Creating a resilient business

At CCBJH we have implemented an overarching business resilience program that integrates the ways in which we manage risk and opportunity to enable profitable growth; protect our people and assets; enhance our capabilities to respond in a crisis; and the way we transfer risk through insurance.
Our Board of Directors has overall responsibility for risk management and sets the risk appetite of the business. They are closely involved in oversighting risks and the strategic response to them, and monitoring management actions to achieve its strategic objectives.
In support, risk management is being firmly embedded within our everyday business activities and culture. Our Enterprise Risk Management (hereafter ERM) PDCA framework is based on COSO(*1) and ISO 31000 and provides a framework to drive profitable growth by leveraging opportunities and promoting appropriate risk-based decision-making, as well as strong capabilities in the identification and response to foreseeable risks. Our business resilience programs are led by our Head of the Risk Management Senior Group (HRM), who as a member of the ELT(*2) works in close collaboration with the function heads and risk owners across our business on the response to specific business risks. The HRM is tasked with maintaining a wide-angled view of all business streams for emergent risks and opportunities and through regular reporting ensures that risk visibility is provided to the ELT and our Board.

(*1) An abbreviation for Committee of Sponsoring Organizations of the Treadway Commission. An organization that issues global frameworks for internal control
(*2) An abbreviation for Executive Leadership Team. Management organization in CCBJI Group including CEO and function heads.

Business resilience program

Integrating Smart Risk into our business:
①Risks identified, assessed, and understood; Risk Management Forum, Deep Dives, Scenario Planning.
②Smart Risk decisions made, and best practices shared; Annual Business Plan/Strategic Business Plan, System Comparisons.
③Leadership and Oversight; ELT Monitor, BOD Oversight.
④Risk Intelligence; Smart Risk, Culture Risk, Governance.

Enterprise risk management (ERM) systems and program

The ERM program incorporates a variety of elements that enable us to ensure alignment to our business strategies, objectives, and principles; drive integration in our strategic direction, ethics and values; link into the business planning cycle; continually monitor our internal and external environment for factors that may change our risk profile and create opportunities; and an annual evaluation of the type and amount of insurance we should purchase. In a hardening insurance market, our approach to insurance risk transfer is influenced by the availability of insurance cover and cost, measured against the probability and magnitude of the relevant risks.
Our risks and the associated mitigation and response initiatives are constantly evaluated. The Audit and Supervisory Committee are provided quarterly updates on the full program with the Board of Directors receiving biannual updates. The program is annually audited by our Internal Audit team and external auditors against global best practice.
During 2022, we continued our focus on strengthening the integration of ERM and Smart Risk program into our corporate culture through the creation and delivery of training and awareness courses. We have maintained the visibility of risks and opportunities through monthly ELT dialogue and senior manager participation in facilitated functional risk identification and review sessions.
A robust crisis management program with associated business continuity plans provides us with the capability to effectively respond to a crisis. These programs are subject to annual review with crisis training provided to our leadership teams who are tested through interactive crisis simulations.

Enterprise Risk Management (ERM) processes

Reportable risks

The cyclic review of our key risks involves an assessment of the likelihood of their occurrence and their potential consequences to confirm our level of exposure and evaluate the strategies to manage them. The list does not include all risks that can ultimately affect our Company as there are risks that are not yet known to us, and risks currently evaluated to be immaterial that could ultimately have an impact on our business or financial performance. By leveraging our robust risk management program, which is integrated into business routines and evaluates risks against our business and strategic priorities, we remain vigilant to the uncertainty in our operating environment and can react with agility. The program enables us to proactively identify new risks and opportunities which enable us to understand threats to our business viability.

