The Group will establish effective governance frameworks to ensure the transparency, objectivity, and fairness of the management of its companies and earn society’s trust everywhere it operates.

Risk Management

Internal controls based on Asset Assembler Model
—Our philosophy regarding governance, risk management and compliance (GRC)—

How should Nippon Paint Group manage its business risk for achieving MSV? As an Asset Assembler based on mutual trust with all partner company groups (Nippon Paint Group companies grouped by region or business, “PCG”), Nippon Paint Group has a risk management system in place that has, as its core components, the internal control systems operated autonomously by every PCG.

Our Approach to achieving MSV

Autonomous and sustainable growth of every PCG is the key to achieving MSV.
The paint and adjacencies businesses of every PCG have strong regional characteristics, which make these businesses ideally suited for the autonomous management of business operations along with local production for local consumption. Every PCG has thorough understanding of the risk that exists in their local regions and markets.
Considering such business characteristics, NPHD gives each head of PCG the authority to conduct business operations while each head of PCG is responsible for the internal control system. Co-Presidents oversee the Group’s operations through evaluation and appointment/dismissal of the heads of PCGs through various reports from these executives.

Summary of the “Group management system” in the Basic Policy on Internal Control System

Oversight of PCGs Prior approval rule for important matters and timely reporting system of incidents with material impacts
Election/Dismissal of the heads of PCGs Evaluations and decisions that include financial and non-financial considerations such as responsibilities for internal controls
Direct participation of the Co-Presidents in main partner company meetings Participation of Co-Presidents and other executive officers in important meetings of important partner companies
Group audits based on the “Audit on Audit” system Oversight utilizing the close ties between the NPHD Audit Department and the internal audit unit of each PCG

To strengthen risk management as an Asset Assembler, NPHD revised its Basic Policy on Internal Control System in January 2022. This policy sets forth three core components for the governance executed by management led by Co-Presidents: Nippon Paint Group Global Code of Conduct, the Global Risk Management Basic Policy, and the Global Basic Policies of Whistleblowing Hotline. By following these policies, we perform effective monitoring and give necessary directives for governance, risk management, and compliance in the entire Group.

The three key components of the Basic Policy on Internal Control System

Basic Policy on Internal Control System Nippon Paint Group Global Code of Conduct
This code defines the standards/requirements of compliance/ethics rules and Sustainability points that apply to global group companies
Global Risk Management Basic Policy
This policy defines practical roles and responsibilities of each company for its effective risk management based on Asset Assembler model.
Global Basic Policy of Whistleblowing Hotline
Clarify policy for Whistleblowing operated by each partner company. This policy defines guidelines for the operation of hotlines at all partner companies.

Internal control system

In addition to this autonomous and decentralized internal control system, there are five sustainability teams under the leadership of Co-Presidents. These teams focus on issues that affect all PCGs, such as climate change and other problems on a global scale as well as social issues that will require actions in the coming years. The teams, which operate on a global scale, are Environment & Safety, People & Community, Innovation & Product Stewardship, Governance, and Sustainable Procurement. Every team is led by a business leader with sufficient skills and experience for the issues the team covers.
See “Sustainability as the Prerequisitefor MSV"
About risk management conducted in each region in the Group’s internal control framework and global activities of the sustainability teams for future issues and the social demands, information is shared with each PCG under the direction of Co-Presidents as well as at the Group Audit Committee (GAC). Communications made possible by these frameworks are the foundation for the mutual trust that underpins Asset Assembler model.
Sound risk management is the premise for the pursuit of MSV. NPHD will continue to closely monitor changes in society and the needs of stakeholders in order to reexamine and update the internal control system in an appropriate and timely manner.

*1 For more information, see the Internal Control part in Sustainability section on our website.
*2 This meeting, attended by the head of internal audit unit of each PCG, is held twice every year by the NPHD Audit Committee and Audit Department

Risk management system

In line with the revised Basic Policy on Internal Control System, the Group started to apply Global Risk Management Basic Policy in January 2022.
The policy states that Co-Presidents have overall responsibility for risk management in our Group.
The policy also defines the roles of each head of PCG as a frontline, autonomously running its risk management system in the business in which they operate.
Each head of PCG conducts the control self-assessments (CSA), consisting of self-inspections and selfassessments based on a risk-based approach. They are responsible for using CSA to identify risk factors requiring actions, create risk management plans, and make improvements.
Results of CSA are reported to Co-Presidents, who, based on this information, grasp risk factors at our Group in individual regions and businesses. Then Co-Presidents perform effective monitoring by attending important management meetings of the PCGs and other activities and give the PCGs directions for responses against the identified risks.
Through these activities, if Co- Presidents identify risk factors that apply to our entire Group and require unified measures by all PCGs, Co- Presidents hold the Risk Management Committee to discuss and make decisions about countermeasures.
Co-Presidents report the results of this risk analysis to the Audit Committee and the Board of Directors. In addition, the results are discussed at the GAC, which brings together the heads of risk management and internal audit units of each PCG. These meetings function also as a forum for sharing information about best practices for countermeasures.
Separately from these activities, for certain events, a framework is in place for sharing information with Co- Presidents about certain events in a timely or prompt manner. One is for incidents with an impact beyond a pre-determined level. Another is for incidents or emergence of a risk that affect the whole Group, such as a disaster of some type, environmental pollution, product liability issue, quality problem, fraud or other event.
This system enables Co-Presidents, when necessary, to give orders covering the entire group.

