The foundation of Komatsu’s management is to maximize its corporate value through the pursuit of “Quality and Reliability.” Any uncertainty that hinders this pursuit is considered a “risk,” and measures are taken to address all risks threatening the sustainable development of the Komatsu Group.
Komatsu identifies risks that may affect its business activities from a enterprise-wide perspective and evaluates them based on "impact on business performance," "likelihood of occurrence," and "impact duration in case of risk occurrence," to determine the priority of risks. In this assessment, risks related to important issues derived from materiality analysis are also incorporated. Furthermore, the company identifies "corporate risks," which are significant enterprise-wide risks, and "regional risks," which are specific to the business activities of each country and region. After determining the responsible departments for countermeasures, activities are carried out to avoid or minimize risks and maximize opportunities.
To further strengthen its risk management, Komatsu has established a Risk Management Committee, chaired by the President, with the Executive Officer Supervising General Affairs as Vice Chairman and the Risk Management Group of the General Affairs Department acting as the Secretariat. This committee is responsible for developing a comprehensive corporate policy on risk management, identifying “corporate risks” through the selection and evaluation of risks from an enterprise-wide perspective, inspecting and following up on the implementation status of risk countermeasures, and controlling risks when they materialize. This committee was held in November and February of the fiscal year 2023, and the content of its deliberations and activities is regularly reported to the Board of Directors.
The risk map (risk prioritization) based on FY2023 risk assessment results is as follows. For details on the risks, please refer to the 155th Securities Report.
The corporate risks for FY2023 are as follows.
| Risk name | Risk description | Impact on Business | Risk mitigation actions |
|---|---|---|---|
| Risks related to product and solution strategies | Our company defines its purpose as "creating value through manufacturing and technology innovation to empower a sustainable future where people, businesses, and our planet thrive together." Based on future market and societal needs, we are promoting the creation and market introduction of new products and solutions, such as electrified machinery, Smart Construction, mine automation (e.g., AHS), and data-driven businesses (e.g., KOMTRAX). However, if we fail to develop products and solutions that meet customer needs by the required time or if our developed products and solutions do not receive favorable evaluations from customers, we may lose competitiveness in the market.
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If we are unable to provide products and solutions that maintain an advantage over competitors, it could affect our business performance, and this impact could be prolonged.
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We have designated fiscal year 2023 as "the first year of market introduction of electrified construction machinery" and have introduced four electrified models (3-ton class electric mini excavator "PC30E-6", 20-ton class electric excavator "PC200LCE/210LCE-11", electric micro excavator "PC05E-1", 13-ton class electric excavator "PC138E-11") to the Japanese and European markets. Additionally, we have started demonstration tests of hydraulic excavators equipped with hydrogen fuel cells and have signed a joint development agreement with General Motors for hydrogen fuel cells in ultra-large dump trucks. We are developing and verifying hydrogen fuel cell modules for our main ultra-large dump truck model, the 930E, in mining. Furthermore, we acquired American Battery Solutions, a US battery manufacturer, to integrate their battery technology with our expertise and network, aiming to develop and produce optimized batteries for various construction and mining machinery used under different environments and conditions, accelerating our electrification efforts. To grow our solution business, we established a new company, EARTHBRAIN Ltd., in April 2021, in collaboration with NTT Docomo, Sony Semiconductor Solutions Corporation, and Nomura Research Institute, Ltd. As workstyle reforms are required at construction sites worldwide, we are promoting DX (Digital Transformation) in the construction industry, aiming to improve safety, productivity, and environmental performance. For example, we jointly developed a remote control system for construction machinery with EARTHBRAIN and started providing it to customers in March 2023. This system is expected to maximize work efficiency and further improve safety through coordination with Smart Construction Fleet and Smart Construction Retrofit. Moreover, in addition to expanding sales of ICT construction machinery, we expanded our business by promoting "Smart Construction 3D Machine Guidance," which allows retrofitting of ICT functions such as machine guidance, in overseas markets. Regarding the promotion of mine site automation, we have steadily advanced the introduction of the Autonomous Haulage System (AHS) for mines, with a cumulative total of 727 units in operation as of the end of March 2024. Additionally, to establish new solutions for balancing safety and productivity at mine sites, we have been promoting activities to introduce remote control bulldozers for mines since June 2020 and started commercial operation of the large ICT bulldozer "D375Ai-8 Remote Control Specification" for mines in May 2023. |
