Introduction

Value Creation

Addressing Risks and Opportunities

Transformation

Business Strategies

Governance

Data

Hitachi Integrated Report 2023

Corporate Governance

Addressing Risks and Opportunities
With the rapid advance of digitalization and complex developments in the political and economic landscape globally, the business environment is changing with each day. In the Risk Management
Meeting, which is chaired by the President with the Chief Risk Management Officer (CRMO) acting as vice-chairperson, Hitachi monitors and analyzes this business environment quantitatively andqualitatively and manages risks in terms of the response to risks that Hitachi should prepare as well as opportunities for further growth in light of, for example, social issues, competitive advantages
and management resources. We will create revenue opportunities while controlling risks. We will identify severe risks that could potentially have a significant impact on Hitachi’s operations in termsof the nature of risk events, the expected time period, the likelihood of their occurrence and their seriousness when they do occur, and we discuss and implement measures against the risks. Byidentifying the various risks Hitachi faces while operating around the world, we are working to achieve a solid management foundation that is linked to our growth strategy.

CRMO (Kawamura holds both CRMO and CFO positions since fiscal 2022) Reflects on Activities in Fiscal 2022
In an ever-changing business environment, Hitachi has built a risk management structure in order to understand risks and opportunities that could affect its
business management, quickly identify potential upcoming risks and make decisions. Hitachi has strengthened this structure to create a risk management systemthat identifies and manages financial and non-financial matters in an integrated manner with the aim of comprehensively dealing with the various risks that Hitachi
faces in operating its business on a global scale.
In fiscal 2022, not only risk assets on the balance sheet but also risks related to the order backlog in large-scale, long-term projects, etc. , were quantified using
Value-at-Risk models and other statistical approaches. In the event that significant losses are incurred simultaneously, the top priority will be placed on absorbing
them on the balance sheet in our risk management. We have also held discussions on several issues, including exchange rates, interest rates, and other changes
in the macroeconomic environment, safety and BCP measures for times of disaster such as a major earthquake in Tokyo, and cyber security and compliance.
Moreover, to further accelerate the Social Innovation Business on a global scale, across the entire Hitachi Group, including acquired companies, Hitachi has
examined and developed a group governance policy. It commenced application of the policy in April 2023.
In fiscal 2023, Hitachi will further strengthen its risk management to respond robustly to foreign exchange and interest rate trends and rapid changes in themacroeconomic environment, aiming to achieve growth, particularly of large global assets, including Hitachi Energy, the railway systems business, Hitachi HighTech and GlobalLogic.

Hitachi’s Risk Management Structure
Board of Directors
Senior Executive Committee
Risk Management Meeting
CRMOBusinessrisks• Five working groups (WGs), formed inaccordance with the types of risk, reporting tothe Risk Management Meeting.
• The WGs utilize related group corporate
functions and manage their respective risks
appropriately.

Crisismanagement

Executive Vice President andExecutive Officer, CFO, CRMO

Group Governance Efforts

Risk categories / Working Groups
Investment
risks

Yoshihiko Kawamura

ComplianceGroupgovernance

Our new Group Governance Policy was established in April 2023. The policy aims to clarify how
the Hitachi Group’s governance should function and to explicitly state responsibilities and roles ofdifferent organizations given Hitachi’s presence as a global enterprise.
Achieving sustainable growth through the global expansion of the Social Innovation Businessrequires group-wide optimal management, based on the group’s common aim, to reflect global
perspectives and diverse values in our business management and efficiently allocate management
resources. Based on this policy, the Hitachi Group integrates its management to formulate andexecute the group’s strategies in pursuit of synergies within the group, strengthen its managementfoundation through common discipline and rules, and streamline business management throughthe standardization of our global operations. In this way, we will accelerate our global growth byensuring the transparency and fairness of our business management, protecting the Hitachi brand’svalue and promoting our Social Innovation Business.

