Basic Concept and Status of Implementation and Operation of Internal Control System｜Corporate Governance

Basic Concept and Status of Implementation and Operation of Internal Control System

1) Basic Concept

Based on the “Sojitz Group Statement,” Sojitz has developed its internal control systems including regulations, organization, and structure.

Basic policy regarding the establishment of systems for ensuring appropriate execution of Sojitz Group business operations.

  • i) System to ensure that the execution of duties by directors and employees of the Company and its subsidiaries complies with laws, regulations and the Articles of Incorporation
  • -Sojitz will establish procedures to ensure thorough compliance in the “Sojitz Group Compliance Program,” and will enact a “Sojitz Group Compliance Code of Conduct and Ethics” to ensure that Sojitz Group’s officers and employees comply with laws, regulations, the Articles of Incorporation, and internal rules.
  • -Sojitz, in an effort to ensure Sojitz Group’s compliance with relevant laws and regulations, will promote the development of a compliance system centered on the Compliance Committee, and will clarify the division of duties for each department within Sojitz and the supervisors responsible at Sojitz’s Group companies.
  • -Sojitz will not have any relations with antisocial forces including through transactions, and will adopt a resolute stance that includes legal actions against unjust demands, and further, will endeavor to ensure that this same posture is thoroughly undertaken throughout Sojitz Group.
  • -Sojitz will establish internal rules on procedures and similar matters for the preparation of financial statements that conform with laws, regulations and accounting standards, to ensure the appropriateness of Sojitz Group’s consolidated financial reports.
  • -Sojitz will establish the Internal Audit Department as a body that is independent from the other business executing divisions. The Internal Audit Department will conduct internal audits to verify that Sojitz Group is appropriately carrying out business activities, business management and related matters in compliance with laws, regulations and internal rules.
  • ii) System for the retention and control of information related to the execution of duties by directors of the Company
  • -Sojitz will establish retention periods and the department that is responsible for retention, and will control important documents, including the minutes of the Board of Directors and circulated decision documents, related to the execution of duties by Sojitz’s directors in accordance with the Board of Directors Rules and the internal rules related to the control of documents and information.
  • iii) Rules and other systems for the management of risks of loss at the Company and its subsidiaries
  • -Sojitz will identify and classify various internal and external risks associated with losses at Sojitz Group, and will establish internal rules, response procedures, and responsible departments for managing such risks, in an effort to prevent losses at Sojitz Group and minimize losses that are incurred. In addition, it will continually confirm and improve the effectiveness of these measures, and promptly address any new risks faced by Sojitz Group along with changes in the business environment.
  • -Sojitz will establish internal rules on policies and systems to address natural disasters, terrorism, wars, crimes, riots, infectious diseases and other unforeseen events caused by external factors, in order to manage risk.
  • -Sojitz will appropriately manage risk by introducing rules and requiring the establishment of necessary risk management systems, in proportion to the content and scale of business at the Sojitz’s Group companies.
  • iv) System to ensure efficiency in execution of duties by directors of the Company and its subsidiaries
  • -Sojitz will clearly define the roles and responsibilities of its directors and executive officers, and will establish internal rules and the like governing the division of duties, chain of command, authority, and decision-making procedures for various departments within the company.
  • -Sojitz will set out important matters to be resolved by the Board of Directors in the “Board of Directors Rules,” delegate the decision-making on other important matters to the executive directors, and establish a Management Committee and other business execution bodies such as councils or committees. In addition, the Company will specify matters to be reported by the executive directors to the Board of Directors and create a system to ensure effective monitoring by the Board of Directors.
  • -Sojitz will establish a department to oversee the management and operating systems of Sojitz’s Group companies, and ensure the efficiency of Sojitz Group’s management to promote group management.
  • -The Group’s management policies decided by the Company’s Board of Directors, the Management Committee and the like shall be promptly disseminated within the Group and made known to all Group’s officers and employees both verbally and in writing.
  • -Sojitz will prepare a management plan on a consolidated basis and share management objectives and management indices within the Group.
  • v) System to ensure proper business operations within the corporate group consisting of the Company and its subsidiaries
  • -Sojitz will designate supervisors in charge of managing the Group companies as prescribed in internal rules concerning group management, such as Group Management Basic Regulations. The Company will seek prior consultation with its Group companies regarding important matters, and require them to provide regular reports to the Company, including annual business reports and business activity reports.
  • -The Internal Audit Department of the Company shall conduct internal audits on the Group companies to verify the appropriateness of business.
  • vi) System to ensure the effective implementation of audits by the Audit and Supervisory Committee of the Company
  • System to assist in the duties of the Audit and Supervisory Committee
    • -Sojitz will assign persons who are well-versed in Sojitz Group’s business and operations, and who have knowledge of finances, accounting and risk management to serve as employees to assist in the duties of the Audit and Supervisory Committee. These employees will carry out their duties in accordance with the directions of the Audit and Supervisory Committee, and their evaluations and transfers will be made through discussions with the Audit and Supervisory Committee.
  • System for reporting to the Audit and Supervisory Committee
    • -Sojitz’s directors and executive officers must immediately provide reports to the Audit and Supervisory Committee when discovering facts that may cause significant damages to Sojitz.
    • -The department in charge of Sojitz Group’s whistleblower system will provide regular reports to the Audit and Supervisory Committee, via the Compliance Committee or the like, regarding the status of whistleblower reports from the Group’s officers and employees.
    • -Sojitz’s Internal Audit Department will provide regular reports regarding internal audits to the Audit and Supervisory Committee.
    • -The Audit and Supervisory Committee is entitled to request reports from the Accounting Auditor, Sojitz’s directors and others as needed.
    • -Sojitz will not engage in detrimental treatment toward officers and employees of Sojitz Group who submit reports via the whistleblower system or similar channels (including reports to the Audit and Supervisory Committee or the like), for making such reports.
  • Other systems to ensure the effective implementation of audits by the Audit and Supervisory Committee of the Company
    • -Sojitz will allocate the expenses required for the Audit and Supervisory Committee to carry out its duties.
    • -A system will be established under which the Audit and Supervisory Committee members selected by the Audit and Supervisory Committee may attend Sojitz’s Management Committee meetings and other important meetings to directly understand the status of deliberations and reports on important matters.
    • -Sojitz’s Representative Directors will regularly hold meetings with the Audit and Supervisory Committee to exchange opinions regarding issues that should be addressed by the Company, the state of audit environment improvements at the Audit and Supervisory Committee, key audit-related matters, and similar matters.

