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Governance

Risk management

Risk Management

Risk management

The Komatsu Group recognizes all uncertainties that could threaten the Group's sustainable growth to be major risks, particularly compliance, environmental issues including climate change, product quality concerns, accidents, infectious diseases, information security issues and anti-social forces. The company has adopted the following measures to counter these risks.

2. Business and other risks

We recognize the following business and other risks as described in the Annual Securities Report.

  1. Economic and market risks
  2. Exchange rate fluctuations risks
  3. Risks related to fluctuations in the financial markets
  4. National regulations risks
  5. Risks related to environmental regulations, climate change, etc.
  6. Product and quality liability risks
  7. Risks related to alliances, cooperation, acquisitions, etc.
  8. Risks related to procurement, production, etc.
  9. Risks related to information security, intellectual property, etc.
  10. Risks related to natural disasters, accidents, infectious diseases, etc.
  11. War, terrorism, geopolitical risks

3. Emerging risks

The emerging risks that may affect us in the medium term (3-5 years) and are of high significance are as follows.

Risk title Risks and business background Business impact Risk-reduction actions
Geopolitical Risk Komatsu operates 239 global bases (32 in Japan and 207 overseas) and conducts business in over 150 countries and regions. As a result, escalating social, political, or military tensions in specific areas can adversely affect our supply chain, which includes production, sales, and services.
Additionally, the tightening of export regulations related to advanced technologies also impacts certain segments of our business.
The geopolitical landscape is increasingly uncertain, with the Russia-Ukraine situation being a notable example. Should tensions escalate to the point of war or other conflicts, we may be compelled to scale back operations in the affected areas. Such a scenario could lead to a decrease in sales, asset devaluation, and market loss due to customer attrition, all of which could potentially impact our future business.
In light of the situation in Russia and Ukraine, Komatsu has suspended shipments of its primary products, as well as parts and components, to Russia. We have also halted operations at our production facilities within the country. The business environment in the CIS—which includes Russia, Belarus, and six other non-sanctioned nations—remains unstable. Should this state of affairs persist, particularly our inability to provide customer support in the resource-rich countries of Central Asia among the non-sanctioned nations, it could have potential implications for our future business.
Moreover, our products related to electronics feature advanced technologies, some of which fall under export controls governed by export trade regulations. Although the impact is minimal at present, any future tightening of these regulations could result in lost sales opportunities and hinder our service support, thereby potentially affecting our overall business.
Among the CIS countries, the six non-sanctioned nations are important markets situated in resource-rich Central Asia. To capitalize on this, we have established Komatsu Central Asia LLP, a wholly-owned subsidiary in the Republic of Kazakhstan. This new entity is tasked with handling sales and service operations in the Central Asian region, with the aim of further expanding both sales and revenue.
In light of amendments to the Export Trade Control Order, we have instituted a specialized department within the company to swiftly gather relevant information. This department collaborates with related business units to ensure timely and appropriate action is taken.
Regarding the export controls on advanced technologies, we are proactively working to mitigate potential revenue losses. Our strategy involves diversifying and broadening our revenue streams by venturing into markets outside regulated regions, enhancing product differentiation features, elevating capabilities through long-lasting modules, and boosting the profitability of our parts business.
Risks related to the development of low-carbon/low-emission products We have set a mid-term management plan target of reducing CO2 emissions by 50% from the 2010 level by 2030 and have declared our goal of becoming carbon neutral by 2050. To verify our progress, we compared the product performance in the base year (FY2010) and in FY2022 and calculated the resulting reduction in CO2 emissions from improvements in fuel consumption and work efficiency. We found that in FY2022, products achieved a 21% reduction in CO2 emissions compared with the base year.
However, our products and solutions may not be adopted within the low-carbon/low-emission product market in the future if the development of low-carbon/low-emission products and solutions does not proceed as planned, if rival products are launched by our competitors, or if we do not have sufficiently established procurement, production, and service systems when we bring EVs, hydrogen and other products to market.
