Risk Management

Sojitz Group aims to ensure sound management practices and increase its corporate value. To realize these aims, Sojitz identifies and categorizes risks that may occur under the performance of duties with the potential to result in unexpected losses or damages to Sojitz Group’s net assets. Additionally, Sojitz carefully assesses risks associated with new business ventures or accompanying changes in the business environment, and the company has established the necessary risk management systems to address these risks and manages these systems appropriately.

In compliance with the General Standards of Risk Management, Sojitz has established the Internal Control Committee as an organization for supervising Group-wide risk management. The Internal Control Committee is an executing body under the supervision of the president & CEO. The committee identifies, categorizes, and defines the potential risks associated with Sojitz’s business activities and conducts ongoing reviews of the risks associated with new business ventures or accompanying changes in the business environment. Risks are first subdivided into categories in order to gain a comprehensive and thorough understanding of each type. Risk managers are then assigned for each risk type. These risk managers establish risk management policies and plans at the beginning of each fiscal year and implement PDCA cycles based on these plans. The Internal Control Committee conducts quarterly monitoring of the progress of risk management plans, discussing strategies for improvement and issuing directives to organizations in charge of risk management as necessary. Monitoring results are reported quarterly to the Management Committee and Board of Directors. The Board of Directors supervises Sojitz’s risk management operations through discussion of important risk management-related issues and through regular reports, and conducts evaluations of the effectiveness of Sojitz’s risk management systems and processes. Any new risks that are identified mid-quarter are also subject to the same monitoring processes.

Sojitz Group uses an evaluation process to regularly review the major risks facing the Group and has currently identified 12 major risk types. For major risk categories, Sojitz has established a range of organizations that deliberate regarding the unique characteristics of each risk type and implement concrete risk prevention measures at a cross-organizational level. These organizations include 1) internal committees that act as executing bodies under the supervision of the president & CEO to oversee key management issues and 2) working groups formed to review practices and initiatives under a specific theme.

In order to manage risk with a dual focus on both safety and profit opportunity, Sojitz measures risk assets within the following four risk types: market risk, business investment risk, credit risk, and country risk. The goals of risk measurement are to 1) manage quantified risk assets in order to keep them within the scope of the company’s strength (total equity), and 2) maximize earnings in line with the level of risk exposure. Risk assets are measured twice yearly and reported to the Board of Directors and the Management Committee. Each business department receives feedback on analysis conducted for factors affecting risk levels, and the business departments utilize the results of these analyses in their ongoing risk management efforts. Sojitz Group’s objective for risk control is to keep the ratio of risk assets to total equity at or below 1.0. Sojitz has maintained this goal ratio since the fiscal year ended March 2010.

The risks Sojitz faces are growing increasingly more diverse. This is true for economic security risks as well as risks related to natural disasters, abnormal weather events, human rights, and the environment. In this complex environment, it is crucial to assess risks across the supply chain in order to ensure that Sojitz is able to fulfill its responsibilities toward its customers and society.

Sojitz has broadened its focus beyond the traditional risk management functions of trading businesses, including credit and inventory management, and the company quantifies and monitors risks based on scenarios for major risks, such as disaster and environmental risks. This approach is taken to heighten resilience and boost responsiveness in the event that a risk should materialize. In FY2023, Sojitz added supply risk to its list of major risks. The company implements supply risk management measures including reviews of high-risk transactions, introduction of a new transaction management process, and implementation of employee education programs.

Enhancing the risk management functions of Sojitz’s business divisions is imperative to ensuring the company can act with the level of speed necessary to address the diversifying values seen in the evolving operating environment. In April 2022, Sojitz reorganized its risk management organizations to allow for more rigorous screening and operation of investment projects, reforms of portfolios and earnings structures, and enhancement of frontline risk management and monitoring structures. In this reorganization, parts of controller office functions were transferred to the planning and administration offices of business divisions.

When considering new investment and loan projects, Sojitz implements a system for reviewing whether a proposed project aligns with company policies through a process that involves identifying factors including: 1) the project’s vision and its path for improving corporate value, 2) the growth potential of the business field in question, and 3) the functions and competitiveness of both Sojitz and the business within that field. This process also involves eliminating projects that do not align with Sojitz policies and which would entail taking on excessive risks in unfamiliar business areas.

Following this review process, projects that are found to be in line with company policies are presented to the Finance & Investment Deliberation Council, a body which consists of a chairman and council members appointed by the president. This council analyzes the feasibility of each project’s business plan and visualizes risks in order to reach a decision on investment. Specifically, the council closely examines the cash flow plan and other details of the business plan, evaluates business feasibility, and compares the internal rate of return (IRR) and hurdle rate for each proposal in order to select only those projects which have the potential to enhance Sojitz Group shareholder value while also generating returns commensurate with risk.

In order to achieve sustainable value creation, it is imperative for Sojitz to implement an asset management strategy that considers both the risks and returns of each asset. In FY2022, Sojitz introduced a new portfolio management cycle to achieve optimized asset management. Under this new process, Sojitz regularly reviews the status of each business division’s risk assets. The results of these assessments, including risk-return analysis and investment monitoring, are then discussed at biannual meetings between the COO of the Risk Management Department and the COOs of the business divisions. The COOs deliberate regarding the current status and future vision for the portfolio of each division. Information on this process is reported to and discussed by the Management Committee to drive the improvement of Sojitz’s portfolio.

In order to comprehensively manage risk, Sojitz must not only establish organizational systems and frameworks, but also instill a risk management mindset and foster the necessary skills in each Group employee. Sojitz therefore places an emphasis on risk management-related trainings and provides employees with educational content on the basics of risk management, trading, and business investment. Trainings cover a wide range of topics and are designed to address the actual risk-related issues employees face as they conduct business.

As part of efforts to share risk-related knowledge throughout the company, Sojitz also creates videos that feature case studies of specific trading or business investment-related incidents that have occurred at Sojitz Group. In the videos, employees involved in the incident engage in open dialogue with members of the Risk Management Department to discuss their experience and highlight key takeaways. Through this initiative, Sojitz aims to encourage employees to apply the collective knowledge gained through past incidents in their work each day.

The risks that trading companies face are constantly evolving. Sojitz therefore reviews and updates the content of its training materials as needed and strives to provide employees with the tools needed to respond to evolving and newly emerging risks.

Policy and Basic Approach

Policy and Basic Approach