Annual Report 2017｜Initiatives for Sustainable Growth

Table of Contents Message from the President Long-term Strategy At a Glance Initiatives for Financial Information Non-Automotive Business/Corporate History Sustainable Growth Information and Stock Information

Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Ever-Better Enriching Lives Cars of Communities Employees Corporate Governance Risk Management Compliance

Stable Base of Business

Initiatives for Sustainable Growth About Our Tree Icon Toyota Values

Toyota is implementing Visionary represents our stable base of business that Toyota strives to implement a positive cycle of making ever-better cars that exceed customer expecta- Management based on the Toyota Global supports these efforts, and the tree’s roots tions, enriching lives of communities, being rewarded with the smiles of customers and communities Vision. We use the image of a tree to sym- are the Toyota Values. and thus reinforcing its stable base of business. Through this cycle, Toyota aims to grow sustainably in bolize this approach. The fruits of the tree The tree icon in the upper right corner of are our contributions to making ever-better each page of this section shows the con- concert with society. cars and the enrichment we bring to the nection of the content presented to Even as the business environment transforms and new challenges arise, Toyota will leverage the qualities, lives of communities, the tree’s trunk Toyota’s Visionary Management. honed over time, that make it unique as it shifts to a longer term strategic perspective in order to maintain More details and enhance this positive cycle. By doing so, we will provide value to society in the forms of safety and Toyota Global Vision, p. 22 peace of mind, environmental sustainability and Waku-doki (excitement and exhilaration that wows you). Business The Value Toyota Creates Environment Elimination of Freedom of traffic accident mobilitym for everyone Changes Strategic Shifts casualtiess Safety and Individual desires/ Electriﬁ cation Societal demands Peace of Mind Lifestyle changes

Toyota Safety Sense (Collision Avoidance Support Package) Integrated Safety Environmental Management Concept problems Fruit Fruit Welcab Ever-Better Enriching Raising awareness of road safety and ecological driving Cars Lives of Urbanization Communities Personal mobility Information Automated driving Mobility Service Platform (MSPF) ITS Connect Trunk (road/car and car/car Ever-Better Cars communications) Human Support Enriching Lives of Robot Stable Base Communities of Business Environmental initiatives Supporting sports Technological innovation Environmental Passing down Toyota Production Sustainability expertise System (TPS) Waku-doki Intelligent (excitement and exhilaration technologies Vehicle that wows you) development Zero COCO2 emissiionns Roots Toyota Values Intelligence Recycling Renewable IoT The Five Main Principles of Toyoda energy MIRAI (FCV) Prius PHV Lexus Brininggingg The Guiding Principles at Toyota thehe eexccitement The Toyota Way Net popositsitiveve ofo carsc rs to societyy theth worldw Robotics Working toward in harmonony a hydrogeh society with naturere Motor sports FC buses NewNew wonwonder and exhilarex aration

20 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance Initiatives for Financial Information Non-Automotive Business/Corporate History Sustainable Growth Information and Stock Information

Stable Base of Business

Initiatives for Sustainable Growth Toyota Values

emissions to help meet the Paris Agreement* goal of sound relationships with stakeholders through open, ensure compliance, carry out social contribution Toyota’s Approach to Sustainable Growth keeping global warming below 2°C, but to have a net fair communication in order to contribute to the sus- activities and address environmental problems. positive impact on the environment. tainable development of society and the planet. As In April 2015, this framework was revised to Toyota has taken the initiative in contributing to the our businesses develop, our communications with emphasize corporate value enhancement, an * The Paris Agreement, reached in December 2015, was negotiated at sustainable development of society and the planet the 21st yearly session of the Conference of the Parties (COP 21) to stakeholders also broaden and deepen. By working approach that makes CSR an integral part of man- through all its business activities. Cars have provided the United Nations Framework Convention on Climate Change, held always hand-in-hand with stakeholders and growing agement. This change was aimed at integrating the in Paris. The agreement set the long-term goal of limiting global freedom of movement but have also had a wide together, Toyota consistently provides the three specialized CSR-focused discussions that had until warming to well below 2°C compared with pre-industrial levels and range of other social and environmental consequenc- calls for net zero anthropogenic greenhouse gas emissions to be forms of value listed above. then been confi ned to the CSR Committee into es. Toyota bears this in mind and listens closely to reached during the second half of the 21st century. broader discussions of overall management and WEB Stakeholder Engagement customers and communities as it seeks to achieve (Sustainability Data Book 2017, p. 74) business activities. To this end, the functions of the harmony between individuals, society and the global Toyota is also utilizing its strengths to help solve CSR Committee were transferred to the Corporate environment through monozukuri (manufacturing). global social problems in line with the United Nations Toyota’s Implementation Framework Planning Meeting and Corporate Governance Looking more closely at, for example, our environ- Sustainable Development Goals (SDGs), promulgat- Toyota’s implementation framework for sustainable Meeting. The Corporate Planning Meeting, under the mental efforts, we are implementing initiatives under ed in January 2016. In addition to addressing climate development includes the Corporate Planning Shareholders’ Meeting and Board of Directors, takes the Toyota Environmental Challenge 2050 as a top- change (in line with SDG 13), Toyota is working to Meeting and the Corporate Governance Meeting, a wide range of social issues into account when con- priority management issue. Specifi cally, we are work- reduce traffi c accident injuries and deaths (SDG 3) which carry out their respective activities from a long- sidering growth and business strategy. The ing to help resolve major global environmental issues, and to promote sustainable community building and term, Company-wide perspective. Corporate Governance Meeting serves to oversee including climate change, water scarcity, resource improved mobility (SDG 11). Furthermore, Toyota Toyota established a CSR Committee in October business operations and makes decisions regarding depletion and biodiversity degradation. As part of places value on all stakeholders in the management 2007 to coordinate and implement CSR activities. the governance framework under which such strate- this, we are aiming to not only achieve net zero CO2 of its businesses and strives to maintain and develop With guidance from this committee, Toyota works to gies are implemented.

Helping Solve Global Social Problems Together with Our Stakeholders Implementation Framework Local communities Global society Media National and local governments Shareholders’ Meeting

NPOs/NGOs Economic organizations International Board of Directors organizations Industry Waku-doki organizations Environmental (excitement and Academic Sustainability exhilaration that communities Safety and Peace of Mind wows you) Employees Research Corporate Planning Meeting Corporate Governance Meeting institutions Chairman: Chairman: Business Shareholders Executive Vice President Shigeki Terashi Executive Vice President Shigeki Terashi partners Customers Basic corporate policy aimed at con- Overall management of corporate tributing to sustainable development ethics, compliance and governance Sustainable growth strategies for Identiﬁ cation of and response to major corporate value enhancement risk management issues Social contribution and identiﬁ cation of Planning and implementation of CSR and response to environmental and activities other social issues

21 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance Initiatives for Financial Information Non-Automotive Business/Corporate History Sustainable Growth Information and Stock Information

Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Ever-Betetterer EnrichingEEnrEnric Lives Carss offC CCommunitiesCo Employees Corporate Governance Risk Management Compliance

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Corporate Philosophy Toyota Values

In all of its business activities, Toyota aims to contribute to the creation of a more afﬂ uent society and earn the trust of stakeholders as a good corporate citizen.

established in 2001, laying out values and business Respect for people entails respect for all our Company’s losses following the global economic The Guiding Principles at Toyota and practices that everyone working at Toyota around the stakeholders and working to achieve business suc- crisis of 2008 and the series of recalls in 2010. We Their Implementation world should embrace. The Toyota Way thus clearly cess by promoting the growth of employees. are implementing a positive cycle of making ever- articulates and facilitates the global sharing of values better cars that exceed customer expectations, The Five Main Principles of Toyoda have been and practices that had previously been passed down enriching lives of communities, being rewarded with Rewarded with a Smile by Exceeding Your passed down since Toyota’s founding as the core of only as implicit knowledge. the smiles of customers and communities and thus Expectations. its management. These principles embody the think- The Toyota Way’s main pillars are the concepts of reinforcing our stable base of business. By maintain- The Toyota Global Vision ing of the Toyota Group’s founder, Sakichi Toyoda. In continuous improvement and respect for people, ing and enhancing this cycle, we aim to continuously 1992, they were reorganized in light of changes in with the keywords of taking on challenges, Kaizen, The Toyota Global Vision, published in March 2011, provide value to society in the forms of safety and society and business structure to create the Guiding and Genchi Genbutsu (onsite, hands-on experience) articulates the kind of company that Toyota aspires peace of mind, environmental sustainability and Principles at Toyota. under the former and respect and teamwork under to be and the values that it esteems as a common Waku-doki (excitement and exhilaration that wows The Guiding Principles at Toyota lay out the kind of the latter. Continuous improvement means never rallying point for the entire Company and as a state- you) while enhancing Toyota’s corporate value. company we want to be. Building on this, the Toyota being satisﬁ ed with the status quo and always doing ment to Toyota’s customers and society at large. The WEB Corporate Principles Way 2001(hereinafter called the “Toyota Way”) was our utmost to create even greater added value. vision took on particular meaning in light of the (Sustainability Data Book 2017, p. 5)

The Two Pillars and Five Keywords of the Toyota Way Toyota Global Vision

Enriching Lives of Rewarded with a smile Ever-Better Cars Communities Fruit Develop vehicles which Fruit Contribute to communities by exceeding your expectations exceed customer expectations Continuous Contribute to the future of mobility Improvement Toyota will lead the way to the future of mobility, Respect for People enriching lives around the world with the safest

and most responsible ways of moving people. Sustainable Challenge Growth We form a long-term vision, meeting Through our commitment to quality, challenges with courage and constant innovation and respect for the planet, creativity to realize our dreams. Respect Kaizen we aim to exceed expectations Trunk Stable Base of We respect others, make every effort We improve our business operations Business and be rewarded with a smile. to understand each other, take continuously, always driving for responsibility and do our best to innovation and evolution. Roots Toyota Values build mutual trust. We will meet challenging goals Genchi Genbutsu The Five Main Principles of Toyoda / Teamwork by engaging the talent and passion of people, The Guiding Principles at Toyota / We practice genchi genbutsu... go The Toyota Way We stimulate personal and profes- to the source to ﬁ nd the facts to sional growth, share the opportuni- who believe there is always a better way. make correct decisions, build con- WEB Toyota Global Vision ties of development and maximize sensus and achieve goals at our individual and team performance. best speed. 22 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance Initiatives for Financial Information Non-Automotive Business/Corporate History Sustainable Growth Information and Stock Information

Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Ever-Better Enriching Lives Employees Corporate Governance Risk Management Compliance Cars of Communities

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Making Ever-better Cars (TNGA) ToyotaTooyotaa Value Values

In line with its Customer First policy, Toyota customers will love their cars for year and years. We For example, the C-HR shares a platform (labeled strives to make ever-better cars that surpass cus- TNGA Accelerates Our Efforts to expect these initiatives to cut development resource “total optimization” in the diagram below) with the tomer expectations. Make Ever-better Cars requirements by about 20%, permitting greater rein- Prius, also in the C-segment. In contrast to the The automobile business is in the midst of tre- vestment in enhancing quality and product appeal Prius’s development concept, beautiful hybrid, the mendous change. In the automobile manufactur- and thus accelerating a virtuous cycle, enabling us to C-HR was designed in line with the development ing business, Toyota’s most important business With the aim of making ever-better cars, Toyota is deliver ever-better cars faster than ever before. concept of responsive driving performance, with today, we seek to make cars even more appeal- implementing a program of structural innovation it TNGA comprises two main aspects: total optimiza- a focus on performance-enhancing features unique ing so that they will be loved by customers for calls the Toyota New Global Architecture (TNGA). tion and individual optimization. Total optimization to the C-HR. The C-HR’s exterior architecture fea- years and years. To this end, we are implement- TNGA is how we are changing the basic architecture entails exhaustively enhancing cars’ basic perfor- tures a distinctive diamond theme, and its styling is ing Company-wide structural innovation across of our cars, entailing the integrated development of mance and implementing smart sharing of the results, enjoying considerable popularity in the rapidly grow- our global car making business. In terms of cor- new powertrain units (engines, transmissions, and while individual optimization is achieved through the ing compact SUV market. porate structure, we have adopted a product- HV units) and platforms (chassis) from the ground up. exacting design of each model by a chief engineer, Toyota began the TNGA initiatives with the fourth- based in-house company system with the aim of By doing so, TNGA is aimed at dramatically improv- who acts as development leader, in line with each generation Prius (launched in Japan in December more quickly responding to customer demand. ing basic functionality—propulsion, turning, and stop- region’s market needs and customer preferences. 2015), followed by horizontal expansion within the Since its founding, Toyota has developed ping—and enhancing product appeal so that unique methods and values, such as the Toyota Production System (TPS) and Kaizen (improvement), handing them down as sources of com- The Integrated TNGA Cycle Making Cars under TNGA petitiveness. Going forward, while we will leverage these strengths, we will not be bound by prece- Reinvestment by Individual optimization dent as we endeavor to make ever-better cars. Streamlining Aspects of cars Positive cycle of making Making distinctive tailored to Well-built ever-better cars cars customer tastes Cars Enhance basic Ever-Better Cars and product Total optimization performance to Customers More timely delivery Making better Total optimization of improved products products and through practicing smart standardization sharing Working together consistently from planning and Smart Smart purchasing Monozukuri Sharing through (Manufacturing) production The Idea of Collaboration at Grouping production sites Prius Development including suppliers C-HR Creating distinctive cars based on Prius PHV common platforms

C-segment

Expanded TNGA to the Camry (D-segment) 23 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance Initiatives for Financial Information Non-Automotive Business/Corporate History Sustainable Growth Information and Stock Information

Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Ever-Better Enriching Lives Employees Corporate Governance Risk Management Compliance Cars of Communities

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Making Ever-better Cars (TNGA) ToyotaTooyotaa Value Values

C-segment to include the C-HR (launched in Japan under the theme “Direct & Smooth.” Through this China). We estimate that the increased fuel economy its development of hybrid technologies (electrifi cation in December 2016) and Prius PHV (launched in approach, we have developed powertrain units that, of the new powertrains alone will reduce the CO2 technologies), such as those used in electric motors, Japan in February 2017). Leveraging the know-how by themselves, improve power performance approxi- emissions from the cars sold by Toyota on a non- batteries, and power control units (PCUs). gained from these earlier releases, we released the mately 10% and fuel economy approximately 20%. In consolidated basis in 2021 by at least 15%. Going forward, to produce greater results than new Camry (launched in Japan and the United States terms of production effi ciency, we are globally unify- ever using limited resources, we believe that we must in summer 2017) in the D-segment, expanding the ing processing and assembly standards as well as implement business innovation, and we plan to care- range of car types produced under the TNGA. process and equipment specifi cations in order to cre- fully review the technologies we have with the aim of ate a global architecture that will be able to quickly Reinforcing the Powertrain Development further acquiring technologies through in-house cre- and fl exibly respond to customer needs. Looking at Framework ation while sharing technologies within the Toyota development effi ciency, to take the example of Group and expanding areas of joint development. By Powertrain Development engines, we are unifying the design of combustion As part of the Toyota Environmental Challenge 2050, strengthening coordination within the Group and effi - chambers and cylinders while achieving engine varia- to help conserve the global environment, Toyota is ciently utilizing resources, we aim to quickly establish tion using different combinations of cylinder volume working toward the goal of reducing its global aver- new technologies, enhance the collective ability of

One specifi c initiative under TNGA is the develop- and number of cylinders, thus promoting integration age new vehicle CO2 emissions by 90% from its the Group, speed up development, and increase ment of new powertrains, which form the core of the and reducing the types of engines under develop- 2010 global level. scale through the proliferation and expansion of envi- automobile, that have a lower center of gravity, thus ment by approximately 40%. Conventional engine-powered vehicles account for ronmental technologies. promoting both excellent driving performance and Using TNGA-based modular development, in the the vast majority of vehicles currently on the market, and Furthermore, to advance electrifi cation and speed excellent environmental performance. fi ve years leading up to 2021, Toyota plans to intro- even hybrid vehicles (HVs) and plug-in hybrid vehicles up the development of hybrid technologies, which Our approach to powertrain development aims to duce a vehicle lineup that consists of 37 variations of (PHVs) have internal combustion engines. Toyota there- are at the core of PHVs, FCVs, and EVs, we plan to simultaneously enhance product marketability and 19 models to meet diverse driver needs. Beginning fore believes that the further technological development increase the number of personnel involved in hybrid improve production and development effi ciency. To with the new Camry, Toyota will steadily increase the of conventional engines and transmissions, which will technology development by approximately 30% enhance product appeal, we are, of course, working lineup of cars incorporating the new powertrains, remain dominant for some time to come, is a sure, by 2021. to ensure excellent environmental performance while aiming for such vehicles to account for 60% or more steady, realistic, and effective means of reducing also seeking boost driving performance by focusing of all new vehicles sold in 2021 on a non-consolidated CO2 emissions. At the same time, to advance the development on customers’ sensory experiences basis (in Japan, the United States, Europe and electrifi cation of vehicles, Toyota must also accelerate

Dynamic Force Engine (2.5-liter) in the New Camry TNGA Powertrain Adoption Plan TNGA Powertrains’ Environmental Contribution (% of total sales in Japan, the United States, Europe and China)

(%) TNGA Other 100

TNGA HV 60 Conventional engine-powered TNGA TNGA cars PHV 40

Steady reduction in CO emissions 2 FCV 20 Sales Quantity using TNGA powertrains

EV 0

2016 20172018 2019 2020 2021 2010 2020 2050 24 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance Initiatives for Financial Information Non-Automotive Business/Corporate History Sustainable Growth Information and Stock Information

Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Ever-Better Enriching Lives Employees Corporate Governance Risk Management Compliance Cars of Communities

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Making Ever-better Cars (TNGA) ToyotaTooyotaa Value Values

between R&D and production engineering to speed exhilaration that wows you). Taking a Genchi Genbutsu with a rigorous focus of the customer’s perspective. up technological development. This company works (onsite hands-on experience) approach rather than As part of such initiatives, we are encouraging healthy Achieving both Smart Sharing and with Toyota Central R&D Labs., Inc., Toyota Research relying solely on data, we are positioning motor sports competition between in-house companies, such as Outstanding Car Manufacturing Institute, Inc. (TRI), and the Frontier Research Center at the heart of our efforts to make ever-better cars. that related to new compact vehicle projects between on cutting-edge research, exploring the possibilities Each in-house company, due to its integrated oper- the Emerging-market Compact Car Company and The transition to a product-based in-house company of future automotive technology as it drives develop- ations, bears the fi nal responsibility for product reve- Toyota Compact Car Company. system as part of the 2016 structural reforms was ment. In addition, this company creates technological nue. To strengthen this system, in September 2017, Going forward, we will continue working to make intended to better enable us to make ever-better cars scenarios as global benchmarks to help Toyota we reorganized the Cost KAIZEN Division (now the ever-better cars that exceed customer expectations, while developing human resources to support that understand how to achieve its vision for the future. Cost KAIZEN Department), reallocating approximately seeking to translate structural reforms into opportuni- goal. Accordingly, R&D operations, which had been Moreover, the Advanced R&D and Engineering 60% of its cost planning staff to the in-house compa- ties to improve ourselves based on the belief that the organized by function, have been divided into the Company supports development at the product- nies. The Cost KAIZEN Department staff remaining at process of Kaizen (improvement) never ends and that categories of advanced and mass production, and based in-house companies through its innovative the head offi ce will promote overall optimization. innovation is created only though steadfast, ongoing those in the latter category have been allocated to technological development. More than a year after the transition to the in-house Kaizen. the related in-house companies. The new system In April 2017, we established GAZOO Racing company system, the new approach to making ever- thus enables integrated operations, from planning to Company, creating a framework for building up motor better cars has begun to take root, but areas that production, under the authority of each in-house sports technical capabilities to serve as know-how require improvement have also come to light. In partic- company president. for adding fl avor and spice to driving. Using this ular, we are still learning from our partners in business Advanced R&D is handled by the Advanced R&D know-how, we aim to develop and release cars that alliances and subsidiary Daihatsu Motor Co., Ltd. and Engineering Company, which removes barriers offer customers true Waku-doki (excitement and about effi cient development and car manufacturing

