CSR

Fourth Stakeholder Dialogue

We’d like to hear your recommendations as an expert, as to what themes we should address in the CSR Priority Measures that will be taken up in the 2020 Medium-term Plan, ending in the 2020 financial year.

Looking to the future, there will be many new environmental constraints emerging. We can expect not only global warming but resource constraints, chemical risks, and ecological collapse. At the same time, societal constraints will arise, including stricter regulations and guidelines, together with increasing scrutiny from citizens and overseas NGOs, resulting in an emphasis on ESG by investors. In the future, managers will need to balance improving the value of their company with improving environmental and social values, without running into the barrier created by increasingly severe environmental and social constraints. There’s a certain excitement that comes with shifting methods of corporate management towards a more sustainable direction. Still, we are in a difficult era. In particular, when seen from the viewpoint of investors trying to evaluate corporate value over the medium to long term, non-financial areas such as environmental initiatives, together with human capital aspects like human resources, skills, and motivation, are all important. In the future, it will be the addition of technology and the elements of various business models that will create corporate value. Conversely, when we talk about finance, we talk about the very tip of the pyramid created by these factors: that is, the results of the previous year’s performance. Investment professionals operating in the long term look long and hard at the non-financial information that makes up a company’s foundation, investing their money in companies that satisfy those conditions. Given that, I believe that ESG information is crucial, and that we must examine what it is that long-term investment institutions look at and operate on.

Which means that if companies don’t take on ESG from an investor's point of view, there is a possibility of difficulties arising in terms of financing and so on.

What are your thoughts on governance, our second sub-theme?

Companies might receive feedback after publishing and distributing CSR reports and integrated reports regarding the various CSR activities they’ve worked on, incorporating said feedback internally and developing it across each department, but if they focus only on reporting, they won’t go any further than the report itself, and if they focus only on internal efforts without proper reporting, those efforts won’t lead to any external value. Like a bicycle, you need to have both wheels turning to get anywhere. This is CSR communication, and when looking at information dissemination, there are a number of different ways you can put the information out there, depending on which stakeholders you are targeting. In an integrated report, you distill the financial and sustainability reports, take from them the essence that’s needed to look ahead into the future, and think about what’s important on a management level. Reporting is needed that examines the company from a board-level viewpoint and integrates the question of what is crucial. You show these in your report without being bound to the framework of a given field or department. Turning our view overseas, with the 2014 EU directives, we are now obliged to disclose a variety of non-financial information related to the environment, social and employee relations, human rights, corruption, and bribery, as well as policies, governance, risks, and achievements related to diversity on the board of directors. As another important trend, there is a plan for the UN to adopt Sustainable Development Goals, commonly called SDGs, in September 2015 (note: adopted at the United Nations Summit in September 2015). This may be a decision made by nations, but it’s important for enterprises to look ahead and see how they can contribute through their business activities.

If stakeholders’ outlooks, or stakeholders’ principles, become more and more critical, companies unable to quantify their activities will fall short on investors’ yardsticks. It’s important to make these varied ESG activities visible and viewable.

Yes, making these activities visible to investors is key. Fundamentally there are a variety of themes, for example the environment, supply chains, and human rights, but what stakeholders want to see first and foremost is whether or not there is a policy in place; that is, whether or not the company has a firm conception. Realizing this policy in a written form is important.

Next, let’s take a look at the social dimension of CSR.

I’d like to take a look at human rights and diversity. Taken literally, a “human right” is a right you have by merit of being a human. Reading more deeply, human rights encompass the right of all people to live like human beings. There are many different kinds of rights, including the right to the protection of privacy, the right to cultural practices and ways of life, the right to elect your leaders, the right to leisure, and so on, but collectively they are all human rights and represent a very serious issue.
Human rights as they are sought now represent an incredibly broad range of rights, and people have been questioning human rights across the entire length of the value chain. Within global society, Japan is actually considered to be a country where human rights exist in a notably fragile state. As an example, even though the US Department of State human rights evaluation placed most developed countries in the top tier, Japan was rated quite low, at "the same level as some developing countries that face human rights risks." Many different activities are taking place at the UN level, policies and guidelines have been produced, and conditions indicate considerable progress with these efforts on a global scale. For diversity, sound progress works to a company’s advantage in many ways. It ties to the acquisition and retention of exceptional talent and eventually leads to an improved corporate image. There is a demand for companies to take on a variety of people in their role as corporations.

Fujikura is a manufacturing group, and our company consists of about 80% engineers, many of whom are electromechanical engineers and very, very few of whom are women. I feel that if we can create a better workplace for female employees, this will naturally lead to a more pleasant workplace environment for other groups, too, including employees from overseas.

Our last sub-theme today is environment. What are your thoughts?

Setting a national target [for CO₂ emissions], Japan has said it will cut emissions 26% by 2030 when compared to 2013 levels. For the long term, industrialized countries including the US have created a roadmap for an 80% or greater reduction by 2050, with the US setting targets for 2020 and 2025 in expectation of this. Looking at it from a corporate perspective, there is data that shows better performance among those companies progressively working on climate change. Companies in the top quartile for CDP (Carbon Disclosure Project) scores have an 18% higher ROE than companies in the bottom quartile and a 67% higher ROE than companies that did not answer. In addition, these top quartile companies show larger shareholder dividends, including 50% less pre-tax profit variability when compared with bottom-quartile CDP score companies. In regards to water, during the global risk discussions at the 2015 World Economic Forum, water risk emerged as number one among those posing the greatest potential global risk. Concerns regarding water risk have skyrocketed internationally, and a variety of consortiums and other groups have been formed by global companies and NGOs. Even the CDP has strengthened its water initiatives by beginning evaluations and scoring as of this year. These trends are not transient, and companies should hurry to incorporate company-wide mechanisms for the collection of CO₂ and water information. Also, it isn’t enough to focus on one’s own company: suppliers must also be taken into consideration, With regard to carbon emission, participating investors at the Montreal 2014 session of the UN-created PRI (Principles for Responsible Investment) began to estimate from an investor’s viewpoint how much CO₂ was emitted by the companies they invest in. Investors are now shouldering the responsibility as well, and they need to know what the CO₂ emission levels are for the companies included in their investment portfolios. I believe that information disclosure will become increasingly important.

In order to formulate the 2020 Medium-Term CSR Priority Measures, representing priority issues to be addressed in the five-year span concluding in 2020, the Fujikura Group CSR Committee hosted the stakeholder dialogue presented above, receiving extensive advice with an eye to 2020 from Mr. Motoki, CSR expert and president of E-Square. Using these suggestions as a foundation, we conducted numerous sessions of deliberation and examination from a variety of angles, setting forth our 2020 Medium-term CSR Goals and 2020 Medium-term CSR Priority Measures as laid out below. The CSR Committee began this review process in April 2015, having reached an organizational conclusion in May 2016 after a year-long period of examination.

"The realization of the Fujikura Group that the international community highly appreciates, including investors."