Enterprise Risk Management

1.The Asahi Group Enterprise Risk Management

The Asahi Group has introduced enterprise risk management (ERM) for the entire Group. The Asahi Group effectively and efficiently controls its overall risk that could impede execution of strategies and achievement of objectives defined in the Medium-Term Management Policy based on the Asahi Group Philosophy through activities such as identifying and evaluating critical risks across all areas that include strategy, operations, finance, and compliance, building up responding plans, and executing and monitoring the plans.
The respective companies of the Asahi Group implement ERM on the basis of each business unit, and report the details of the initiatives to the Risk Management Committee of the Company. The Committee monitors the initiatives, and its members identify and evaluate critical risk across the Group, build responding plans, and execute and monitor the plans. All such initiatives are reported to the board of Directors, which ascertains the effectiveness of ERM by monitoring the initiatives. This series of activities by the Risk Management Committee and the Board of Directors is independent from those of the Audit and Supervisory Board, and thus is subject to audits performed by Audit and Supervisory Board Members.

Asahi Group Enterprise Risk Management

2.The Asahi Group’s Risk Appetite

The Asahi Group has developed “The Asahi Group Risk Appetite” to specify risks to be accepted or to be minimized for achieving objectives of the “Medium-Term Management Policy” while promoting ERM.
“The Asahi Group Risk Appetite” is a policy related to risk management of the Asahi Group. It serves as a guideline for engaging in ERM and a guideline for opting whether or not to take risks when decisions are made. It consists of the “Risk Appetite Statement” which shows the Group’s basic stance toward risk, and the “Specific Risk Appetite” which shows each stance (appetite) for major categories of risk that greatly affect business execution, premised on the assumption of practical application. The Company has developed the Appetite through consideration on its Group strategy, risk culture, risk profile, and stakeholders’ expectations. The Appetite is approved by the Board of Directors and is applied to the entire Group. The Risk Management Committee monitors its implementation and reports its progress to the Board of Directors. Through the initiatives, the Company promotes appropriate risk takings across the overall Asahi Group.

The Asahi Group Risk Appetite Statement

The Asahi Group Medium-Term Management Policy seeks to promote “Glocal Value Creation Management”
based on the Asahi Group Philosophy in order to sustainably increase its corporate value.

In order to achieve the strategic objectives defined in the Policy:

the Asahi Group achieves organic growth by building high-value-added brands, and with regard to inorganic growth achieved by M&A activities and innovations, is willing to take commercial risks in a controlled manner that balance the need for a robust financial position while creating value growth for shareholders;
the Asahi Group delivers excellent quality products and ensures a safe work environment for everyone at the Asahi Group, both of which are critical priorities at the heart of Asahi’s success;
the Asahi Group pursues initiatives to protect the environment and is willing to innovate to create greater environmental value in society; and
the Asahi Group accepts as little risk of non-compliance with the Asahi Group Code of Conduct and the Asahi Group Human Rights Principles as possible.

