Risk Management

Overview of Risk Management

"Taking the leap to becoming a global social infrastructure company" is a key element of Phase 2 of the MOL Group Management Plan, "BLUE ACTION 2035," reflecting the goal of expanding our activities in various areas beyond the traditional ocean shipping business. On the other hand, we can take on new challenges and risks only with appropriate risk management. We have classified the various risks to which we are exposed into two categories: "emerging risks" and "business execution risks," for deeper risk management based on our recognition of the issues in the table below. Through strategy and vision discussions, the Board of Directors will establish a risk management system that encourages risk-taking in execution, as we strive to develop more effective supervision.

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Risk Management Structure

Executive officers in charge of each management division in the corporate organization supervise the status of risk management in the business and regional organizations, respectively, and provide advice as needed. Major risks are centrally managed through regular reports to the Executive Committee and its subordinate committees, with priority given to those deemed particularly significant.
In addition, a dedicated internal review division identifies the risks in advance when making an important decision. We then enter the decision-making process through the assessment of each relevant division as needed. Depending on the content and significance of the decision, a preliminary review is conducted by one of the six committees established under the Executive Management Meeting, allowing for in-depth risk analysis and clarification of key issues. In addition, for the most critical matters, careful deliberation is conducted at the Executive Management Meeting before they are submitted to the Board of Directors, ensuring that decisions are made with a strong emphasis on risk management.
The Corporate Audit Division, which conducts internal audits, is an organization reporting directly to the President. They ensure independence and objectivity while evaluating the appropriateness and effectiveness of internal controls through a risk management process aligned with internal audit standards, based on risk assessments conducted by the business divisions. They identify substantive problems related to internal control during audits and provides improvement proposals aimed at resolving these issues to the heads of divisions within the business and regional divisions, as well as to the presidents of group companies and the relevant divisions within each organization. These efforts are subject to oversight by the Board of Directors.
(→ Click here for our organization chart)

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Emerging risks

Emerging risks refer to risks arising from changes in the external environment that affect the MOL Group's business and whose likelihood of occurrence and potential impact cannot be quantitatively assessed.
With respect to these risks, the Board of Directors, in accordance with the Company's fundamental management policies, discusses their potential impact on the MOL Group's business and possible response measures based on the latest signals and expert insights. At the same time, the Board recognizes that such risks may also create business opportunities and incorporates these perspectives into the formulation of management plans and business strategies.

• 1 Information gathering
  Using external expertise, list up scenarios of changes in the external environment (i.e., risk scenarios), without limiting them to MOL-related domains.
• 2 Risk assessment
  When likelihood of a risk scenario becomes larger, assess the probability and degree of impact on MOL's individual businesses and value chains.
• 3 Identification of material emerging risks
  Identify material emerging risks while considering the importance of individual value chains, etc.

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Business execution risks

"Operational risks" in our risk management framework refer to those risks that require management by executive officers responsible for functional areas and for which concrete risk management systems have already been established and are being implemented within each respective department.

Major Business execution risks

① Operational risks

The MOL Group operates approximately 900 vessels and offshore facilities, and these vessels and facilities are of many different types. For the MOL Group, which provides social infrastructure centered on the shipping industry, some of the most serious risks we face are damage to ships and cargo or injury to crew members caused by vessel collisions, ships running aground, fires and other accidents, as well as environmental pollution from leakage of cargo oil and bunker oil (oil spills). To prevent accidents from occurring, without regard to owned vessels or chartered vessels, Headquarters of Safety & Quality Enhancement, business divisions, shipowners (for chartered vessels), and ship management companies work closely together on tangible specifications which effectively maintain the safety of our vessels. We also make a variety of preparations to counter the dangers of piracy and terrorism by providing sufficient training, putting in place precise operational rules, providing support from our Head Office, and installing necessary facilities.
Even in the event of an accident that could not be avoided despite our best efforts, involving damage to MOL or related parties, the Company is prepared with insurance policies that have the necessary amount of coverage (general liability insurance, hull and machinery insurance, war-risk insurance, loss of hire insurance) in order to secure adequate funds for any compensation and to avoid a major impact on the Company's business performance.
To mitigate reputational risk, MOL implements emergency response training once a year for major maritime accidents, responding to the media and disclosing information about the accident. Media consultants are hired when necessary.

