Business Risks

The following are the main risks that the management recognizes that have the potential to significantly influence the financial position, business performance and cash flows of the Company and the consolidated subsidiaries. From these main risks the Company has selected risks requiring particular attention during the fiscal year ending March 31, 2024 taking into consideration factors such as the magnitude of the potential impact on its businesses and the external environment.
Matters concerning the future and the recognition of risks in the text are as determined by the Group as of the end of this fiscal year. The following, however, does not include all risks. Risks that are unpredictable or deemed insignificant at this point in time may impact on businesses in the future.

(Major Risks)

Risk Category Definition Main Risk Items
(A) Investment risk Risks related to individual investments (real estate investments, strategic investments (M&A), etc.) 1) Risks associated with real estate investment
2) Risks associated with strategic investment (M&A) and new businesses
(B) External risk Risks related to external factors influencing business 3) Risks associated with market changes
4) Risks generated by changes in economic conditions
5) Risks generated by changes in political/social conditions/systems (law, tax systems, accounting, others)
6) Risks due to lagging behind in innovation and changes in the structure of society related to the business
(C) Disaster risk Risks generated by disasters that have a large impact on customers and business continuity 7) Risks related to disasters (earthquakes, typhoons, floods, tsunamis, volcanic eruptions, major fires, epidemics of infectious disease epidemics, etc.) that have a major impact on customers and business continuity
(D) Internal risk Operational risks occurring at the Company and each group company 8) Risks related to the violation of laws and ordinances
9) Risks related to quality defects
10) Risks related to occurrence of information system crisis
11) Risks from inadequate responses to matters related to human resources
12) Risks related to occurrence of fraud and negligence

(Risks requiring particular attention)

(A) Investment risk • Risk of inability to secure the expected business volume and making it difficult to secure the expected business volume and achieve the profit growth projected in the Mid- to Long-term Business Plan due to intensifying competition for land acquisition, etc.
• Risk that the Company will not earn the expected profits due to an increase in construction expenses caused by soaring materials prices, delays in construction periods, soaring energy procurement costs, etc.
• Risk of profitability deterioration and delays in anticipated project schedule due to changes in economic conditions regarding projects with long-term project timeframes and large investment budgets, such as redevelopment projects
(B) External risk • Risks arising from the impacts of prices for housing sales, property sales, as well as sale prices of asset replacement properties, due to changes in Japan’s real estate market and financial conditions
• Risk arising from deterioration in profitability and delay in profit recovery timing in overseas business due to deterioration in economies and real estate markets, deterioration in the financial condition of general contractors and JV partners, and other factors in countries overseas
• Risk of a reduced competitive advantage of the Company’s businesses due to delays in response to changes in lifestyles and values, response to accelerating advances in digital technology, and response to sustainability and human resources, etc.
(C) Disaster risk •Risk of inability to continue business due to increasingly severe natural disasters such as earthquakes, typhoons, and torrential rains
(D) Internal risk •Risk due to inadequate design and construction in the real estate development business
•Risk due to delay in preparing personnel systems to secure diverse human resources and enable human resources to continue playing an active role
•Risk due to information leak by cyberattack, impact on business continuity, and incurrence and expansion of damage, etc.
•Risk of violating laws and regulations and hindering the realization of smooth transactions with counterparties due to delays in strengthening the transaction system to realize the passing of appropriate price on to customers in light of rising material prices, energy costs, among other costs.

The details of each major risk item and main initiatives are as follows.

Risk item 1) Risk associated with real estate investment Risk Category (A) Investment risk
Risk details •Risk that the Group’s business performance, etc. may be affected as a result of delays in the timing of sales recording and deterioration of profitability due to unexpected discovery of soil pollution, delays in obtaining permits and licenses, occurrence of additional construction work, and increases in construction and energy expenses.
Main initiatives Decisions on the real estate investment/development business are made at the meetings such as the Management Committee or the Board of Directors of the Company or of group companies upon identifying, analyzing and evaluating risk in advance and considering risk taking or risk avoidance policies. Regarding the risk of an increase in construction expenses, the Company includes a certain amount of additional costs when acquiring land for development and carries out other measures.
Following the acquisition of the land for development, the department in charge of the business ascertains the risk of any schedule delay and the state of construction costs. Should an especially important event occur, after deliberation by the Management Committee or the Board of Directors of the Company or group companies when necessary, the department shall respond to the issues.
In addition, for businesses that are in progress and completed, the progress of each business is monitored, and the results are reviewed so that issues and trends, etc., for each business type are grasped and analyzed.
