Risk Management

At SBG, the Risk Management Office spearheads Group-wide risk management activities cooperating with each Group company and department. The office is supervised by the Chief Risk Officer (CRO), who is appointed by the Board of Directors with responsibility for Group-wide risk management.

SBG established the Risk Management Policy to ensure a Group-wide understanding of the purpose of risk management and to clarify the basic roles of officers, employees, and risk managers. This policy applies to all officers and employees of SBG and the Group companies to encourage their active involvement in risk management activities. In accordance with SBG’s Risk Management Regulations and the Group Company Management Regulations, which are set under the Risk Management Policy, SBG and the Group companies appoint risk managers. The risk managers are responsible for comprehensively identifying financial and non-financial risks that might arise during business activities and for monitoring both the countermeasures taken to address these risks and the status of their implementation (At least once per quarter).

The Risk Management Office ensures the effectiveness of Group-wide risk management by receiving reports on important matters from the risk managers and confirming compliance with the regulations. The policy and regulations are periodically reviewed and approved by the Board of Directors of SBG and other bodies. The Risk Management Office quarterly reports identified risks that are material to the Group and their countermeasures to the Board of Directors and the Group Risk and Compliance Committee (GRCC), respectively. Accordingly, both governance bodies supervise the Risk Management Office. The GRCC consists of Board Directors and Corporate Officers of SBG and provides oversight of the risk management and ethics and compliance programs of the Company.

The Risk Management Office works to strengthen risk management activities by identifying and addressing risks, with the aim of mitigating factors that adversely affect the Group’s sustainable growth.

The Risk Management Office is pursuing the following initiatives to gain a comprehensive understanding of financial and non-financial risks facing the entire Group.

When important matters are to be resolved by SBG’s Board of Directors, the Investment Committee, and other bodies, the Risk Management Office confirms the agenda items in advance and consults with the relevant departments, if necessary. It also ensures that risk-related information that needs to be considered is reflected in the agenda.

The Risk Management Office performs risk analysis over the entire Group’s investment portfolio from various perspectives. For example, the Risk Management Office monitors the impacts on SBG’s financial ratios that are caused by changes in the external environment such as economic and monetary policies and other political conditions. The concentration of investments in specific countries, regions, and sectors is also monitored continuously.

The Risk Management Office gathers information on various risks from the major Group companies and each department of SBG. When the risks materialize, the relevant Group companies and departments of SBG escalate the issues to the Risk Management Office in a timely manner.

Based on the information gathered through the above initiatives, the Risk Management Office analyzes and assesses various risks and countermeasures. For material risks that could have a significant impact on the Group’s sustainable growth, the Risk Management Office collaborates with the parties involved in each risk in order to consider countermeasures and monitor the effectiveness of such countermeasures. Material risks and the status of countermeasures are reported to and discussed by the Board of Directors and the GRCC. Based on the results of those discussions, the Risk Management Office strives to strengthen the Group’s risk management system. Additionally, the Risk Management Office provides individual explanations to external directors etc. regarding the latest trends and relevant information about risks. Through this kind of educational activities, SBG aims to enhance risk sensitivity and strengthen risk management at organizational level.

When I joined SBG in 2020, our investment business, especially SVF, was thriving and posted the highest consolidated net income ever recorded by a Japanese company. However, the situation has changed drastically since then, and a period of significant deficits followed. The composition of our holdings has also changed. In 2020, Alibaba was the cornerstone of our portfolio, but Arm, once targeted for sale to NVIDIA, went public in 2023 and is now our core holding. Throughout my tenure as an auditor, I have seen many companies, and it is hard to find a company that changes on such a scale and with such speed. In addition, as an accountant, I found it unprecedented that understanding a company required more than analyzing financial statements. Typically, I can understand the substance of a company by looking at its accounting profits and assets, but in our case, that is not enough to decipher the true nature of the company.

In this context, I became acutely aware of the complexity and importance of the Group’s risk management. I began by analyzing our assets and liabilities to understand the actual situation. I then gathered information from all sources, including each division and subsidiary, to identify material risks and consider how to address them. In fiscal 2023, we made progress in shifting our holdings to an AI-centric portfolio and resumed investments aimed at moving to offense mode. Meanwhile, our business environment remains highly uncertain due to the turmoil in international affairs. I am dedicated to considering risks from all aspects and support the Company’s sustainable growth.

Alibaba used to be a major holding, and SVF also had many other investments in Chinese companies, so the Risk Management Office has focused on swiftly identifying various risks, such as tightening regulations in China and its conflict with the U.S. We have reported to the Board of Directors and GRCC the percentage of our total portfolio that is invested in China and the impact on the Company if the value of our holdings were to plummet. Currently, our holding in Alibaba is virtually zero, and our Chinese investments as a percentage of total holdings have dropped. Therefore, I believe the China risk has been significantly mitigated.

However, there are new risks. Our portfolio is being transformed into a group of AI-empowered companies, with Arm at the core. Sparked by ChatGPT, AI in 2023 evolved and spread rapidly and had a significant impact on the economy and financial markets. At the same time, concerns about AI risk have also grown, and many countries and regions, including the European Union, the U.S., and Japan, are actively discussing rulemaking on the development and use of AI. In light of this, we are working to strengthen our AI governance by monitoring regulatory trends and enhancing cooperation among Group companies.

We are focusing on strategic investments that have been gradually increasing. Unlike SVF, which is based on financial investments, these are business investments with a longer-term perspective. Therefore, we need to consider various risks, such as the possibility that a portfolio company’s business might not perform well and how to manage a portfolio company that has become a subsidiary.

Currently, many of our investments are in the early stages, and the risks we need to monitor could change depending on future business developments. It is essential to understand the business situation of each company, work closely with all parties involved, and provide support as needed.

In addition, I believe it is crucial to manage existing investments in SVF. SVF has developed a strategic portfolio management policy that includes helping portfolio companies increase their corporate value through effective engagement. The Risk Management Office actively considers the impact of these efforts and continuously monitors the status.