② Cybersecurity risks

The MOL Group's business and operations are heavily dependent on information systems, and serious information and communication technology (ICT) incidents (security and privacy breaches and damage to the group's reputation that have occurred or may occur as a result of ICT system failures, cyberattacks, natural disasters, operational errors, and so on) could have a major impact on the group's business.
We set forth the criteria for determining the incident level common to the group and the response policy according to the incident level in the "Rules of the Emergency Headquarters for Serious ICT Incidents" and "Guidelines for Responding to Major ICT Incidents," We established the framework to formulate a task force when a serious ICT incident occurs, promptly and systematically report the incident and explain it to stakeholders (shareholders, customers, media, etc.), and take technical and legal action to prevent the reoccurrence of situations that seriously damage the group's profits, brand, and credibility.
(→ Click here for details)

③ Natural disaster and epidemic risks

Large-scale disasters and infectious disease outbreaks not only restrict the activities of crew members aboard our Group-operated vessels but also significantly impact the operations of onshore employees, thereby posing a serious threat to the continuity of our Group's business activities. In order to fulfill our social responsibility of maintaining vessel operations and supporting supply chains even in the event of major disasters such as large-scale earthquakes, we have established a Business Continuity Plan (BCP) manual and developed systems such as satellite offices and IT system backups.
We regularly conduct drills both at our headquarters and at external locations, simulating disaster scenarios. By identifying and addressing issues uncovered during these exercises, we work to enhance the effectiveness of our response measures. Furthermore, to ensure the safety of vessels and personnel during disasters or pandemics, and to maintain the provision of our core service - marine transportation - as well as to enable prompt recovery in case of interruption, we have formulated a comprehensive BCP. In addition, we have distributed laptop computers to all head office employees and established a work environment that allows remote operations by utilizing cloud-based tools and other digital solutions.

④ Group Governance Risks

The MOL Group has numerous subsidiaries and affiliated companies, including MOL Global Ship Management Pte. Ltd., MOL Maritex Co., Ltd., MOL Drybulk Ltd., MOL Chemical Tankers Pte. Ltd., UTOC Corporation, Daibiru Corporation, MOL Sunflower Ltd., and MOL Cruises, Ltd., - all of which are particularly important group companies in terms of the MOL Group's management strategy. We have established systems to enhance our Group's corporate value and ensure the proper execution of operations. However, if governance over subsidiaries does not function effectively, resulting in delays in responding to incidents or other issues, the Group's business performance could be adversely affected.
To address this risk, we introduced the Chief Officer System in FY2023, under which cross-functional corporate roles are overseen at the Group level. This structure enables us to strategically and cohesively support Group-wide initiatives. Each Chief Officer is delegated a portion of the President (CEO)'s authority and responsibility and is tasked with leading and overseeing specific corporate functions not only within the Head Office but also across the entire MOL Group.
Additionally, from FY2022, we have implemented a risk assessment framework for both domestic and overseas Group companies. Through self-assessments conducted by each Group company, both the companies themselves and the relevant Head Office departments identify and understand the nature and location of risks. Furthermore, the Head Office executive management and corporate departments use this information to gain a comprehensive view of Group-wide risks. The goal is to establish a more effective risk management structure throughout the MOL Group.

⑤ Compliance risks

In MOL Group, compliance-related risks such as various forms of harassment, bribery, violations of antitrust and competition laws, and insider trading may potentially lead to significant claims for damages. To mitigate these risks, we implement the following initiatives.

[Initiatives for Ensuring Compliance]
On March 18, 2014, the Japan Fair Trade Commission (JFTC) found that the MOL Group had violated Article 3 of the Japanese Antimonopoly Act in certain car carrier shipping trades. In MOL Group, we regard compliance as the fundamental premise of all corporate activities. Each officer and employee is expected to internalize this principle and make sound judgments in their daily work. To support this, we have established Compliance rules that define the standards of conduct to be followed, and we promote thorough understanding and adherence through ongoing training programs.
In addition, the Compliance Committee convenes every three months to review compliance cases within the Group and to determine appropriate responses to any violations. The number and details of such cases are disclosed internally to raise awareness and enhance the compliance mindset among officers and employees.

[Compliance Consultation Desk]
MOL Group has established both internal and external compliance consultation desks that are accessible in Japanese and English by officers, employees, and temporary staff of the Company and its Group companies. The external desk is operated by an outside attorney, who reports any received concerns or consultations to the Secretariat of the Compliance Committee. The attorney also serves as an intermediary for ongoing communication between the reporter and the Company.
All reports and consultations are handled with strict confidentiality, and it is guaranteed that no disadvantageous treatment will be given to the reporter or any individuals cooperating in investigations.
Furthermore, our corporate website accepts compliance-related inquiries from external parties, including domestic and international business partners.
(→ Click here for details related to compliance)

[Initiatives to Comply with Antitrust Laws and Prevent Corruption]
MOL Group has established the Antitrust Compliance Code of Conduct, the Anti-Bribery Regulations, and more detailed guidelines such as the "DO!s & DON'T!s Guide." Through various training programs, we ensure that all employees are informed of the key points and regulatory frameworks both domestically and internationally, thereby promoting thorough compliance with antitrust laws and the prevention of corruption.