| Geopolitical risks | Our company operates globally, with development, production, and sales bases in various countries worldwide. Social, political, and military tensions in specific regions can potentially impact our business. We monitor and analyze political and economic conditions, as well as regulatory trends in each country, to minimize the impact of diverse geopolitical risks, such as resource price fluctuations, import/export regulations, and supply chain disruptions. However, geopolitical uncertainties are increasing, including the situation between Russia and Ukraine. Political divisions and military tensions on global scale may cause supply chain disruptions and affect financial and economic stability. We gather and analyze information on economic security-related regulations, including the Economic Security Promotion Act, but unexpected situations may negatively impact our business performance. | Considering the Russia-Ukraine situation, Komatsu has halted shipments of main units, parts, and components to Russia and suspended operations of its production subsidiary in Russia. The business environment in the CIS (including Russia, Belarus, and six non-sanctioned countries) remains uncertain. Continued inability to support customers in these resource-rich Central Asian countries could impact future business. Our electronics-related products incorporate advanced technologies, some of which are subject to export controls under the Export Trade Control Order. While the current impact is minimal, further tightening of regulations could result in lost sales opportunities and hinder service support, affecting our business. |
The six non-sanctioned CIS countries are important markets in resource-rich Central Asia. To enhance sales and profitability in this region, we established Komatsu Central Asia LLP, a wholly-owned subsidiary in Kazakhstan, to handle sales and service functions. We have set up a dedicated department to promptly collect and share information on amendments to the Export Trade Control Order with relevant business units, ensuring timely and appropriate responses. Regarding export controls on advanced technologies, we aim to offset any sales declines by developing markets outside regulated regions, enhancing product differentiation, improving capabilities with long-life modules, and increasing the profitability of the parts business, thereby diversifying and expanding revenue sources. |
| Risks associated with addressing social issues | Our company operates globally and recognizes various social issues, including climate change, water resource depletion, and human rights concerns. While we aim to address these issues sincerely and fulfill our social and environmental responsibilities as a global company, contributing to society through our business activities, there is a risk that our efforts may be deemed insufficient by society. This perception could negatively impact our business performance by damaging our brand image and social credibility. | We have long prioritized environmental initiatives as one of our top management priorities. In 2021, we declared our goal to achieve carbon neutrality by 2050, and in our medium-term management plan launched in April 2022, we set this declaration as a challenge goal and actively pursued related activities. However, if our responses to social issues are deemed inadequate by stakeholders, it could affect our business performance and potentially prolong these impacts. | To significantly reduce CO2 emissions across the entire lifecycle, we are advancing the market introduction of electric construction machinery and conducting pioneering research into fuel cells and hydrogen engines. We are also developing "power agnostic trucks" that can operate with any power source. Additionally, by utilizing advanced digital technologies for autonomous driving and remote operation, we aim to enhance construction efficiency and promote activities towards a low-carbon society as an industry leader. Based on the TCFD recommendations, we assess the risks and opportunities that climate change poses to Komatsu and strengthen our resilience through scenario analysis. We also promote initiatives addressing climate change and water security through constructive dialogue with stakeholders. |
| Risks associated with talent acquisition and development | At our company, we consider talent to be one of the critical management resources that generate new value. Under this belief, we continuously invest in our workforce, aiming for sustainable growth and development of both the company and employees, in alignment with internal and external environmental changes and management policies. However, due to the declining labor force, a decrease in experienced engineers, and a shortage of engineering talent—particularly in key areas such as digital technology and EV-related technology—the competition for talent acquisition is intensifying globally. If we fail to secure these talents as planned or develop employees with the skills required in these specialized fields and secure the capabilities necessary for product research and development, our ability to execute our business plans and achieve sustainable growth could be significantly impacted. | Our medium-term management plan is built on three pillars: 1) Accelerating growth through innovation, 2) Maximizing earning power, and 3) Building a resilient corporate structure, with a focus on "enhancing a diverse talent base." To advance "accelerating growth through innovation," it is crucial to acquire and develop digital talents proficient in software development. Failure to secure and develop these talents as planned could affect the medium-term management plan and the company's sustainable growth.
