Business Risks

Major risks that could have a serious impact on investor decisions associated with the business operations and other activities of Marubeni Corporation and its consolidated subsidiaries are outlined below. The risks discussed, however, are not inclusive of the full range of possible risks faced in the broad range of activities engaged in by the Group. Any number of additional risks other than those discussed below could also impact business performance. Forward-looking statements with respect to the risks discussed below reflect the reasonable judgment of the Company’s management based on information available as of March 31, 2020.

1. Risk Management Policy

In conducting their diverse business activities, Marubeni and its consolidated subsidiaries manage risks through a multifaceted approach, encompassing micro and macro as well as quantitative and qualitative perspectives. For each of these approaches, Marubeni has in place a basic policy for risk management and internal rules and has established the organizations, management systems, and management methods to carry out those policies.
Incorporating a micro focus on individual risk, Marubeni and its consolidated subsidiaries make decisions on certain matters (e.g., investments, credit extensions) through a consensus-based decision-making process. Highly material investments are monitored more closely to facilitate early problem detection and corrective action. The Investment and Credit Committee, Corporate Management Committee and the Board of Directors periodically receive reports on the current status of investments. The strategic, growth and profit potential of these investments is examined, with necessary investments considered from a variety of multifaceted angles and the determination regarding whether to revise and move forward or withdraw made in accordance with the consensus-based decision-making process.
In an environment where exchange rates, resource prices and other financial and commodity market variables remain prone to substantial volatility, Marubeni practices integrated risk management from a macro view that spans the entire Group. Its integrated risk management encompasses all of its Group assets, classifying by exposure risk attributes, such as market risk, credit risk and investment risk, and quantifying the maximum risk amount using the VaR (Value at Risk) method that takes into account the diversification effect and the correlation coefficient. Marubeni then confirms that the exposure is within the range of its total equity, which represents its risk-bearing capacity.
With regard to risks that are difficult to quantify (unquantifiable risks), such as compliance risk, Marubeni has put in place systems to prevent such risks from manifesting themselves in the form of improved corporate governance and internal control systems and an upgraded compliance system.
However, Marubeni and its consolidated subsidiaries’ risk management framework may not be capable of fully dealing with all of the various risks that could arise in their wide-ranging business activities today or in the future. In such an event, Marubeni and its consolidated subsidiaries’ earnings performance and/or financial condition could be adversely affected.

2. Individual Risks

(1) Impact of Changes in the Global Economy and Industrial Structure on the Marubeni Group

The Company is a general trading company engaged in a wide range of business activities through bases in Japan and over 60 other countries. Examples include the production and procurement of primary commodities, as well as the manufacture and sale of finished goods, the provision of services and various commercial and investing activities in Japan and other countries and regions in many industrial fields.
Consequently, it is necessary for Marubeni to examine the impact on business activities and to respond to events that affect the global economy, as exemplified by U.S.-China trade friction, concerns over a slowdown in the Chinese economy, Brexit, Hong Kong demonstrations, the situation in the Middle East as well as natural disasters, such as typhoons, on business activities. The Company also works to develop new business models and revamp existing ones in response to changes in the industrial structure driven by technological innovation, such as AI, blockchain, and 5G services, and changes in and the diversification of values, including sustainability and decarbonization. A global economic downturn or slowdown or failure to adequately adapt to changes in the industrial structure could adversely affect the Company and its consolidated subsidiaries’ operating activities, business results and/or financial condition.

(2) Credit Risks Regarding Business Partners

Marubeni and its consolidated subsidiaries extend credit to business partners in the form of accounts receivable, advances, loans, guarantees, and other means. In addition, as a part of its sales activities, the Group concludes merchandise supply, subcontracting, operational outsourcing, and other types of contracts with business partners. The incurrence of credit risk due to the inability of business partners to fulfill their credit obligations or a breach of contract by these business partners could adversely affect the Group’s business results and financial condition.
To prevent credit risks from materializing, the Group sets credit limits, which represent the maximum limit of credit provided to any one customer, while carefully ascertaining the customer’s credit standing, the profit margin of the transaction, strategic consistency and other factors. Operating within the range of that credit limit then serves as the basis of the Company’s credit management.
In preparation for the incurrence of possible losses when credit risk becomes apparent, the Group establishes allowances for doubtful accounts based on the estimated amount of loss, an internal rating determined in accordance with the business partner’s credit standing, collateral value, and other set factors. In the event of such losses, however, the Company cannot guarantee that actual losses will not exceed these established allowances.