2) Status of Implementation and Operation

i) Overall internal control system

The Internal Control Committee, which is an executing body under the management of the President, consolidates and monitors the status of implementation and operation of the internal control system, and leads maintenance and improvement of our internal control systems.

Overview of operational status

The Internal Control Committee is responsible for overseeing the maintenance and operation of the overall internal control system. Through periodic monitoring, the Committee identifies company-wide issues related to internal systems and structures, examines measures to address them, instructs the departments in charge, and makes improvements. The Committee also oversees the progress of internal control evaluations related to financial reporting based on the Financial Instruments and Exchange Act and works to ensure the reliability of financial reporting.

The Internal Control Committee convened four times during the period under review and presented its findings to the Board of Directors.

Specific measures in each area are implemented by each committee (Compliance Committee, Sustainability Committee, Security Trade Control Committee, DX Promotion Committee, Quality Management Committee, Information and IT Systems Security Committee ) and various study subcommittees (Disclosure Working Group, Business Continuity Management Working Group) under the President.

ii) Compliance

The “Sojitz Group Compliance Program” outlines the procedures for thorough compliance, and the “Sojitz Group Compliance Code of Conduct” has been established to provide a common global standard of judgment upon which all Sojitz Group officers and employees can rely.

Furthermore, the Compliance Committee, chaired by the chief compliance officer (CCO), has played a key role in appointing compliance officers and forming compliance committees at each Group company and overseas office.

These efforts have led to the establishment of a system to promote compliance with laws, regulations, and corporate ethics across the entire Group, through mutual collaboration.

To help prevent and detect compliance violations at an early stage, the Group informs its officers and employees of various reporting channels including, as an internal reporting system, a hotline to the Compliance Committee secretariat and outside legal counsel, as well as the “Sojitz Ethics Hotline,” a multilingual hotline available 24hour a day, 365 days a year. In addition, a contact point concerning the compliance of Sojitz has been established on its website to receive reports from external sources.

To prevent corruption, Sojitz has also established the Sojitz Group Anti-Corruption Regulations and the Sojitz Group Anti-Corruption Procedure, and has introduced corresponding regulations at Group companies.