High risks

Risk category	Description and potential impacts	Key mitigations
Commodity pricing	Risk of procurement costs increasing due to fluctuations in exchange rates, raw material shortages, and commodity prices. Increased cost base Reduced product supply Limitations to product portfolio	Mitigate the impact of exchange rate and product price fluctuations through the uses of derivative transactions Procure raw materials at lower costs through collective multi system company purchases leveraging Coca-Cola system
Macroeconomic	Risk of volatile and challenging macro-economic conditions caused by key global events including conflict, inflation, and foreign currency fluctuations. Deterioration of financial conditions Reduced consumption spending Changes in consumer spending patterns	Enhanced strategic and operational risk identification enabling the group to grasp the changes in macroeconomic landscape more quickly and prepare better for the future by improving the ability to predict the future demand and trends more accurately Monitoring and responding to changes in status to customers' business operations Strong crisis response practices that focus on employee, customer and consumer safety
Cyber security and system availability	Risk of business activities being suspended, and confidential information leaking caused by system failures or cyber incidents Losing trust from consumenrs and customers Deterioration of financial conditions	Prepare the response plans to mitigate the damages caused by system failures (such as, by setting up backup sites overseas) Improving and strengthening system security by proactive threat identification and conducting simulation tests of cyberattacks Complying with laws and regulations on information management Establishing internal regulations related to information security supported by related employee training programs Develop and maintain a system workforce with the ability to respond to cyber incidents
Changing consumer mindset	Risk of changes in consumer preferences caused by COVID-19, growing concerns over sugar consumption and increased health awareness Acquisition or loss of consumer base Winning or losing trust from consumer Discriminatory taxation	Focus on product innovation and portfolio expansion Strengthen range of low and no calorie beverages Diversification in pack sizes Promote active lifestyles through consumer engagement program
People (attraction and retention)	Risk of not being able to secure, retain and develop enough human resources and build constructive relationships with labor unions due to poor business performance and a competitive employment environment. Slowdown or suspension of business activities Slowdown or suspension of supply chain operations Inability to achieve growth plans	Implement strategic people development plans and develop a new salary payment structure Recruit diverse talent and commitment to people development (including overseas) Implement unmanned plant operations, online transactions, and outsourcing of shipping operations Enhance the workplace environment to improve employee satisfaction Strengthen communication between top management and employees
Natural disasters	Risk of death and injury of employees and damage to business facilities for production, logistics and sales operations caused by severe natural disasters, such as earthquakes and floods. Slowwdown or suspension of business activities Slowdown or suspension of supply chain operations Reduced sales opportunities Additional costs required for recovery	Strong Business Continuity Plan (BCP) and crisis response capabilities enabling structured and streamlined responses Regular crisis and disaster response training and simulations Identified alternative shipping locations and secure transportation capacity in preparation for a disaster that damages the logistics centers Secure earthquake coverage Redesign of Disaster Control Headquarter (DCHQ) model to enable enhanced regional response and speed of response
Evolving commercial and competitive landscape	Risk of changes in the retail market environment led by a surge in online ordering and a change in spending behavior driven by the external macro environment. Acquisition or loss of consumer base Winning or losing trust from consumers Reduced sales profit Reduced portfolio availability	Enhancing the product portfolio and accelerated productivity further to deliver products that meet the needs of the retailers Enhancing Right Execution Daily (RED) to drive operational excellence Expanding the online channels to respond to the surge in Internet mail orders
Growth strategies	Risk of failing to implement measures to improve our competitive advantage and grow the business (through business integration, capital investments, product development, etc.) Deterioration of financial conditions caused by loss due to impairment Losing trust form shareholders	Building a robust system that enables the group to respond readily and flexibly to various circumstances Formulate business integration strategies that take multiple scenarios into consideration Supervision by Board of Directors and Executive Officers
Financial risks	Risk of deterioration in financial conditions cause by an increase in funding costs and retirement benefit obligations. Increased cost base Loss of stakeholder trust	Promote growth of cash flow through sales activities to maintain and improve creditworthiness Establish Pension Governance Committee to strengthen the monitoring function of retirement benefit obligations

Medium risks

Risk category	Description and potential impacts	Key mitigations
Sustainability	Risk of increased stakeholder concerns caused by caused by negative consumer sentiment over the use of plastics and the toughening of government regulations on plastics. Acquisition or loss of consumer basse Winning or losing trust from shareholders Increase of costs for responding to environmental and social issues Discriminatory Taxation	Achieving CSV goals contributing to the development of a sustainable society "World Without Waste" initiatives including, increasing the use rate of recycled PET resin, developing more light-weighted packages and collecting used PET bottles more effectively Proactive response in line with ESG and TCFD reporting requirements
Quality and food safety	The risk of product-related quality and food safety incidents. Losing trust from consumers Decline in earnings due to product recall or mass disposal of defective products Loss of opportunities due to customer penalties	Supplier quality audits and quality certifications Employee awareness of quality control in all processes from manufacturing to sales Enhance the quality control and reporting system so that consumer/customer complaints receive a timely response Robust identification and response programs that enable us to quickly and efficiently deal with quality/food safety issues
Regulatory compliance and ethics	Risk of violations of laws, internal regulations, and our code of ethical conduct Loss of customer and consumer trust Damage to brand and corporate reputation Regulatory penalties Economic loss through fraud	Strong Tone from the Top and continued internal communication on corporate behaviors Ethics & Compliance Committee meetings held regularly Minimizing employee fraud opportunities by rebuilding the business processes, organizational structure and IT systems.
Manufacturing, logistics & infrastructure	Risk of the stable supply of goods being impeded due to issues in production and logistics operations, or changes in weather and consumer behaviors Drop in sales volume and revenue Losing trust from customers	Building a flexible supply system to respond to changes in the market environment Investment in infrastructure (production lines, etc.) that will enable the group to respond to the increase in demand during the peak seasons more readily Systems enhancements to enable timely sharing of inventory status Strengthen supplier management and supervision
Climate change	Risk of raw material shortages including water and agricultural products or operational impacts due to adverse weather associated with climate change. Reduced commodity availability and product supply Increase of production costs Limitations to product portfolio Impact to operations (e.g., damage to facilities) Discriminatory taxation	Focus on sustainable procurement Engagement with stakeholders Sourcing alternative suppliers, and strengthening the selection of suppliers and their management by utilizing the performance data Adjust the amount of raw materials that are difficult to procure, and shift to other raw materials when necessary Crisis response and business continuity planning Risk engineering in support of insurance coverage
Health and safety	The risk of serious work-related health and safety incidents (i.e. serious injury or death) including transportation accidents Death or serious Injury Reputation damage Prosecution and fines	Continue ISO 45001 (Occupational Health and Safety) Certification/Internal Audit (Occupatioinal Health and Safety) strategies Continue implementing mental health survey
Franchise relationships	Risk related to our high dependency on, or changes to our relationship with The Coca-Cola Company and Coca-Cola Japan as trademark owners in respect to contract / relationship terms and renewals, concentrate pricing, support for product promotions Decrease in sales from any suspension in the use of TM rights and/or decline in product development capabilities and brand power Increased COGS due to concentrate price Increased sales promotion expenses in event of any decrease in sales support	Maintaining and improving cooperative relationships with The Coca-Cola Company and Coca-Cola Japan

Specific climate related risks and our approach to TCFD is located at:

TCFD

Risk Management

SDG-related Initiatives

CSV Goals (Creating Shared Value)

Managing Risk and Leveraging Opportunities