37Introduction
Addressing Risks and Opportunities

Value Creation

Transformation

Business Strategies

Governance

DataHitachi Integrated Report 2023

Corporate GovernanceFor crisis management, Hitachi strives to achieve
more sophisticated resilience. An example isquick action taken in the event that a crisis
occurs. Even in ordinary times, we are readyto take action against each of the serious risk
categories to enhance our preparedness forcontingencies and ensure appropriate action.
In fiscal 2022, our corporate measures in theareas of large-scale natural disasters in Japan,
as well as cybersecurity and other related
issues, were strengthened and reviewed. Ouraim was, for example, to facilitate the migrationof major systems to the cloud and duplicate
our information infrastructure. In fiscal 2023, theexpansion of our measures for business units
and the Hitachi Group companies as well as
Diagrammatic drill, among other initiatives, will bestrengthened to enhance the Group’s resilience
globally.

Efforts Against Investment Risks

Severity

Crisis Management Initiatives

Occurrenceof crisisPotential risks
Management of serious risks

Various risks

Crisis Management WG
Response whena crisis occurs

Responding to
non-serious risks• Establishment of a task force• Consolidation andcentralization of information• Initial response, implementationof abatement measures• Ongoing monitoring• Consideration ofcategorizing a
non-serious risk intoserious risks

Preparations under normal conditions• Preparation of response and operational steps based oncrisis scenarios• Conducting drills, revising procedures, responding toissues• Reconfirming business continuity plans

Compliance Initiatives
As a cross-sectoral compliance initiative, four related departments worked together and shared
information with one another in fiscal 2022 regarding the measures implemented by eachdepartment under regular conditions (e.g., development of regulations, training, monitoring,audits) and how to handle contingencies in the event that they arise (e.g., communicationwith internal and external stakeholders including senior management when a major riskmanifests) to handle major compliance-related risks that concern corporate ethics and laws,
the environment, quality, and health and safety. These departments work to strengthen theircooperation in terms of management methods in different categories of risks. In this way, wehave sought to raise the level of our risk management in the different categories and reducerisks. In fiscal 2023, we will seek to establish an organizational climate for encouraging
employees to speak up and preventing violation of laws and internal rules with the aim toreduce the Hitachi Group’s compliance-related risks.

Hitachi has a proper framework of decision making
in different phases of investment (e.g.,M&A, sale of assets, orders for projects) to facilitate our response to risks and secure growth
opportunities. Hitachi has a framework for delegation of authority within a three-layer deliberation
structure—the Board of Directors, the Senior Executive Committee and the business units—in accordance with the size and details of the project to ensure appropriate and flexible decision
making when carrying out an investment or other activity. For important projects, the Investment
Strategy Committee, an advisory body consisting of members of our corporate divisions, examines
risks in a multifaceted manner to submit a report (including recommendations of approval ordisapproval) the Senior Executive Committee whose members include the President. After aninvestment is executed, we periodically monitor the status of the project. If the project fails toproceed as planned, we have a framework in place to decide whether to continue with theinvestment, which might lead to a decision to withdraw. The aim is to enhance our capital efficiency.
In response to changes in the economy finance, geopolitics, customers and other componentsof the management environment (risks and opportunities), the criteria for providing investment
and post-implementation monitoring (including PMI) are continuously strengthened in an effort toachieve the Mid-term Management Plan and capital allocation plans.

Quantitative Understanding of Risks
Hitachi calculates expected maximum risks (Value at Risk) by statistical methods according
to the type of assets held on the group’s consolidated balance sheet. Similarly, the risks ofincreasing the backlog of long-lead projects have been quantified since fiscal 2022.
We avoid missing out on growth opportunities by visualizing the capacity for growth investment,etc., considering consolidated net assets and other factors. We also engage in monitoring andhold discussions through the Risk Management Meeting to ensure that risks are not excessively
unbalanced compared to Hitachi’s consolidated financial strength.
We also quantitatively analyze and understand the state of risks and profitability on a regionaland per-sector basis.

Responding to Climate Change Risks and Opportunities
In June 2018, Hitachi announced its endorsement of the recommendations by the Financial Stability
Board’s (FSB) Task Force on Climate-related Financial Disclosures (TCFD). See page 43 of thefor details on climate change-related, TCFD-based financial disclosures.
Sustainability Report
For details of the risk factors, please refer to page 34 of the Annual Securities Report (the 154thbusiness term).

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