The group risk management process

Risk management activities

Actions for high-sensitivity risk factors (high-risk items) at our Group

The Company compiles the results of the CSA performed by the heads of PCGs every year and identifies/analyzes risk factors designated as “high” for that year based on their considerations of the status in our Group, social environment and other factors.
A summary of FY2022 risk is shown below. Each PCG is taking necessary actions as shown in the following table.

  • Although high-risk items are currently almost the same as in FY2021, the level of risk sensitivity has changed for individual items.
  • Compared with FY2021, when there were imminent and significant risks involving the possible disruption of raw material procurements and other problems caused by the pandemic and political instability, sensitivity has increased in FY2022 concerning Business Continuity Plan (BCP) for drastic increase in raw material costs in the medium to long term as well as supply chain risks in the logistics.
  • As M&A activity has enlarged our Group’s portfolio, we have been seeing an increase in closer ties among the brands, technologies and know-how of group companies. As a result, a suitable framework is required with regard to risk concerning international taxation that includes compliance with revisions of tax laws in countries worldwide, but ongoing collaborations and other measures involving the PCGs have reduced the sensitivity to this risk.

Risk heat map

High risk sensitivity
items in FY2022
Change in risk
(vs FY2021)
Description of risk and major countermeasures
Risk related to
human capital
Slightly higher

Succession for management teams of the Group

  • Planning and taking actions on succession plans based on the future business plans of individual PCGs
  • Co-Presidents supervise succession plans for key management personnel of each PCG as an important
    management issue and Co-Presidents provide information about these plans to the Nominating Committee and
    Compensation Committee.
Risk related to
business continuity
Slightly higher

BCP concerning the drastic increase in raw materials costs worldwide, foreign exchange
fluctuation, political instability, the pandemic, natural disasters, IT security, etc.

  • Each PCG created and updated its BCP, conducted necessary drills and education programs for its
    employees to promptly respond to various risks such as natural disasters, changes in geopolitical situations,
    foreign exchange impact, IT security risk, etc.
Compliance Risk Higher

Risk factors such as information leakage and misconduct of employees,
which are becoming more serious social issues

  • We have established “Nippon Paint Group Global Code of Conduct” to set out standards/requirements of
    compliance/ethics rules and Sustainability that applies to global group companies. And as a part of risk
    management activities, all PCGs are using autonomous risk self-inspections, self-assessments and other
    activities for monitoring compliance with the Global Code of Conduct.
  • Through the Whistleblowing Hotline of PCGs as well, reports have been made of compliance problems.
    PCGs that experienced such reporting are taking appropriate actions including employee training programs.
Supply chain risk Significantly

More efficient management of inventory and logistics,
stricter credit management, etc.

  • To reduce risk in product supply arising from the dramatic increase in raw material costs and the change in
    raw material supply chain, each PCG is swiftly and appropriately taking actions by changing its raw materials,
    its product mixes, raising product prices and increasing the efficiency of logistics.
  • Converting risks to opportunities by taking actions in every process to avoid or mitigate the risks and by
    optimizing the supply chain.
Risk involved in

International taxation and other issues associated with closer ties
among our Group’s brands, technologies, etc.

  • We have started to rebuild the framework for proper international transactions based on the tax rules and guidelines of individual countries.

Compliance Systems and Activities

Establishment of a Global Code of Conduct and monitoring the compliance of this code as part of our risk management activities

The Nippon Paint Group has established the Global Code of Conduct for all group officers and employees to observe with respect to compliance, ethics, and sustainability. We require all group officers and employees to respect and act in compliance with this Code in promoting the Group’s businesses. As part of global risk management activities, we monitor the status of compliance of the Global Code of Conduct through self-inspections and other means. Based on the results of self-inspections in 2021, we identified compliance risks, such as information leakage and employee misconduct. In response, we provided training to meet the increasingly rigorous compliance requirements of society.

Compliance education

In Japan, we regularly deliver compliance-related newsletters to all officers (excluding independent directors of Nippon Paint Holdings) and employees (including contract employees and temporary employees), conduct trainings for prevention of harassment, promote dissemination of the "Japan Region Code of Conduct," and plan and implement theme-based training sessions as needed. As a measure of their effectiveness, we annually conduct compliance comprehension test (e.g. checking for understanding and compliance with laws, and regulations, and internal rules regarding marketing activities, corruption prevention, and the Subcontract Act) and utilize the results for the following year's educational training to enhance compliance knowledge and awareness. Additionally, in light of the increasing threat of cyber attacks, we regularly provide training on handling targeted attack emails and e-learning to prevent information leakage.