(3) Investment Risk

Marubeni and its consolidated subsidiaries, both independently and in collaboration with other companies, establish new companies and purchase existing enterprises in the course of their business operations. Most of these business investments require sizable amounts of capital. The Group may be unable to withdraw from such businesses in an optimal manner or time frame, in which case it would be obliged to commit additional capital.
In an effort to prevent the occurrence of risks associated with investments and other activities, Marubeni and its consolidated subsidiaries conduct extensive risk management, including checking the quantitative and qualitative aspects of new investments to determine whether the expected returns are commensurate with the risks involved. The checking process is based on investment standards established within the Company, such as internal rate of return (IRR), payback period, and PATRAC*1. Nevertheless, a decline in the value of these investments or the necessity of additional expenditures of capital could adversely affect the Group’s business results and financial condition.

1 PATRAC (Profit After Tax less Risk Asset Cost): A performance indicator developed by Marubeni to measure the extent to which returns exceed a minimum risk-adjusted return target. Calculated based on the following formula.
PATRAC = Profit after tax – Risk assets (= required shareholders’ equity) x 10%※2

2 Hurdle rate based on cost of capital

(4) Ability to Procure Funds and Funding Cost

Marubeni and its consolidated subsidiaries engage in fund procurement with an emphasis on maintaining an optimal mix of funding in line with the requirements of their respective asset portfolios and ensuring liquidity. However, significant disruptions in major global capital markets, shortages of cash flows from operating activities, declining profitability, failure in asset-liability management, or a sharp downgrade in the credit rating of the Group by ratings agencies could constrain fund procurement or lead to an increase in funding cost, which could adversely affect the Group’s business results and financial condition.

(5) Market Risks

Unless otherwise stated, in this section the amount of impact on the profit attributable to owners of the parent (hereinafter, profit) shown is the amount for the fiscal year ending March 31, 2021, calculated based on the Company’s business results for the fiscal year ended March 31, 2020.

  1. Fluctuations in the Prices of Goods and Merchandise

    Marubeni and its consolidated subsidiaries handle a variety of merchandise. With regard to certain merchandise, the Group enters into commodity futures transactions and/or forward transactions in order to mitigate the price fluctuation risk related to inventories, contracts, and scheduled contracts of such merchandise. However, price fluctuations especially in the commodities could adversely affect the Group’s business results and financial condition. Such commodities include, but are not limited to the following:

    - the grains, such as corn and wheat, and chicken handled by the Food Division
    - the chemicals, such as ethylene and propylene, handled by the Chemicals Division
    - the crude oil and gas handled by the Energy Division
    - the non-ferrous metals handled by the Metals & Mineral Resources Division
    - and the wood pulp handled by Forest Products Division

    Marubeni also utilizes vessels, such as dry bulk carriers and tankers, to transport these merchandises, and the market conditions for these vessels could also adversely affect the Group’s business results and financial condition. To address such price fluctuation risks in commodities trading and to avoid taking excessive risk exposure, Marubeni employs a position management framework to establish position limits on a commodity-by-commodity basis and to regularly monitor its compliance.
    In addition to the effects of these price fluctuations in commodities trading, Marubeni and its consolidated subsidiaries participate in energy and natural resource exploration and production (E&P) businesses and other manufacturing businesses. Fluctuations in the markets of the products sold through these activities could adversely affect the Group’s business results and financial condition.
    The effects of price fluctuations on the major products in the mineral resources and the oil and gas E&P businesses in which Marubeni and its consolidated subsidiaries participate are set out below.
    If the commodity price of crude oil changes by US$1 per barrel, the effect on profit for the year is estimated to be about JPY600 million per year. However, since profit for the year is affected by factors other than price fluctuations—including production/operation status, operating expenses, development expenses for drilling production wells, constructing production facilities, etc., exploration expenses, and abandonment expenses—there are cases in which it cannot be determined simply by the commodity price of crude oil.
    If the commodity price of copper fluctuates by US$100 per ton, the impact on profit for the year is estimated to be about JPY1 billion per year. However, since profit for the year is affected by factors other than price fluctuations—production/operational status, capital expenditure and operating expenditure associated with the maintenance of production and transportation facilities—there are cases in which it cannot be determined simply by the commodity price of copper.