Low-carbon/low-emission products are expected to be in demand in the European, North American, and Japanese markets in the future. The construction, mining and utility equipment segments account for 93% of Komatsu’s total sales, with the European, North American, and Japanese markets accounting for 46% (in FY2022) of the total sales by region. Additionally, major resource companies that are mine machinery customers are accelerating their efforts to decarbonize their operations and take an environment-conscious management stance. If such risks materialize in the future, our products and solutions may lose their competitiveness, which may have a significant and prolonged impact on our business plan. We have worked to improve the operating efficiency of our machines, reduce fuel consumption, and transition from internal combustion engines such as diesel engines to cleaner power sources such as hybrids, electrification, and fuel cells. We introduced to the Japanese market the PC30E-5 electric excavator in April 2020 and the PC01E-1 in March 2022 through joint development with the Honda Motor Co., Ltd. (hereinafter Honda).
Furthermore, we and Honda have jointly developed the PC05E-1, an expansion of the PC01E-1 model, and plan to introduce it to the domestic Japanese market in FY2023.
In December 2022, we also launched the FE25G-2 and FE30G-2 electric forklift trucks, which are 2.5-ton and 3.0-ton-class electric forklift trucks equipped with high-capacity lithium-ion batteries. This will further help customers to reduce their CO2 emissions.
We will further contribute to climate change mitigation and carbon neutrality by promoting the mechanization of all processes relating to afforestation, silviculture, forest growth, and logging, and by supporting the reforestation cycle as a recycle-oriented business.
We will also strengthen our remanufacturing business, in which components are recycled and reused, by positioning it as a recycle-oriented business that contributes to CO2 reduction.
Regarding CO2 reduction in mining operations, in 2021, Komatsu formed the Komatsu Greenhouse Gas (GHG) Alliance with four of the world’s leading resource companies, Rio Tinto, BHP, Codelco, and Boliden. The alliance’s initial target is the roll-out of a super-large dump truck that can run on a variety of power sources.
Moreover, starting in 2024, Komatsu has agreed to collaborate with Codelco to trial a new environmentally friendly tunnel excavation method using Komatsu’s newly developed Mining Tunnel Boring Machine (TBM) for underground hard rock mining. This method has been developed with a focus on "No Blasting," "No Batch," and "No Diesel.” We aim to introduce this innovative technology as soon as possible to help improve environmental performance at our customers' sites.
Risks related to providing solutions to customers Komatsu promotes solutions businesses in smart construction, automation in mining (e.g., AHS), and data-driven business (e.g., KOMTRAX); however, Komatsu may lose competitiveness in new markets if it is unable to develop solutions that meet customer needs by the time required by the market or if technologies developed and provided by Komatsu are not well received by customers. If we are unable to provide solutions that maintain our competitive advantage, our business performance may be affected and the impact may be prolonged. In April 2021, Komatsu, NTT DOCOMO, Sony Semiconductor Solutions, and Nomura Research Institute launched a new company named EARTHBRAIN Ltd. to grow their solutions businesses. In response to the demand for workstyle reform at construction sites around the world, we are working to promote DX in the construction industry to improve safety, productivity, and environmental friendliness.
As an example, Komatsu and EARTHBRAIN have jointly developed a remote control system for construction machinery, which they began offering to customers in March 2023. This system can also be linked with the Smart Construction Fleet and Smart Construction Retrofit, and when linked with these services, we can expect to maximize dump truck loading efficiency and further improve safety in construction machinery operations.
Komatsu has begun installing an Autonomous Haulage System (AHS) at Los Bronces, a Chilean open-pit copper mine operated by the global mining company Anglo American. We plan to deploy a total of 62 930E ultra-class haul trucks by 2024. This will be Komatsu’s first AHS installation for Anglo American.
Komatsu has acquired Mine Site Technologies Pty Ltd, a provider of operational optimization platforms for underground mining that leverages communication devices and position-tracking systems. Through this acquisition, we aim to enhance the speed of advanced technology solutions, including the automation and teleoperation of underground mining machinery, and further improve the safety and productivity of our customers' sites.
Furthermore, starting in 2022, we have expanded the number of models equipped with the KomVision Human Detection & Collision Mitigation System. This system recognizes humans around the excavator and controls the motion of the excavator when people are detected as the excavator starts to travel or swing.

