Addressing Risks and Opportunities
Risks and Opportunities
Hitachi’s 2021 Mid-term Management Plan, beginning in fiscal 2019, focuses on expanding our business while making the best use of theCompany’s competitive advantages. In particular, we target investment for growth in select, focused areas over the three years through fiscal
2021 of ¥2.0–¥2.5 trillion, compared to investment of about ¥500 billion in the three years through fiscal 2018. We believe taking advantage ofgrowth business opportunities and implementing aggressive management requires a solid risk management system.
Hitachi established the Investment Strategy Committee to strengthen investment risk management in 2017 and continues to work to better understandrisk and take appropriate action. The Company in the same year established the Executive Sustainability Committee to focus on the company’s policies
in regard to social and environmental issues. Our efforts in this area also included a move to identify issues that could be seen as business opportunities,
as well as the negative effects on society and the environment from our business activities and the measures Hitachi is taking to address them.

Risk Management System
The business environment is changing day by day, impacted by the continued advance of information and communications technology, as
exemplified by IoT, and geopolitical risks arising from complex shifts in political and economic conditions around the world. Hitachi aims to create
new revenue opportunities while controlling risk. To do this, we maintain a clear understanding and analysis of the operating environment, taking into
account social issues as well as our competitive advantages and management resources, and conduct risk management with an eye toward themany risks the Company should be prepared for as well as opportunities for growth.
Decision by Board of Directors, President

Senior Executive Committee
Offering of opinions

Understanding of risks andopportunities

Major risk factors

External risks

Risk management aimed atstrengthening business

Political

Internal risks• Investment Strategy Committee
reviews investments and large-scaleorders• Quantitative understanding of risk
assets and related initiatives• Qualitative understanding ofgeopolitical risks and related
initiatives

Economic

Risk management aimed
at ensuring sustainability

Changes toindustrialstructure• Technological innovation• Portfolio• Quality, compliance
Operating• Project management
environment• Securing humanresources, etc.

• The Executive Sustainability
Committee, the Sustainability
Promotion Meeting, and the
Eco-Management Meeting focus onunderstanding and responding torisks impacting society and theenvironment, including climatechange and issues related tohuman rights.

LegalRisk management to ensure business continuity
Information security

Occupational
health and safety

Business Continuity Plan(BCP)• Promoting information security
governance*• Promoting collaborative creation
by fostering a security ecosystem• Rebuilding a culture of safety,
establishing a safe workplace• Prevention and countermeasures
for work-related accidents• Establish and maintain BCP system
as a disaster/hazard countermeasure

P.68

P.70

P.71 Procurement BCPs
• Formulate BCPs at major Hitachi
facilities

Compliance

Quality Assurance• Entrench awareness ofregulations related to businesspractices through the Hitachi
Global Compliance Program• Implementation of quality assurance
activities from the perspectives oforganization and management,
technology, and human resources inevery process—from planning anddevelopment to design,
manufacturing, delivery, andmaintenance.

P.73

See Sustainability Report 2019https://www.hitachi.com/sustainability/
download/index.html

P.74* Information security governance works in support of corporate governance by building and maintaining an organization’s internal control mechanisms related to information security.

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A Business Foundation that Supports Sustainable Growth

Understanding and Responding to Quantitative Risk

The Flow of Quantitative Risk Assessment

In regard to quantitative risk, assumed maximum risk (value at risk) isManagement strategy

calculated using statistical methods based on the type of asset held.
More specifically, value at risk measures the maximum expected loss

Reflected inbased on price movements over a specified period of time
Executive level(observation period) at a given confidence level for a defined period oftime moving forward. Visualizing the strength of a company’s balance

Periodic reporting

sheet and whether that company has the potential for growth,
including by focusing on whether the maximum expected loss isGroup risk capacity

within the range of net assets or whether there is room to invest ingrowth, limits the likelihood that opportunities for growth will beComparison with risk tolerance

missed, while continued monitoring ensures that risks do not exceed
Amount of risk in the groupmanagement capabilities.
Moreover, analyzing risk by country and sector, while also taking

Quantify using statistical methods

into account future trends, allows a quantitative understanding of theconcentration of risks in a given country or sector relative toprofitability.

Credit risk

Business
investment risk

Country risk

Risks, including
business assets

Risk identification and analysisFinancial and non-financial data from within the group and informationfrom outside organizations

Understanding and Responding to Qualitative Risk

Amid such a drastic change in the business environment, companies

In regard to qualitative risk, including geopolitical risk, we maintain amust have a clear understanding of opportunities and risks and takefocus on the global political and economic situation by taking

appropriate measures if they are to achieve sustainable growth overadvantage of research from external organizations, and use thisthe long term.

information to analyze the potential risks and opportunities for Hitachi

Hitachi is able to gain a clear understanding of sustainability-related

so that we may take action to improve our corporate value. In addition,risks, and accordingly take appropriate action, thanks to the efforts of

the Investment Strategy Committee examines investment projects andthe Executive Sustainability Committee and other related committees.

large orders, taking into account qualitative factors in addition toWe remain actively engaged in promoting our own sustainable growthquantitative factors such as those listed below.

while contributing to the realization of a sustainable society by seeking

・Related technological innovations and competitive conditions

out business opportunities contributing to the resolution of important

・Hitachi’s past performance in the business
・Trends and market conditions, including prices and costs
・Business performance from ordering parties and their transaction

domestic and overseas issues, including those relevant to the UN
Sustainable Development Goals (SDGs) and Society 5.0.
https://www.hitachi.com/sustainability/

history with Hitachi, etc.
・Contractual rights and obligations (transaction terms, reasons anddetails for damages and penalties)
・Local laws and labor practices in countries in which the business
operates

Understanding and Responding to Risks andOpportunities Related to Sustainability
Social and environmental issues, including climate change, resource
depletion, the curtailment of business activity due to significant
disasters, and social instability due to growing inequality, are having asubstantial impact on corporate value creation and business models.