  2. Market Liquidity (Liquidity Risk)

    Marubeni and its consolidated subsidiaries hold a variety of assets that are subject to market trading, including financial instruments. Financial market turmoil and other factors can cause the market liquidity of held assets to decline dramatically, a situation that could potentially trigger a precipitous drop in the value of held assets. Such an occurrence could adversely affect the Group’s business results and financial condition.

  3. Fluctuations in Foreign Currency Exchange Rates

    Marubeni and its consolidated subsidiaries conduct transactions in a variety of currencies and under a variety of terms. In order to mitigate the risk of exchange rate fluctuations associated with transactions, receivables, and liabilities denominated in foreign currencies, the Group enters into forward exchange contracts and other derivative transactions. Despite these measures, fluctuations in exchange rates could adversely affect the Group’s business results and financial condition. In addition, the proportion of profits and losses of overseas consolidated subsidiaries and equity-method affiliates and dividends received from overseas businesses in net income is relatively high. Most of these earnings are denominated in foreign currencies, and our reporting currency is yen. Therefore, exchange rate fluctuations will affect the business performance and financial position of the Company and its consolidated subsidiaries. If the Japanese yen changes by 1 yen against the U.S. dollar, the impact on profit for the year is estimated to be about JPY600 million per year.

  4. Fluctuations in Interest Rates

    Marubeni and its consolidated subsidiaries procure necessary business funds through borrowings from financial institutions, the issuance of corporate bonds, and other methods of procuring from capital markets. A large portion of floating rate liabilities is proportionate to operating assets that can counteract adverse impacts of interest rate fluctuations. However, interest rate fluctuation risks cannot be completely eliminated, and a certain degree of exposure remains.
    Among the liabilities procured for interest-insensitive assets, such as investment securities and property, plant and equipment, the portion at procured floating rates is categorized as unhedged through the asset-liability management practices of Marubeni and its consolidated subsidiaries. Monitoring market movements in interest rates, the Group utilizes interest rate swaps and other measures to mitigate the risk of interest rate fluctuations.
    There is no guarantee that the Group will be able to completely avoid interest rate risk, even after having implemented these management measures. Therefore, changes in market interest rates could adversely affect the Group’s business results and financial condition.

  5. Fluctuations in Values of Marketable Securities Subject to Market Volatility

    To strengthen business relationships and for other purposes, Marubeni and its consolidated subsidiaries invest in marketable securities that are subject to market volatility. Such securities held by the Group carry the risk of fluctuations in original value due to changes in fair value. Drops in the fair value of these securities could adversely affect the Group’s business results and financial condition.

  6. Risks Regarding Employees’ Retirement Benefits

    Marubeni and its consolidated subsidiaries’ pension assets include domestic and foreign stocks and bonds. In the management of those assets, the internally established Pension Asset Management Committee conducts regular monitoring and constantly strives to maximize pension assets within the allowable risk range. However, sluggish performance in the securities markets could decrease the value of those assets beyond expectations, increase retirement benefit costs or require the accumulation of additional pension assets. In addition, the current value of defined benefit obligations is calculated based on assumptions, including those for discount rates and wage hikes, but if the actual values differ from those assumptions, the amount of defined benefit obligations may change. Such events could adversely affect the Group’s business results and financial condition.

(6) Risks Associated with Long-lived Assets

Marubeni and its consolidated subsidiaries hold real estate, machinery and equipment, and other property, plant and equipment for sale and lease to third parties as well as for its own use. Moreover, to expand the business, the Group acquires shares and equity stakes in entities and is involved in the management of such entities. Such entities include those whose businesses require large amounts of capital expenditure, such as resource exploration and production businesses, and those in which the Company is involved through investment accounted for under the equity method (equity-method investment) without having a majority. Long-lived assets potentially have risks, including decline in asset value, irrecoverability of investment, and the incurring of an additional loss upon withdrawal.
Marubeni and its consolidated subsidiaries apply appropriate impairment accounting to such long-lived assets in a timely manner in accordance with IFRS. Nevertheless, a significant decline in asset value for reasons such as a future revision to the business plan or change of policy on the holding of such assets, may adversely affect the Group’s business results and financial condition.
Moreover, Marubeni and its consolidated subsidiaries report a considerable amount of intangible assets, including goodwill, on its consolidated statement of financial position, as a result of acquisitions. In accordance with IFRS, periodic amortization is not applied to goodwill and intangible assets with indefinite useful lives. The Group consider that such goodwill and intangible assets appropriately reflect their business value and future economic benefits, which are expected to be obtainable when synergy from business combination is achieved in the future. However, if it is judged that expected results are unobtainable because of a change in the business environment or competition, or if a higher discount rate is to be applied, an impairment loss may be incurred and may adversely affect the Group’s business results and financial condition.

