Our organization has continued to provide third-party opinions on this company's reports for more than 10 years, from its 2011 CSR Report up until this one. In Japan, it is extremely rare for this to have continued for over 10 years in the form of written comments by an NPO, so it is an opportunity for us to reaffirm our awareness of this great responsibility while also confirming its significance. However, the number of instances in which third-party opinions are attached to Integrated Reports when they are transferred to main reports is becoming fewer and fewer. We are actually not sure of the reasons for this, but since Integrated Reports are non-statutory disclosure documents just as conventional reports are, we believe that third-party opinions have the same functions now as in the past, as they are issued while reflecting the original ideas of their publishers.

According to the explanatory materials presented simultaneously with this report, the report’s theme is “Denka’s ESG-Oriented Management.” We believe that this is an appropriate theme selection, considering the formulation of the company’s “ESG Basic Policy” in November 2021, the shift from environmental management to ESG-oriented management (considered to be in agreement with sustainability management), and the publication of a report just prior to the next term of management which will begin in fiscal 2023 to further strengthen ESG-oriented management. In addition, since the company’s enthusiasm and strong intentions toward ESG-oriented management are conveyed by the President's message and dialogue, as well as the fact that ESG has been defined in the Skill Matrix for Directors, it can be seen that the designated theme has been sufficiently reflected in these categories. However, I cannot free myself of the impression that the “ESG Basic Policy” is nothing more than an introduction of just a framework, and that as the basic theme of the report, it is stated in a relatively simple manner. I believe that it should have instead presented in-depth contents and strategies related to its 13 items. Since this report is limited to conveying the enthusiasm and strong intentions of the company, in the 2023 edition I would like to see designations of KPIs and explanations of how the 13 items will be deployed within the next-term Management Plan. The report also states that preparations are moving forward to visualize the non-financial initiatives that will lead to future financial results, so I am anticipating the demonstration of how non-financial elements will be converted to “not yet financial” elements and financial elements over time with a focus on the 13 items. This is a very difficult initiative, but I believe it can be demonstrated because “key performance indicators for various business activities aimed at yielding outcomes in different time frames and how they translate into financial results” were indicated on relationship diagrams in last year’s report.

I am placing particular focus on two points. The first is the “Vision Formulation Project.” Although several projects of this type exist, special attention is being paid to its structure consisting of 44 young employees. ESG-oriented management is management that produces results over a long period of time, so I believe that it is an optimal project structure for the formulation of the vision. It has recently become common to focus on the “future generation” as a stakeholder in ESG-oriented management, so even in this sense I believe it is possible to formulate a vision that will meet the expectations of the future generation.

The second point is “Our Next Management Plan.” It consists of only one page, but includes content that catches the eye of readers. At the top of this content is the “formulation of an eight-year Management Plan for the period from FY2023 to FY2030.” Many companies in Japan have announced three-year medium-term management plans, but there has also been criticism of this three-year period as “half-hearted and insufficient” and “an underlying cause for the loss of growth potential for Japanese companies.” Today, as corporate management is shifting from management based on short- term thinking to that based on long-term thinking and ESG-oriented management, it is true that the period of three years does seem to be only a half-hearted setting. Therefore, I would like to express my deep admiration for this report which even in these conditions is promoting the formulation of a long-term eight-year Management Plan.

It was also clearly noted that materialities will be reviewed in the next Management Plan. There have recently been indications of new ways of thinking about materialities, one of which is “dynamic materialities,” indicating that materialities are not static and change with the times. I believe that the materialities identified in 2017 should of course be reviewed from this perspective. Another is the concept of “single materialities” and “double materialities.” The former are materialities that consider only the financial impacts felt by a company from society and the environment, or only the impacts that a company causes to society and the environment, while the latter are materialities that consider both at the same time. I believe that “double materialities” are appropriate as materialities to be included in Integrated Reports suited to ESG-oriented management.

There are additionally four other items that were focused on, consisting of: announcement of a roadmap aimed at achieving carbon neutrality: emphasis is being placed on transition plans even by the TCFD; “Endeavors we are better at doing than anyone else”: a statement that is simple to understand but is deep in meaning; declaration of health management: a matter becoming an important management issue as the focus on human capital is growing; and response to biodiversity: an issue that has ranked within the top 3 in a global risk forecast announced by the World Economic Forum, with a draft published by the TNFD (Taskforce on Nature-related Financial Disclosures).

If this report is evaluated overall from the above perspectives, I can say that it is a future-oriented report that inspires high expectations for upcoming initiatives and announcements. Therefore, it is essential that the report for the next term faithfully reflects the commitments made during this term.

Finally, I would like to make two suggestions that were not mentioned in the report. The first is to restructure the corporate philosophy. The company’s current corporate philosophy, “The Denka Value,” consists of its mission and action principles, yet on the other hand, its “Vision Formulation Project” discusses its core values, purpose, and mission. I believe it would be much easier to understand the corporate philosophy if it were to have a structure of 3 Ws and 1 H, or in other words:
Why: why does it exist? (Purpose),
Where: where is it heading? = (Vision),
What: what is it doing? = (Mission), and
How: how are results accomplished? = (Value).
All of these points are discussed in the project, so I believe it would be possible to construct a new corporate philosophy from them. In particular, the “Purpose” is a solid pillar of the corporate philosophy, and it is an important element that connects people to organizations, organizations to organizations, and organizations to society, through a sense of empathy. I believe it is essential for the promotion of ESG-oriented management. In addition, since the company places great importance on improving employee engagement, I am convinced that sharing a corporate philosophy which is supported by a Purpose will undoubtedly lead to positive results.

My second suggestion is to establish an ESG Promotion Department. A promotion organization is necessary to practically spread “enthusiasm and strong intentions” for ESG-oriented management. In June 2021, a revision to the Guidelines for Investor and Company Engagement by the Financial Services Agency included the addition of the text: “Has a framework been arranged to investigate and promote company-wide initiatives related to sustainability, such as the establishment of committees?”, indicating recommendations for such committee establishment. In response to these intentions, there has been an increasing number of companies that have established internal committees to promote ESG. Although there is no legal definition for such a committee, I would suggest establishing it as a third committee after the Nomination and Remuneration Advisory Committee and the Audit Committee. By directly connecting it to the Board of Directors, it could be expected that even more active discussions on ESG-oriented management would be held at meetings of the Board of Directors as well.

• Junkan Workers Club: A citizens' group whose purpose is to study from a global perspective the ideal form of a society in harmony with natural ecosystems that should be passed down to the next generation, and to research, support, and practice initiatives for the creation of a recycling-based society by local citizens, businesses, and governments. The Sustainability Workshop studies the ideal form that reports should take and provides recommendations.
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