Framework for Making Ever-better Cars

Head ofﬁ ce Frontier Research Corporate Strategy Center Division

Suggest technological scenarios Architectures technologies Elemental

Vehicle companies Toyota Compact Car Company Mid-size Vehicle Company Cutting-edge Technological Technological CV Company research scenarios development TRI, etc.)

support Development Lexus International Co. GAZOO Racing Company

Research organizations Research Advanced R&D and Engineering Company Emerging-market Compact Car Company (Toyota Central R&D Labs, (Toyota

Powertrain Company Connected Company

25 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance Initiatives for Financial Information Non-Automotive Business/Corporate History Sustainable Growth Information and Stock Information

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Taking on the Future ToyotaTooyotaa Value Values

Society and industry are undergoing structural Creating New Industries changes of unprecedented pace and scale. The Frontier Research Center was established as Investing in Start-ups through a Fund invested ¥14.3 billion in 29 companies in the United Values and lifestyles are diversifying, while a wide part of the April 2016 structural reforms with the to Create New Value States, the United Kingdom, Israel, and Japan. Examples of companies in which the fund has range of social issues are growing more pro- objective of creating new value from a long-term per- Mirai Creation Investment Limited Partnership (“the invested include PKSHA Technology Inc. in the AI nounced, and innovation is driving rapid techno- spective to achieve sustainable growth by bringing Mirai Creation Fund”) is an investment fund estab- fi eld and Getaround, Inc. in the connected technol- logical development. We believe that the value of together wisdom from across Toyota’s Group com- lished by SPARX Group Co., Ltd. to accelerate ogy fi eld. These companies are advancing research mobility is also beginning to change not just panies and affi liates. The center is charged with, in future-oriented innovation. Along with Sumitomo and development in cooperation with Toyota. through the evolution of cars, but through an short, fostering innovation in the value-creating Mitsui Banking Corporation, Toyota has participated expansion into aspects of personal life, including industries that will come after automobiles from the in this fund as an investor since its establishment. social infrastructure. perspective of serving the world and its people. The fund’s basic purpose is to help accelerate Toyota is taking on the future by not only evolving We are now at a once-in-a-century turning point. innovation by investing in and nurturing enterprises Sumitomo its long-standing monozukuri (manufacturing), but Mirai Creation Mitsui We believe that we must not only continue to make that possess technologies with the potential to drive Investment Fund Investment Banking expanding its focus to encompass social platforms ever-better cars that will be irreplaceable assets for future-oriented growth and to promote said poten- SPARX Group Corporation, that address society’s needs as well as technologi- our customers; in order to ensure that Toyota tial worldwide by building a portfolio of the promis- etc. cal platforms, such as AI, that extend beyond cars. remains a best-in-town company, we must think ing businesses it fi nds. The fund also shares the By doing so, we aim to provide broad-ranging value about how we can next contribute to society—this corporate information it collects with Toyota, sup- that exceeds customer expectations. time outside of automobile manufacturing, sales, and porting new technological development by introduc- Searching Searching Searching for for Investment for services—and get started. The Frontier Research ing potential partners and facilitating the execution opportunities opportunities opportunities Center is working to leverage Toyota’s traditional of capital alliances. The fund focuses investment on strengths in monozukuri (manufacturing), generate core technologies in the areas of intelligence (AI and Companies in the fund’s Social platforms lasting employment, and create new industries for connected technologies), robotics, and making three target fi elds the next generation. a hydrogen society a reality. Mobility services, energy infrastructure, Intelligence technologies logistics services, fi nancial services, etc. The Frontier Research Center takes an open Since its establishment, the fund’s investment in (AI and connected technologies) stance, advancing initiatives in collaboration with start-ups has progressed as initially planned. As of Robotics IoT information platform Hydrogen society Switch to needs- partners that share its vision. June 30, 2017, of its total ¥36.7 billion, it had driven thinking Connecting Contributing to Agriculture Monozukuri (manufacturing) Toyota developed Housaku Keikaku, an agricultural IT management tool, to help

improve agricultural productivity by applying production management methods Standard lead time Vehicles Personal living and operational improvement know-how cultivated in the automotive business to 1st 2nd 3rd Field Drying/ plowing plowing plowing prep Planting Harvesting Milling 90 days 40 days 5 days 7 days 140 days Ever-better cars Expansion agriculture. In 2014, we began providing the tool to rice growing agricultural coop- Work Sterilization Soaking Sprouting Sowing Agricultural 25 days eratives. Starting in April 2014, as part of the Advanced Model Agricultural order 90 days 40 days 5 days Business Formation Trials by the Japanese Ministry of Agriculture, Forestry and cooperative Farmer A Plans Agricultural IT management cloud Development outside of cars Fisheries, we established the Rice Production Kaizen Network, a consortium Work Cultivatable land database Work database and Toyota products formed with nine rice growing agricultural cooperatives in Aichi and Ishikawa pre- Paddy location, area, Laborers, man-hours order Performance Results contract details per acre, farming season, etc. Technological platforms fectures and the Ishikawa prefectural government. Through this consortium, we Farmer B indicators Plans Results Smartphones are providing Housaku Keikaku, conducting pilot testing aimed at further efﬁ ciency Land Laborer 1 Laborer 2 Laborer 3 Basic technologies not limited to cars and quality improvement, and building a foundation for human resource develop- lease Field prep Planting Fertilizing Daily reports ment through front-line Kaizen (improvement). BCAABC AI, ICT, human sciences, etc. Landowner C ACB CB A In April 2017, we announced new partnerships in Hokkaido and Nagano. As Approx. 800 farmers CBBA C of May 2017, 33 cooperatives were using Housaku Keikaku. Going forward, we Approx. 2,000 paddies will continue to expand the number of users of the tool, seeking to contribute to enhancing the efﬁ ciency and quality of rice farming.

26 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance Initiatives for Financial Information Non-Automotive Business/Corporate History Sustainable Growth Information and Stock Information

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Taking on the Future ToyotaTooyotaa Value Values

Solutions for the Problems Facing a Graying Society

Since the announcement of its development vision in 2007, Toyota has been applying its technology and Focusing First on Needs Created by the Low Birth Rate and Graying Population know-how developed for industrial robots used in vehicle manufacturing to create partner robots that offer Senior Life Support Welfare Support support for everyday living, working to bring these Toyota is developing the Winglet, a personal mobility The patient transfer assist robot is being developed to robots to market. So-called service robots for non- robot ridden while standing that facilitates seamless reduce the burden on caregivers at elderly care facili- travel indoors and out, so that seniors can easily leave ties and elsewhere by helping transfer individuals who industrial use include robots designed to inspect infra- home with safety and peace of mind. The Winglet is cannot move unassisted from, for example, a bed to structure or provide emergency response. Toyota, now undergoing pilot testing on public roads. a wheelchair. however, is focusing on partner robots that work closely Conversation robots are being developed to help with people to provide support for living. Japan is rapid- prevent the onset and progression of dementia and Winglet Conversation robot, reduce the burden on caregivers in light of the forecast ly graying, and its working-age population is decreas- Pocobee increase in Japan’s number of individuals with demen- ing. Because of these shifts, the burden on the tia and decrease in the working-age population. working-age population of supporting the elderly is Independence Support forecast to balloon to approximately three times the Medical Support 2000 level by 2050. Toyota aims to use partner robots The human support robot (HSR) offers such functions In autumn 2017, Toyota will commence the rental of as picking up and fetching objects and is being tested to instead keep this burden at around the 2000 level. the Welwalk WW-1000, a rehabilitation robot designed for use in areas that include preventing the need for to aid in the gait training of patients with lower limb Under its vision for partner robot technology, “free- nursing care, health management and assistance with paralysis due to stroke or other factors. dom of mobility for all, and the joy of self-reliance,” housework. This robot is being provided to universities The Welwalk WW-1000 comes with a range of reha- Toyota is working to bring products to market in the and other research institutions as a platform in order to bilitation support functions based on motor learning foster a development community and accelerate devel- four main areas of Senior Life Support, Welfare theory, including the ability to adjust the difﬁ culty level opment and testing through open innovation. of gait training to suit the patient and to provide feed- Support, Independence Support, and Medical Support. HSR Welwalk WW-1000 The HSR was selected as the standard platform in back about the patient’s gait characteristics the “@HOME” division for RoboCup2017 Nagoya Japan and as the platform robot for the World Robot Summit 2020 Partner Robot Challenge (a competition centered on uses for robots in the home).

Commercialization Schedule and Development Status

2017 Approx. 2020 Target areas The rehabilitation robot Welwalk WW-1000 received medical device certiﬁ cation in November 2016. Rental of the robot will begin in Gait training robot Senior Life Support, Medical Support autumn 2017. The robot is being tested at the National Center for Geriatrics and Gerontology with the aim of helping prevent the onset and progression Conversation robot Medical Support, Welfare Support of dementia, and we are working to quickly bring it to market. We are testing the robots at test-ride events in retail facilities and on public roads as we work with the police and government to expand Standing personal mobility robot Senior Life Support areas where they can be used. The robot is in use at 21 medical institutions across Japan for clinical research. We are incorporating feedback from doctors, physical Balance training assist robot Medical Support therapists and other users as we work to bring the product to market. We are creating a development community based on open innovation to advance technological development and testing aimed at Human support robot (HSR) Independence Support commercialization.