〈Investment in Resource Development Interests〉

Concerning investment in resource development interests at the end of the fiscal year ended March 31, 2020, the financial exposure by product is as follows:

Product(s) Amount of exposure Main assets
Copper Approx. JPY220 billion Equity-method investments (Chile)
Oil and gas Approx. JPY120 billion Property, plant and equipment (the Gulf of Mexico, the U.S., the North Sea, the U.K., etc.)
Iron ore Approx. JPY120 billion Equity-method investments (Australia)
Coking coal Approx. JPY50 billion Equity-method investments/Property, plant and equipment (Australia)
LNG Approx. JPY50 billion Equity-method investments (Papua New Guinea, etc.)/other investments (Qatar, etc.)
Aluminum Approx. JPY30 billion Property, plant and equipment (Canada, Australia)
Resource investment total Approx. JPY600 billion

Note: As they are displayed as approximate numbers, the total values may not match.

With regard to investments in the oil and gas E&P businesses as well as the copper and iron ore businesses, which may have a significant impact on the business performance and financial condition of Marubeni and its consolidated subsidiaries, asset value fluctuations may be caused due to the factors listed below.

Oil and Gas E&P Businesses

The prices of the oil and natural gas produced and sold by the oil and gas E&P businesses in which the Group is involved are subject to change due to factors that the Group cannot control, including but not limited to worldwide supply/demand imbalance or supply/demand imbalance in each region, economic fluctuations, inventory adjustments, foreign currency exchange rate fluctuations, the political and geopolitical situations in major oil-producing countries, and the impact of the spread of COVID-19.
Deposits, production output, operating expenses, development expenses for boring production wells, constructing production facilities, etc., exploration expenses, and expenses for mine closures, etc., and business plans that are based on assumptions of these items may be revised owing to product price fluctuations and technological and economic factors, as well as the policies of the partners leading the projects, the weather and the environment, procurement, financing, the impact of regulations by the authorities, etc.

Copper and Iron Ore Businesses

In the copper and iron ore businesses in which the Group is involved, the commodity prices, such as copper and iron ore prices, are subject to change due to factors that the Group cannot control, including but not limited to, worldwide supply/demand imbalance or supply/demand imbalance in each region, economic fluctuations, foreign currency exchange rate fluctuations, geopolitical situations, and the impact of the spread of COVID-19. The long-lived assets of the copper business in which the Group is involved consist mainly of equity-method investments (in Los Pelambres Copper Mine, Centinela Copper Mine, and Antucoya Copper Mine in Chile). The long-lived assets of the iron ore business consist mainly of equity-method investments (in Roy Hill Iron Mine in Australia).
The Group evaluates these equity-method investments based on the business plans formulated by the Group, using price forecasts, taking into consideration data provided by third parties, market conditions, fundamentals, and other factors. However, in the event of fluctuations of product prices and production outputs, sharp increases in capital expenditure and operating expenditure associated with maintenance of production and transportation facilities, changes in the business environment, or an occurrence of operational problems attributable to infrastructure, such as electricity and water, the business plans may be revised.

〈Investment in Aircastle〉

Aircastle, an equity-method affiliated company of the Group, leases aircraft to airlines worldwide. Therefore, if air passenger demand deteriorates, if the solvency of the airlines deteriorates significantly due to sharp increases in fuel prices, foreign exchange rate fluctuations, etc., or they go bankrupt, or if lease rates decrease and the asset value of the aircraft owned by Aircastle significantly decreases, the business results and financial condition of Aircastle may be adversely affected.
Factors that could bring about a deterioration in air passenger demand include wars, terrorism, infectious diseases, natural disasters, and aircraft accidents. Moreover, airlines that are lessees of Aircastle are based in various countries worldwide and may be affected by changes in the local laws and regulations of the countries in which they are based or international laws and regulations and geopolitical risks such as economic sanctions. Regarding investment in Aircastle, the Group conducted an evaluation based on the business plan, assuming that growth of Aircastle will continue, supported by medium- to long-term growth of air passenger demand, while taking into consideration a temporary deterioration of financial performance due to the factors mentioned above. If aircraft demand remains sluggish for a long time owing to the spread of COVID-19, Aircastle’s profitability deteriorates due to intensifying competition and a decline in the aircraft value in line with such a situation, and Aircastle’s growth becomes slower than the Corporation’s assumption, the business plan may be revised.
The Group’s investment in Aircastle as of March 31, 2020 amounts to approximately JPY146.5 billion.