Whistleblowing Hotline

The Nippon Paint Group started using in January 2022 a Global Basic Policy of Whistleblowing Hotline. In accordance with the Nippon Paint Group Global Code of Conduct and this Policy, we require confidentiality and prohibit unfair treatment of whistleblowers. Each PCG has autonomously established a Whistleblowing Hotline based on this policy, made people aware of this system, and this system has properly been operated. Based on this Policy, each head of PCG submits a Whistleblowing Hotline operations status report once every year to the NPHD internal controls and internal audit sections. The Audit Committee and Board of Directors also receive these reports. In addition to these activities, the Co-Presidents, in a prompt or timely manner, receive information about whistleblowing reports concerning serious violations of laws and regulations, scandals, violations of laws and regulations by the management team of each PCG, other misconduct, or specific information about the possibility of this type of event. This reporting system enables the Co-Presidents to quickly give orders for responding to these events as required.

During FY2023, internal investigations were made for 53 cases at group companies in response to whistleblowing reports. Depending on the nature of the report, the departments in charge at the PCG where the whistleblowing report was received, investigate, analyze and take necessary actions. These actions for preventing violation or other improper conduct include organizational measures, and employee training.

Whistleblowing reports received in FY2023

(Number of reports)

Working environment (industrial accidents, harassment, discrimination, etc.) 31
Loss of assets/Leakage of information (conflict of interest, embezzlement, illegal use of data, etc.) 7
Accounting fraud 0
Violations of laws and regulations (anti-trust law violations, insider trading, bribery, business laws violations, etc.) 4
Other 11
Total 53

Anti-corruption initiatives

We at the Nippon Paint Group work to prevent bribery and corruption based on the Nippon Paint Global Code of Conduct, which stipulates that we "compete fairly," "not tolerate bribery or corruption," and "avoid conflicts of interest and act in a sensible manner when giving and receiving gifts and entertainment." We believe that preventing bribery and corruption is one of the pillars of our group’s Purpose of "Prosper Together," which guides us to always act fairly.

Transparency of taxes

The Nippon Paint Group is engaged in global business activities and business development based on our “Global Code of Conduct”, and complies with applicable laws and regulations in all countries where we do business. We believe it is our social responsibilities to maintain our compliance system and to pay taxes appropriately, and to play an important role in the society.
Further, the Nippon Paint Group ensures it builds a relationship of trust with our stakeholders, maximizes corporate value and shareholder value based on transparency of an appropriate tax management, and aims to achieve a sustainable growth as the Group.
The Nippon Paint Group tax policy is shown below:

The Nippon Paint Group Tax Policy

  1. Compliance with Laws and Regulations
    The Nippon Paint Group complies with the spirit of the tax laws and regulations in each country where we engage in business activities and we file and pay taxes in each country.We do not engage in any tax avoidance measures, such as secrecy jurisdictions, or so-called ‘tax havens', in tax planning. We appropriately evaluate and minimize tax risks by seeking tax advice from external tax professionals as necessary.
  2. Tax Transparency
    The Nippon Paint Group understands that international initiatives such as the BEPS Project are critical for promoting tax avoidance prevention and maintaining tax transparency. We ensure tax transparency of appropriate tax management stipulated in the BEPS Project.
  3. Transfer Price Taxation Initiatives
    The Nippon Paint Group makes appropriate tax payment in each country and region by applying the arm’s length principle to determine prices for transactions conducted with foreign related parties in accordance with the OECD Transfer Pricing Guidelines.
    Further, the Nippon Paint Group evaluates appropriateness in allocating profits among foreign related parties, based on function, assets and risk analysis of each group company, and also prepares transfer pricing documentation accordingly.
  4. Relationship with Tax Authorities
    The Nippon Paint Group strives to build a relationship of trust with tax authorities by maintaining open transparent communication in each country. We respond to tax information request from tax authorities in a timely manner and endeavor to immediately resolve matters of opinion between the Nippon Paint Group and tax authorities in a sincere manner.

Environmental and social activities

The Nippon Paint Group believes that the process of achieving Maximization of Shareholder Value (MSV) is predicated on the fulfillment of its environmental and social responsibilities. Based on this conviction, we conduct many environmental and social activities.

Environmental activities
The Nippon Paint Group has established the Global Team with members from our key partner companies around the world that works directly under the Directors, Representative Executive Officers & Co-Presidents. The Global Team conducts activities to identify environmental issues and measures.
We are implementing many environmental measures including climate change responses based on the Group-wide policies that have been established.
Please see here for the details.

Examples of activities concerning the strategy for climate change risks and opportunities available here.

Social activities
The Nippon Paint Group aims to achieve sustainable growth based on market growth, brand empowerment, and good relationships with communities by investing in communities through its value chains. In addition, we conduct business activities to support and promote sustainable development of every region in which the Nippon Paint Group operates.
Since our founding we have retained a firm commitment to bringing colors, comfort and peace of mind to people around the world.
Please see here for the details.

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