Patient transfer assist robot We are implementing a development and testing cycle to create an easier to use device and bring the product to market Welfare Support

Development Pilot testing Commercialization

27 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance Initiatives for Financial Information Non-Automotive Business/Corporate History Sustainable Growth Information and Stock Information

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Toyota Environmental Challenge 2050 ToyotaTooyotaa Value Values

0 Challenge of Achieving Zero Net Positive Impact Challenge

New Vehicle Zero CO2 Emissions Challenge Challenge of Minimizing and Optimizing Toyota has long carried out a wide range of initia- Target Reduce global average new vehicle CO2 emissions by 90% from Water Usage Toyota’s 2010 global level tives aimed at addressing a host of mounting Target Enact effective wastewater management and minimize water environmental problems, including extreme consumption based on individual local situations Actions Actions weather phenomena attributable to greenhouse Further popularize next-generation vehicles to save energy and use Reduce water consumption in existing manufacturing processes, introduce gases, biodiversity loss due to development, and diverse fuels technologies that reduce industrial water consumption through rainwater use, water shortages due to population growth. • Further popularize HVs and PHVs globally and improve water recycling rates Toyota announced the Toyota Environmental • Further popularize zero emission vehicles such as FCVs and EVs*1 • Manage wastewater quality by complying with strict standards, improving the local environment by returning clean water Challenge 2050 in October 2015. In addition to *1 Zero emissions: The elimination of all harmful exhaust gases; in recent years, this term has been used continuing efforts to reduce the environmental to refer particularly to automobiles that emit no CO2 whatsoever, such as EVs and FCVs. More broadly, burden attributable to automobiles to zero, we the term encompasses efforts to completely eliminate waste that must be incinerated or put in landﬁ lls Challenge of Establishing a Recycling-based for ﬁ nal disposal. have set ourselves six challenges aimed at help- Society and Systems ing to build a sustainable world through initiatives Target Promote global rollout of End-of-life vehicle treatment and Life Cycle Zero CO2 Emissions Challenge recycling technologies developed in Japan that will positively impact the earth and society. Target Completely eliminate CO2 emissions from the entire vehicle Actions life cycle Establish a recycling-based society with four key areas: Actions (1) utilizing eco-friendly materials; (2) using parts for longer; Reduce CO2 emissions from the entire life cycle, from materials, parts, and (3) developing recycling technologies; vehicle production to driving and disposal (4) manufacturing vehicles from End-of-life vehicles

• Reduce CO2 emissions during material production by developing and adopting more low Two global rollout projects started from 2016: CO2 emission materials 1) Toyota Global 100 Dismantlers Project • Reduce environmental impact by adopting more recycled materials 2) Toyota Global Car-to-Car Recycle Project

Plant Zero CO2 Emissions Challenge Challenge of Establishing a Future Society in Target Achieve zero CO2 emissions at all plants by 2050 Harmony with Nature Target Promote global rollout of nature conservation activities beyond the Toyota Group and its business partners Actions Actions Introduce and develop low CO2 technologies, implement daily Kaizen, and Expand Toyota’s long-standing nature conservation activities in the areas of promote the use of renewable energy and hydrogen forestry, environmental grants, and environmental education • Reduce energy use to one third by simplifying and streamlining production processes and implementing innovative energy saving The following three future-oriented projects started from 2016 to share our • Use renewable energy, including wind power produced on-site at our Tahara Plant by know-how and experience gained from these environmental activities around 2020 1) Connecting communities: Toyota Green Wave Project 2) Connecting with the world: Toyota Today for Tomorrow Project 3) Connecting to the future: Toyota ESD*2 Project *2 Education for Sustainable Development

28 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance Initiatives for Financial Information Non-Automotive Business/Corporate History Sustainable Growth Information and Stock Information

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Toyota Environmental Challenge 2050 ToyotaTooyotaa Value Values

Key Fiscal 2017 Initiatives under Toyota Environmental Challenge 2050

Hybrid Vehicles: Reducing CO2 Emissions running as an HV, achieves fuel efﬁ ciency of 37.2 environment in terms of both input, by rigorously New Vehicle Zero CO2 Toyota calculates that the 10 million Toyota HVs sold km/l, equal to that of the fourth-generation Prius.* reducing the amount of water it uses, and output, by Emissions Challenge as of January 31, 2017 have resulted in an approxi- Furthermore, the new Prius PHV features a solar rigorously cleaning water it has used.

mately 77 million ton reduction in CO2 emissions charging system, the fi rst ever on a mass-produced While the specifi c issues and ways of addressing Cumulative Hybrid Vehicle Sales Surpass compared with what would have been emitted by vehicle, that is capable of generating enough electric- them vary by region, Toyota has created the Toyota 10 Million gasoline-powered vehicles of the same class (in terms ity per day to drive the car up to 6.1 km. Water Environment Policy to help it accomplish the Toyota places top priority on environmental initiatives. of size and horsepower). By the same comparison, * Excluding A grade models (JC08 test cycle fuel effi ciency values) challenge it has set itself with regard to the aquatic Aware that eco-friendly vehicles can best help pro- these 10 million vehicles represent a savings of environment. tect the environment if they are in widespread use, approximately 29 million kiloliters in gasoline. Challenge of Minimizing and The Water Environment Policy is composed of we have been working to promote the spread of Optimizing Water Usage a Basic Stance, the Challenge of Minimizing and hybrid vehicles (HVs). Toyota released the Coaster Toyota’s Mainstay Next-Generation Eco-Friendly Optimizing Water Usage, and Three Directions for Hybrid EV in August 1997 and in December of the Vehicle: The Prius PHV Initiatives. By carrying out the policy, we aim to help same year released the Prius, the world’s fi rst mass- To further reduce CO2 emissions, Toyota is promoting The Toyota Water Environment Policy maintain rich aquatic environments. produced HV. Since then, Toyota’s HVs have enjoyed energy savings by focusing on the effective use of Making cars requires a great deal of water. Toyota is the support of customers around the world, and in the fi nite supply of fossil fuels while also accelerating working to minimize its impact on the natural aquatic January 2017 Toyota’s cumulative HV sales surpassed the adoption of other, diverse fuels, including the use Toyota Water Environment Policy 10 million vehicles. of hydrogen and electric power. Specifi cally, HVs rep- Toyota prioritizes the sustainability of water resources and aims to create an affl uent society to ensure The business environment surrounding eco-friendly resent Toyota’s key environmental technologies for that sound aquatic environments can be shared by future generations. cars has changed greatly in the 20 years since Toyota saving energy, while fuel cell vehicles (FCVs) and Challenge of Minimizing and Optimizing Water Usage introduced HVs to the world. Environmental perfor- electric vehicles (EVs) represent key environmental Rigorous reduction of Being the best factory in the Rigorous cleaning of all water mance has come to be one of the standards by technologies related to using diverse fuels. Currently, water consumption region to contribute to the whole before discharge which customers choose their cars, and the increas- plug-in hybrid vehicles (PHVs), combining the best Minimize water intake at community’s prosperity Make a positive impact ing number of companies developing and releasing aspects of HVs and EVs, are the Toyota vehicles best each factory and utilize on the environment by HVs has fi rmly established HVs as an important vehi- rainwater to minimize making wastewater able to contribute to the environment. impact on local IN OUT cleaner than the body into cle category. With customers around the world Toyota positions the Prius PHV as the mainstay water sources which it is discharged increasingly choosing HVs and other fuel-effi cient next-generation eco car to succeed HVs. In February Three Directions for Initiatives vehicles, the automotive industry has been better 2017 a signifi cant step forward was marked with the Pursuit of Technology Operations Rooted in Communities Coordination with Society able to contribute to solving environmental problems. launch of the second-generation Prius PHV. With a We will pursue technological possibilities We will implement ongoing measures to We will actively communicate and disclose higher capacity battery, the latest Prius PHV boasts and rigorously make water resource use improve aquatic environments, conscious information to promote coordination and more effi cient. that water is an asset that belongs to cooperation with stakeholders. an EV-mode cruising range of 68.2 km and, when its locality.

To help conserve biodiversity under the partner- CO2 Emissions Reduction Effects of Toyota Hybrid Vehicles (Toyota Calculations) Challenge of Establishing a Future ship, in 2016 Toyota donated US$1 million and Society in Harmony with Nature began offering other forms of support to the Living (Million tons) CO2 emissions reduction (Million tons) 16 Cumulative CO2 emissions reduction 80 Asian Forest Project. The Living Asian Forest Project 14 70 Five-Year Partnership with WWF will reinforce existing WWF initiatives to conserve 12 60 CO2 emission reduction attributable to In July 2016, Toyota and the World Wide Fund for tropical rainforests and biodiversity in Southeast Asia Toyota 10 million hybrid vehicles: 10 50 Nature (WFF) began a fi ve-year partnership aimed at and help develop new conservation initiatives. 8 Approximately 77million tons 40 accelerating the globe’s transition to sustainability. 6 30 Toyota is the fi rst car company and the fi rst Japanese 4 20 company to sign a Global Corporate Partnership 2 10 agreement with WWF. 0 0 WEB Environmental Report 2017 Prius PHV ’97 ’99 ’01 ’03 ’05 ’07 ’09 ’11 ’13 ’15 ’17 (Jan.) 29 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance Initiatives for Financial Information Non-Automotive Business/Corporate History Sustainable Growth Information and Stock Information

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Aiming to Be the Best in Town ToyotaTooyotaa Value Values

