The Group comprehensively identifies and evaluates significant management and operational risks each fiscal year through its Executive Officers and head office corporate divisions, considering social conditions, the business environment, and the Group's management challenges. In addition, significant business-specific risks are identified and assessed each fiscal year by the head office business divisions, and decision-making on said risks is carried out through the Sustainability Deliberative Council in which all Executive Officers participate.

In addition to the above critical risks, the Group identifies and evaluates the risks specific to each business site, formulates implementation plans for each site, and conducts risk management activities. The status of activities is regularly reported to the Sustainability & SCQ Promotion Office, the Strategic Management Committee, and the Board of Directors, while the risk status is monitored and reviewed by upper management. Furthermore, critical risks are reported to the Board of Directors, which oversees the overall risk status, including risk management (see Figure 1).

We classify critical risks as Group-wide risks, risks common to a certain scope within the Group, business-specific risks (risks that have a significant impact on the overall operation of a specific business), and business-site-specific risks (risks that have a significant impact on the operation of specific sites), and the roles to be played by each organizational position level (planning, implementation, support, and monitoring/review) are clearly defined. Specifically, the corporate divisions and business divisions both at the head office conduct risk communication semiannually to ensure that countermeasures are reliably implemented at the head office, directly controlled sites, and Group companies, share information on the implementation status and issues, and provide necessary support after discussions (see Figure 2).

Additionally, we develop scenarios for each critical risk and conduct quantitative and qualitative assessments of their impact and likelihood of occurrence based on standardized assessment criteria, thereby creating a concrete image of the impact risks will have if they occur, which is shared throughout the Group (see Figure 3).

The Group identifies sustainability issues to realize both “our own sustainability,” which refers to the Group itself remaining sustainable, and “environmental and social sustainability,”which refers to ensuring environmental and social sustainability through our business activities. We believe that by appropriately addressing sustainability issues, we can enhance our corporate value by realizing both economic and social value, and reduce various risks within the Group.
Based on the above, the Group's management has identified the following as the Group's sustainability issues and critical associated risks.
The following does not cover all the risks of the Group. In addition, this section contains forward-looking statements based on our assessment as of June 22, 2026.

As the world's population and economy grow, environmental issues such as an increase in resource and energy consumption, a rise in the amount of waste, and global warming are becoming increasingly serious. Going forward, the linear economic model of mass production, mass consumption, and mass disposal may no longer be viable, and the risks associated with raw material procurement, including resource depletion, and the difficulties of waste disposal may increase.

Accordingly, there is a need to shift from a society that continues to consume limited resources to one that reduces waste generation and recycles resources for effective use. If we do not promote resource circulation in each of our businesses, it could lead to a loss of growth opportunities and a risk of exclusion from the industry.

In light of this situation, pursuant to the Medium-term Management Strategy covering the fiscal years ending March 2027 through March 2029, the Group has set forth the basic policy of becoming a company committed to “creating the future through resource circulation,” and will work to expand the secondary smelting (global expansion) and improve the tungsten recycling rate. Through its resource circulation business, the Group aims to maximize the use of limited resources and transform waste into new value, thereby achieving both a reduction in environmental impact and economic value.

Due to a declining workforce owing to falling birthrates and an aging population as well as diversification of individual needs in terms of careers and work styles, it is becoming increasingly difficult to secure human resources and to develop expert personnel over the medium- to long-term. In strengthening overseas business development, it is necessary to respect and collaborate with each individual while ensuring fairness and recognizing diversity in culture and values.
Under such circumstances, if measures to support flexible work styles and the design and operation of personnel systems, etc., are inadequate, employee engagement may decline and it may become difficult to secure the human resources needed for corporate growth.

Based on the belief that “employees are the source of new value creation and the Group’s sustainable growth,” we see talent as a form of human capital rather than just resources or costs, and strengthen our human capital through human resource measures.

In addition, the Group has business sites in Japan and overseas, as well as suppliers of raw materials and other materials in numerous countries and regions. If human rights violations (forced labor, child labor, harassment, discriminatory acts, etc.) were to occur in the Group's own operations or supply chain, it could not only affect production and procurement but also damage the Group's social credibility and reputation.

