Risk Management

In order to achieve the goal of sustainable growth set forth by the artience Group (hereinafter referred to as the “Group,”) we believe that we must respond appropriately to the various risks surrounding the Group and operate the organization in a stable manner as we carry out our business activities. To earn trust as a corporate member of society by stabilizing our earnings through effectively controlling unforeseen damages and losses caused by risks that occur in various aspects of our business activities at the lowest possible cost, while preventing losses suffered by society — we have established this Basic Policy on Risk Management (hereinafter referred to as this “Basic Policy,”) and are working to implement appropriate risk management.

1. Scope of application
   This Basic Policy applies to all companies and organizations that make up the Group. In addition, all officers, corporate advisors, employees, contract employees, and part-time employees of the Group, as well as temporary dispatch workers and all other persons engaged in the Group’s business operations (hereinafter referred to collectively as “officers and employees”) are obligated to comply with this Basic Policy.
2. Respecting the laws and internationally recognized standards
   The Group believes that compliance with laws and regulations and respect for international norms are the starting points for risk management, and acts in accordance with the laws, regulations, and international codes of conduct in the countries and regions in which it operates. In addition, the Group firmly maintains the philosophy and spirit instilled in the artience Group Code of Ethical Conduct, and its internal rules and policies, etc.; provided, however, that if a part of this Basic Policy cannot be applied due to local laws and regulations, the Group will comply with local laws and regulations while pursuing ways to respect international codes of conduct to the maximum extent.
3. Establishing and operating risk management system
   The Group has established a Group risk management system with the Group Management Committee — which is the Group’s consulting and decision-making body, equivalent to the Board of Directors — as the highest decision-making body, and engages in risk management activities for Group-wide risks. At the same time, with regard to latent risks in the day-to-day operations of individual departments and organizations, each department and organization will operate a system aimed at preventing risks and mitigating damage when risks do occur, and work to share risk information throughout the Company.
4. Normal and emergency responses
   The Group recognizes that activities during normal times to prevent risks are an important part of risk management, and works to prevent risks by incorporating appropriate crisis elimination functions into the risk management system. At the same time, the Group sets targets and formulates measures in advance for emergencies such as the occurrence of risks, and prepares for a smooth response to emergencies through education and training.
5. Risk analysis and evaluation
   The Group analyzes and evaluates known risks and works to understand the types of risks, the extent and breakdown of their impact on business activities, and the costs, etc., required to prevent them. The Group also works to enhance its ability to perceive new risks arising from changes in the social environment through education and awareness-raising activities, identify Group-wide risks that need to be addressed as a group, and share them throughout the Group.
6. Implementation of education and training
   The Group works to maintain and improve awareness of and approaches to risk management among officers and employees by providing appropriate education and training, to ensure that they are fully aware of risk management and comply with this Basic Policy and other relevant rules and regulations.
7. Revision, abolition and management
   Decisions regarding the revision or abolition of this Basic Policy shall be made by the Board of Directors of artience Co., Ltd.
   The department in charge of the revision and abolition of this Basic Policy shall be the department that oversees the risk management activities of artience Co., Ltd.

Established on November 1, 2004
Revised on January 1, 2024 (Resolved at Board of Directors on December 8, 2023)

Based on the “artience Group Philosophy System,” which consists of the Corporate Philosophy, the Brand Promise, and the Our Principles, the Company conducts its business activities in accordance with the “artience Group Sustainability Charter” and its related policies, and the “artience Group Code of Ethical Conduct,” to contribute to the creation of a sustainable society through its business activities and achieve its own sustainable growth.
The Company recognizes that the establishment of a system necessary to ensure the appropriateness of business operations (hereinafter referred to as the “internal control system”) is a process necessary for sound corporate continuity and the building of social trust, and that it should be actively utilized to achieve management and business goals. The Company has established the following internal control system and modify it in response to changes in the business environment, to ensure that the Company’s management is in the best interests of its shareholders and other stakeholders.