Based on a philosophy of contributing to society challenges facing seniors living in remote mountainous through the manufacture of automobiles, Toyota The Toyota Mobility Foundation: areas. In addition, in July 2017, TMF turned its atten- Bangkok, Thailand endeavors to proactively contribute to sustain- Supporting Ideas and Initiatives to tion to addressing energy problems, establishing Projects Traffi c Congestion Mitigation able development in harmony with society and Enrich Mobility a research program to support innovative research Project in Bangkok Completed the earth through all its business activities in aimed at creating a hydrogen society, and began TMF’s inaugural project, launched in April 2015 and countries and regions around the world. Established by Toyota in August 2014, the Toyota soliciting research proposals. TMF plans to fi rst narrow aimed at mitigating traffi c congestion in Bangkok, Toyota currently faces a business environment Mobility Foundation (TMF) aims to help realize a prosper- down candidate research themes and then collect Thailand, was completed in March 2017. on the verge of tremendous change. Given this, ous mobility society and eliminate disparities in mobility. information on universities, research institutions, and The project was aimed at controlling traffi c we believe that in the coming years, aiming to be TMF focuses on bringing together Toyota’s know- NPOs working in areas related to said themes before volume and improving traffi c fl ow in Bangkok’s the best company in town, even more than being how and resources and the outstanding vision and developing proposals with potential partner organiza- Sathorn District, where congestion is especially global or the best company in the world, will be experience of like-minded partners to create innova- tions. The proposals that TMF will support will ulti- severe, through a range of measures implemented in cooperation with private companies, more important than ever before. tive technologies and systems with the potential to mately be selected by TMF’s Board of Directors, with the government and academia, including We aim to make ever-better cars in order to change the world, looking to share the fruits of these input from external experts on their practicability as Chulalongkorn University, the grant recipient. enrich customers’ lives in the regions and coun- efforts with society at large. well as legal and fi nancial considerations. One of the main measures taken to control traf- tries where we operate based on relationships of As part of these efforts, TMF supports initiatives to Now, three years after its founding, TMF is shifting fi c volume was the creation of a park and ride sincerity and respect. This means maintaining provide more people with enhanced freedom of move- its focus to creating a better future, working to fi nd system. Parking lots were set up near railway and further developing sound relationships with ment by, for example, diversifying modes of transpor- innovative technologies and ideas while leveraging stations to encourage people travelling to the increasingly diverse business partners and local tation to ease and prevent traffi c congestion and the lessons learned from problem-solving initiatives city center to transfer from private cars to public communities through fair and open communica- developing vehicles and systems to help solve mobility undertaken to date. transportation. The program also provided shut- tle bus service to two local schools to alleviate tion. We believe that by doing so, we can become WEB Toyota Mobility Foundation congestion caused by private cars dropping off the most trusted, most loved company in every and picking up students. town where we have the privilege of doing business. TMF’s Projects To improve traffi c fl ow, the project identifi ed In line with this approach, we are advancing traffi c bottlenecks and worked to improve them. a variety of initiatives to help address social Ueyama, Mimasaka City, Okayama, Asuke, Toyota City, Aichi, Japan Implemented in close coordination with local Japan issues confronting the regions and countries in Sustainable personal mobility model for police and transport operators, initiatives includ- Sustainable personal mobility model for which we operate. remote mountainous areas ed measures to discourage drivers from unnec- remote mountainous areas essarily stopping or changing lanes and the Toyota will continue to use the technologies Period Apr. 2016–Mar. 2019 Period Jan. 2016–Sep. 2019 Nagoya University, establishment of bus lanes. and know-how it has built up in car manufactur- Grant recipients Research institute for University of Tokyo The results of the project were used to formu- ing to contribute to local prosperity and contrib- sustainable rural villages Grant amount Approx. ¥360 million late a roadmap for future cooperative initiatives ute to “enriching lives of communities” as it aims Grant recipients (NPO) encompassing companies, government, and to always be the best company in town. Aida Ueyama Tanadadan academia aimed at alleviating traffi c congestion. (NPO) This roadmap was then proposed to the National Grant amount Approx. ¥220 million Traffi c Management Board, which serves as an advisory body to one of Thailand’s deputy prime ministers. At a project closing event in April 2017, private, public, and academic participants agreed to continue working under government direction in accordance with the roadmap.

Bengaluru, India Bangkok, Thailand Da Nang, Vietnam Improving subway access Traffi c congestion mitigation Traffi c congestion prevention (fi rst- and last-mile connectivity) Period Apr. 2015–Mar. 2017 and mitigation Period Dec. 2016–Mar. 2018 Grant recipients Chulalongkorn University Period Apr. 2015–Apr. 2019 Grant recipients World Resources Institute Grant amount Approx. ¥400 million Danang People’s Grant recipients Committee Grant amount Approx. ¥33 million Project room at Park and ride Grant amount Approx. ¥360 million Chulalongkorn University

30 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance Initiatives for Financial Information Non-Automotive Business/Corporate History Sustainable Growth Information and Stock Information

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Aiming to Be the Best in Town ToyotaTooyotaa Value Values

in which they rediscover the value of mobility by playing fi eld and learn from one another, and for Toyota resources to proactively advance initiatives. KURUMA-IKU (Nurture with Cars) attaching steering wheels to everyday objects. For employees to gain new insights into the future of mobility Furthermore, Toyota strives to support volunteering Cultivates Children’s Spirit of Inquiry and junior high and high school students, we have devel- along the way. We hope to expand the range of these and to sustain automotive and manufacturing cultures. Creativity oped and implemented programs including “3H initiatives, with an eye to implementing them globally. Specifi cally, in the area of the environment, Toyota Drive,” in which participants plan a three-hour trip actively provides environmental education, supports WEB KURUMA-IKU Lab (Japanese language only) As forms of value grow more complex, opportunities that exploits the features of their community and environmental programs, and undertakes greenifi ca- for learning that foster the creativity to develop new forms of mobility; “History Drive,” in which they learn tion. As forests are an important basis of a sustainable value and culture are more important than ever. At the about the past and present to create the community society, Toyota carries out ongoing stewardship and same time, interest in cars has been falling markedly and the mobility of the future; and “Ideas Drive,” in Taking Our Founding Principle of preservation, based on appropriate management, of among young people, to the point that car ownership which they walk through the community to identify the woodlands that it owns. Toyota also implements Social Contribution Global culture itself may disappear in the near future. challenges and imagine future forms of mobility. In the environmental activities in and outside Japan with an In light of this educational environment in Japan programs for junior high and high school students, in emphasis on collaboration with local and regional and the changes facing the automotive industry, in particular, we strive to provide opportunities for partic- Toyota has a long history of social contribution that communities, and its employees volunteer on their 2013, Toyota began a workshop program focused on ipants to think about their communities and their con- traces back to the desire of Sakichi Toyoda—the own to undertake regional environmental preservation. future communities and mobility based on the connections to society through the lens of mobility. father of Toyota Motor Corporation’s founder, Kiichiro In the area of traffi c safety, Toyota carries out multi- cept of using cars as a learning material to foster Going forward, we plan to expand these programs Toyoda—to support inventions that would enrich peo- faceted activities focused on the three distinct pillars of a spirit of inquiry and creativity. Programs for children across Japan in collaboration with a wide range of part- ple’s lives. Kiichiro and his team, who together built people, cars, and the traffi c environment with the aim in elementary school and below include activities that ners under the name KURUMA-IKU Lab (Nurture with Toyota’s automotive business, kept this spirit of social of completely eliminating traffi c casualties. As a part of prompt participants to think about the roles of cars in Cars Lab). We will involve communities, providing contribution alive after Sakichi’s death, espousing the these efforts, since the 1960s Toyota has been conduct- society using anthropomorphized cars and activities opportunities for children and adults to interact on a level concepts of contributing to the development and wel- ing activities targeting people—such as drivers and fare of the country and remembering to always be pedestrians—to raise awareness of traffi c safety, and it grateful. These concepts were eventually woven into implements a variety of programs for a wide range of the Five Main Principles of Toyoda, the Guiding people on an ongoing basis. In recent years, such pro- Principles at Toyota and the Toyota Global Vision. In grams have also been launched at overseas affi liates. these various forms, this spirit of social contribution In the area of education, based on the principle that has been handed down to today. monozukuri is about developing people, Toyota imple- In addition to contributions made through its busi- ments occupational and educational support initiatives nesses, Toyota is pursuing social contribution in three as well as activities designed to cultivate participants’ designated global priority fi elds: the environment, sensibilities and convey the importance of monozukuri Program for children in elementary school and below Program for junior high and high school students traffi c safety, and education. We are also promoting (manufacturing) in order to promote the development Held so far in locations in Tokyo, Nagoya, Toyota, Hakodate, and Austria Held so far in locations in Kanazawa, Onomichi, Kawasaki, Okayama, activities in social, cultural and other fi elds to meet of the leaders of tomorrow worldwide. and Minami-Ise the social needs of specifi c countries and regions, Our Vision for utilizing our technologies, expertise, and other WEB Social Contribution Activities Children KURUMA-IKU Think about questions with Parents learn from children’s + Parents creativity and communication no one right answer

Children and adults learn from one another Learn what makes a quality mobility experience Local Toyota Motor communities Corporation

Involve local communities Use insights gleaned to create and catalyze horizontal Network with future mobility markets and mobility Hands-on nature program for local Support for free cleft palate surgery White Road trafﬁ c safety program Support for toilet construction and connections government, schools and experiences companies elementary school students (Japan) project (Venezuela) for children (Thailand) improving hygienic habits (India) 31 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance Initiatives for Financial Information Non-Automotive Business/Corporate History Sustainable Growth Information and Stock Information

Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Ever-Betetterer EnrichingEEnrEnric Lives Carss offC CCommunitiesCo Employees Corporate Governance Risk Management Compliance