With regard to the risk of violating sanctions and export controls in Japan and overseas, Sojitz Group has established the “Sojitz Group Basic Policy on Response to Sanctions and Export Controls” and has built a system to manage such risks.

In addition, as it expands its business globally, Sojitz has established the “Sojitz Group Tax Policy” to ensure tax compliance, optimize tax costs, and maintain positive relationships with tax authorities, and has strived to fulfill its tax obligations in a timely and appropriate manner.

Sojitz has developed and implemented educational programs, including e-learning, to ensure compliance with laws and regulations and to maintain a healthy working environment that is free from all forms of harassment.

Overview of operational status

Based on the action plan formulated by the Compliance Committee, Sojitz continues to provide counsel and behavior standards on how to prevent compliance issues from reoccurring, as well as providing ongoing assistance and guidance to Group companies.

Specific activities related to compliance in FY2025 included the following:

  • Four meetings of the Compliance Committee held
  • Meetings between the CCO and Chief Operation Officers as well as presidents of Group companies
  • Regular liaison meetings among compliance staff of Group companies
  • Regular liaison meetings with compliance staff of overseas operating sites
  • Training programs, seminars and briefings on important issues concerning the prevention of harassment and corruption
  • Various training programs for newly hired employees, employees hired as mid-career professionals, employees on overseas assignments, and others
  • Issuance of alert letters regarding scandals involving the consumption of alcohol
  • Individual support for Sojitz’s domestic operating companies through a risk-based approach to enhance the compliance system (cooperation in investigations, tailored training programs, etc.)

With regard to security trade control in particular, based on the action plans formulated by the Security Trade Control Committee, the committee secretariat is engaged in activities for preventing violations of sanctions and export controls while providing support and guidance to Group companies.

Specific activities carried out in FY2025, included the following:

  • Two meetings of the Security Trade Control Committee held
  • Various training programs for newly hired employees, employees hired as mid-career professionals, employees on overseas assignments, and others
  • Support for the revision and formulation of local security trade control-related regulations at overseas operating sites
  • Support for responding to measures in concert with strengthened sanctions and others, due to changes in the security situation (including U.S.-China relations, situation in the Middle East, situation in Myanmar, and Russia/Ukraine situations)

iii) Risk management

To address the various risks to which Sojitz is exposed in its business operations, Sojitz has various rules concerning risk management, manages and operates them, and strives to enhance its risk management system on an ongoing basis.

Sojitz is enhancing its risk management capabilities in the first and second lines of the three-line model (first line: business divisions, second line: corporate departments, and third line: internal audits), which is the fundamental concept of internal control.

Overview of operational status

Sojitz Group manages group-wide risk through the Internal Control Committee, an executing body under the management of the President. Taking into account changes in the business environment, the Committee takes a comprehensive view of the Group’s operations to identify key risks, assess their significance, and discuss and determine policies for responding to such risks. In addition, with respect to individual risks, the relevant corporate departments have established internal rules to ensure thorough implementation. Cross-functional monitoring is also conducted through internal committees to ensure that each risk is addressed appropriately and in detail based on its specific characteristics.

The Internal Control Committee monitors the status of its implementation of these risk management activities and reports regularly to the Management Committee and the Board of Directors.

In addition, when changes in the business environment necessitate enhanced risk awareness and initiatives within the Group, or require responses to new risk areas, such matters are reported to management and addressed as appropriate. To strengthen the risk management capabilities in the first and second lines, the Group revised various internal rules related to group-wide risk management in April 2025.

In response to changes in the global landscape and heightened geopolitical risks, the Group is working to organize a system to grasp the potential impact of sudden risk events. In addition, through ongoing dialogue and collaboration between the business divisions and corporate departments, we are also improving agile response measures to risk events, ensuring business continuity, and further reinforcing resilience.

To prepare for unforeseen events, the “Sojitz Group Basic Crisis Management Policy” sets forth the crisis management framework to be followed both during normal times and in the event of a crisis.

In addition, the “Crisis Management Operational Guidelines” outline the specific organizational structure and roles during a crisis, including initial response measures such as confirming the safety of officers and employees, assessing property damage, and reporting. The guidelines also establish a system that enables timely and appropriate decision-making based on the region and nature of the crisis, in order to prevent further damage.

We are also working to raise awareness of the importance of risk response among Group employees by establishing or changing Group rules and guidelines, distributing the Internal Control Bulletin that summarizes key information such as precautions, and by conducting self-inspections to check risk points for each organization.

