make its risk control more effective on a group-wide basis.

Business and Other Risks

Risks that may affect the TOA CORPORATION Group’s financial results, financial condition, etc. are as listed below. The Company’s policy is to recognize that these risks may arise and strive to prevent their occurrence and make thoroughgoing preparations to respond to them if they occur. Future-related matters in this document are those as predicted by the TOA CORPORATION Group.

At the TOA CORPORATION Group, the ESG Committee, with the Representative Director and President as its chairman, is responsible for monitoring group-wide risks and responding to them on a group-wide basis in accordance with the Risk Management Regulations. The ESG Committee reports the status of such risks and the measures taken to address them to the Board of Directors as required. Risk management related to business execution is undertaken by the department concerned in accordance with the risk management and other regulations established by the department. Each risk item is reviewed annually from the viewpoint of its frequency of occurrence and the degree of its impact to improve risk management effectiveness.

• (1) Construction market fluctuation risk

  The domestic building construction business, which occupies a major portion of the TOA CORPORATION Group’s sales, may affect the Group’s financial results depending on trends in investments in public works projects and plant and equipment in Japan. The TOA CORPORATION Group is working to accelerate growth in the business domains in which it has a large competitive edge and diversify the business domains in which it operates.

• (2) Risk of fluctuations in the prices of construction materials

  Deterioration of the profitability of construction projects due to sharp rises in the prices of construction materials may affect the TOA CORPORATION Group’s financial results. The Group is striving to minimize the effects caused by factors such as sharp rises in the prices of construction materials mainly by strengthening business relationships with suppliers, consistently obtaining the latest market information to maintain a complete and accurate understanding of costs and purchasing construction materials early.

• (3) Overseas business risk

  The TOA CORPORATION Group is engaged in building its construction business in various countries around the world, and changes in the political conditions at construction site locations, changes in the economic situation, unexpected revisions to laws and regulations, etc. may affect the Group’s financial results. The Group assesses these risks primarily by sufficiently collecting opinions from local offices, specialists, and other parties concerned prior to order acceptance. The Group also hedges against exchange rate fluctuation risks involved in overseas projects chiefly by paying for costs in the foreign currency while receiving payments for projects in the foreign currency and concluding forward foreign exchange contracts as required. It is impossible, however, to eliminate these risks completely, and exchange rate fluctuations or the like may affect the Group’s financial results.

• (4) Construction quality risk

  The TOA CORPORATION Group takes carefully thought-out quality control measures in construction projects, but compensation for damages due to non-conformity or product liabilities may affect the Group’s financial results and social reputation. The Group is striving to prevent the occurrence of non-conformity by checking quality issues in advance at construction review meetings, using patrols during construction to confirm whether construction work is being performed appropriately in response to issues raised at the meetings, and carrying out internal inspections at the time of completion.

• (5) Credit risk

  Building construction projects continue for a long period of time, from the conclusion of contracts to completion and delivery. The contract price per project is large, and in general, a large amount of money is paid for a construction project when the constructed building is delivered. For these reasons, credit risks involving the client may affect the financial condition of the TOA CORPORATION Group if, for example, payment cannot be collected. Credit uncertainty on the part of construction partners may also affect the progress of construction work. The Group makes all-out efforts to use the crisis management manual effectively and ensures proper credit management mainly by carrying out surveys of corporate clients and gathering information on a daily basis.

• (6) Human resource management risk

  The inability to secure a sufficient workforce due to the recent declining birthrate and aging population as well as the decrease in the working population may lead to issues such as decreased sales and may affect the TOA CORPORATION Group’s financial results. The Group will increase its efforts to develop human resources and secure workers who meet its diverse needs using a training system tailored to individual aptitudes and ability development, while recruiting new graduates and mid-career workers in a systematic way that adheres to the projected future business scale and promoting workstyle reforms such as achieving greater efficiency through the active introduction of ICT.

• (7) Risk of falling market prices of assets

  Declines in the market prices of the real estate and securities owned by the TOA CORPORATION Group may affect the Group’s financial results. The Group monitors the value of the assets it holds mainly through assessments based on market prices and considers selling idle properties when it is deemed that there is no chance that they will be utilized in the future. The purpose, economic rationality, and other aspects of holding cross-shareholdings are examined annually, and if it is determined that it is less effective to hold particular shares, the Group will take steps to sell them as appropriate.

• (8) Occurrence of disasters and accidents

  In performing construction work, the TOA CORPORATION Group makes doubly sure that accidents are avoided, but accidents or work-related disasters may happen for unexpected reasons. In such cases, decreased opportunities to secure new orders due to compensation for damages, suspension of nominations, etc. may affect the Group’s financial results. The Group is striving to prevent accidents and work-related disasters by making safety and sanitation management plans fully known to all workers and upgrading safety training and safety patrols.

• (9) Natural disasters and pandemics

  Severe natural disasters or similar events may hinder business continuity and affect the financial results of the TOA CORPORATION Group. The Group compiles a business continuity manual to be used in the event of a severe disaster and decides in advance which important operations should be given priority should a disaster occur, as well as which matters the Group needs to take measures for with the goal of resuming business as quickly as possible through such initial response and recovery efforts. If an infectious disease such as the novel coronavirus infection spreads, the Group shall make all-out efforts to manage the health of its employees, partners, and other related personnel and strive to maintain business continuity by adopting staggered working hours, promoting teleworking, and taking measures to prevent infection.

• (10) Risk of violating laws and ordinances

  The TOA CORPORATION Group carries out business activities under various statutory regulations in addition to the Construction Business Act, Industrial Safety and Health Act, Labor Standards Act, Act on Prohibition of Private Monopolization and Maintenance of Fair Trade, and Act on Prevention of Marine Pollution and Maritime Disaster, and any violation of these acts may affect the Group’s financial results and social reputation. The Group is striving to prevent violations of relevant laws and ordinances in its business by providing employees with compliance training as required.

• (11) Information security risk

  If confidential information, such as customer information or personal information, is divulged or lost from the TOA CORPORATION Group, due to an event such as an outside cyberattack or through employee negligence, such divulgence or loss may result in damage to the Group’s social reputation, compensation for damages, recovery costs, etc., and may affect the Group’s financial results. The Group is making thoroughgoing provisions to implement a systematic defense and is striving to prevent data breaches by establishing an information security policy and continuously providing employees with information security training, such as e-learning and drills to combat malicious email. In addition, by forming a data breach response team within the organization that swiftly responds to any data breach should one be discovered, the Group has established a system to minimize the damage caused by such data breach.

• (12) Environmental risk

  In order to address environmental risks, the TOA CORPORATION Group has established a system in which the ESG Committee formulates basic policy, draws up specific action plans, reviews the results of activities, deliberates measures to be taken, and submits reports to the Board of Directors, and important matters thus decided are shared with our business units (including branches) and group companies.

• (13) Human rights risk

  The TOA CORPORATION Group requires all executives and employees to respect each other’s diverse backgrounds, character, and individuality and completely prohibits any act that violates human rights, including harassment and discrimination based on ethnicity, religious faith, nationality, age, gender, sexual orientation and gender identity, place of origin, disability, physical features, etc. It also thoroughly prohibits all forms of child labor and forced labor, human trafficking and support for human trafficking, violations of the human rights of foreign workers, etc. Any single human rights violation may affect the Group, including by damaging the social reputation of the Group. The TOA CORPORATION Group will formulate a basic human rights policy, identify, prevent, and reduce any actual or latent negative effects on human rights in its supply chain and business activities, and make continuous efforts to establish a system for “human rights due diligence” that will integrate these measures into the internal process.