〈Projects that Include Contract Extension in the Business Plan〉

The business plans of the Company and its consolidated subsidiaries may be premised on the extension of contracts, such as long-term sales contracts that have already been concluded after confirming appropriate probability in consideration of the business environment at the time of formulation. However, since these assumptions are affected by a variety of factors, such as changes in the business environment, imbalances in supply and demand in the world or in regions, economic fluctuations, in reality it may not be possible to extend the contract, or the contract conditions after the extension may be worse than expected under the original business plan. As a result, a review of the business plan may cause a significant decline in asset value, which may adversely affect business results and the financial condition of the Company and its consolidated subsidiaries.

(7) Laws and Regulations

The businesses of Marubeni and its consolidated subsidiaries are subject to a broad range of laws and regulations both in Japan and other applicable countries. Covering a wide range of fields, these laws and regulations include: permits and licenses relating to business and investment; regulations pertaining to exports and imports, including national security regulations; tariffs and various tax laws; unfair trade regulations, including antitrust laws; money laundering regulations; anti-corruption and bribery laws; and environmental protection laws. Examples of the main permits and licenses relating to business and investment in Japan include: the Act against Unjustifiable Premiums and Misleading Representation in the Lifestyle Division; the Building Lots and Buildings Transaction Business Act and the Telecommunications Business Act in the ICT and Real Estate Business Division; the Food Sanitation Act and the Act on Safety Assurance and Quality Improvement of Feeds in the Food Division; the Poisonous and Deleterious Substances Control Law in the Chemicals Division; the Electricity Business Act in the Power Business Division; the Oil Stockpiling Act in the Energy Division; the Civil Aeronautics Law and Marine Transportation Act in the Aerospace & Ship Division; and Act on Investment Trusts and Investment Corporations in the Finance & Leasing Business Division. The same or similar laws and regulations exist in other countries.
The Company regards compliance as not only compliance with laws and regulations, but also maintaining high ethical standards as a corporate citizen, meeting the expectations of all stakeholders, and fulfilling its social responsibility. The Company has established a Compliance Committee under the direct control of the President and CEO to implement compliance, including compliance with laws and regulations.
However, depending on the country or region in which the Company or a consolidated subsidiary is operating, there are instances in which the legal system might not be fully functioning, and thus unanticipated changes in laws, regulations, and interpretations, the inconsistent application/interpretation of laws and regulations by regulatory authorities and judicial institutions or unilateral changes in their operation may occur. The businesses (including those based on completely new business models) conducted by the Company and its consolidated subsidiaries may also include business fields for which laws and regulations have not been adequately established. Although the Company and its consolidated subsidiaries thoroughly implement compliance risk management based on a risk-based approach, the possibility remains that compliance violations will occur due to an extremely wide range of business activities they conduct, and the compliance burden placed on them may increase. If a situation of this nature were to arise, punitive measures, including the interruption of operations, may be applied, which could lower the Company’s credibility and adversely affect the Group’s business results and financial condition.

〈Tax System/Tax Risks〉

Since Marubeni and its consolidated subsidiaries are expanding a variety of business activities globally, they are obligated to pay taxes in Japan and other countries. Therefore, if taxation by the tax authorities of each country is strengthened and rule changes, such as the expansion of the tax base and to tax rates, are imposed, the amount of tax payable by the Company and its consolidated subsidiaries may increase.
The Company and its consolidated subsidiaries file appropriate tax returns in accordance with the tax laws of each country, but unanticipated taxation may occur due to differences in interpretation with the authorities of each country. If a taxation problem occurs, we will take measures, such as appointing an external expert to solve the problem, but the Company is unable to completely eliminate the possibility of additional taxation. In such an event, Marubeni and its consolidated subsidiaries’ earnings performance and/or financial condition could be adversely affected.

