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 the 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 diminishing profits of individual projects, along with the increasing scale of projects, could have a significant impact on the profitability of the entire company.
Therefore, 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, an appropriate 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, and the Group also makes systematic efforts to train project managers, an essential element of project risk management.

Project Risk Areas

Risk Management Flow

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 the Total Engineering Business after orders are received
  • Worsening financial conditions, insufficient project execution capabilities, and defaulting in the portion of operations covered by 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
  • Deliberation of the above risks at the Board of Directors as necessary
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
  • Taking necessary measures in response to official requests, confirming safety in accordance with national conditions and regulations
  • Setting reasonable contract conditions with clients, addressing force majeure clauses and regulatory changes
  • Requesting and discussing with clients any necessary rescheduling or rebudgeting
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 the Total Engineering Business 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 on-site construction
  • Working with companies that have extensive track records in local construction
Risk of substantial increases in fuel, material and equipment costs
  • Increased procurement and transport costs for material and equipment in the Total Engineering Business
  • Substantial rises in prices of raw materials or fuel in the Functional Materials Manufacturing Business
  • Monitoring and forecasting price trends, ongoing efforts to improve forecast accuracy
  • Placing orders for materials and equipment early on
  • Diversifying suppliers
  • Transfers to product prices
  • Addressing this risk in contracts
Investment risk
  • Loss from unforeseen circumstances in the investment environment
  • Inability to withdraw from investments at the preferred time or in the preferred manner, due to low liquidity or similar factors
  • Clarifying the significance and purpose of new investment, and making decisions after deliberation by the Board or committees
  • 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, laws and principles on human rights protection, or business or investment licenses
  • Developing, implementing, monitoring, and improving compliance programs and Group policies and rules
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
  • Information security education, training and practice for executive officers and employees
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 and social and international affairs
  • Impact on business activities from fluctuating energy prices linked to global recessions
  • 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
Risk associated with climate change
  • Natural disasters at construction and manufacturing sites
  • Impact on business activities from lower fossil fuel related investment by clients, or from similar changes to client business itself
  • Changes in the business environment such as changes throughout society and industry as the backdrop to climate change issues
  • Receiving and executing non-fossil fuel, circular economy, and renewable energy projects
  • Transforming business areas, business models, and the Group's internal organization in line with the 2040 Vision, our long-term management vision