Risk item 2) Risk associated with strategic investment (M&A) and new businesses Risk Category (A) Investment risk
Risk details • Risk that the Group’s financial position and business performance, etc. may be affected if the Group fails to achieve profit growth or synergy expected by the target companies in which it invests in strategic investments (M&A).
• Risk that the Group’s financial position and business performance may be affected due to the inability to execute business according to original plans or achieve synergies with group companies in new businesses and investments in new asset types.
Main initiatives In executing strategic investment (M&A), factors such as the synergies with the Group’s existing businesses, and business plans, financial details and contract-related matters of targeted companies shall be carefully examined and considered and strategic investment (M&A) shall be implemented when it is determined that this will contribute to the Group’s business results in the future. In addition, after the M&A is executed, the Board of Directors or the Management Committee shall regularly monitor the status of the integration process between the target company and the Group, management issues, and response policies.
In considering new businesses, the Company carefully investigates and examines the synergies with the Group’s existing businesses as well as business plans. A new business is commenced when judgement is made that it will contribute to the business performance of the Group in the future. After entering a new business, its performance is regularly monitored, and if deemed necessary to make modifications or a re-start, it will put to deliberation by Management Committee or the Board of Directors of the Company or group companies.
Risk item 3) Risk associated with market changes Risk Category (B) External risk
Risk details • Risk that the Group’s financial position and business performance, etc. may be affected by trends of competitors, the emergence of innovative new entrants, changes in economic, political, and social conditions, and the emergence of geopolitical risks, and the occurrence of disasters, etc., which may lead to changes in the business environment and market conditions.
Main initiatives The Group regularly updates its awareness of the external environment of each business and works to ascertain impacts on business results, monitor the progress of business and improve precision.
When making investment decisions in the real estate investment/development business, our basic policy is to understand and forecast the current and future market conditions and confirm past market trends and curb to a certain extent the impact from changes in market conditions.
Moreover, we formulate an investment budget upon undertaking risk assessment to ensure a certain level of soundness regarding our financial position even if market conditions change rapidly.
Risk item 4) Risk caused by changes in economic conditions Risk Category (B) External risk
Risk details • Risk that the Group’s financial position and business performance, etc. may be affected by a decline in customers’ purchase appetite in the housing sales business, a decline in the rent level of office buildings, etc., and an increase in the vacancy rate due to domestic and overseas economic recessions.
• Risk that the Group’s financial position and business performance, etc. may be affected by an increase in the Group’s financing costs, a decline in customer desire to purchase in the housing sales business due to higher housing loan interest rates, resulting from a rise in market interest rates, and a decline in asset prices owing to a rise in cap rates.
• Risk that the Group’s financial position and business performance, etc. may be affected by fluctuations in the amounts of investment and collection translated into yen and fluctuations in assets and liabilities denominated in foreign currencies on the consolidated financial statements, due to fluctuations in exchange rates.
• Risk that the Group’s financial position and business performance, etc. may be affected by deterioration in the profitability of overseas businesses and delays in the timing of collecting profits due to deterioration in the financial condition of general contractors and JV partners in overseas countries, etc.
Main initiatives Regarding changes in economic conditions, the Group regularly updates its awareness of the external environment and works to ascertain impacts on business results.
In our funding through borrowings, we respond to the risk of rises in short-term interest rates by using mainly long-term and fixed-rate borrowings.
In the real estate investment and development business, we make investment decisions that limit the impact to a certain extent even in the event of a decline in asset prices due to a decline in rents and a rise in cap rates.
For foreign exchange fluctuation risk, we have established a foreign exchange hedging policy that considers the types of businesses we undertake overseas and we operate in accordance with this policy.
In addition, with regard to the status of general contractors and JV partners in overseas business, in addition to regular monitoring by the front line, we regularly confirm and deliberate on events that affect our business and their responses through the Overseas Business Risk Committee (the name has changed from the Overseas Business Monitoring Committee), etc., and deliberate at the Management Committee or the Board of Directors of the Company or group companies as necessary.
Risk item 5) Risk caused by changes in political/social conditions/ systems (law, tax system, accounting, others) Risk Category (B) External risk
Risk details • Risk that the Group’s financial position and business performance, etc. may be affected by rising construction and energy expenses, the occurrence of delays in business schedule, etc., due to disruptions in the foreign exchange market, energy market, and supply chain in the event of changes to the political and social situations, such as the emergence of geopolitical risks, such as Russia’s invasion of Ukraine.
• In overseas business, risk that the Group’s financial position and business performance, etc. may be affected due to obstacles to promote business in case there are changes in political and social situations that have been unexpected at the beginning of conducting business in each country, as there are risks specific to each country’s political and social situations.