In addition, the Company conducts constant education and enlightenment activities through various risk management training programs to improve the risk sensitivity of the Group’s officers and employees.

iv) Operation execution system

Sojitz is a company with an Audit and Supervisory Committee. In addition to Articles of Incorporation that delegates decision-making on important business execution wholly or partially to the Directors, the Company has a Board of Directors that includes a majority of outside directors. Under the supervision of the Board of Directors, we have established various committees, including the Management Committee as an executive body, in order to carry out appropriate decision-making on business execution. The Management Committee is chaired by the President, who is also the Chief Operating Officer, and consists of executive officers It is responsible for the review and approval of important managerial and executive agendas for the Group from a group-wide and medium- to long-term viewpoint.

In addition, we have established the Finance & Investment Deliberation Council for the review and approval of important investments and loans, the Human Resource Deliberation Council for the review and approval of major human resource matters, and internal committees to handle issues to be addressed from cross-organizational perspectives. All of these bodies report directly to the President.

Various internal rules and regulations, including the Board of Directors Rules, clearly define the roles and authority of each decision-making body and committee, while also systematically stipulating the authority, responsibilities, and division of duties for each position and department. In this way, transparency in the decision-making process and the effectiveness of duty execution are ensured. In addition, through the establishment of the “Group Management Basic Regulations” and the “Group Management Operation Regulations,” we have defined the basic framework of the management control system for the Group as a whole. We are also developing various internal rules for each subsidiary based on this policy.

Overview of operational status

The Board of Directors discusses important Group management matters concerning medium- to long-term management policies, management plans, and key personnel matters, while authority over other matters has been delegated to executive directors in order to streamline decision-making.

In addition, centered on the Board Meeting Operation Office established as a dedicated organization, timely and appropriate information sharing is conducted to ensure the efficient execution of directors’ duties, without necessarily limiting such sharing to matters submitted to the Board of Directors.

Through periodic reviews of its internal rules and regulations, including the criteria for matters to be submitted to the Board of Directors, the Group ensures effective governance of Group management. In this way, we strive to utilize business resources effectively and streamline operations, thereby maximizing corporate value while maintaining control across the Group as a whole.

v) Management of Group companies

Each Group company maintains its own system under the supervision of the chief manager (Chief Operation Officer (COO) or COO of the business divisions and corporate departments) in accordance with Sojitz Group’s management control system, as outlined in the “Group Management Basic Regulations” and the “Group Management Operation Regulations.” In addition, the status of system maintenance at each company is monitored on a regular basis.

In addition, directors of the Company monitor the business management of Group companies through the business division or corporate department staff who supervise these companies or else the directors, Audit & Supervisory Board members, and others dispatched to Sojitz Group companies.

(Overview of operational status)
Supervisors who manage Group companies present to the presidents of consolidated Group companies with the expected roles concerning the medium-term management plan, management targets, and key management issues. In response, the presidents clearly communicate their policy for addressing these expectations to the supervisors. Sojitz receives regular reports from Sojitz Group companies, including annual business reports and monthly business activity reports. We also oversee the development and operation of appropriate management infrastructure and governance through directors, Audit and Supervisory Board members, and others dispatched by Sojitz. In addition, Sojitz requests prior consultation on important matters concerning the management of individual companies and properly oversees the execution of important business operations of Group companies.

Furthermore, the Company aims to enhance group management by disseminating the Group’s management philosophy and policies through the establishment of individual company regulations based on the Group’s management policies and through training programs for officers and employees of Sojitz Group companies.

Based on an audit plan adopted by the Audit and Supervisory Committee and under the supervision of the President, the Internal Audit Department of Sojitz conducts audits to investigate whether organizational governance, risk management, and internal controls are functioning appropriately at Group companies. The Internal Audit Department also makes proposals for effective improvements to prevent losses and solve issues.

In addition, audit results are reported regularly to the President, the Board of Directors, and the Audit and Supervisory Committee.

As part of the Group’s efforts to further enhance the corporate governance of Group companies, in order to improve the effectiveness of the Board of Directors at each Group company, the “Guidance for management of the Board of Directors” has been formulated, and the operating status of the Board of Directors at each company has been monitored.

