Risk Management Activities

Kao procures natural resource–based materials, including palm-derived raw materials and pulp and paper, on a global basis through multi-tiered supply chains. In recent years, alongside increasing expectations regarding human rights and environmental considerations, the regulatory and institutional landscape surrounding raw material procurement has been rapidly evolving.

Regulations and requirements related to raw material procurement are being introduced and revised in different forms across countries and regions, and their scope, interpretation, and practical implementation continue to evolve. As a result, it is increasingly difficult for companies to determine in advance the full set of standards and requirements with which they must comply, creating uncertainty in assessing compliance and prioritizing responses. In addition, regulatory updates may increase procurement complexity and costs and impose constraints on supply chains, potentially affecting overall business operations.

Kao recognizes the increasing volatility and uncertainty of the regulatory environment as an emerging risk and is advancing the following key initiatives:

In recent years, cyberattacks leveraging AI and other technologies have become increasingly diverse and sophisticated, with ransomware incidents causing prolonged business disruptions being reported. As supply chains grow more complex, attacks routed through overseas sites and third parties with insufficient security measures are increasing, creating structural risks that cannot be fully mitigated by individual companies alone. In addition, the digitalization and external connectivity of operational technology (OT) environments at manufacturing and logistics sites have introduced new attack vectors.

Cyberattacks causing operational shutdowns at factories or system failures at third parties may disrupt product supply and business activities, potentially having a significant impact on business continuity and performance. In addition to implementing defense-in-depth measures, Kao emphasizes rapid restoration of business operations in the event of a cyber incident and strengthens cyber resilience to prepare for potential intrusions.

Kao recognizes this risk as an emerging risk and is advancing the following key initiatives:

We address response to cyberattack risk as a corporate risk.

Geopolitical risks have remained high in Europe and East Asia, where we conduct businesses. In addition, such risks may increase in countries and regions where we procure raw materials.

If destabilization of political and social conditions, diplomatic tensions, or other reasons cause a deterioration in the environment surrounding our business, human casualties, a temporary suspension of operations due to supply chain disruptions, or changes in consumer purchasing behavior, our targets for net sales and profit may be unattainable.

From these situations, we recognize geopolitics as an emerging risk that could have a significant impact on future operations. And we prepare risk scenarios for countries and regions with heightened geopolitical risks, provide systems for response where needed, and monitor the political and social situations. In addition, we have established guidelines for ensuring employee safety and are working to strengthen its supply chain networks. We address geopolitics as a corporate risk.

The rapid expansion of generative AI and AI-powered search is creating a significant shift in digital communication between consumers and companies and brands. Kao has long worked to deepen consumer understanding of its products and services, enhance consumer experience, and co-create value through its websites, social media, and other channels. These efforts serve as the foundation for delivering value created through Yoki-Monozukuri.

As AI-powered interfaces become primary points of information access, consumer decision-making processes are evolving. In this environment, if Kao’s information and brand value are not appropriately recognized and referenced by AI systems, there is a risk that accurate information may not reach consumers, that brand value may not be fully conveyed, or that it may be interpreted in unintended ways, potentially affecting business value. In addition, risks related to data privacy, transparency, and the reliability of AI-generated content (including deepfakes) remain.

At the same time, this transformation presents opportunities to enhance competitive advantage. By structuring its accumulated information assets—including scientific knowledge, product technologies, quality and safety data, consumer insights, customer interactions, and brand content—into formats that are accessible and understandable for both consumers and AI systems, Kao aims to establish a source of differentiation.

Kao recognizes this risk as an emerging risk and is advancing the following key initiatives:

In an AI-driven environment, Kao will continue to build brands that are consistently chosen by consumers, based on reliable information assets and deep understanding of consumers.