• Risk that the Group’s financial position and business performance, etc. may be affected as a result of the occurrence of new obligations and expenses in case there are changes in various types of laws and regulations in Japan and overseas applicable to each of the Group’s businesses or other laws and regulations become applicable due to an expansion in the business scope in the future.
• Risk that the Group’s financial position and business performance, etc. may be affected as a result of increased costs for acquiring, holding, and selling assets, a decline in customer desire to purchase, a shift in corporate facility strategy, and revision of investment plans in the case of changes to various tax systems and accounting systems in Japan and overseas that have an impact on the real estate business.
Main initiatives We collect and analyze information on trends in political and social situations, various laws and regulations, tax systems and accounting systems in Japan and overseas from industry groups, external experts, business partners, and consider responses at each of the Company’s respective organizations on the “second line” and discuss those matters expected to have a significant impact at the Board of Directors or the Management Committee depending on the details.
In overseas business in particular, we seek the knowledge of external experts regarding the forecast of the future political and social situations as well as applicable laws, regulations and tax laws when starting a business overseas, and after starting a business we regularly confirm the state of changes to the political and social situations as well as important related laws and regulations that have an impact on business strategy, revenue and expenditures, and progress in countries where we do business through the Overseas Business Risk Committee, etc. In the case that there are any changes, discussions are carried out at the Board of Directors or the Management Committee upon evaluating the impact and discussing response policies.
Risk item 6) Risk from lagging behind innovation and changes in the social structure related to the business Risk Category (B) External risk
Risk details • Risk that the Group’s financial position and business performance, etc. may be affected by a decline in the competitive advantage of the Company’s products and services if there are delays in responding to changes in the social structure and changes in the industrial structure resulting from rapid technological innovation and the emergence of innovative new participants.
• Risk that difficulties in securing human resources due to the declining birthrate and aging population will limit the Company’s ability to develop products and services.
• Risk that the Group’s financial position and business performance, etc., may be affected by a decline in the competitive advantage of the Company’s products and services if there are delays in responding to changes in demands related to the customer environment, energy conservation and disaster prevention resulting from the implementation and strengthening of greenhouse gas reduction regulations, etc., and technologies related to high environmental performance and energy performance.
Main initiatives In the midst of a changing business environment, the Group has been creating new and highly unique value for society and customers by leveraging its strengths, such as real estate development capabilities based on the “market-in” concept and a commitment to quality in urban development and real estate-related services.
Drawing on these strengths, in order to respond to changes in social and industrial structure and the growing awareness of society and customers toward sustainability, we have established the DX & Innovation Management Dept. and the Sustainability Management Dept., which are responsible for the research and development of new business fields, planning, and promotion of innovation creation, digital strategies, as well as initiatives for sustainability, etc.
We have also established the “Business Idea Proposal System,” which allows employees of each Group company to propose new businesses, etc., beyond the boundaries of their daily work to promote the commercialization of new businesses and new products and services, with the DX & Innovation Management Dept. serving as the secretariat.
At the same time, through the Nomura Real Estate Group Awards, an internal award system, we are working to create a corporate culture that encourages the creation of value through innovation and to strengthen collaboration within the Group. In addition, through the provision of corporate venture capital, the Company is collaborating with the startups that it has taken stakes in, which possess innovative technologies and services, continuing to provide services that utilize these digital technologies.
Furthermore, in response to the difficulty of securing human resources, we are working to improve operational efficiency and conserve labor by utilizing digital technology.
Please refer to P.20 to P.27 of Annual Securities Report issued on June 23, 2023 (Japanese only) for the Group’s sustainability initiatives, including reducing greenhouse gases and improving the environmental and energy performance of the Company’s products and services.
Risk item 7) Risk caused by disasters (earthquakes, typhoons, floods, tsunamis, volcanic eruptions, major fires, epidemics of infectious diseases, etc.) that have a major impact on customers and business continuity Risk Category (C) Disaster risk
Risk details • Risk of loss of earnings, such as decreases in leasing revenue and operational revenue due to the suspension of operations or restrictions on facilities that the Group owns and operates and a decrease in income due to the loss of business opportunities caused by disasters, including large earthquakes, storms and flood damage, and infectious disease epidemics.
• Risk of delay of earnings caused by issues, such as changes in sales recording period due to the suspension of operations for housing sales and changes in the timing of sales recording/completion due to the extension of construction periods owing to such factors as suspension of construction by contractors caused by disasters, including large earthquakes, storms and flood damage, and infectious disease epidemics.