4. Specific initiatives in FY2022

(1) Response to geopolitical risks

The Komatsu Group has established development, production, sales, and other bases around the world and conducts business globally. Therefore, heightened social, political, or military tensions in a particular region may affect our business. To minimize the impact of diversified geopolitical risks on resource price fluctuations, import/export regulations, supply chains, and so on, the Group is continuously assessing the political and economic situations and trends in laws and regulations worldwide and taking appropriate measures in response to this assessment. Regarding the situation in Ukraine in particular, in line with our crisis management policy, we have established an emergency taskforce headed by the president to ensure the safety of our employees and their families and to comply with export regulations in all jurisdictions.

(2) Response to the COVID-19

To fulfill its responsibilities to its customers engaged in essential businesses supporting social infrastructure, the Komatsu Group takes thorough measures to prevent infection as it continues to supply of products, parts and services to its customers.In FY2022, we continued to monitor the employees’ infection status globally and responded to the situation according to the government policy in each country. In Japan, in accordance with government and prefectural policies, we worked to prevent infection among employees and monitored the operational status of production sites and partner companies to curb the impact of the pandemic on production. 

(3) Establishing a business continuity plan (BCP) and providing training

Komatsu has established a BCP to continue or quickly restore important operations. We implemented initial response training at each base in Japan to improve their risk management level and their ability to respond to disasters. We have introduced the safety check system to promptly check the safety of employees and their families when a disaster or accident occurs as well as wide-area wireless devices and other tools at each base of the group. Through regular safety reporting and communication training, we are enhancing the emergency communication capabilities of the entire group. Each of our domestic sites conducts annual BCP roleplays to ensure that employees can act appropriately and promptly in the event of a disaster by independently assuming duties based on hazard maps.
Furthermore, considering the recent frequent occurrence of large natural disasters, each of our bases has reinforced the seismic resistance of their buildings and facilities and enhancing countermeasures to concentrated heavy rains based on their own plans. We are focused on not only strengthening the BCP of each base of the Komatsu Group but also strengthening the supply chain system through our support of our business partners as they establish and improve their BCPs.
We will continue to promote and strengthen BCPs and related activities to build a flexible and sustainable supply chain that can respond to diverse risks.

<Examples of Initiatives in FY2022>

Previously, each domestic site had conducted training on a theme of its choice, such as earthquakes and typhoons; however, in FY2022, BCP training was conducted on the company-wide common theme of the eruption of Mt. Fuji. This training, conducted based on the assumption of specific disaster scenarios, was designed to strengthen cooperation between sites and enhance response capabilities. Below are examples of the training conducted at the head office in Tokyo and the Shonan Plant in Kanagawa Prefecture, where ash fall is expected as a result of the eruption of Mt. Fuji.

① Shonan Plant (Hiratsuka-shi, Kanagawa)

We are considering measures to prevent ash fall at the production site, hold strategic inventory, and transfer production to other plants.

② Head Office (Minato-ku, Tokyo)

We are considering measures to maintain building utilities. Additionally, we are identifying critical operations that must continue even in the event of a disaster and examining countermeasures.

(4) Response to economic security issues

Greater political divisions globally may lead to tighter regulations in some countries. In response to the Economic Security Promotion Act and other trends in economic security-related regulation, the Komatsu Group has appointed an executive officer in charge of economic security to collect and analyze information.

5. Conducting compliance and risk audits

As a part of its risk management activities, Komatsu has been conducting compliance and 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 are improving our audit method according to changes in the business environment and raising the operational level of CR audits as a part of our risk management functions.
The audited items in FY2022 are:
1. Safety, 2. Environment, 3. Labor, 4. Finance and Treasury, 5. Quality Assurance and Recall, 6. Vehicle Inspections and Specific Voluntary Inspections (inspections required by law), 7.Export Control, 8. Information Security, 9. the Anti-monopoly Act, 10. 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.

Implementation of compliance and risk audits

komatsu csr, 総務部