⑥ Risks related to official regulations

The MOL Group's ocean-going shipping business is subject to various public regulations, including laws and regulations established by international organizations and national governments, as well as rules imposed by classification societies, in order to ensure the safety of equipment and the safe operation of vessels. In addition, across all business segments, the Group is subject to a wide range of laws and regulations in the countries and regions where it operates, including those relating to business and investment approvals, transportation, trade, antitrust, taxation, foreign exchange controls, environmental protection, and safety requirements. Compliance with these regulations requires the Group to incur various costs, and any changes to existing regulations or the introduction of new regulations may result in additional costs. Furthermore, although the MOL Group has established compliance frameworks and continuously monitors their operation, the Group may become subject to investigations by relevant authorities and, depending on the outcome of such investigations, may face administrative actions or penalties. In particular, regulations relating to economic sanctions imposed by various countries and regions may change rapidly in response to developments in the international political environment, including changes in sanctioned countries and the scope of restricted transactions. Violations of such regulations could have a significant impact on the Group, potentially resulting not only in penalties but also in restrictions on business activities, asset freezes, limitations on access to financial systems, and other measures that could adversely affect the continuation of operations. To address these risks, the MOL Group has established a management framework centered on the management of sanctions lists by specialized departments, screening procedures conducted both at the commencement and throughout the duration of business transactions, the development of operational guidelines for business divisions and Group companies, and verification of effectiveness through internal audits. Through these measures, the Group strives to strengthen its preventive compliance efforts.

[Initiatives for Compliance with Economic Sanctions-Related Laws]
The MOL Group promotes compliance with various public regulations in accordance with its values and Code of Conduct. Among these, we recognize economic sanctions-related laws as a significant risk, given that violations can have a serious impact on our business operations and that the risk of non-compliance is growing due to the increasing sophistication and complexity of regulations and their frequent amendments.
To this end, the MOL Group has established the "MOL Group Economic Sanctions Compliance Policy" to ensure compliance with economic sanctions-related laws, while also working to identify risks commensurate with the nature of our business activities and transaction structures and to respond to evolving regulatory developments.
Furthermore, we strive to ensure the effectiveness of our efforts through continuous information gathering, review of response measures, and ongoing education and awareness activities. We also seek the understanding and support of our business partners for this Policy, promoting appropriate compliance throughout the entire supply chain.

MOL Group Economic Sanctions Compliance Policy[239KB]

⑦ Risks related to human rights and various risks in value chains

Across all value chains within MOL Group, there are various risks related to sustainability, including those concerning human rights, safety, and the environment. In particular, risks related to human rights-such as discrimination in any form, long working hours, harassment, forced labor, and child labor-are matters of significant societal concern, and the manifestation of such issues could potentially damage our corporate value.
To address this,we have established the MOL Group Human Rights Policy, the MOL Group Basic Procurement Policy, and the Supplier Procurement Guidelines. These clearly communicate both internally and externally our Group's commitment to respecting human rights, and are designed to gain the understanding and cooperation of diverse stakeholders-including our business partners-in building a sustainable value chain that considers human rights, safety, and the environment.
In addition to developing internal policies, we are also working to establish a value chain management system. This includes the planning and implementation of a monitoring scheme that incorporates human rights due diligence, as outlined in each of the steps below, in order to accurately identify and address risks related to the environment, human rights, and governance. By verifying effectiveness and disclosing information in a timely and appropriate manner, we fulfill our accountability to stakeholders.
(→ Click here for details related to human rights)
(→ Click here for details related to responsible procurement)

⑧ Technological innovation risks

In our Group's core business of ocean-going shipping, the assets we invest in-such as vessels-are typically held for a period of 20 to 30 years. As digital technologies and alternative fuel solutions continue to evolve rapidly, there is a risk that our owned assets may become obsolete or lose competitiveness. Furthermore, responding to such technological innovation may increase the burden of capital expenditures, which could adversely affect the Group's business performance.
To address these challenges, our Group closely monitors developments in technology and actively engages in advanced research and development both internally and through close collaboration with domestic and international shipyards, as well as external research institutions. By evaluating and verifying new technologies, we seek to incorporate them into our business strategy and operations.