Main initiatives The Group recognizes that the frequency of disasters has increased, and this is an important social issue. Based on discussions with government and disaster preparedness experts, we are working to ensure the safety and security in the event a disaster occurs. We engage in disaster preparedness activities to ensure that, if a disaster occurs, its impact is minimized and the Group and its employees are able to continue business and their normal lives. We have formulated a business continuity action plan (BCP) in the event of a disaster.
In preparing for an earthquake, and storm and flood damage, under the BCP we have determined an emergency chain of command, assigned duties to ensure business continuity, and established a system to minimize the impact of disasters. Once per year we hold Disaster Task Force Establishment Drills to ensure the prescribed details are effective, ensuring the safety of executives and employees and establishing a chain of command system, so that we are prepared for restoring business after an emergency. Concerning infectious diseases, based on the Group’s response results to novel coronavirus infections (COVID-19), we have formulated a BCP for infectious diseases that summarizes responses according to the infection situation (establishment of a chain of command system, selection of core businesses for business continuity, formulation of common rules for infection prevention, etc.) from the time of infection confirmation to the spread of new infectious diseases in preparation for the emergence of new infectious diseases in the future. We have also formulated a BCP that stipulates preparations and initial responses to disasters not only in Japan but also overseas.
Regarding earthquakes, fires, storms, floods, and other sudden accidents, we have set up regulations for responses to torrential rains and flooding, formulated a disaster response manual, and created a disaster preparedness guidebook for distribution to residents, management associations, tenants, and facility users in the properties we own to ensure their safety and bring them peace of mind when a disaster occurs.
Risk item 8) Risk of violations of laws and ordinances Risk Category (D) Internal risk
Risk details • Risk that the business performance may be affected by violation of the Real Estate Brokerage Act, the Building Standards Act, the Financial Instruments and Exchange Act, Companies Act, Act on the Protection of Personal Information, Antimonopoly Act, Subcontract Act, and other related laws and regulations, resulting in loss of credibility and the imposition of administrative penalties and fines, etc.
Main initiatives The Group has formulated the Nomura Real Estate Group Code of Action for executives and employees to comply with laws and regulations and internal rules, and act with higher ethical standards, and it also has provided education on an ongoing basis.
For primary laws such as the Real Estate Brokerage Act, we formulate a business work flow specific to each law to ensure legal compliance, ensure a thorough awareness through training and on-the-job training (OJT), and implement regular voluntary inspections for the status of compliance. Concerning the Antimonopoly Act, etc., in order to realize an appropriate passing of price increases on to customers that takes into account increases in material prices, energy costs, etc., we are working to strengthen our trading system by formulating business rules according to the business characteristics and the scale of each Group company’s business, creating manuals, and conducting training. In addition, regarding the inappropriate entertainment of foreign public officials and other civil servants, the Company has established regulations, etc. The Company is implementing regular training for executives, employees and overseas local hires related to overseas businesses.
Risk item 9) Risk of quality defects Risk Category (D) Internal risk
Risk details • Risk that the business performance may be affected by the loss of trust, unexpected costs and delays in development plans and operation plans due to management deficiencies such as design and construction defects, etc. in the real estate development business or in the case of a management deficiency in the properties for leasing or under management.
Main initiatives In the real estate development business, to secure quality in design and construction upon placing an order for the design and construction work of a building with a third party who has a certain level of creditability and technical capabilities, the Group prescribed the Design and Construction Standards (structure, construction, equipment, and electrical), the Quality Manuals, etc. and ensure thorough compliance from the parties while also checking the state of construction and carrying out quality inspections as the ordering party (However, in joint ventures with other companies and redevelopment projects led by redevelopment associations, different methods may be adopted depending on the business form.) Regarding leased and managed properties, we will prepare business standard documents related to property management and safety and temporary construction guidelines for repair work as we undertake business. We will also provide property insurance for damages in the unlikely event of a deficiency or accident.
Risk item 10) Risk of occurrence of information system crisis Risk Category (D) Internal risk
Risk details • Risk that the Group’s business performance, etc. may be affected as a result of the delays in the Group’s sales activities and business processing and the loss of credibility, and the resulting decrease in sales and damage compensation costs in the unlikely case the Company’s information system cannot be used normally or in case personal information is leaked to the outside due to unexpected circumstances such as cyberattacks and unauthorized access.
Main initiatives In a situation where we are actively promoting DX initiatives to realize business transformation and sustainable growth using the Internet and cloud services, ensuring information security is becoming more critical than ever. We have installed security systems that block unauthorized access from the Internet, scan information terminals for viruses, and detect the behavior of malware, bots, and other intruders to prevent unauthorized transmission if they enter. In addition, alerts from these systems are monitored to ensure that the ICT environment is prepared for cyber-attacks and information leaks. Also, security checks are conducted prior to the use of cloud services to ensure that they are used safely.