In addition, we invite outside experts to annual training for newly appointed directors and Audit and Supervisory Board members at Sojitz Group companies.

vi) Management and storage of information

With respect to handling of important documents related to execution of duties such as the minutes of Board of Directors meetings, the responsible department shall appropriately manage such documents according to the retention period required by law, based on guidelines including the Board of Directors Rules and the internal rules for document retention, and shall make such documents available for viewing as necessary. As for the information related to business execution, a system is in place to monitor the status of operation by establishing rules that define the classification and confidentiality of the information. In addition, the Information and IT Systems Security Committee, chaired by the Chief Information Security Officer (CISO), is regularly held to strengthen the information security system.

Overview of operational status

With respect to information related to business execution, Sojitz regularly reviews the classification, management methods, and retention period of information as stipulated in the internal regulations, and makes efforts to ensure proper management. In addition, the Group has formulated guidelines on specific methods for the management and operation of information that requires particularly strict control, which is defined as “information requiring specific management,” and has investigated the status of holding such information and provided instructions for improvement as necessary. Furthermore, we are implementing enhanced security governance across the entire Group. We are expanding Group-wide security measures, such as the deployment of software to detect and mitigate increasingly advanced and sophisticated cyberattacks at an early stage, the implementation of security risk assessments, and the provision of guidance for improvement, and working to continuously strengthen our overall security framework.

The Information and IT Systems Security Committee convened twice during FY2025.

vii) Effectiveness of audits by the Audit and Supervisory Committee

(a) System to assist the Audit and Supervisory Committee

Two senior auditors are assigned to ensure the effectiveness of audits by the Audit and Supervisory Committee.

Senior auditors are persons who are familiar with the Group’s business and operations and have knowledge of finance and accounting, risk management, and other relevant areas. They complement and support the duties of the Audit and Supervisory Committee from the same perspective as Audit and Supervisory Committee members.

Overview of operational status

Under the direction of the Audit and Supervisory Committee, senior auditors assist the Audit and Supervisory Committee by accompanying on-site inspections of domestic and overseas consolidated subsidiaries, attending various internal audit report meetings, and providing appropriate support to the Audit and Supervisory Committee members.

(b) System for reporting to the Audit and Supervisory Committee

In terms of reporting to the Audit and Supervisory Committee, Sojitz has established a system under which, in addition to reports from directors, matters required for auditing are reported in a timely manner, such as Group-wide matters reported by various committees, including the Internal Control Committee and the Compliance Committee, as well as the Internal Audit Department, and business reports from the consolidated subsidiaries. Additionally, relevant regulations provide that persons who report to the Audit and Supervisory Committee shall not be subject to any disadvantageous treatment as a result of such reporting.

For accounting audits, the Audit and Supervisory Committee receives explanations on the audit plan and regular reports on the audit status from the Accounting Auditor, shares information with them, and has established a system to enable efficient audits. Additionally, the Audit and Supervisory Committee monitors and verifies whether the Accounting Auditor maintains its independence and constantly evaluates the status of audit quality management.

Overview of operational status

Reports to the Audit and Supervisory Committee are submitted in a timely manner. In addition to regular meetings between Audit and Supervisory Committee members and the representative director, and between the Committee members and the Accounting Auditor, three-way audit meetings (involving the Audit and Supervisory Committee, the Accounting Auditor, and the Internal Audit Department) are also held to further strengthen collaboration with the Accounting Auditor and the Internal Audit Department.

Furthermore, audits of domestic and overseas consolidated subsidiaries are conducted through on-site inspections and remote audits using a web conferencing system to ensure sufficient communication.

(c) Other systems to ensure the effective implementation of audits by the Audit and Supervisory Committee

The Company allocates the necessary expenses for Audit and Supervisory Committee members to perform their duties. A system is in place whereby Audit and Supervisory Committee members selected by the Committee attend important meetings to directly grasp the status of deliberations and reports. They also regularly engage in the exchange of opinions with the Representative Director of the Company.

Overview of operational status

Audit and Supervisory Committee members selected by the Committee attend all meetings of the Management Committee, the Finance & Investment Deliberation Council, and various internal committees, including the Internal Control Committee, the Compliance Committee, the Sustainability Committee, the Security Trade Control Committee, the Quality Management Committee, the DX Promotion Committee, and the Information and IT Systems Security Committee, as well as audit report meetings. They report matters that should be reported to the Audit and Supervisory Committee at its meetings.

In addition, the Audit and Supervisory Committee holds interviews with the Representative Director twice a year to exchange opinions on issues the Company should address, the development of the audit environment for the Committee, key matters related to audits, and other matters.

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