CSR Information

Risk Management

Risk Management Framework

In order to reinforce its framework for managing risks for the entire Group, Sumitomo Forestry has created the CSR/Risk Management Basic Regulations and has appointed the President of Sumitomo Forestry as the highest authority on risk management for the Sumitomo Forestry Group. The Regulation encompasses risks in social, environmental, and economic dimensions, comprehensively.

The Company also established the CSR/Risk Management Committee, comprised of the Company president as chairperson, together with all of executive officers. Each executive officer identifies and analyzes the priority risks to be addressed in their respective area of responsibility, including at Group companies, and formulates plans for managing those risks. These are then shared and discussed at quarterly meetings of the CSR/Risk Management Committee. Executive Officers and Directors attend this committee as it outlines and reports about the content of the activities to the Board of Directors to put in place systems representative of the business.

A Compliance Subcommittee and a BCP Subcommittee have also been established under the command of the CSR/Risk Management Committee. These are chaired by the general manager of the General Administration Department, and are comprised of the executives in charge of risk management at each Group company. These subcommittees carry out specific activities for increasing effectiveness against “compliance risk” in relation to the Construction Business Act and other core businesses, and against “business interruption risk” such as large-scale disasters, which are both regarded as cross-sectional risks affecting the Group.

Against risks in social, environmental, and economic dimensions specified in the Sumitomo Forestry Group Code of Conduct Rules, tangible actions have been taken to increase effectiveness.

During fiscal 2016, the Risk Management Committee, the Compliance sub-committee, and the BCP sub-committee met four times, twice, and four times, respectively, and reports were also submitted to the Board of Directors four times.

During fiscal 2017, in order to respond properly to changes in the risks faced by the Sumitomo Forestry Group, the Company will strengthen its risk management framework, by taking stock of its managed risks and by following a PDCA cycle in making continuous improvements with respect to the priority risks selected at the beginning of each period.

* The Risk Management Basic Regulations were revised as the CSR/Risk Management Basic Regulations in fiscal 2017 to promote CSR management by strengthening the structure from an ESG perspective that goes beyond a conventional risk management point-of-view. In conjunction with these revisions, the Risk Management Committee was also restructured as the CSR/Risk Management Committee.

Risk Management Structure of the Sumitomo Forestry Group

Risk Management Structure of the Sumitomo Forestry Group

Risks in Operations

The following risks have been identified in operations as stated on the Security Reports.

(1)Trends of housing markets
(2)Changes of legislative regulations
(3)Competition with other corporations
(4)Capital and investment strategies
(5)Market status of timber, building materials and other raw materials
(6)Currency fluctuation
(7)Quality assurance
(8)Overseas operations
(9)Obligatory retirement fund
(10)Stock market
(11)Natural disasters
(12)Information security
(13)Environment and the relevant matters
(14)Value falls of assets
(15)Credit facility of business partners
(16)Litigation risks
(17)Funding risks

■ Risks Associated with Illegal Logging

Illegal logging is recognized as a crucial issue globally, and progress is being made to strengthen related laws and regulations in a number of countries and regions. Japan has announced the Act on Promotion of Use and Distribution of Legally-Harvested Wood and Wood Products (Clean Wood Act) on May 20, 2016, which was enacted on May 20, 2017. Addressing stronger control of illegally harvested timber not only responds to the requirements of the world but it is also extremely important for the Sumitomo Forestry Group to continue businesses sustainably.

Impact on the Sumitomo Forestry Group

The Sumitomo Forestry Group could jeopardize its own businesses that handle wood resources if it neglected its duty and dealt in illegally logged timber. Moreover, these actions would harm the image of the company and could directly damage our business performance such as compensation for damage and turnover.

Risk Countermeasures

The Sumitomo Forestry Group has been committed to responsible timber procurement, pioneering legislation in Japan and having established the Timber Procurement Philosophy and Policy in 2005, to bring contributions to a sustainable society via business activities of “wood” –a renewable resource. In 2015, Timber Procurement Philosophy and Policy was extended beyond timber and became subject to procurement of building materials, raw materials of products, and end products, and reestablished as Sumitomo Forestry Group Procurement Policy. The Group’s economically, socially and environmentally responsible procurement today is being carried out based on the policy.

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Measures Addressing a Culture Highly Sensitive to Risk

As ways to increase the sensitivity of risk in the executives and employees and in the corporate culture of the Sumitomo Forestry Group, the Group conducts e-learning each year for executives and employees as well as a risk management training for newly joined employees. In 2016, the Group introduced and shared examples from risks emerged in the past that should be noted beyond specific business departments in a meeting-type venue for people in charge of risk management at the Company and each Group company.

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Rapidly Comprehending and Dealing with Risks

The Sumitomo Forestry Group operates Two-hour Rule system designed to quickly and accurately communicate information to management in the event of an emergency situation that may have a grave impact on company management. In addition to the regular reporting line, it utilizes communication via the Division responsible for risk management. Through this system, management can take the best decision speedily, ensuring an initial response which avoids loss and controls the situation. Moreover, it serves a role in collecting and accumulating reported cases and assists in improved business practice and prevention of recurrence.

Furthermore, the structure is organized so that, by sharing information with the public relations departments, important situations are disclosed to stakeholders properly and in a timely manner.

Two-Hour Rule and Use of Risk Information

Two-Hour Rule and Use of Risk Information

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CSR Report2017