Risk Management
Santen strives to establish an information management and monitoring system in response to various risks, including unpredictable uncertainties, to eliminate such risks or address them appropriately.
Risk Management System
In accordance with the rules for risk management, we identify, evaluate, and monitor risks regularly in each region and division to deal with assumed major risks of loss related to the execution of our business activities, striving to avoid or minimize the risk of loss during times of normal business operations. At the same time, we continue to build an effective risk management system to improve the sophistication of risk management. To this end, in fiscal 2022, we began dividing risks into risks attributable to internal factors and risks attributable to external factors, identifying and categorizing each risk factor in an integrated manner and communicating this information throughout the company.
As our business expands globally, we are required to comply with various regulations at advanced levels. In addition, we must take appropriate measures to ensure a stable supply of products, quality control, IT security, and compliance, as well as to ensure risk management against pandemics, natural disasters, conflicts, etc.
To address the variety of risks that may affect our business in particular, we continue to strengthen risk management activities under the leadership of the Officer in Charge of Crisis Management, who is responsible for identifying major risks, formulating preventive measures, and encourage discussion.
In the event or report of an event that has the potential to develop into a serious crisis, we form a crisis management committee, chaired by the Santen president and CEO. This committee responds to and contains the situation in question as we implement measures to prevent recurrence.
In its independent capacity, the Internal Audit Office verifies the status of risk management through internal audits.
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Major Risks
1) Supply chain (Risk category: Internal Factor, Operational Risk)
Risk scenario
- Suspension of operations at a specific plant (the Noto, Shiga or Suzhou Plants, in particular) or at external contractors, or the suspension of raw material supply from a supplier due to a pandemic, natural disaster, fire or other factors
Impacts on corporate value
- Adverse impacts of disruption or suspension, etc. of production activities on stable product supply, and on Santen’s business performance and financial condition
Countermeasures and current progress
- Create processes, systems and other mechanisms to ensure stable supply
- Having continuously a full understanding of actual conditions and respond to issues by planning, monitoring execution, and assessing risk
- Structure product manufacturing and supply for compatibility with rigorous logistics regulations in Europe
- Visualize and centralize global inventory management and production planning
2) Global compliance (Risk category: Internal Factor, Operational Risk)
Risk scenario
- Violations of social norms, laws, regulations, etc.
Impacts on corporate value
- Decline in public trust and brand image
- Damage to corporate value due to a stock price decrease
- Decline in Santen’s business performance or impact on business continuity due to decreased revenue or payment of compensation for damages, etc.
Countermeasures and current progress
- Established the Global Compliance Policy; systemically enhance the structure for global compliance
- Introduced an organized global education program for all employees; implement the program
- Reinforce compliance awareness and ensure compliance with laws and regulations by designating Awareness Month for Santen’s Code of Practice, supported by messages from the CEO and regional senior management
- We created the Speak Up Portal as a global internal reporting system, and established a globally unified risk management system.
3) IT Security and Information Management (Risk category: Internal Factor, Operational Risk)
Risk scenario
- Malfunction of IT systems used in business activities
- Cyberattacks, computer virus infection, etc.
- Leakage of personal or other kinds of information
Impacts on corporate value
- Adverse impacts of suspension of or delays in business activities, decline in public trust, etc. on Santen’s business performance
Countermeasures and current progress
- Operate and maintain an information security management system that meets the ISO/IEC 27001 standard
- Established the Global Information Security Policy, the Global Data Privacy Policy, the Document Management Policy, and other policies
- Enhance security governance through personnel and organizational measures centered around security training and drills and through technical measures (provide global antiphishing training as one measure to enhance cyber security)
- Ensure appropriate risk management not only within the Santen Group but also throughout its supply chain and at its business partners
4) Natural disasters (Risk category: External Factor, Operational Risk)
Risk scenario
- Natural disasters such as large-scale earthquakes, tsunamis, and typhoons
Impacts on corporate value
- Impact on business performance and financial condition due to stagnation or delay in production activities and supply chain disruptions
Countermeasures and current progress
- Consideration of establishing a system to ensure employee safety and a stable supply of products by developing a business continuity plan (BCP), conduct emergency response training, ensure stable inventories, formulate a backup plan for production lines, and purchase property insurance
5) Spread of infectious disease (Risk category: External Factor, Operational Risk)
Risk scenario
- Spread of new infectious diseases
Impacts on corporate value
- Interference with research and development activities such as clinical trials and testing
- Impact on the supply chain, including plant operations and logistics, resulting in a stable supply of products
- Impact on sales activities due to inability to collect and provide timely and appropriate information to medical professionals
Countermeasures and current progress
- Based on the countermeasures and knowledge of the COVID-19 to date, a system to be established to ensure employee safety and a stable supply of products.