The Company is also striving to comply with relevant laws and regulations for personal information and to ensure proper handling of this information. Moreover, with the aim of realizing organized management of information and maintaining and improving security levels within the Group, we have prescribed the Information Security Regulations and the Information Handling Guidelines, regularly provide information security enlightenment to our employees, protect the rights and interests of our customers and ensure the stable operation of an ICT environment within the Group.
In addition, the Company has cyber insurance in preparation for an unlikely accident such as an information leakage.
Risk item 11) Risk of inadequate response to matters related to human resources Risk Category (D) Internal risk
Risk details • Risk that long working hours damage the health of employees in the event that the working hours of Group employees are not properly ascertained.
• Risk that the Group’s business performance, etc. may be affected as a result of the outflow of the Group’s human resources, the loss of trust, and the imposition of fines in case we receive administrative sanctions from government authorities because our personnel system and its operation do not comply with labor standards and related laws and regulations.
• Risk that delays in the establishment of a labor environment that takes in a diverse range of human resources (employees that work short hours mainly due to childcare and nursing, sexual minorities, people with disabilities, seniors, foreign nationals and others) may result in the Group being unable to secure the necessary personnel, or the inability of secured personnel to continue working, leading to a decline in corporate competitiveness.
• In terms of personnel and labor management at overseas bases, risk of administrative sanctions by government authorities for introducing or operating a system that violates local labor laws and customs, risk of losing know-how due to the retirement of local employees, and risk that the health of employees will be damaged due to the lack of systems to provide appropriate support for living in a foreign country.
Main initiatives The Group prescribes working with vigor and achieving wellness as its action guideline. The Group aims to provide wellness management so that all its executives and employees can carry out their work energetically and in good physical and mental health, which leads to sustainable corporate growth.
Along with introducing various systems, including recommendations to take paid leave, the promotion of teleworking, and a program for taking time off or working shorter hours for childcare and nursing and to build a labor environment conducive for a diverse workforce, we are working to improve the level of understanding related to diversity among executives and employees through regular training sessions. In addition, some group companies, such as Nomura Real Estate Development, have partially implemented paid leave for male employees’ birth childcare leave and introduced an accumulated paid leave system.
In order to properly grasp working hours, we have introduced an attendance management system to manage it, and especially for long working hours, we regularly monitor the situation. Furthermore, the compliance of our personnel system and its operation is regularly verified by outside experts to prevent the emergence of risks.
Moreover, overseas there are local laws, cultures, and customs. Therefore, we utilize the knowledge of external experts to build personnel/labor systems, establish consultation desks for staff stationed overseas, and provide services to help the staffs find, and provide support for visits to, medical institutions.
The Group established the Wellness and D&I Management Committee, which is chaired by the President and Executive Officer (Group CEO), in order to integrally promote wellness, work-style reforms and the ensuring of diverse human resources, and the Wellness and D&I Management Sect. in the Group Human Resources Development Dept. as the dedicated organization for the promotion of diversity & inclusion. From this fiscal year, we have formulated and announced the Group’s D&I promotion policy and medium- and short-term promotion roadmap to determine the “D&I awareness development period” as Step 1 until the fiscal year ending March 2024, and set key goals of “(1) Achieving the target for taking annual paid leave and (2) Achieving the 100% rate of the childcare leave rate for male and female employees.”
Risk item 12) Risk of occurrence of fraud and negligence Risk Category (D) Internal risk
Risk details • Risk that the business performance may be affected as a result of the loss of credibility and the resulting decrease in sales and damage compensation costs due to fraud perpetuated by executives and employees, information leakage due to improper management, and operational negligence.
Main initiatives Group executives and employees comply with laws and regulations as well as with the internal rules, etc. established by each company of the Group. Furthermore, we have established the Nomura Real Estate Group Code of Ethics with the aim of acting in accordance with even higher ethical standards, and we continuously provide education and training sessions to executives and employees.
In addition, the Company has established a system to enhance the effectiveness of compliance activities in each workplace by assigning a compliance promotion officer to each department, office and branch of the Company and Group companies. Furthermore, with the “Nomura Real Estate Group Risk Helpline,” an internal whistleblowing system shared by all Group companies, the Company has set up internal and external contact points for reporting wrongdoing and seeking advice on how to proceed, and has developed and implemented systems based on the Whistleblower Protection Act.