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Fujikura Group CSR

Third-party Opinion/ Response

Third-party opinion

Hiro Motoki, President, E-Square Inc.

Hiro Motoki
President,
E-Square Inc.

In Integrated Report 2021, the Fujikura Group states that it is on the road of transformation toward completion of the 100-Day Plan, its operational turnaround plan. As also stated in detail in the Message from the CEO, the Company has established “selection and concentration” and “strengthening of governance” as key measures and I understand that Fujikura is pursuing transformation accompanied by pain. The selection and concentration process is intended to slim down operations by clarifying what to reject or select in each business domain. This is also producing benefits in the reduction of fixed costs. To strengthen governance, Fujikura has abolished the in-house company system and switched to a business unit system. By establishing the new post of Chief Operating Officer (COO), the Company is beginning to eliminate the barriers between core businesses and has embarked on a strategy to accelerate synergies. The number of directors and corporate officers has been reduced by half, bringing the percentage of outside directors to 50%. The unwavering determination to radically transform the Fujikura Group through this and other efforts is palpable throughout the Integrated Report.

The Company raises technological capabilities, long-term relationships of trust with customers, and adaptability to social changes as three advantages that provide competitive superiority as the source of value creation. If Fujikura can integrate sales, business units, manufacturing, and development and continue to present technologically based proposals that can respond to social issues and exceed the expectations of customers, the Company will be able to continue operating the customer value creation cycle reliably. Fujikura can also likely use the resilience it has developed through having overcome difficulties in the past to adapt to major changes in society.

In the Independent Opinion regarding initiatives aimed at achieving carbon neutrality last year, I pointed out the importance of expressing 2030 reduction targets and concrete measures for achieving them as a roadmap to achieving net zero CO2 emissions in 2050. The subsequent progress on this is visible. Fujikura is preparing for obtaining approval of the Science Based Targets initiative (SBTi), which guides companies in setting science-based targets.

Fujikura has taken this a step further, adding explanations of changes in the business environment as strongly related social issues on the page of each business unit, from the perspective of integrating sustainability and business. However, dilemmas and constraints, or business opportunities related to the projected increasing severity of the climate crisis, resource depletion, economic disparities, and other sustainability issues exist. I am curious to know how Fujikura recognizes these in each business strategy, and how it is responding to them.

I would like to offer the following three suggestions as points for future improvement

1.Although Fujikura has provided a general explanation of its value creation model, I would like the model to be explained in greater depth. I think that the story would be more persuasive if Fujikura also incorporated the 100-Day Plan for the operational turnaround the Company is currently pursuing and added the results of thorough discussions of the future vision of value creation at the management level. I anticipate that reflecting the many lessons learned from overcoming the crisis the Company is currently facing will result in a more robust value creation model which would differentiate Fujikura from other companies.

2.Fujikura incorporates the concept of double materiality in organizing its views on materiality specification. While incorporating this concept has visualized materiality and improved it at the discussion level, the framework of F (Finance and Future), E (Environment), S (Social), and G (Government) strikes me as too confining. I think a better approach would be to eliminate the four themes and consider the Company’s order of priority for materialities on each item from a management perspective. The reason for eliminating the four themes is that, although these themes confirm the relative positioning in the materiality matrix and the perspective of business and human rights, the only priority measure incorporated concerns employees, and this left me with a sense of discomfort about using the four themes as an assumption.

3.Concerning the pursuit of human rights due diligence, the foreseen human rights risks are specified, but I do not know where, specifically, the risks reside and what progress has been made on addressing them over the past year. The risks that the Guiding Principles on Business and Human Rights are concerned with are the risks to people, not the risk to companies. I recommend prioritizing human rights risks from the perspective of the people who could be victimized by human rights violations, and disclosing how specified prominent human rights issues are being incorporated or how the Company is working to incorporate them in business processes. In the Message from the CEO, it explicitly states that human rights are a preliminary condition for operating a business. This also shows me the high degree of consciousness of human rights. The Message from the CEO explains that Fujikura found numerous issues that the Company had not recognized as risks in the course of performing due diligence. I think it would also be good to disclose the status of consideration of such risks in detail on later pages.


As I have the opportunity to review Fujikura Group reports on an ongoing basis, I would like to express my respect for the Company’s stance on continuing to pursue sustainability regardless of business conditions. I think that further integration of elements of sustainability into business management will make an even more persuasive case for successfully enhancing corporate value over the medium and long term. The IFRS Foundation is playing a central role in beginning discussions on incorporating elements of sustainability into international accounting standards, and the movement toward mainstreaming sustainability is accelerating globally. I look forward to the pursuit of more essential management of sustainability aimed at the realization of a sustainable “Mirai” (future) society.

Hiro Motoki,
President
E-Square Inc.

Response

Akira Saita
Corporate Officer

Thank you once again for your independent opinion.
After a substantial deterioration in performance in FY2019, the Fujikura Group terminated the Mid-term Management Plan which should have extended to FY2020. We formulated the 100-Day Plan to turn around operations, which designated the key measures of “strengthening of governance” and “the unreserved selection and concentration of existing businesses.” We have worked to implement this plan since then. This 100-Day Plan has been repeatedly discussed by the Management Resource Efficiency Subcommittee headed by our President and CEO, Masahiko Ito. The subcommittee has established 112 action items thus far, and implementation of approximately 90% of those items was completed or had a direction established by the end of 2021.

In the meantime, the 26th Conference of the Parties (COP 26) of the United Nations Framework Convention on Climate Change was convened. The document recording the outcomes of COP 26 explicitly declared the intention to pursue efforts to keep the increase in average global temperature to 1.5 degrees compared to the pre-industrial era. This demands ambitious measures to combat climate change. We established Fujikura Group Long-term Environmental Vision 2050 in 2016 and are working on four challenges to minimize environmental burden as much as possible, amid such conditions. To achieve carbon neutrality, in particular, we are targeting decarbonization of our entire supply chain in addition to reducing CO2 emissions and introducing renewable energy in Fujikura. We are currently preparing for obtaining SBTi approval and will continue to focus on measures to combat climate change in the future.

We received an independent opinion from Mr. Hiro Motoki and his recommendations as an expert which mainly centered on providing a more in-depth explanation of our value creation model, considering the order of priority for materialities from a management perspective, and pursuing due diligence on human rights. We earnestly accept each of his recommendations and will have the Sustainability Strategy Council consider them as issues.
Our mission in the Fujikura Group Corporate Philosophy (MVCV) is to create exceptional value for our customers around the world using “tsunagu” (connecting) technologies. We will continue to strive to solve ESG and many other social issues.

Akira Saita
Corporate Officer

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