1. Systems to ensure that Directors and employees perform their duties in compliance with the law and the Company’s Articles of Incorporation
   The Company has established the Group Philosophy System that describes the ideal image the Group should aspire to and the basic ideas and actions required of the Group’s officers and employees, and the Code of Ethical Conduct that describes the rules to be observed by all officers and employees as members of the Group, and will disseminate them to all officers and employees as part of its efforts to instill awareness of the Group’s corporate ethics and compliance.
   As a good corporate citizen, the Company aims to be part of a corporate group that is trusted by society based on the Sustainability Charter, which clearly defines the Group’s stance on corporate social responsibility and contributions to improving the sustainability of society.
   The Company has established the Sustainability Committee, which is responsible for driving Group-wide sustainability activities under the supervision of the Representative Director. Under the Sustainability Committee, the Company has established the Risk Management Subcommittee, the Compliance Subcommittee, and the ESG Promotion Subcommittee. The Compliance Subcommittee plays a central role in ensuring compliance management. In addition, through the Compliance Office (internal and external whistleblowing hotline,) the Compliance Subcommittee enhances the system for early detection and correction of acts in violation of laws and regulations and the Code of Ethical Conduct.
   The Board of Directors confirms the legality of Directors’ execution of their duties and also makes decisions on important matters which impact the Company and the whole Group in accordance with laws and regulations and the articles of incorporation. The Representative Director performs their duties on behalf of the Company as a whole, based on decisions made by the Board of Directors.
   The Audit and Supervisory Committee, where a majority of members are Independent Outside Directors, audits the legality and appropriateness of Directors’ execution of their duties and reports the results obtained through its audit activities to the Board of Directors in a timely and appropriate manner. Meanwhile, in response to requests from Audit and Supervisory Committee Members selected by the Audit and Supervisory Committee (hereinafter referred to as “Selected Audit and Supervisory Committee Members,”) Directors report to the Audit and Supervisory Committee on the status of execution of their duties.
   The Group’s Internal Audit Department reports directly to the Representative Directors, and audits operations within the Company to ensure they are being carried out in compliance with laws and regulations and the articles of incorporation and in an appropriate manner and that the internal control system is working effectively. In addition to reporting audit results to the Representative Director and the Director in charge of internal control, the department also reports to and works in cooperation with the Audit and Supervisory Committee.
2. Systems for the storage and management of information relating to the performance of duties by Directors
   The Company stores and manages information relating to the performance of duties by Directors in an appropriate manner in accordance with the law, and the Company’s Articles of Incorporation, Board of Directors Regulations and Information Security Regulations.
   Directors and Audit and Supervisory Committee Members are able access the relevant information as and when necessary.
3. Crisis management regulations and other systems relating to losses
   Based on a system presided over by the Officer in charge of Risk Management, in accordance with Risk Management Regulations in line with the artience Group Code of Ethical Conduct, the Company identifies Group-wide risks and operates a risk management system designed to implement risk countermeasures, in order to maintain sound corporate activities and earn public trust, by the Risk Management Subcommittee.
   In an effort to raise awareness of risk management, the Company incorporates risks and issues facing individual divisions and Group companies into its annual plans and employs management techniques that are built into its evaluation standards. The Company is also focused on preventing risks at all times, by having companywide risk countermeasures established and implemented by the Risk Management Subcommittee and the division in charge.
   In case of an emergency, there is an emergency contact system in place whereby individual facilities immediately contact the Representative Director if they detect a risk. If the apparent risk could have a serious impact on the Company’s business, there is a business continuity system in place to immediately respond to the relevant emergency, by setting up an emergency task force for instance.
4. Systems to ensure that Directors perform their duties efficiently
   To ensure that Directors perform their duties efficiently, the Company holds additional meetings of the Board of Directors as and when necessary, as well as regular monthly board meetings, with the aim of speeding up management decisions and running the business efficiently.
   The Company also holds regular monthly meetings attended by Executive Directors and Operating Officers, as a means of discussing and making decision regarding Group management issues and business strategy. Meetings enable management issues and strategies to be shared, in an effort to efficiently achieve management and business targets. Such meetings are also attended by Selected Audit and Supervisory Committee Members, who provide the necessary input from an auditing perspective, thereby strengthening oversight with regard to the performance of duties by Directors.
   The Board of Directors may delegate certain important business execution decisions to Directors who execute business in accordance with laws and regulations, the articles of incorporation, and the Board of Directors Regulations, for the purpose of increasing the flexibility of business execution.
5. Systems to ensure that operations are carried out appropriately as a corporate group consisting of the Company and its subsidiaries
   The Company strives to maximize the corporate value of the entire Group, by sharing the artience Group Philosophy System, and making the most of management resources within the Group.
   The Company has set out Affiliate Management Regulations to ensure that Group management is implemented appropriately, and requires Group companies to report on the performance of important matters in accordance with the relevant regulations, whilst still respecting the autonomy of individual Group companies. This ensures appropriate Group management, underpinned by involvement from the Company.
   In addition to applying the risk management system and emergency measures outlined in the above section (3) to Group companies, the Company holds regular Legal Committee meetings for selected Group company Directors, and shares details of legal risks affecting Group management, in an effort to ensure that the Group is being run in an appropriate manner. Group companies hold regular meetings attended by Directors, amongst others, and work to achieve their management and business targets efficiently. They also report to the Company on a regular basis.