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Hitachi Integrated Report 2019

Risk Factors
We conduct business on a global scale across a broad range ofbusiness areas and utilize sophisticated, specialized technologies tocarry out our operations. Therefore, we are exposed to a wide range ofrisks related to our operations. The following risks are based on theassumptions we consider reasonable as of the date this report wasissued.
For more information on business risks and other risks, please refer
to our 150th Annual Securities Reporthttps://www.hitachi.com/IR-e/library/stock/index.html

Major Risks and Opportunities
Major risk factors
Fluctuations in productsupply and demand,exchange rates andresource prices;
insufficient raw materials,components
Rapid technologicalinnovation

Details on risks and opportunities

Company actions• Price fluctuations, including for products, exchange rate impact andexcess inventory• Exchange rate impact and price fluctuations, including for raw materials
and components• Impact from significant disasters on supply chain• Building close relationships with multiple suppliers• Ensuring an appropriate response to changes in demand in each region bypromoting a local production and local consumption model for products andservices• Heightening resistance to business interruption risks by formulating BCPs atdomestic and major overseas facilities

Risks

Risks
• Decreased competitiveness if development of cutting-edge technology,
or application to product/service does not progress as expected• Reduction or elimination of existing market due to technological innovation
Opportunities• Development of advanced technology leads to new business opportunities

Securing humanresources

Risks• Impact on new hires and worker retention due to increased competition
to hire and retain the highly skilled workers
Opportunities• Growth opportunities on the recruitment and retention of highly skilledworkers that share the Hitachi vision

Occupational healthand safety

M&A, investment innew projects, etc.

Risks
• Impact on business due to inability to create healthy, safe and secure
work environments

Risks• M&A aimed at strengthening the Social Innovation Business, investment
in new projects, R&D investment/capex, failure related to insufficient
project management in large-scale orders
Opportunities• Building a foundation for growth through the acquisition of new
management resources

Geopolitical risks

Risks• Impact on Hitachi’s overseas businesses due to global political, economic
and social trends

Tighter laws andregulations

Compliance

Risks• Tighter laws and regulations in regard to investment, exports, and customs
dutiesExample: The effects on business activities from the introduction of newlaws and regulations related to the protection of personal data, such as
the General Data Protection Regulation (GDPR) in Europe
Risks• Reduced trust and a decline in corporate value as a result of corporate
behavior that deviates from social norms and violates laws, including
relating to bribery and anti-competitive activities

Product quality andresponsibility

Risks• Reduced trust and claims for damages due to defects or a deteriorationin product and service quality as a result of the increased complexity/
sophistication of products or services, or the diversification of production
sites or suppliers

P.71 Engaging in Responsible Procurement• Promoting open innovation through industry-academia-government cooperation• Bolstering the digital workforce• Strengthen Lumada• Fostering an innovation ecosystem through the above
P.38 Accelerate Innovation
P.48 Strengthen Lumada• Securing the highly skilled global workers using a global common standard forpersonnel• Securing and training the highly skilled workers through in-house educational
systems, include Hitachi Academy, and Hitachi University, the group’s global
common learning management system
P.42 Accelerate Innovation• Establishing a global occupational health and safety system that includes
lessons learned from global operations, entrenchment of global norms, andthe sharing of success stories
P.70 Occupational health and safety, worker health• Implementing phase-gate management in each business unit (BU), analysis
and discussion of market trends, strategies, acquisition prices, and the postmerger integration process at Investment Strategy Committee, Senior
Executive Committee, Board of Directors, and Audit Committee
P.18 Independent Director Dialogue
P.78 Corporate Governance• Regularly updating our understanding of global political and economic trends,
analyzing the impact on our business, and swiftly implementing countermeasures
on a groupwide basis• Operating of personal information protection systems in line with Hitachi’s
personal information protection policy• Identifying businesses subject to GDPR, assessing risk, implementing
appropriate safety management measures in line with those risks,
implementing worker training
P.68 Promoting Information Security• Implementing groupwide compliance programs and establishing the highest
values in the Codes of Conduct• Strengthening measures to prevent bribery and violation of competition laws
P.73 Compliance• Strengthening the quality assurance system• Activities aimed at preventing accidents• Activities aimed at ensuring compliance with laws and regulations related totechnology• Intensive risk assessment• Implementing measures to handle product accidents• Conducting quality and reliability-related training
P.74 Quality Assurance

Climate change/
significant disastersRisks• Impact on business activities due to measures in line with the tighteningof international regulations to curb greenhouse gas emissions and thedepletion of energy and resources• Impact on business activities, from production to sales, due to significant
disaster affecting major Hitachi facilities in Japan or overseas
Opportunities• Expansion in the decarbonization business through offering climatechange-related solutions

Information security

Risks• Computer viruses or other factors adversely impacting information systems
Opportunities• Expansion in revenue opportunities through increased demand for
information security measures• Strengthening measures aimed at achieving the CO2 reduction targets in theHitachi Environmental Innovation 2050
• Enacting measures in line with an analysis of Hitachi risks and opportunities
based on climate-related scenarios• Formulating BCPs to strengthen our ability to respond to business disruption risks
P.71 Responsibilities in the Value Chain
P.46 Environmental Vision and the Decarbonization Business
P.76 Climate-Related Information Disclosure (based on TCFD recommendations)• Promoting cybersecurity strategies through risk management and value
creation
P.68 Promoting Information Security
P.54 Story of Value Creation in the IT Sector

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