6) Geopolitical Risk (Risk category: External Factor, Operational Risk)
Risk scenario
- Sudden changes in international conditions or the occurrence of conflicts between nations
Impacts on corporate value
- Impact on business activities and supply chain disruptions in related regions, resulting in product supply delays, etc.
Countermeasures and current progress
- Obtain external information, analyze impact on domestic and overseas operations, and develop a safety management system in preparation for contingencies.
- Examine the establishment of a backup system to ensure product supply.
7) Environmental Regulations/ Climate Change (Risk category: External Factor, Strategic Risk, Operational Risk)
Risk scenario
- Occurrence of environmental issues, such as environmental pollution
- Legal measures or obligations to pay damages due to revisions to environmental laws or regulations, or other circumstances
- Accelerated shift to low-carbon energy
- Mandatory or regulatory shift to bioplastic or biomass plastic in materials for eye drop bottles and other packages
- Decline in the supply of plant-based materials
- Floods or drought at major production sites due to changes in rainfall patterns, and resulting delays in or suspension of product supply
Impacts on corporate value
- Adverse impacts on Santen’s business performance
- Incurrence of countermeasure costs
- Increase in capital investment, procurement costs, etc.
Countermeasures and current progress
- Operate an environmental management system that not only complies with environmental laws and regulations but also meets higher in-house standards
- Formulated the Environmental Vision and set environmental targets; implement the action plan based thereon (including promoting the use of biomass plastic as a material for eye drop bottles)
- Plan capital investments necessary to realize a low-carbon society, including investments in installing hydrogen boilers and hydrogen fuel storage facilities
Emerging Risks
We recognize emerging risks as those that have become particularly risky in recent years due to environmental changes and other factors.
1) International Disputes
Description
- International disputes that are still taking place in several countries and are expected to become more serious will not only affect the supply chain in those regions, but also impact raw materials procurement, product supply, etc.
Impact
- Such events cause concern for the safety of employees in the areas affected, as well as concerns about the impact on supply chains, finances, and sanctions.
- If production activities, including the activities of our contract manufacturers, are affected, the supply of products to the entire global market could be affected negatively.
Response and Mitigation Measures
- Recognition of possible risks and consideration of contingency response manuals
- Monitor geopolitical, socio-political and economic/political conflicts in the countries and regions where key supplies and suppliers are located.
2) Water Resource Issues
Description
- Frequent earthquakes in the Noto Peninsula, where our plant is located, could impact groundwater channels. An accident at the nearby nuclear plant could impact water quality. These and other events could have a negative impact on production activities.
Impact
- Potential inability to provide a stable supply of products.
- Potential impact on sales and other financial matters.
Response and Mitigation Measures
- Secure backup water sources. Maintain backup production lines.
3) Changes in Employment Relationships
Description
- As the global labor environment changes, competition for talent will not only make it more difficult to acquire outstanding talent, it will also increase the risk of resignation from outstanding employees. The inability to keep up with new technologies, such as AI, will have a significant impact on competitiveness.
- The diversification of work styles will change the traditional conditions for recruitment and employment in each country.
Impact
- In particular, serious consequences could result from the loss of human resources due to the increased retirement of talented employees and organizational dysfunction due to excessive mobility.
- Higher wage levels for mid-career hires will contribute to higher costs.
- The increasing diversity in places to work and work styles, as well as the diversification of values, may lead to events that cannot be addressed through conventional rules.
Response and Mitigation Measures
- Improve employee retention through initiatives to improve employee engagement and by promoting talented personnel.
- Benchmark wages and hiring conditions for similar industries; consider competitive compensation systems.
4) Outbreak of New Infectious Diseases
Description
- The outbreak and spread of infectious diseases caused by new pathogens could affect R&D, production, sales, and other activities.
Impact
- Such events could hinder research and development activities, such as clinical trials and studies. The stable supply of products could be disrupted due to the impact on the supply chain, including factory operations and logistics. Sales activities could be disrupted due to the inability to collect or provide timely and appropriate information to medical professionals.
Response and Mitigation Measures
- Establish systems to ensure the safety of employees and the continued stable supply of products based on our response to COVID-19 to date.
Risk Culture
We strive to foster a risk culture throughout the organization. As part of these efforts, we provide in-house training on risk management, internal controls, compliance, and other topics via e-learning, and the training participation and other factors are included in the compensation evaluation of directors and employees.
When developing products and services, we analyze the relevance and risks at the development strategy and planning stages to consider risk mitigation. At the same time, we have the PTS Committee review and determine the Probability of Technical Success (PTS) of a project. In addition, we establish financial criteria to assess investment risk and determine business feasibility. We then perform development in accordance with the rules determined. Depending on the phase and monetary standards, the Board of Directors will discuss risks before making a decision on certain development and investment projects.
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