Stable Base of Business

Employees ToyotaTooyotaa Value Values

Toyota prioritizes respect for people, aiming to Fundamental Approach regarding Human Resource Development provide employees with opportunities to make Toyota is committed to developing human resources (OJT) provide the basic experiences that drive profes- social contributions and realize self actualization in accordance with its philosophy that monozukuri On the Job Training sional growth. In addition, to supplement OJT, Toyota through their work and to allow them to exercise (manufacturing) is about developing people. In order to Human Resource Development offers a variety of off-the-job training programs. their ability to think, create, and take action. sustain growth, it is important to strive toward achiev- Rooted in Genchi Genbutsu To achieve this goal, a relationship of mutual ing people-centric monozukuri and to utilize the wis- In line with Toyota’s concept of Genchi Genbutsu trust and mutual responsibility between labor and dom of our people to make constant improvements. (onsite, hands-on experience), we believe that the management is essential. In such a relationship, Furthermore, in light of the globalization of Toyota’s Sharing the Values of workplace is the basis for human resource develop- the company places the highest priority on ensur- businesses amid the world’s many cultures and cus- the Toyota Way Globally ment at Toyota. Being mentored by supervisors and ing stable employment for its employees and pro- toms, to make ever-better cars and carry out our senior colleagues and, in turn, mentoring subordinates actively strives to improve labor conditions, while Customer First policy, all employees must share cer- We have organized job skills and techniques into a and junior colleagues to build mutually benefi cial employees do their utmost to enhance the pros- tain values. framework that we call Global Content to help Toyota learning relationships in the course of daily work perity of the company. This philosophy is shared To this end, Toyota is implementing human employees around the world understand and prac- by all Toyota affi liates around the world and is resource development aimed at sustainable growth Toyota’s Approach to OJT tice the Toyota Way as a shared set of values and refl ected and implemented in Toyota’s manage- through a global educational program centered on ways of thinking. ment and policies. the application of the Toyota Way. On-the-job training Global Content is utilized by Toyota employees Toyota believes that this approach leads not (OJT), a crucial part of developing and passing down OJT through both on- and off-the-job training in Japan only to management that operates with respect Toyota’s tradition of superior monozukuri, is the foun- and overseas. Providing a common language for for people, but to customer satisfaction and dation of this program. talking about ways of working, the Global Content In tandem with OJT social contribution. Personnel Off-the-job gives Toyota an advantage by providing a platform WEB Toyota Way 2001 system training for employees around the world to come together to improve effi ciency.

Global Content Overview Administrative and engineering employees Shop ﬂ oor employees Policy management Skills and roles of management and supervision • Activities aimed at realizing Kaizen on a Company-wide • Manager and supervisor skills for optimizing standard scale operations •Mechanisms to maximize overall output • Knowledge about organizational and team operations gleaned from managing irregularities On-the-job development (OJD) • A four-step method for human resource development through regular business activities and instruction Managers Toyota Management Training Program • An overview of management roles at Toyota • Measures to implement for effective workplace management Problem solving Problem solving • An eight-step method for identifying and solving prob- • Techniques for improving current conditions in order to lems (implementing the Toyota Way) realize ideal working conditions Ji Kotei-Kanketsu (built-in quality with ownership) Production skills • A three-step method for building quality into processes • Knowledge regarding recognizing irregularities and key points in tasks • Ability to correct irregularities Basic skills

General employees Minimum skills necessary for production line work The Toyota Way • Toyota’s values • The foundation of all work

WEB Employees (Human Resource Development, Sustainability Data Book 2017, p. 63) 32 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance Initiatives for Financial Information Non-Automotive Business/Corporate History Sustainable Growth Information and Stock Information

Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Ever-Betetterer EnrichingEEnrEnric Lives Carss offC CCommunitiesCo Employees Corporate Governance Risk Management Compliance

Stable Base of Business

Employees ToyotaTooyotaa Value Values

Promoting Diversity and Inclusion

Toyota has positioned the promotion of diversity ample consideration to the quality of the private lives conducted by affi liates in each region, with OJT at and inclusion in the workplace as an important of themselves and their subordinates. Toyota Motor Corporation (TMC) so that participants management strategy. We are working to create Work Style Reforms To develop such supervisors, Toyota implemented can learn Toyota-style ways of working. In addition, workplaces where human resources with diverse a trial program in which 200 employees in managerial we are also implementing a program similar to abilities and values can thrive and each individual positions tried working from home. More than 90% of GLOBAL 21 for employees of TMC. Toyota is advancing work style reforms to improve can achieve positive self actualization. participants found that working from home was help- productivity and support employees seeking to con- Diverse perspectives help to generate novel ful and noticeably improved their productivity. These tinue working while raising children or providing nurs- ideas and uncover problems. Toyota aims to use results are helping to foster a culture in which ing care for a family member. In October 2016, we Localizing the Management of Overseas these contributions to help enhance its competi- employees use the telecommuting programs avail- expanded our existing telecommuting system with Affi liates tiveness and make ever-better cars. able to them. the introduction of the Free Time & Location (FTL) system. By adopting more fl exible work styles, Taking a long-term perspective, Toyota seeks to Toyota aims to make the most of each individual’s localize the management of its overseas affi liates, abilities and maximize results. While the previous Developing Executives Globally with deciding what to do as the role of TMC in Japan telecommuting system was available only to employ- and deciding how to do it the role of local affi liates. ees with childcare or nursing care responsibilities, all In principle, chief offi cers and other executives employees that meet certain conditions can request The GLOBAL 21 program is aimed at developing responsible for operations in overseas regions are the permission of their supervisors to use the FTL executives globally. The program serves to enable stationed in their respective regions as part of efforts system. As of March 31, 2017, of the approximately outstanding human resources from around the world to create a management system closely rooted in 13,000 employees who qualify for the FTL system, to obtain the skills and discernment expected of local communities. approximately 2,300 are using it. global-level Toyota executives and to fully realize their We also actively hire and promote local human Over the next two years, Toyota plans to distribute individual strengths in their respective roles. The pro- resources. As of July 2017, three of the Group’s eight dedicated computers for telecommuting to employ- gram consists of the following three pillars. regional headquarters are led by non-Japanese chief Gender ees eligible to work from home. We have received a offi cers, and TMC’s top management includes seven great deal of positive feedback from users of the pro- 1. Ensuring understanding of our management non-Japanese nationals (of whom one is an Outside gram already, with employees commenting, for philosophy and the expectations of executives Member of the Board of Directors). Local employees Nationality Age example, that the system has made them more We are applying the Toyota Way and Toyota Global hold 65.8% of Toyota’s overseas executive positions. Diversity aware of time and thus more effi cient when working, Vision, incorporating them into global personnel eval- & and that they have more time to spend with family. uation systems and education. Overseas Executive Positions Held by Local Employees (%) Inclusion Childcare/ 2. Personnel management Fiscal year 2013 2014 2015 2016 2017 Local Nursing LGBT We are unifying evaluation standards and processes 60.1 64.7 62.9 62.6 65.8 employees care Diversity Management globally to ensure fairness and consistency. Our main evaluation criteria are individuals’ ability to set tasks, Non-Japanese Executives in Charge of Disability carry out tasks, manage their organization, and effec- Toyota’s employees in managerial positions are lead- tively utilize human resources as well as the level of Operations in Overseas Regions ing diversity management initiatives to create work- trust and respect that others have for them. We Region Name Title places where diverse human resources can thrive. assign and transfer human resources on a global North America Region James E. Lentz Senior Managing Offi cer Toyota seeks to develop supervisors who successful- basis, across countries, regions, and functions. Europe Region Johan van Zyl Senior Managing Offi cer Latin America & ly implement diversity management. We are working Steve St. Angelo Senior Managing Offi cer Caribbean Region to develop supervisors who understand and support 3. Development framework and education programs the values and career goals of subordinates, taking We are allocating human resources and developing

a ﬂ exible approach to management to produce executives globally. Our development of human WEB Employees (Diversity & Inclusion, Sustainability Data Book 2017, p. 66) results at the organizational level while also giving resources at overseas afﬁ liates is based on education 33 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance Initiatives for Financial Information Non-Automotive Business/Corporate History Sustainable Growth Information and Stock Information

Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Ever-Betetterer EnrichingEEnrEnric Lives Carss offC CCommunitiesCo Employees Corporate Governance Risk Management Compliance

Stable Base of Business

Employees ToyotaTooyotaa Value Values

Toyota’s Work Style Innovation: Comments from the Field

Are We Falling Behind? In 2014, in line with President Toyoda’s announcement of Toyota’s “intentional pause,” we Rolling out TNGA Aiming to make ever-better cars and enhance competitiveness under the Toyota New began reforms. First, through comparisons with other companies, we identifi ed Toyota’s Global Architecture (TNGA), we have been steadily switching over to new processes at The Realization strengths and weaknesses. We found that, while Toyota’s purchasing processes had Globally with Photos our assembly plants around the world. The lead times required to get factories up and That Propelled Us been ahead of their time in 2000, they had not changed much since then. Specifi cally, we and Comments running have shrunk dramatically over the course of the TNGA roll out, and we are now to Aim for the Top found weaknesses in horizontal global transactions and that Toyota was lagging behind working at a speed unprecedented in automobile manufacturing. We are striving to maxi- its competitors in this area. MS General Assembly mize effi ciency as we set up the TNGA globally. This necessitates sharing information Next-Generation Purchasing Our long history of diligently working to reduce costs in cooperation with suppliers as Engineering Division about problems and effective countermeasures found at the factories in Japan that Team, Purchasing Group business partners is one of our unique strengths. While reducing prices from a Genchi switched over fi rst in as close to real time as possible. If information about issues on the Genbutsu (onsite, hands-on experience) perspective is the core of this work, when we ground is shared only after things have settled down, it will be too late to prevent the closely examined buyers’ workfl ows, we found that a great deal of time was tied up with same kinds of problems from cropping up elsewhere. paperwork before they even got to that stage. To deal with this, we set up a dedicated internal SNS for TNGA where we could post To address this, we have been breaking down the entire division’s work process fl ows, and share photos and video from security cameras with comments. This has enabled the including those overseas, by degree of depth and detail, reorganizing them into new pro- sharing of information from the plants involved in the fi rst wave of transition in Japan with cesses with the aim of globalizing purchasing operations. The realization that we were those overseas in later waves as well as sharing between overseas plants. Furthermore, falling behind other companies propelled us forward, providing the urgency needed to automatically sharing the information on the SNS with equipment specialists in Japan has tackle major reforms. helped us get expert comments and advice whenever needed. This system is the product of Toyota’s corporate culture of helping those in trouble and offering mutual support, and we expect it to positively impact human resource development, as well.