⑨ Exchange rates, interest rates, and bunker price fluctuation risks

The MOL Group may be affected in its business performance and financial position by fluctuations in shipping markets, deterioration in the credit condition of customers, and changes in the political and economic environment of the countries and regions where it conducts business. To address these risks, the Group implements mitigation measures according to the characteristics of each risk, while also utilizing Asset Risk Control as a framework for the integrated quantitative management of such risks.

[Shipping market fluctuation risks]
When investing in vessels that are not backed by medium- to long-term contracts, charter rates and freight revenues may be significantly influenced by market conditions. To mitigate this risk, our Group makes investment decisions only after carefully analyzing future supply-demand dynamics.
In addition, we diversify market risk through a portfolio strategy that includes engaging in a wide range of vessel types and shipping-related businesses with differing market cycle patterns, as well as actively investing in non-shipping businesses such as offshore businesses, offshore wind power generation, logistics, and real estate. To reduce exposure during the fiscal year, we also utilize hedging tools such as Forward Freight Agreements (FFAs) for certain vessel types-such as Capesize bulkers and VLCCs-in order to stabilize earnings and manage market-related risks more effectively.

[Customer credit risks]
There is a risk that charter rates or freight revenues may become uncollectible or subject to reductions due to the credit deterioration of customers. To mitigate this risk, our Group actively seeks to secure medium- to long-term contracts with financially sound customers both in Japan and overseas.
In our financing activities, there is also a risk that our financial results and conditions may be adversely affected by the recognition of allowance for doubtful accounts, stemming from a deterioration in the creditworthiness of borrowers. To address this, we have established a framework for regularly monitoring the financial condition and credit status of our borrowers.

[Country risks]
The MOL Group operates businesses around the world and may face risks that make it difficult to recover invested capital or impair the value of its assets due to changes in political and economic conditions, legal and regulatory systems, or the strengthening of foreign exchange and remittance controls in the countries and regions where it operates. To address these risks, the total amount of invested capital (total related assets) in countries and regions where significant risks are anticipated is regularly monitored-twice a year-by both the Board of Directors and the Executive Management Committee, in the same manner as our "Asset Risk Control" process described earlier.

Overview of Asset Risk Control

In addition to the market risks, customer credit risks, and country risks discussed above, the MOL Group has implemented Asset Risk Control since 2014 as a framework for the integrated quantitative management of Group-wide risks, including the business risks of Group companies. Asset Risk Control is an adaptation of the Value at Risk (VaR) methodology, which is widely used in the financial industry, for the shipping business. Under this framework, a significant stress scenario is simultaneously applied to the Group's assets, and the maximum potential loss that could occur if such conditions were to continue for a certain period is calculated as the total risk amount. The total risk amount is then managed to ensure that it does not become excessive in comparison with shareholders' equity. The framework also takes into account the diversification effect arising from differences in the timing of market fluctuations among individual assets. The results are reported to and monitored by both the Board of Directors and the Executive Management Committee twice a year.

⑩ Exchange rates, interest rates, and bunker price fluctuation risks

[Exchange rate]
In the ocean-going shipping business, while the majority of revenues are denominated in U.S. dollars, a portion of expenses and borrowings are denominated in Japanese yen-taking into account factors such as the interest rate differential between Japan and the U.S.-which exposes us to foreign exchange risk. Based on forecasts of future financial conditions gathered through our Finance Department, we work to limit this exposure by dollarizing expenses and using U.S. dollar-denominated borrowings when appropriate. In addition, we further mitigate risk by implementing flexible foreign exchange hedging during the fiscal period as needed.

[Interest Rates]
The MOL Group continuously makes capital investments for purposes such as the construction and replacement of vessels and the acquisition of real estate. As a general principle, when procuring long-term funds for such investments, we mitigate interest rate fluctuation risks by utilizing fixed-rate borrowings or interest rate swaps.

[Bunker Prices]
Bunker occupies a large portion of ship operating costs, and in the past, price fluctuations had a significant impact on the MOL Group's profits. However, currently, most medium- to long-term contracts with customers contain bunker adjustment factor or bunker price surcharge clauses that have the customer shoulder the risk of bunker price fluctuations. For short-term contracts, we work out freight rates reflecting bunker prices at the time or employ a formula to adjust freight rates that take into account changes in bunker prices. For the remaining exposure, we work to reduce the risk amount by using bunker forward trading. With these countermeasures, the impact of bunker price fluctuations on profit and loss is now very limited.