Risk Management

Basic Stance

Recognizing that appropriate risk management reduces losses and contributes to profits for the Group, we strive to reduce and prevent risks routinely by understanding and organizing risks posed to the Group as a whole and by building, maintaining, and refining our risk management system. If risks do materialize, we respond rapidly and appropriately to minimize the impact and associated loss.

Risk Management System

Based on Group Risk Management Committee rules, the JGC Group has established and uses a comprehensive risk management system for a systematic understanding of the risks posed to the Group as a whole. We are committed to further reducing these risks. Management of business risks of the Group is mainly carried out by each operating company, with significant individual risks reported to the holding company board and discussed as necessary.

Risk Management System

Project Risk Management System

The company is facing circumstances in which the diminishing profits of individual projects, along with their increasing scale, could have a significant impact on the profitability of the entire company.
At the JGC Group we have long fostered a project implementation culture that holds that large-scale projects overseas represent an aggregation of many risks, anappropriate response to which is the essence of project management. With this understanding, all staff involved in a project, not just project and company management, always respond to risks based on a high risk sensitivity in all EPC functions and phases.

Project Risk Areas
Risk Management Flow
Compatibility of Appropriate Responses to Risks and Contracting Competitiveness

Primary Group Risks and Responses

Primary Risk Area Nature of Typical Risks Countermeasures
Risk associated with receiving and executing projects
  • Change of plans, cancellation, suspension, or postponement of projects in total engineering business after orders are received
  • Worsening financial conditions of joint venture consortium partners as comprehensive engineering projects are executed
  • Specific risk analysis by the holding company and operating companies, monitoring of project progress and profitability
Country risk
  • Impact on business activities from political instability, war, revolution, domestic conflict, terrorism, sudden changes in economic policies or conditions, or economic sanctions
  • Use of trade insurance
  • Gathering information on country risk
  • Setting reasonable contract conditions with clients, addressing force majeure clauses and regulatory changes
  • Strengthening crisis management functions by the Crisis Management Dept.
Risk associated with natural disasters, epidemics, etc.
  • Impact on business activities from natural disasters of unforeseen magnitude such as earthquakes, torrential rain, or typhoons, or from global pandemics such as new strains of influenza
  • Establishing disaster response procedures, introducing systems to confirm safety, and implementing disaster training
  • Gathering information on risk
  • Setting reasonable contract conditions with clients, addressing force majeure clauses and regulatory changes
Foreign exchange volatility risk
  • Impact on sales and profit/loss from sharp fluctuations in foreign exchange rates
  • Using project contracts denominated in multiple currencies, using overseas procurement
  • Issuing orders denominated in foreign currencies, using forward foreign-exchange agreements
Risk of construction worker shortages, substantial wage increases
  • Impact on business activities in total engineering from shortages of construction workers or substantial increases in wages
  • Monitoring and forecasting trends in the construction industry labor force for primary plant markets
  • Adopting modular construction techniques to minimize onsite construction
  • Working with companies that have extensive track records in local construction
Risk of substantial increases in material and equipment costs
  • Increased procurement costs for material and equipment in total engineering
  • Substantial rises in prices of raw materials or fuel in functional materials manufacturing
  • Monitoring and forecasting price trends for raw materials and for materials and equipment
  • Placing orders for materials and equipment early on
  • Diversifying suppliers
  • Passing on higher prices to clients
Investment risk
  • Loss from unforeseen circumstances in the investment environment
  • Closer monitoring of existing investment projects
  • Careful selection of new investments
Legal and regulatory risk
  • Restrictions under business laws and regulations such as tax or construction laws, various domestic and international environmental laws, import/export trade regulations including those for security purposes, various laws and regulations to prevent corruption such as graft, or business or investment licenses
  • Developing, implementing, monitoring, and improving compliance programs
Information security risk
  • Leaks and loss of information from power outages, disasters, failure, loss, or theft of host computers, servers, or network equipment, external attacks, or virus infections
  • Security measures such as preventing intrusion by establishing information security policies, adopting antivirus measures, and using encryption
Risk associated with quality
  • Poor quality of supplies or items procured, recall of delivered products due to defects, liability for damages
  • Promoting quality management system activities by establishing organizations with jurisdiction over quality assurance
  • Using product liability insurance
Risk associated with changes in the macroeconomic environment
  • Impact on business activities from declining energy prices or cooling of the global economy
  • Impact on the oil and gas segment and catalyst segment served by the Group from acceleration of the shift to a lowcarbon society
  • Diversifying our business portfolio by shifting to a group management structure
  • Developing technologies to reduce environmental impact
  • Building value chains in collaboration with other companies that possess advanced technologies