In progressing our solution business, it is essential to speed up technological innovation by integrating our core technologies with external knowledge through partnerships and M&A. If these do not proceed as planned, it could impact the medium-term management plan and the company's sustainable growth. In a challenging environment for talent acquisition, the retention and development of acquired employees become critical. Without understanding and addressing employee engagement appropriately, there is a risk of increased talent turnover due to declining engagement, affecting the company's sustainable growth. |
We promote Diversity & Inclusion to create a workplace where diverse employees can work with peace of mind, fostering an environment conducive to innovation, enhancing individual motivation, and driving cultural change for overall company growth. As part of this, we are improving the ratio of female employees, supporting LGBTQ, and promoting the employment of people with disabilities while disclosing human capital information. With the reconstruction of our headquarters building, we aim to strengthen our functions as an urban innovation center that revitalizes co-creation and collaboration activities, including industry-academia collaboration and open innovation. Additionally, to secure outstanding talent, we position our global headquarters as a key recruitment hub, expanding opportunities to experience Komatsu through new recruitment events and internships utilizing both real and online formats, thereby enhancing our recruitment capabilities. Due to the difficulty in acquiring digital talents, we are advancing internal development. Since 2019, we have been implementing the "AI Talent Development Program" with a unique curriculum to cultivate talents with knowledge and skills in AI, the ability to convert customer business challenges into AI-solvable problems, and the capability to drive projects in collaboration with leading companies. Furthermore, we regularly conduct engagement surveys globally to understand, analyze, and address employee engagement, identifying strengths and challenges by region and organization, and reflecting these insights in HR policies. |
| Risks associated with AI utilization | The evolution of AI has the potential to change the fundamental assumptions of our business, and its effective utilization is essential for our strategy of “accelerating growth through innovation.”Already, in our major business of construction equipment and vehicles, approximately half of the sales, particularly in mining equipment, come from the aftermarket business of parts and services, which accounts for about two-thirds of the sales. Through the promotion of DX (Digital Transformation) utilizing ICT such as online parts sales and AI-based failure diagnosis, we are globally enhancing the added value across the entire value chain after new vehicle sales. Failure to strategically incorporate AI may result in the loss of new business opportunities and reduced competitiveness of our product and services in the future. | Generative AI is a rapidly evolving field, and there is much public debate about its opportunities and risks. Rather than viewing these changes as threats, we need to see them as opportunities and make effective use of generative AI. If we fail to respond swiftly to these rapid technological changes and improve productivity and efficiency for our company, clients, and agents, it could affect our competitiveness. Conversely, incorrect use of generative AI could lead to information leaks due to the input of confidential information or violations of others' rights. | To strengthen coordination among our global bases and promptly respond to changes brought about by AI utilization, we have established a cross-departmental project led by the Chief Technology Officer (CTO). This project ensures we quickly adapt to changes through AI utilization. By developing and implementing advanced use cases, we gain knowledge and capabilities in new AI technologies and ensure safe implementation. Furthermore, as part of our risk management for AI usage, we have established global AI usage policies and rules, along with conducting internal training based on these guidelines. This approach ensures we prevent information leaks and rights violations while safely incorporating AI into our business. |
Regional risks for FY2023
| Risk name | Risk description | Impact on Business | Risk mitigation actions |
|---|---|---|---|
| Risks related to human rights issues in emerging markets | As it becomes increasingly important for companies to respect human rights and act responsibly, the emergence of human rights violations in business activities can lead to community backlash, boycotts, social criticism, loss of corporate reputation, business delays or interruptions, and cessation of transactions. Particularly in emerging markets, which are considered our "Next Volume Zone" for promising new markets, the risk of human rights issues is more pronounced, posing a higher impact on our business growth. |
Komatsu's overseas sales ratio reaches approximately 90%, with emerging markets accounting for about 54% of these sales. As economic growth continues, the contribution of emerging markets to sales is expected to increase further. In this context, insufficient efforts to address human rights risks in emerging markets or failure to respond adequately can lead to decreased sales, slowed growth, and significant financial losses. |
In 2019, Komatsu established the "Policy on Human Rights," declaring that it would conduct business globally in compliance with international standards for human rights respect. This policy is reflected in the "Komatsu Code of Conduct" and is thoroughly communicated to all employees across the global group. Based on this human rights policy, we continuously identify, prevent, mitigate, and address human rights issues in business activities through due diligence, in collaboration with external experts. In FY2022, we conducted web-based human rights surveys targeting all Group companies both in Japan and overseas, as well as major suppliers. The results were feedbacked to the responding companies, and we are working on risk mitigation measures. Additionally, in FY2022, we conducted an impact assessment in the Republic of South Africa. We engaged in focused discussions on human rights with various stakeholders, achieving results in sharing and deepening the understanding of issues and values with customers. All these initiatives strive to ensure objectivity by incorporating participation, support, and advice from external research institutions. |
Komatsu recognizes that threats to information security are becoming increasingly sophisticated and complex each year. We are implementing activities to enhance the overall information security level of the group.