In the Medium-term Management Strategy, we will further evolve the initiatives we have undertaken, namely “maximizing the value of human resources” and “co-creation and growth,” and enhance the Group’s corporate value through “strategic recruitment, development, and deployment of talent,” “transformation to enhance productivity and capital efficiency,” and “building a foundation for co-creation and growth.”

With regard to climate change, the global movement toward carbon neutrality is accelerating, and many countries, including Japan, have declared their commitment to achieving carbon neutrality by 2050. If climate change policies and regulations are tightened and carbon pricing systems (emissions trading systems and carbon taxes) are introduced or intensified, the Group's business performance and financial position could be affected by the costs associated with GHG (Greenhouse Gas) emissions. Furthermore, in our initiatives to achieve carbon neutrality, we are also required to actively utilize renewable energy sources in the energy sector, and if we fail to take advantage of such opportunities to expand our business, we may miss out on growth opportunities for the Group.

In addition, there is a growing focus on nature-positive initiatives to halt and reverse the loss of biodiversity to put nature on a recovery path, and business activities with consideration for the natural environment are required.

The Group has set a goal of achieving carbon neutrality by the fiscal year ending March 2046, and as part of its GHG reduction targets for the fiscal year ending March 2031, the Group is working to reduce GHG emissions from its business activities by installing energy-saving equipment and expanding the use of renewable energy. In addition, to improve the market competitiveness of the Group's products, we are improving manufacturing processes, developing environmentally friendly products, and developing technologies to reduce environmental burden, such as CCUS (Carbon dioxide Capture, Utilization, and Storage).

Meanwhile, we expect that the reinforcement of policies and other measures related to climate change will increase demand for technologies, products, and services that contribute to energy conservation and GHG emission reductions, thereby expanding business opportunities. The Group is engaged in initiatives such as the development of materials, products, and technologies that contribute to decarbonization, the development and promotion of renewable energy sources such as geothermal power generation, the promotion of demonstration tests and technological development for CO₂ capture and utilization, and conservation activities for the forests owned by the Group.

To strengthen our competitiveness for the sustainable enhancement of corporate value, it is necessary to focus management resources on competitive businesses from a long-term perspective and create businesses and products through technological innovation, rather than merely temporarily increasing profit margins through the reduction of labor and other costs. Without promoting the pursuit of value creation, including medium- and long-term growth investments, our Group's competitiveness may be undermined.
Under the Medium-term Management Strategy, the Group has set forth the provision of high value-added products and solutions. In the Metalworking Solutions business, the Group will provide higher value-added products and solutions in the aerospace, medical, and semiconductor fields. In the Advanced Products business, the Group will provide high value-added products and solutions through a concept-in approach for the semiconductor, xEV, and healthcare fields, and will also strengthen solution-based sales. 

Amid a rapidly changing business environment, sustainable growth requires us to strengthen our R&D and production engineering capabilities, increase the added value of our products, improve production efficiency, and maintain and expand our market competitiveness. Should we fail to sufficiently strengthen our R&D and production engineering capabilities, we may lose our technological advantage to competitors, which could result in a decline in market share and a weakening of our earnings base.

Under its Medium-term Management Strategy, the Group has identified the circular economy and GHG emissions reduction as priority areas, and is working to strengthen its foundational technologies and to create new businesses and new technologies. We will strengthen the foundations of our recycling and GHG emissions reduction technologies, create new materials that contribute to the circular economy, and promote the creation of new businesses through the utilization of open innovation. In addition, we will strengthen our Monozukuri (manufacturing) foundation by reinforcing on-site capabilities based on autonomous operations, and enhance our Monozukuri and engineering capabilities through 5S management, productivity improvement, quality stabilization, and the development of global engineering talent.

If the Group were to focus solely on earnings (E), disregard safety and health (S) at production sites, neglect compliance and environmental conservation (C), and supply products of substandard quality (Q), it could result not only in legal sanctions but also in reputational damage and a decline in corporate value.

The Group has established SCQDE (*) as a guideline that supplements its Code of Conduct and sets out priorities for the execution of business activities. In addition, to strengthen its response to SCQ issues, the Group has established the Sustainability & SCQ Promotion Office (headed by the Executive Officer and President) and set up subcommittees composed of the heads of relevant departments and others. Through these structures, the Group is focusing its efforts on areas that form the foundation of corporate activities, including safety and health, compliance, and quality