Risk Management

As Asset Assembler based on mutual trust with all PCGs, the Company has a risk management system in place that has,as its core components, the internal control systems operated autonomously by every PCG^*.

*PCG: Nippon Paint Group companies grouped by region or business

Our approach to internal control

Sound risk management is the premise for the pursuit of MSV. We closely monitor changes in society and the needs of stakeholders to reexamine and update the internal control system in an appropriate and timely manner. 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. We essentially give each head of PCG the authority to conduct business operations and responsibility for operating the internal control system. The heads of PCGs identify and respond to risks specific to their businesses, and our Co-Presidents oversee the Group’s operations through evaluation and appointment/dismissal of the head 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

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 Prerequisite for 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

Our Global Risk Management Basic 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. In this manner, autonomous risk management at each PCG is implemented appropriately by Co-Presidents and the head of each PCG based on their respective roles. Each head of PCG conducts the control self-assessment (CSA), consisting of self-inspections and self-assessments based on a risk-based approach. They assess the residual risk for all items set out in the CSA, formulate management plans for items with high risk, and report the assessment results, together with such plans, to the Co-Presidents. Results of CSA are reported to Co-Presidents, who, based on this information, grasp risk factors in individual regions and businesses and identify the risks that should be closely monitored across the Group. Co-Presidents then perform effective monitoring by attending important management meetings of the PCGs and through other activities, and give the PCGs directions for responses against the identified risks. Co-Presidents report the results of the risk analysis to the Audit Committee and the Board of Directors. In addition, the results are discussed at the Group Audit Committee (GAC), which brings together the personnel responsible for risk management and internal audit at each PCG, where best practices for risk responses are shared. Meanwhile, if a crisis that could affect the entire Group occurs, information is shared with the Co-Presidents in a timely or immediate manner, and the Co-Presidents direct the Group-wide response. The “High-risk items” shown in the table below are the four items assessed as having high residual risk based on the aggregated results reported by the PCGs across the Group. The table summarizes the risk descriptions and major mitigation measures provided by each PCG.

The group risk management process

Risk management activities

High-risk items

Compliance Systems and Activities

Enhancement of the Global Code of Conduct

All Nippon Paint Group companies share and comply with the Nippon Paint Group Global Code of Conduct, which sets out standards/requirements of compliance/ethics rules and sustainability. The code has been refined by each PCG for the purpose of applying these guidelines in a manner that matches the business climates of different regions. As a result, with the leadership of Co-Presidents, the code has been embraced by group companies in each country and region.
Additionally, to clarify our role in preventing corruption and money laundering in our business activities, we included statements on these matters in our Global Code of Conduct in November 2023 and disseminated them both internally and externally.

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 Global Code of Conduct and the Global Basic Policy of Whistleblowing Hotline stipulate confidentiality and prohibit unfair treatment of whistleblowers. Each PCG has autonomously established a whistleblowing hotline based on this policy, communicated the system to users, and operates it appropriately. The head of each PCG reports the operating status of the whistleblowing hotline once a year to the Audit Committee and the Board of Directors through the Audit Department and the Co-Presidents. In addition, information on reports concerning serious violations of laws and regulations, scandals, violations of laws and regulations or misconduct by PCG management, or specific indications that such events may occur, is shared with the Co-Presidents in a timely or immediate manner, enabling the Co-Presidents to direct the necessary response.

In FY2025, internal investigations were conducted on a total of 95 whistleblowing cases across the Group. Depending on the nature of each case, the appropriate department within each PCG conducts investigations, analyses, and responses, implements measures to address issues and prevent recurrence, and, during normal operations, raises awareness of whistleblowing hotlines and provides compliance education to employees to prevent misconduct and violations before they occur. In several PCGs, whistleblowing reports have functioned as an effective means of detecting compliance violations, confirming the effectiveness of the whistleblowing system. We also closely monitor changes in the number of reports. When a PCG records a significant year-on-year increase or decrease, the outline, background, and response status are explained at the GAC or similar forums and shared with relevant personnel across the Group. This periodic process provides an opportunity for an objective review of the whistleblowing system and helps improve its operation throughout the Group. Going forward, the relevant bodies in each PCG, together with the Co-Presidents and the Audit Committee, will continue to operate and oversee the system and enhance its effectiveness across the Group.

Whistleblowing reports received in FY2025

(Number of reports)

Working environment (industrial accidents, harassment, discrimination, etc.)	65
Loss of assets/Leakage of information (conflicts of interest, embezzlement, improper use of data, etc.)	15
Accounting fraud	0
Violations of laws and regulations (antitrust law violations, insider trading, bribery, violations of business laws, etc.)	7
Other	8
Total	95

For results from previous fiscal years, please see “Whistleblowing Reports” on our website.

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."

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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.

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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.