3.Risk Management

Risk Type	Details	Projected Impact on the Asahi Group	The Asahi Group’s Response
1 Impact Associated with COVID-19	Adverse effects on the global economy stemming from a downturn in the food service industry and governmentimposed stay-at-home restrictions Increasing tendency to save money Increased focus on health and the environment and greater emphasis on trusted, secure brands Extended use of digital services by standardizing the use of online channels	Continuously sluggish sales centered on beer for on-premise market Deterioration of profitability as a consequence of sales mix comprising products with relatively low profit margin Decline in effectiveness of conventional strategies and competitiveness of the Group as a result of irreversible changes to consumers, markets, and society	Strengthening of Medium-Term Management Policy from the standpoint of “reforming the earnings structure in response to changes in the business environment” Timely responses to constantly changing consumer behavior Planning and development of business strategies that anticipate changes to market landscape Development of new operating model
2 Expansion of Business Operations	Development of global management platform centered on the three core regions of operation: Japan, Europe, and Australia, and expansion of growth foundation 2009: Acquisition of Schweppes Australia 2016: Acquisition of beer business in Western Europe 2017: Acquisition of beer business in Central and Eastern Europe 2020: Acquisition of Carlton & United Breweries Pty. Ltd. (CUB) in Australia	Impairment loss resulting from changes in business environment and competitive landscape, a sharp rise in interest rates, and market contraction	Continued use of management resources from external sources directed toward business growth Pursuit of more-effective Group governance
3 Emergence of New Business Models via Technological Innovation	Provision of new value through use of the latest digital technology incorporating IoT and AI Streamlining of supply chain through utilization of AI Emergence of alcohol-alternative products Rapid growth in adoption of teleworking systems and use of e-commerce and other online channels	Reduction of industry presence and competitiveness Establishment of market dominance through the Asahi Group’s leadership in innovation and creation of new markets	Strengthening of investment in intangible assets (including R&D and human resource development) directed toward innovation and new value creation Development of a new operating model by increasing investment in digital transformation Creation of unique value via the establishment of Asahi Quality and Innovations, Ltd., a Group base for innovation Creation of new value through customer experience incorporating open innovation and generation of ideas based on design thinking
4 Information Security	Disruption to business activities as a result of power outages, disasters, defective software and devices, and cyberattacks; loss of confidential information; leakage of personal information; fraud; and violation of the European Union’s General Data Protection Regulation (GDPR) and other regulations in various countries	Interruption of business Cash outflow due to compensation and claims for damages, etc. Imposition of fines due to GDPR violations Decline in operating results, financial condition, and corporate brand value	Monitoring of cyber security incidents through ASAHI-CSIRT and other IT systems Development of system for timely and optimal prevention and protection against recurring incidents Security measures associated with software and devices Implementation of employee training and development programs
5 Social Values Pertaining to Alcohol Consumption	Examinations regarding possible implementation of global alcohol sales regulations Decline in alcohol consumption stemming from increased focus on alternatives and health worldwide	Expenses associated with regulatory compliance Deterioration in operating results of Asahi’s core Alcohol Beverages Business Impairment of reputation	Collaboration with alcohol industry and industry groups such as IARD Promotion of responsible drinking awareness campaigns and health-conscious products Establishment of sales and marketing-related voluntary standards Strengthening of employee training programs on responsible drinking
6 Operating Environment	Market trends characterized by shifts in demand resulting from deteriorating economy, intensifying competition, changing consumer preferences, population decline, and declining birthrate and aging population	Decline in sales due to drop in consumption of alcohol beverages, soft drinks, and food Deterioration of profitability arising from intensifying competition and consequential decrease in per-unit sales prices Reduction in sales stemming from changing consumer preferences and relatively lower customer support due to generational shifts	Enhancement of value of high-value-added brands and creation of new markets Acceleration of earnings structure reforms that anticipate future changes in business environment Reinforcement of product lineup for all alcohol beverages Pursuit of areas that address increased focus on health of consumers and aging society
7 Large-Scale Natural Disasters	Rising number of risks related to earthquakes, tsunamis, typhoons, floods, and other natural disasters in Japan and overseas	Halt to product manufacturing and deliveries Inability to procure raw materials and resources Interruption and halt to business activities Decline in consumer sentiment	Implementation of safety confirmation system and strengthening of emergency communications system Prevention of secondary disasters by reinforcing production plants with earthquake-resistant construction, ensuring safety of equipment, etc. Formulation of BCP by reflecting on past performance and experience in large-scale disasters Establishment of backup facility at data center
8 Securing of Diverse Talented Personnel	Decrease in domestic working population as a result of declining birthrate and aging population Greater demand for personnel and changes in and enhancement of necessary skill set stemming from expansion of global business	Further strengthening of business competitiveness Lack of capability to achieve medium- to long-term targets in light of inadequate and unstable workforce	Development of initiatives for cultivating candidates for future management positions to coincide with formulation of succession plan Global promotion of optimal placement of personnel Promotion of diversity through the revitalization of interaction between personnel across all regions and the hiring of personnel regardless of gender or nationality
