Risk Management Approach and Policies
The Mitsubishi Estate Group has established the Mitsubishi Estate Group Risk Management Rules and has set up and operates a risk management system to manage risk in all its business activities. The Group systematically carries out risk management programs, focusing on the following two types of activities.
(1) Individual risk management activities
Individual Group companies and respective functional and business groups identify risks of focus based on a risk analysis, and carry out activities throughout the year to reduce the risks identified.
(2) Group-wide priority risk management activities
The Group identifies priority risks that require new countermeasures from the entire Group, taking into account the risks of focus identified by individual Group companies as described above and social trends, and carries out activities throughout the year to reduce these risks.
Risk Management Activities of Respective Individual Business and Functional Groups and Group Companies
Individual Group companies and functional and business groups identify important risks based on a risk analysis and carry out activities throughout the year to reduce the risks identified. In addition, the general managers of each functional or business group ascertain the status of risk management activities of different business companies under the jurisdiction of each group and provide coordination and support.
Identification and Monitoring of Key Risks That Need Particular Attention from the Group
To accurately grasp the risks facing the Group as a whole, and by selecting and mapping key risks that require measures to be taken, the risks that must be addressed and their level of priority are brought to light. While monitoring risks throughout the year, particularly key risks, support is provided as necessary.
System for Promoting Risk Management
Mitsubishi Estate has established the Risk Management & Compliance Committee to oversee the Group's risk management and formed the Risk Management & Compliance Subcommittee as a working-level consulting body responsible for such matters as the collection of risk management-related information. The corporate officer in charge of risk management at Mitsubishi Estate is appointed by resolution of the Board of Directors to take responsibility for overseeing risk management, and general managers of each business group and general managers from Group departments have been designated as risk management officers. We promote risk management activities through the Mitsubishi Estate Legal & Compliance Department, which serves as the secretariat. The Risk Management & Compliance Committee reviews the effectiveness of the risk management process as needed and its findings will be reported to the Board. We have also established and implemented action guidelines, contact and initial response systems, and business continuity planning for use in times of crisis.
Risk Management and Compliance System (As of April 2020)
Risk Management Related to Investment Projects
Among the various risks recognized by the Group, risks related to investment projects are based on the assessment of business viability by Companywide research functions and under investment decision rules of the Strategic Investment Office. Prior to the deliberation of important investment projects by the Executive Committee, which is chaired by the president and CEO of Mitsubishi Estate and is responsible for strategic planning for the entire Group and monitors the progress of each business toward realizing this strategy, the Strategic Investment Committee deliberates and evaluates profitability, the nature of risks and related countermeasures, and other matters. At each phase, risk assessments are also conducted from legal and financial aspects in order to grasp an overall picture of the risks.
Risk Management Initiatives
Holding Risk Management and Compliance Lectures
Mitsubishi Estate holds risk management and compliance lectures for managers and executives, including those at Group companies. The lecture topic is chosen from genres related to risk management and compliance, in light of social conditions in that particular year. In December 2019, Yoshiaki Honpo, Chief of the UN World Tourism Organization (UNWTO) Regional Support Office for Asia and the Pacific, spoke on the topic of "Mitsubishi Estate Group Risk Management Associated with the Rapid Rise in Inbound Visitors."
Dealing with Major Risks
Below are some examples of risks that have come to light in the Group through risk management activities and various business activities and countermeasures that have been taken.
|Risks of Information Security||In light of society's growing concerns over the appropriate protection of personal information and information management, the Mitsubishi Estate Group comprehensively revised its rules related to information management in 2018 and updated its information management systems to ensure scrupulous management. We are aiming to further improve information management through continuous monitoring and supervision.
Moreover, in order to raise the IT security level of the entire Group, we have positioned Mitsubishi Estate's DX (Digital Transformation) Promotion Department at the center of efforts to standardize the Group's IT systems and make it more secure. We are also enhancing collaboration among DX Promotion Department personnel and between the department and external security companies, thereby providing Groupwide support.
|Risks of Corruption||The prevention of corruption is an important issue for our businesses both in Japan and overseas. To that end, we have established and announced the Mitsubishi Estate Group Anti-Corruption Guidelines and developed a system to prevent corruption across the organization. Under these guidelines, the Group has declared and put into practice several specific corruption prevention initiatives while thoroughly preventing any acts of bribery or acts that may be suspected as such. These initiatives include carrying out due diligence on counterparties deemed to meet certain conditions, incorporating corruption prohibition clauses into contracts, and establishing approval and reporting procedures for the provision of entertainment, gifts, and donations. In addition, we are seeking to gain a greater understanding of rules related to the prevention of corruption through training for directors and are also constantly monitoring this position.|
|Risks of Natural and Man-Made Disasters, etc.||The occurrence of such natural disasters as earthquakes, floods, or climate change or man-made disasters including accidents or fires may impact the performance, financial position, or other aspect of the Group's business. The Group is redeveloping its properties to install advanced disaster-management functions and has established disaster-response measures through area management.|
|Risks of Fluctuations in Exchange Rates||In addition to those held in Japan, the Group is developing and holding assets in the United States, Europe, and Asia, for which the book values and income are accounted for in local currencies. Consequently, any fluctuation in exchange rates would affect the yen conversion rate used for foreign currency-denominated assets and liabilities and business transactions.