Finding My Own I serve as a team leader for conveying operations on the engine production line. My hus- Finding New Ways to I live with my wife, who has an offi ce position, and our two year old. At work, I serve as band, like me, works on the shop fl oor, and we have a 10-year-old at home. My husband the team leader of a cost planning team, and my wife and I both use the FTL* system to Leadership Style by and I strive to ensure our child isn’t left alone, even when the two of us have back-to- Work Thanks to balance childcare and work. Balancing Work back shifts on a two-shift schedule. Telecommuting Everyone on my team, including those without children, uses the FTL system. I use the and Home I think that my ability to communicate effectively with my colleagues to facilitate our system to go home early, take care of childcare tasks, then work at home. To improve work is a strength of mine. I wasn’t always the leader type, though; those who knew me MS Product Planning Division productivity by using time more effectively—one of the advantages of the FTL system— Natsumi Kakiuchi when I fi rst came to Toyota might hardly recognize me now. When I became a parent, Shinya Mori focusing on results at the team level is crucial. To that end, I think it’s necessary to share Engine Manufacturing there were certain things that, for the sake of my child, I was determined not let slip, no common work practices so that anyone can tell where things stand, no matter where matter what. I think that being a parent gave me that strength, which I am now able to they are or when they check. The FTL system has been greatly benefi cial, allowing me to Division 1, Kamigo Plant apply at work. Still, juggling work and childcare really is hard. It has shown me, though, maintain my output at work while increasing the time I spend with my family. that with the right tweaks both at work and at home, anyone can become a leader. It’s * Free Time & Location: A new telecommuting program launched in October 2016 important to create an atmosphere in which everyone at work is supportive, even if, for example, someone suddenly has to take a day off. And in return, those juggling both work and home responsibilities will strive to do what they can, as best they can. I think that this kind of mutual understanding and support will help women and other employees juggling home responsibilities excel.

34 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance Initiatives for Financial Information Non-Automotive Business/Corporate History Sustainable Growth Information and Stock Information

Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Ever-Betetterer EnrichingEEnrEnric Lives Carss offC CCommunitiesCo Employees Corporate Governance Risk Management Compliance

Stable Base of Business

Corporate Governance ToyotaTooyotaa Value Values

Toyota’s Corporate Governance (Emphasizing Frontline Operations + Multidirectional Monitoring) Fundamental Approach Toyota is a company with an Audit & Supervisory Board. Three of the nine members of Toyota’s Board of Directors are outside members, and three of the six members of its Audit & Supervisory Board are outside members. In addition to auditing carried out by the Audit & Supervisory Board and an external accounting auditor, Toyota incorporates Toyota regards sustainable growth and the stable, the perspectives of diverse stakeholders, including outside experts, to deliberate on and monitor management and corporate conduct. long-term enhancement of corporate value as essential management priorities. Building positive relation- Shareholders’ Meeting ships with all stakeholders (including shareholders, Appointment customers, business partners, local communities, Appointment and employees) and consistently providing products that satisfy customers are key to addressing these Board of Directors: Executive Appointment Meeting/ priorities. To this end, Toyota constantly seeks to Audit & Supervisory Board: 9 including 3 outside directors 6 including 3 outside Suggestion Executive Compensation Meeting enhance corporate governance. Moreover, the Audit & Supervisory Board Members Audit Decision making and management oversight Company complies with the general principles of the Corporate Governance Code promulgated in June Appeal/Report Supervise 2015. The specifi cs of these efforts are discussed by Operating Offi cers the Corporate Governance Meeting and reported to External Accounting Auditor Operational Execution the Board of Directors. International Advisory Board Audit for consolidated fi nancial Business Units Advice statements and internal control Audit Head Offi ce over fi nancial reporting In-house companies Labor-Management Council/ Dialogue Joint Labor-Management Round Table Conference Supervise

Corporate Governance Council Audit Governance and risk management

Report Disclosure Committee Internal Auditing Department Disclosure control systems Internal control systems

external environment. Toyota introduced region- viewpoint (the existing region-based business units The Corporate Governance Meeting provides opera- Business Execution and Supervision based management in 2011, followed by the busi- were reorganized into this unit in April 2017). tional oversight by deliberating on issues related to the ness unit system in 2013 and the in-house company In April 2017, to accelerate decision-making and governance structure arising in the course of the Toyota has established rules governing its Board of system in 2016. business execution, Toyota more clearly delineated implementation of these growth strategies. Directors that clearly lay out the matters to be dis- the roles of the Members of the Board of Directors as Toyota has also established an International Business Execution Framework, p. 8 cussed by and reported to the Board. In accordance More details decision making and oversight, and the role of exec- Advisory Board, comprising experts from around the with these rules, management execution is delegated utives as business execution. world. The board provides advice on management to operating ofﬁ cers, helping to ensure rapid decision Under the in-house company system, product- The Corporate Planning Meeting operates under issues from a global perspective as needed. Toyota making and appropriate oversight. based in-house companies handle integrated opera- the Board of Directors. This meeting considers growth also deliberates on and monitors management and With the aim of achieving the Toyota Global Vision, tions spanning from product development to strategies, factoring in the positive impacts that corporate conduct from the diverse stakeholder per- Toyota has been implementing ongoing revisions in production. These companies work with the Business Toyota’s operations have on various social issues, and spectives provided by a wide variety of meetings, its operational framework in order to quickly respond Planning & Operation Unit to promote the develop- works with management to promote CSR and such as the Labor-Management Council/Joint Labor- to the unprecedented rapid changes occurring in the ment of ever-better cars from the customer’s enhance corporate value on a Company-wide basis. Management Round Table Conference. 35 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance Initiatives for Financial Information Non-Automotive Business/Corporate History Sustainable Growth Information and Stock Information

Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Ever-Betetterer EnrichingEEnrEnric Lives Carss offC CCommunitiesCo Employees Corporate Governance Risk Management Compliance

Stable Base of Business

Corporate Governance ToyotaTooyotaa Value Values

relevant fi scal year’s consolidated operating income, Directors, after which they are reported to and comprehensively taking into account dividends, the discussed by the Board of Directors. In fi scal 2017, Board of Directors Audit & Supervisory Board levels of bonuses for employees, trends at other these evaluations found that the Board was effective. companies, medium- to long-term business perfor- The insights gleaned from these evaluations regard- Toyota’s Board of Directors comprises nine members, Toyota has adopted an Audit & Supervisory Board mance and past remuneration. Because the role of ing information sharing and administration are being three of whom are outside members. The Members system. The six Audit & Supervisory Board Members Outside Members of the Board of Directors includes used in fi scal 2018 to further improve effectiveness. of the Board of Directors are selected based on com- (including three outside members) play a key role in monitoring and supervising management from an prehensive consideration of suitability with the aim of Toyota’s corporate governance by undertaking audits independent standpoint, they are not paid bonuses. ensuring prompt, appropriate decision making and in line with the audit policies and plans established by Director remuneration and bonuses are decided by Fundamental Approach to and appointing the right person to the right position. said board. Toyota’s appointments to the Audit & the Board of Directors with reference to proposals Maintenance of Internal Control Systems Toyota believes that it is crucial to appoint individuals Supervisory Board are based on the belief that candi- submitted by the Executive Remuneration Meeting, who comprehend and are capable of putting into dates must offer broad-ranging experience and half the members of which are Outside Members of Basic Stance on System for Ensuring Appropriate practice its core concepts of making ever-better cars insight, particularly in their respective fi elds of exper- the Board of Directors. Business Operations and Genchi Genbutsu (onsite, hands-on experience). tise, and be able to audit business execution and Remuneration for Audit & Supervisory Board Toyota and its subsidiaries work to foster a sound Moreover, these individuals must be able to contrib- advise management from a fair and neutral stand- Members consists only of fi xed basic payments and corporate culture based on the Guiding Principles at ute to decision making aimed at sustainable growth point. Toyota’s Executive Appointment Meeting, half does not include bonuses. As a result, this remunera- Toyota and the Toyota Code of Conduct. Toyota inte- into the future. Toyota’s Executive Appointment the members of which are Outside Members of the tion is not readily impacted by business performance, grates the principles of problem identifi cation and Meeting, half the members of which are Outside Board of Directors, makes recommendations to the helping to ensure independence from management. Kaizen into its operational processes and continuous- Members of the Board of Directors, makes recom- Audit & Supervisory Board regarding such appoint- Remuneration for Audit & Supervisory Board ly strives to develop employees who will put these mendations to the Board of Directors regarding such ments. Three individuals, all of whom are registered Members is determined by the Audit & Supervisory principles into practice. appointments. In order to ensure that outside per- as independent offi cers with the relevant fi nancial Board within the scope determined by resolution of spectives are adequately refl ected in management instruments exchanges, have been appointed as the Shareholders’ Meeting. System to Ensure Appropriate Operations decision making, the Company has three Outside Outside Audit & Supervisory Board Members. When Toyota endeavors to maintain and properly operate Members of the Board of Directors, all of whom are selecting Outside Audit & Supervisory Board a system for ensuring the appropriateness of business registered as independent offi cers with the relevant Members, Toyota considers candidates in line with Analysis and Evaluation of operations as a corporate group in accordance with fi nancial instruments exchanges. When selecting the requirements set forth in the Companies Act as the Effectiveness of the Board of Directors its Basic Policies on Establishing Internal Controls. Outside Directors who will serve as independent offi - well as the standards of independence established by Each fi scal year, Toyota inspects the maintenance and cers, Toyota considers candidates in line with the the relevant fi nancial instruments exchanges. Based on instruction given by the Chairman of the implementation of internal controls to confi rm that the requirements set forth in the Companies Act and the Board of Directors, the Secretariat of the Board of organizational units responsible for implementing Directors conducts quantitative analyses of the exe- internal controls are functioning autonomously and standards of independence established by the rele- Remuneration of Members of the Board of vant fi nancial instruments exchanges. Toyota’s cution of the Board of Directors’ duties, followed by a enhancing said controls as necessary. The fi ndings of Directors and Audit & Supervisory Outside Members of the Board of Directors draw on survey of the members of the Board of Directors and these inspections are reviewed by the Corporate Board Members their broad experience and insight, including their Audit & Supervisory Board on the execution of such Governance Meeting and Board of Directors. respective fi elds of expertise, to inform decision mak- Basic remuneration and bonuses for Members of the duties and its oversight. Furthermore, based on the ing from a perspective that is independent of busi- Board of Directors are effectively linked to corporate results of this survey, the secretariat conducts individ- For further information on Toyota’s fundamental ness execution. performance while refl ecting individual job responsi- ual interviews with the Outside Members of the Board approach to internal control systems and the mainte- bilities and performance. Remuneration standards in of Directors and the Outside Members of the Audit & nance of such systems, please refer to “IV. Basic each member’s home country are also taken into Supervisory Board. The Secretariat of the Board of Approach to Internal Control System and its account when determining remuneration amounts Directors compiles the results of these efforts and Development” in the Corporate Governance Report. and methods. Bonuses are paid based on the presents them to the Chairman of the Board of WEB Corporate Governance Report