9 Widening Supply– Demand Gap in Domestic Logistics	Widening supply–demand gap of truck drivers as a result of declining working population associated with the declining birthrate and aging population and growth of e-commerce	Stagnant supply of products Increase in transportation costs	Promotion of local-production-for-local-consumption logistics model Reduction of logistics-related labor through introduction of logistics devices and systems Establishment of modal shift and other new trunk transport schemes Achievement of highly efficient transport through collaboration with companies in other industries Improvement of workplace environment via measures to enhance logistics efficiency
10 Risks Related to Climate Change	Rise in average temperatures, shift in precipitation patterns, and intensification of abnormal weather Tightening of regulations associated with greenhouse gas emissions Tightening of water resource-related regulations Change in consumer behavior	Incurrence of losses from product waste, opportunity loss, and damaged equipment and facilities due to the intensification of abnormal weather Higher operating costs reflecting rising cost of key raw materials Higher operating costs associated with tightening supply and demand for water and increased water costs caused by severe droughts Higher product prices reflecting implementation of carbon tax Impact of water use regulations on business continuity Impact of higher ethical standards on sales	Reduction of CO2 emissions by 50% in Scope 1 and 2 by 2030 (compared with 2019) Reduction of CO2 emissions to zero by 2050 in Scope 1, 2, and 3 and becoming carbon neutral Curbing of basic water consumption to 3.2 m3/kl or less by 2030 through streamlining of water usage and expansion of recycling system Endorsement of TCFD recommendations, proactive efforts to analyze and respond to risks and opportunities presented by climate change that impact our business, and enhanced disclosure of such details
11 Compliance with Laws and Regulations and Soft Law	Alcohol-related tax laws such as the Liquor Tax Act, Food Sanitation Act, Product Liability Act, Labor Standards Act, Anti-Bribery Act, Unfair Competition Prevention Act, environmental laws, and various other legal restrictions Unexpected implementation of new laws and regulations Boycott movements related to activities that violate human rights and other forms of corporate ethics	Disciplinary measures and filing of legal action due to violation of laws and regulations Social sanctions Impairment of Asahi’s reputation and brand value and resulting decline in sales stemming from loss of stakeholder trust	Promotion and supervision of Group-wide corporate ethics and compliance by the Compliance Committee Implementation of training programs to ensure strict adherence to and raise awareness of the Asahi Group Code of Conduct among employees Formulation of Asahi Group Human Rights Principles in accordance with the United Nations Guiding Principles on Business and Human Rights Implementation of human rights training programs for employees and business partners Establishment of human rights due diligence to address human rights risks facing suppliers and employees Development of mechanisms to provide access to remedy
12 Use of Plastics	Strengthening of regulations on plastic waste and on imports of plastic products Strict social views on products made from large amounts of plastic in light of plastic waste contribution to marine pollution	Drastic decline in demand for products using large amounts of plastic materials in containers and packaging Impairment of Asahi’s reputation due to inadequate response Higher recycling expenses and sharp increase in production costs through use of alternative materials	Promotion of 3Rs Conversion of plastic containers to materials that can be utilized effectively Conversion to use of eco-friendly materials for plastic containers Development of new eco-friendly materials and discussions on the adoption of sales methods that do not involve the use of plastic containers and packaging
13 Country Risks Associated with Global Business Development	Political uncertainty, economic crisis, retaliatory tariffs, threats of boycott over treatment of refugees, racial discrimination, tightening of regulations, tax reform, natural disasters, and emerging infectious diseases	Reduced cost competitiveness due to unfavorable conditions for foreign-capital companies, lower profits, business closures attributable to political, military, and social pressure, safety concerns of employees, failure to achieve management targets, recording of medium- to long-term losses, and business withdrawals	Early detection and effective prevention of risks through collection of information at Group companies and appointment of external consultants Formulation of BCP designed to cope with major incidents Dispersion of revenue streams through continuous globalization
14 Risks Associated with Procurement of Key Raw Materials	Increasingly severe market conditions for raw materials utilized in the Group’s products Business withdrawal and transfer of suppliers and cornering of markets by competitors Adverse impact of production of key raw materials on local environment and communities	Higher prices of raw materials Halt to operations stemming from inability to procure raw materials Impairment of Asahi’s reputation spurred by emergence of social issues along supply chain	Procurement at stable prices through use of fixed rates, multiyear contracts, and financial products Alleviation of impact of rising prices and dispersion of procurement risk through purchase of raw materials from multiple suppliers and establishment of competitive landscape Prevention of procurement risk and curbing of costs by considering transition to alternative materials Conducting of procurement activities that respect the global environment and local communities
15 Quality	Potential threats to customers’ health posed by quality-related accidents arising from contingencies	Impairment of business results, company reputation, and brand value triggered by loss of customer confidence	Promotion of efforts to identify, examine, and address matters requiring special attention and tasks that may impact quality throughout each process, from product design to sales Advancement of quality assurance technology through introduction of AI and other leading technologies Development of latest analytical technologies for ensuring food safety Adoption of international approaches to quality and food safety management systems and acquisition of external certification
16 Other Risks	Financial risk (including exchange rate, interest rate, rating, and asset price fluctuation risks) Tax risk Litigation risk	Increased costs, increasingly severe competition, restrictions to business activities, and impact on operating results and financial condition	Utilization of various risk-hedging strategies

1.The Asahi Group Enterprise Risk Management

Asahi Group Enterprise Risk Management

Asahi Group ERM Structure

2.The Asahi Group’s Risk Appetite

Asahi Group Risk Appetite Framework

The Asahi Group Risk Appetite Statement

3.Risk Management