(a) Management and promotion system
To establish and operate an organizational structure for information security, including the capability to respond to cyberattacks, Komatsu operates a global CSIRT (Computer Security Incident Response Team) covering all global bases. The role of the CSIRT is to carry out peacetime activities to prevent information security incidents through information gathering, various system measures, and employee education, and to respond promptly to minimize damage and restore systems early in the event of an incident. Additionally, we conduct regular cyber BCP drills to strengthen our response capabilities in case of emergencies.
CSIRT activities are regularly reported to the "Risk Management Committee," which manages enterprise-wide risks, to share issues with the committee members, including the President and Directors, ensuring proper operation.
Furthermore, in FY2023, we established the FSIRT (Factory Security Incident Response Team) to respond promptly to information security incidents involving networks and connected equipment at each production plant, continuously working to enhance information security throughout the group.
(b) Personal information protection
Komatsu recognizes that appropriately protecting the personal information of customers, business partners, employees, etc., is essential for conducting business. We have formulated and adhere to the "Global Privacy Policy." Additionally, we ensure proper handling through e-learning and internal audits. Overseas, we also work to protect personal information in accordance with laws and social demands in each country and region, such as compliance with the General Data Protection Regulation (GDPR) in Europe.
(c) System measures
To counter threats such as unauthorized access and computer virus infections from outside and prevent information leaks resulting from these threats, we have built a multilayered defense system combining various system measures. For example, when implementing telework, we have a system that requires multiple processes to access the system from outside, ensuring strict verification of identity.
(d) Education and training
To enhance the awareness and knowledge of all employees who handle information, we mandate that all employees regularly take e-learning courses. As a measure against suspicious emails, we conduct several training sessions each year using mock spear-phishing emails. This training is conducted not only in Japan but also for some overseas subsidiaries, promoting the improvement of information security levels globally.
(e) Information security audits
By conducting information security audits on group companies, we strive to improve the information security level of the entire Komatsu Group. Komatsu employees with specialized knowledge conduct the audits and provide advice to enhance effectiveness, ensuring independence and fairness by acting as third parties without direct interests.
(f) Efforts to improve information security across the supply chain
Komatsu requests that not only our company and group companies but also dealers and partner companies that share our business secrets manage information security in line with our policies. We also provide ongoing and effective support. We recommend periodic checks and interviews using checklists and the use of designated information security materials to our dealers and partner companies regarding system measures and proper information management methods. Through these activities, we share the necessity of proper information system management for handling business secrets and ensuring stable business continuity with all stakeholders, aiming to reduce risks.
Greater political divisions globally may lead to tighter regulations in some countries. The Komatsu Group collects and analyzes information on trends related to the Economic Security Promotion Act and other economic security-related regulations.
As a part of its risk management activities, Komatsu has been conducting compliance risk audits (CR audits) since FY2008. These covered areas are not included in J-SOX audits, which are conducted in accordance with the Financial Instruments and Exchange Act of Japan to evaluate the internal controls related to financial reporting, and identify potential compliance risks within the company, with a particular focus on confirming and evaluating the status of legal compliance. Our internal specialist team conducts the internal audits at Komatsu and its Japanese/overseas affiliates, as well as at independently owned distributors and business partners. Through these audits, we strive to raise control and compliance awareness levels at each company and in every department. We continually review our audit method according to changes in the business environment and raising the quality of CR audits. The status of CR audits is reported monthly to the president and annually to the board of directors.
The audited items in FY2023 are:
1. Safety, 2. Environment, 3. Labor, 4. Finance and treasury, 5. Quality assurance and recall, 6. Emissions regulations, 7. Vehicle inspections and specific voluntary inspections (inspections required by law), 8. Export control, 9. Information security, 10. The Anti-Monopoly Act, 11. The Subcontract Act
In addition, as CR audits that cover areas across the above items, we implement field instructor audits (Safety, Environment) and audits of sales office bases (Finance and treasury, Labor, Information security), which are implemented at each distributor base, as well as audits of overseas representative offices (Finance and treasury, Labor, Information security), which are implemented for overseas offices.