36 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance Initiatives for Financial Information Non-Automotive Business/Corporate History Sustainable Growth Information and Stock Information

Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Ever-Betetterer EnrichingEEnrEnric Lives Carss offC CCommunitiesCo Employees Corporate Governance Risk Management Compliance

Stable Base of Business

Corporate Governance ToyotaTooyotaa Value Values

Board of Directors and Audit & Supervisory Board Members (As of June 14, 2017)

Chairman of the Board of Directors Members of the Board of Directors Full-Time Audit & Supervisory Board Members Outside Audit & Supervisory Board Members

Takeshi Uchiyamada Didier Leroy Ikuo Uno Masaki Nakatsugawa Yoko Wake Outside and Independent Director Outside and Independent Member

Vice Chairman of the Board of Directors

Shigeru Hayakawa Shigeki Terashi Haruhiko Kato Masahiro Kato Teisuke Kitayama Outside and Independent Director Outside and Independent Member

President, Member of the Board of Directors

Akio Toyoda Osamu Nagata Mark T. Hogan Yoshiyuki Kagawa Hiroshi Ozu Outside and Independent Director Outside and Independent Member

37 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance Initiatives for Financial Information Non-Automotive Business/Corporate History Sustainable Growth Information and Stock Information

Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Ever-Betetterer EnrichingEEnrEnric Lives Carss offC CCommunitiesCo Employees Corporate Governance Risk Management Compliance

Stable Base of Business

Risk Management ToyotaTooyotaa Value Values

Beneath the global CRO are regional CROs activities, review and report on major current risk Business and Other Risks Fundamental Approach appointed to oversee specifi c regions, and each items, and review the status of improvements and Industry and Business Risks region has its own risk management structure. reinforcements to each region’s risk management • The worldwide automotive market is highly competitive • The worldwide automotive industry is highly volatile Toyota has been working to reinforce its risk manage- Within the head offi ce, risk management is system. Reports are also made on the status of initia- • Toyota’s future success depends on its ability to offer ment systems since the series of recall issues in assigned by function to chief offi cers and risk manag- tives to address imminent and serious risks with new, innovative and competitively priced products that 2010. In June 2010, Toyota established the Risk ers, while in each in-house company, risk manage- global implications. In these ways, the meeting meet customer demand on a timely basis • Toyota’s ability to market and distribute effectively is an Management Committee (now the Corporate ment is assigned to the company president and endeavors to manage and prevent risk. integral part of Toyota’s successful sales Governance Meeting) and appointed risk managers company risk managers. These individuals coordinate In addition, the meeting advances special mea- • Toyota’s success is signifi cantly impacted by its ability to maintain and develop its brand image for the global group and each business division as and cooperate with the regional head offi ces. sures related to information security and business • Toyota relies on suppliers for the provision of certain sup- part of global measures to prevent and mitigate the continuity management (BCM), areas in which the plies, including parts, components, and raw materials impact of risks that could arise in the course of busi- Corporate Governance Meeting level of risk facing corporations has been growing in • The worldwide fi nancial services industry is highly competitive ness activities. Toyota established the Corporate Governance recent years. • Toyota’s operations and vehicles rely on various digital Meeting in April 2015 as a business supervisory Risks related to Toyota’s businesses and other fac- and information technologies body. The meeting discusses the governance struc- tors that could signifi cantly impact the decisions of Financial Market and Economic Risks Organization and Structure ture with the goal of ensuring the success of growth investors are listed in Toyota’s Form 20-F under the • Toyota’s operations are subject to currency and interest rate fl uctuations and business strategies in light of a wide range of categories Industry and Business Risks; Financial • High prices of raw materials and strong pressure on Toyota’s Appointment of Risk Management Personnel social challenges. Two of the yearly meetings of the Market and Economic Risks; and Regulatory, Legal, suppliers could negatively impact Toyota’s profi tability Toyota has appointed a global chief risk offi cer (CRO) Corporate Governance Meeting are attended by the Political, and Other Risks. • A downturn in the fi nancial markets could adversely affect Toyota’s ability to raise capital to head global risk management and established a regional CROs, all chief offi cers and all in-house com- Regulatory, Legal, Political, and Other Risks structure under the global CRO to monitor risk on pany presidents. This practice is intended to aid in WEB Risk Management (Sustainability Data Book 2017, p. 133) • The automotive industry is subject to various governmen- a daily basis. This structure enables the Company to the initiation of action to prevent risks. Meeting partic- tal regulations WEB Form 20-F for the year ended March 31, 2017 respond immediately in the event of an emergency. ipants comprehensively identify risks to business • Toyota may become subject to various legal proceedings • Toyota may be adversely affected by natural calamities, political and economic instability, fuel shortages or interruptions Organizational Diagram of Risk Management in social infrastructure, wars, terrorism, and labor strikes Board of Directors

RiskRisk managementmanagement Corporate Governance Meeting ChaChairman:irman: GlGlobalobal CCRORO EExecutivexecutive Vice President SShigekihigeki Terashi

Respective groups Respective Respective regions (functional) companies

Regional CROs Chief ofﬁ cers Presidents

Collaboration Collaboration Regional Secretariats Companies’ functions for functions risk managers

Collaboration

38 TOYOTA Annual Report 2017 Table of Contents Message from the President Long-term Strategy At a Glance Initiatives for Financial Information Non-Automotive Business/Corporate History Sustainable Growth Information and Stock Information

Initiatives for Sustainable Growth Corporate Philosophy Making Ever-better Cars (TNGA) Taking on the Future Toyota Environmental Challenge 2050 Aiming to Be the Best in Town Ever-Betetterer EnrichingEEnrEnric Lives Carss offC CCommunitiesCo Employees Corporate Governance Risk Management Compliance

Stable Base of Business

Compliance ToyotaTooyotaa Value Values

Meeting and used as a basis for further improvement. Fundamental Approach Organization and Structure Checks to Enhance Compliance By incorporating improvement initiatives into each year’s action plans, we ensure that these checks lead The Guiding Principles at Toyota state that Toyota Toyota established the Corporate Governance In fi scal 2009, Toyota began implementing internal to ongoing positive action. shall “honor the language and spirit of the law of Meeting in April 2015 as a business supervisory checks to enhance its compliance structure. In fi scal Moreover, subsidiaries are visited in order to keep every nation and undertake open and fair business body. The meeting discusses governance structure 2010 these checks were extended to subsidiaries in track of their compliance efforts and provide them activities to be a good corporate citizen of the world.” with the goal of ensuring the success of growth and and outside Japan. Since then, these checks have support as needed. Toyota believes that by adhering to this principle in its business strategies in light of a wide range of social been carried out and improved upon every year. actions, it can fulfi ll its corporate social responsibility challenges. Matters related to compliance are dis- Results are reported to the Corporate Governance and ensure compliance. cussed by this meeting. WEB Compliance (Sustainability Data Book 2017, p. 138) In accordance with its basic internal control policies, Toyota promotes initiatives centered on the construction of frameworks, including the adoption and enforcement of the Code of Conduct as well as edu- Organizational Diagram Activity Diagram cation and other means of human resource development. Toyota has also established consultation Within Toyota (HQ) Distribution and Subsidiary Second-tier subsidiary hotlines; any concerns that are reported to said hot- Board of Directors collection of inspection sheets lines are assiduously addressed to ensure that no Secretariat and Self- Incorporation Self- Incorporation specialized divisions inspections into policy inspections into policy potential problem is overlooked. Individual

Divisions managing subsidiaries P P divisions Feedback Toyota Code of Conduct AD AD The Toyota Code of Conduct (adopted in 1998 and Corporate Planning Corporate Governance Self- Incorporation Support for revised in March 2006) outlines the basic frame of Meeting Meeting inspections into policy improvement C C mind that all Toyota personnel should adopt and sets P forth concrete guidelines to assist them in upholding Major company-wide issues relat- Self improvement Self improvement ing to overall corporate ethics, the Guiding Principles at Toyota and doing their part compliance, and governance AD to ensure that Toyota carries out its corporate social C responsibility. A booklet containing the Toyota Code of Conduct is distributed to all employees to better Self improvement enable them to put the code into practice in their own lives both at work and in the community.

WEB Toyota Code of Conduct

39 TOYOTA Annual Report 2017