The Group minimizes these risks of fluctuations in interest rates using such methods as borrowing funds in local currencies when procuring assets overseas.
|Risks of Fluctuations in the Real Estate Market||The real estate market is closely correlated with movement in the economy. Deterioration in the economy has a strong impact on declines in real estate prices and rental fees and the increase in vacancy rates. In view of this correlation, the basic policy of the Group is to conclude relatively long-term lease contracts with customers in its office building leasing business. The prospects of stable lease revenue mitigate to a certain degree the risk of sharp movements in the economy.|
|Risks of Increases in Interest Rates||The Group acquires funding for its operations by borrowing from financial institutions or issuing corporate bonds. The Bank of Japan (BOJ) has implemented a policy of quantitative and qualitative monetary easing in response to the credit crunch in financial markets and the slowdown in the global economy. Should interest rates rise, however, because of a change in the BOJ's policy or a deterioration in the demand–supply balance for Japanese government bonds (JGBs) caused by growth in the issuance of JGBs, it may negatively affect the performance, financial position, or other aspects of the Group's business.
The Group hedges interest rate risk on a certain portion of its variable interest rate financing through interest rate swaps to convert its interest rate payments into fixed payments. Going forward, the Group will manage its interest rate risk by procuring funds based on a consideration of its fixed and variable interest rate borrowings and its outstanding corporate bond balances.
Risks Arising from the COVID-19 Pandemic
In fiscal 2019, performance in the Mitsubishi Estate Group's hotel, commercial facility, and airport operations felt the impacts of the global COVID-19 pandemic during February and March 2020. Moreover, the pandemic threatens to adversely impact the Group's business activities and performance centered on these operations in fiscal 2020. Based on the trends surrounding the pandemic, performance forecasts for fiscal 2020 were set assuming that Japan's state of emergency declaration would be lifted by May 31, 2020, and that the operating environment of businesses would gradually recover by the end of September. In some businesses, the impact is expected to continue throughout the fiscal year. However, should it become clear that the anticipated recovery trend will not occur, due to factors such as the prolongation of the pandemic or intermittent waves of subsequent infections, and if it is judged that performance forecasts need to be revised, prompt notification will be issued.
Emerging Risks for the Mitsubishi Estate Group's Business
|Risks||Explanation of risks and business background||Impact on business||Action to mitigate risk|
|Information security risk||Unauthorized access to information systems and data related to personal information, etc. of tenants of office buildings and commercial facilities and purchasers of condominiums, information leaks, etc.||The Mitsubishi Estate Group holds a vast amount of customer and business partner data, including personal information related to the tenants of office buildings and commercial facilities and the purchasers of condominiums, as well as information on orders placed with construction companies for new construction. Information leaks or threats of unauthorized access lead to a decline in corporate credibility, which could in turn impact on business profit.||
In light of society's growing concerns over appropriate information management and protection of personal information, the Mitsubishi Estate Group comprehensively revised its rules related to information management (rules on information management, information systems, and personal information) in 2018 and updated its information management systems to ensure scrupulous management. The Group also strives to ensure strict information management through continuous monitoring and audits.
Moreover, in order to raise the IT security level of the entire Group, Mitsubishi Estate's DX (Digital Transformation) Promotion Department, a dedicated unit for promoting IT security and digital transformation, is leading the implementation of measures such as the following.
|Business continuity risk due to natural disasters, etc.||Climate change-driven natural disasters, which include flooding due to abnormal weather and sudden heavy rain, typhoons, and hurricanes, have become more severe in recent years. It is thought this could impact on the business continuity of the offices and commercial facilities operated by the Company, and this has been identified as an emerging risk.||Abnormal weather, such as sudden heavy rain, thought to be due to climate change, could damage the offices and commercial facilities operated by the Company. If the Company is forced to suspend operations of its facilities due to this damage, the number of people using urban areas and facilities will decrease, and it will be harder to lease facilities to tenants, which could make it difficult to continue the business. In addition, if it is difficult to continue the business, it is also assumed there could be an impact on rental profits.||
The Mitsubishi Estate Group has installed advanced disaster prevention functions in the urban areas it develops and the buildings it operates as well as taking disaster response measures through area management.
For example, in order to minimize the risk of flooding in office buildings it constructs, the Group takes all possible flood control measures including installling waterstopping equipment such as tide plates and watertight doors, and locating stockpile stores and key sites (e.g. power receiving and transforming equipment and disaster prevention centers) on above-ground floors. The Group has also been devising ways to develop highly disaster-resilient urban areas, such as installing systems in which electricity, water, and ventilation all function independently even when infrastructure supplies are cut in a disaster.
The Mitsubishi Estate Group has established the Mitsubishi Estate Group Business Continuity Plan Guidelines, the Mitsubishi Estate Business Continuity Plan Documents, and the Mitsubishi Estate Group Guide to Preparing a Business Continuity Plan Document. By strengthening the bonds between the Business Continuity Plan and the Framework of Anti-Disaster Measures, we are ready to ensure both the safety of customers and Mitsubishi Estate Group employees as well as the business continuity of the Mitsubishi Estate Group in an emergency.
Mitsubishi Estate Co., Ltd. has been implementing a variety of disaster prevention drill initiatives.
Business Continuity Plan Initiative and Review
The Mitsubishi Estate Group has drafted a Business Continuity Plan (BCP) to prevent crucial operations from being interrupted if a disaster or accident occurs — and, if they are suspended, to enable their speedy resumption — and we established "Mitsubishi Estate Group Business Continuity Plan Guidelines" in October 2006.
In December 2012, we established "Mitsubishi Estate Business Continuity Plan Documents" and the "Mitsubishi Estate Group Guide to Preparing a Business Continuity Plan Document" in light of the Great East Japan Earthquake. By strengthening the bonds between the Business Continuity Plan and the Framework of Anti-Disaster Measures, we are ready to ensure both the safety of customers and Mitsubishi Estate Group employees as well as the business continuity of the Mitsubishi Estate Group in an emergency.
Furthermore, in light of changes in the social and business environment, we strive to continually upgrade the content of the Business Continuity Plan through PDCA cycles and will implement further improvements going forward in order to fulfill our social responsibility.