(8) Significant Lawsuits

In the course of business activities in Japan and overseas, the Group may be a party to litigation, disputes, and other legal proceedings (collectively, “Lawsuits”). When the Group is a party to Lawsuits, predicting the outcome is impossible given the inherent uncertainty of Lawsuits. Lawsuits may adversely affect the Group’s business results and financial condition of the Group.
The Sugar Group, comprised of a group of Indonesian companies, filed a lawsuit against the Corporation, and the Supreme Court of Indonesia (“Supreme Court”) ruled in favor of the Corporation in 2011 (“Previous Case”). However, Sugar Group filed another series of lawsuits against the Corporation in which substantially the same claims as those in the Previous Case were made (“South Jakarta Case” and “Gunung Sugih Case”). The Supreme Court ruled against the Corporation in the South Jakarta Case and the Gunung Sugih Case and the decisions by the Supreme Court are formally binding on the Corporation. However, the Corporation filed applications for judicial review before the Supreme Court concerning the South Jakarta Case and the Gunung Sugih Case and the Corporation is still pursuing these applications. Separately, the Corporation filed a lawsuit against Sugar Group to seek damages for, among other matters, reputational damages suffered by the Corporation caused by Sugar Group’s torts (“New Case”). In response to the Corporation’s claims in the New Case, Sugar Group filed a counterclaim against the Corporation seeking damages on the grounds that the Corporation’s filing of the New Case allegedly constitutes a tort against Sugar Group (“Counterclaim”). The New Case is pending before the Central Jakarta District Court. Depending on developments in the South Jakarta Case and the Gunung Sugih Case (where the Supreme Court ruled against the Corporation) and the Counterclaim (which is pending before the Central Jakarta District Court) and judicial procedure, the Corporation might be obliged to pay damages based on the rulings against the Corporation, interest, and court costs (in whole or in part) and suffer losses which may adversely affect the Corporation’s business results and financial condition. (Note)

Note: The South Jakarta Case’s defendants include Marubeni Europe PLC. Thus, the lawsuit may adversely affect Marubeni Europe’s business results and financial condition.

(9) Environmental Risk

Marubeni and its consolidated subsidiaries conduct business activities globally across a broad range of industries. In the event that environmental pollution, such as of the air, soil or water, arises as a result of these activities, this could result in business stoppage, pollution remediation expenses, and legal fees in response to litigation by local residents. In addition, the Group’s social reputation could be damaged. In addition to having introduced an environmental management system in the year ended March 31, 2000, to cope with such environmental risks, the Company is working to assess the potential environmental burden and reduce environmental risk by conducting on-site inspections and document examinations at its consolidated subsidiaries and suppliers. In the event, however, that some form of environmental impact occurs, it could adversely affect the Group’s business results and financial condition.

(10) Risks from Natural and Other Disasters

If a natural disaster—such as an earthquake, tsunami, excessive rainfall or a typhoon—were to occur, or were there to be an outbreak of an infectious disease, such as a new strain of influenza, in a country or region where the Company or a consolidated subsidiary is developing business activities, these events could cause injuries to employees and damage to and the loss of the Group’s offices, facilities, and systems. These effects and disruption to public infrastructure, such as transport, telecommunications, water, gas, and electricity, would inhibit the normal business activities of Marubeni and its consolidated subsidiaries.
While every effort has been made to implement appropriate countermeasures, such as the formulation of business continuity plans, earthquake countermeasures, fire prevention drills, and the stockpiling of the necessary materiel, the potential for damage from and the impact of natural disasters cannot be completely mitigated. Consequently, there remains the possibility that such disasters could adversely affect the Group’s business results and financial condition.

(11) Climate-related Risk

The Company and its consolidated subsidiaries engage in sales activities related to a wide range of global industrial fields. If physical risks were to arise, such as natural disasters and extreme weather of increased severity, changes in precipitation and weather patterns, rising mean temperatures and rising sea levels due to climate change, these could adversely affect the Group’s business results and financial condition. For example, crop failures due to changes in climate patterns and the paralysis of logistics functions due to extreme weather conditions could bring about a deterioration in earnings in the grain origination and agri-input businesses.
In addition, the transition to a decarbonized society carries with it the risk of greenhouse gas emission regulations, such as the introduction and strengthening of a carbon tax, and technological improvements or rapid development of renewable energy technologies. There is a possibility that this shift could adversely affect the business performance and financial condition of the Company and its consolidated subsidiaries, especially those engaged in fossil fuel-related business. The likelihood of these climate-related risks is largely dependent on the status of efforts to prevent climate change under the Paris Agreement.
Following the establishment of the Sustainability Management Committee under the direct control of the president, the Company is working to reduce the climaterelated risk. Among a host of initiatives, we have established business policies. This includes, as a general principle, no longer entering into any new coal-fired power generation businesses and cutting our coal-fired power net generation capacity as of March 31, 2019 in half by 2030.
However, if these efforts do not succeed, or if climate change progresses at a speed or scale that exceeds expectations, it could adversely affect the performance and financial condition of the Company and its consolidated subsidiaries.