   The Audit and Supervisory Board Members of each Group company shall audit the legality and appropriateness of Directors’ execution of duties at each company and report the results to the Board of Directors of each company and the Company’s Audit and Supervisory Committee.
   The scope of the audits conducted by the Internal Audit Department in the above section (1) shall include each Group company.
   By way of systems to ensure the reliability of financial reports, the Company consults its accounting auditor as and when necessary, based on an organizational structure headed by the Representative Director. It also establishes and operates effective internal control systems in accordance with standards for evaluating and auditing internal controls in relation to financial reports, published by the Business Accounting Council, and in line with the basic internal control framework set out in the relevant practice standards. In addition, the Company will develop a mechanism collecting information from the Group companies and sharing it with them, raise awareness of proper operational procedures and implement the appropriate internal audits of operation bases which were not identified as important bases on the basis of sales, when appropriate, taking into account the risks peculiar to them.
6. Matters relating to employees in the event that the Audit and Supervisory Committee requires the assignment of employees to assist with its duties
   If the Audit and Supervisory Committee requires the assignment of employees to assist with its duties, the Company consults the Audit and Supervisory Committee and assigns employees to assist with the Audit and Supervisory Committee’s duties. The Company also sets up information sharing meetings between the Audit and Supervisory Committee and the Internal Audit Department, in order to strengthen systems to enable them to implement audits in conjunction with one another, and works to improve internal auditing capabilities in order to strengthen the auditing capabilities of the Audit and Supervisory Committee.
7. Matters relating to the independence of employees assisting the Audit and Supervisory Committee with its duties from Directors (excluding Directors who are members of the Audit and Supervisory Committee,) and ensuring that instructions issued to such employees are effective
   In the event that employees are assigned to assist with the Audit and Supervisory Committee’s duties as outlined in the above section (6), they will be appointed and transferred with the agreement of the Audit and Supervisory Committee, which will then be responsible for issuing instructions to and evaluating the relevant employees.
8. Systems for Directors and employees to report to the Audit and Supervisory Committee; systems for Directors, Audit and Supervisory Board Members and employees at the Company’s group companies, and parties in receipt of reports from such, to report to the Audit and Supervisory Committee; systems for other parties to report to the Audit and Supervisory Committee; and systems to ensure that reporting parties are not disadvantaged
   The Company’s Directors and Operating Officers report on the performance of operations under their supervision at important meetings attended by Audit and Supervisory Committee Members, including meetings of the Board of Directors.
   Directors, Audit and Supervisory Board Members, Operating Officers and employees working for the Company or any Group company are required to report the following facts to the Audit and Supervisory Committee immediately, in accordance with Risk Management Regulations and other applicable regulations.
   • Important facts relating to compliance
   • Facts that will cause, or could potentially cause, serious damage to the company
   • Any other facts that are required to be reported based on consultation with the Audit and Supervisory Committee
   The utmost care is taken to protect and maintain the confidentiality of reporting parties, in accordance with Compliance Office Regulations.
   In addition to requiring that Directors working for the Company or any Group company report the above facts to the Audit and Supervisory Committee, Selected Audit and Supervisory Committee Members also attend various meetings essential to auditing, and have access to information liable to have a serious impact on business operations, including approval documents.
   Directors, Operating Officers and employees of the Company and each Group company are required to report on the status of company operations and property if instructed to do so by Selected Audit and Supervisory Committee Members.
9. Matters relating to procedures for advance payment or reimbursement of expenses incurred by Audit and Supervisory Committee Members in performing their duties (only expenses related to performance of duties of Audit and Supervisory Committee), and policies for processing other expenses or debts arising from the performance of such duties
   If an Audit and Supervisory Committee Member claims for expenses incurred from auditing activities, the claim will be processed immediately. If incurring emergency auditing expenses or new research expenses for expert services, in addition to regular auditing expenses, the Audit and Supervisory Committee Member will notify the relevant officer in advance.
10. Other systems to ensure that Audit and Supervisory Committee Members conduct audits effectively
    The Company continues to improve systems so that Audit and Supervisory Committee Members can conduct audits effectively, while exchange opinions with Representative Directors and other Directors regularly regarding management issues and other important issues affecting business operations.
    The Audit and Supervisory Committee receives reports on planned internal audits conducted by the Internal Audit Department and regularly exchanges opinions with the Audit and Supervisory Board Members of each Group company and the accounting auditor, to ensure that audits are conducted by Audit and Supervisory Committee Members efficiently and effectively.
11. Systems aimed at combating antisocial forces
    The Company is resolute in its rejection of antisocial forces posing a threat to the order or safety of people’s everyday lives, as specified in the artience Group Code of Ethical Conduct and the Regulations for Dealing with Antisocial Forces. The Company will not respond to any unreasonable or illegal demands, and will not have any relationship with antisocial forces, trading or otherwise. The Company also coordinates with external specialist organizations to gather and manage information relating to antisocial forces.

Established on May 15, 2006 (resolved at the Board of Directors on May 15, 2006)
Revised on January 1, 2024 (resolved at the Board of Directors on December 8, 2023)

• (Emergency response) Develop response plans and systems in the event of an emergency situation that may affect the entire group.
• (Prevention of risk manifestation, loss reduction/relocation measures) Identify and extract existing risks that may affect the entire group, and confirm and disseminate countermeasures.
• (Awareness activities) Promote improved ability to perceive new risks.