(12) Country Risks

As they conduct sales activities globally, the Company and its consolidated subsidiaries are exposed to a variety of country risks, such as changes in the political situation in the region/country concerned, the deterioration of social conditions, including terrorism/violent groups, changes in the economic environment, changes in the legal systems and policies related to sales activities as well as natural disasters. A deteriorating operating environment in these markets or regions could adversely affect the Group’s business results and financial condition.
Therefore, the Company assesses and classifies those countries in which operations are conducted according to their level of risk and has established country risk management criteria.
Under these criteria, the Company defines the policy for each country classification or country, quantifies the risk exposure for each country, and conducts management to prevent exposure concentration in a specific country classification or country.
In addition, when considering new investment projects, we have set investment criteria that take into consideration whether an appropriate risk-reward ratio will be obtained in accordance with the country classification or country risk of each country.
The Company also makes every effort to take appropriate risk hedging measures, such as taking out trade insurance, investment insurance or letter of guarantee via third parties, depending on the nature of the project.
The main exposures to country risk* as of March 31, 2020, are as follows:

Of the assets held by Marubeni and its consolidated subsidiaries, the total amount of long-lived assets, such as long-term credit, fixed assets, and investments.
Extracted countries with exposure of JPY100 billion or more.

U.S. JPY846.6 billion
Chile JPY259.2 billion
Australia JPY226.7 billion
Indonesia JPY167.4 billion
Singapore JPY136.7 billion
U.K. JPY101.4 billion
U.S. JPY846.6 billion
Chile JPY259.2 billion
Australia JPY226.7 billion
Indonesia JPY167.4 billion
Singapore JPY136.7 billion
U.K. JPY101.4 billion

(13) Risks Related to Information Systems and Information Security

The Company and its consolidated subsidiaries recognize as matters of priority the proper management of information assets and the ensuring of a high level of information security. Maintaining the relevant regulations, the Company conducts educational and awareness activities for its officers and employees while implementing security inspection activities. The Company is also working on measures to counter security risks by monitoring networks, including the Group.
It is, however, impossible to completely eliminate all possibility of, for example, unauthorized access from outside, the leakage of confidential/personal information due to computer virus intrusion, or IT service interruptions due to equipment/communication system malfunctions. In any one of these events, Marubeni and its consolidated subsidiaries’ earnings performance and/or financial condition could be adversely affected.

(14) Risk from Significant Accounting Policies and Estimates

The Company’s consolidated financial statements have been prepared in accordance with IFRS issued by the International Accounting Standards Board. Preparation of the consolidated financial statements requires management to make accounting estimates and assumptions, as necessary that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the end of the reporting period as well as the reported amounts of revenues and expenses for the reporting period. Actual results could differ from those estimates and assumptions due to their inherent uncertainty. Accounting estimates and assumptions that could significantly affect the consolidated financial statements are as follows:

- Write-down of inventory assets
- Impairment of property, plant and equipment
- Impairment loss on intangible assets
- Impairment loss on investments in associates and joint ventures
- Recoverability of deferred tax assets
- Defined benefit obligation
- Provisions
- Valuation of financial instruments
- Contingent liabilities

The management of the Company considers these estimates to be reasonable, but in the event of, for example, an unexpected change, they could have a material impact on its consolidated financial statements.

3. Medium-Term Management Strategy

The Company and its consolidated subsidiaries began the three-year Medium-Term Management Strategy GC2021 in the year ended March 31, 2020, but having made the restructuring of the financial foundation damaged by the deficit recorded in the previous fiscal year the top priority issue, the quantitative targets have been revised.
Formulated on the basis of certain economic conditions, industrial trends and various other premises, assumptions and forecasts that were considered appropriate at the time of formulation, these quantitative goals may not be achieved due to changes in the business environment, an occurrence of an above-mentioned individual risk, and various other factors.