This year's report that meets expectations

For about 20 years, I have been writing third-party opinions on reports from several companies. During this time, my evaluation perspective has changed in response to the times, but one thing that remains constant is whether or not a report expresses the company's current and future image. Therefore, I believe that both "points that can be evaluated" and "points to expect in the future" are essential points to clarify the current and future image and improve corporate value. If the latter points are even slightly helpful and serve as an opportunity to improve corporate activities, I will be truly fulfilled as a commentator.
This report contains many results that correspond to the expectations expressed in last year's third-party opinion. I have no arrogant desire to say that the third-party opinion promoted the initiatives, but as a commentator, I found the report exciting.
In last year's third-party opinion, we stated the following "expectations."

1. The next report should faithfully reflect the current commitments.
2. Please explain how you will develop the 13 items of the ESG Basic Policy in your management plan, setting KPIs for that purpose.
3. Reconstruction of corporate philosophy system
4. Establishment of ESG promotion department

Examples of 1) include the President's message, "By having KPIs linked to time axes, we will accelerate the creation of new businesses using methods such as collaboration with startups and M&A." In this regard, financial and non-financial KPIs for 2030 have been established, and strategic investments to support those KPIs have also been indicated. Furthermore, regarding the creation of new businesses, a CVC (Corporate Venture Capital) has been established, and its background, objectives, and expectations have been described in detail.
As for 2), the relationship with materiality supporting the strategy has been clarified, and it has been conveyed that this policy is being utilized in incorporating various sustainability issues into management, including risk management and dialogue with stakeholders. Regarding KPIs, while they do not necessarily match the 13 items, non-financial KPIs related to human resource value creation and management value creation have been established and are being utilized in the management plan.
Regarding 3), the previous corporate philosophy, "The Denka Value," consisted of a mission and actions, whereas the new corporate philosophy has been presented as "OUR VISION," which encompasses core values, purpose, mission, and actions. It is particularly noteworthy that the establishment of this corporate philosophy began with discussions among younger employees.
As for 4), The Sustainability Committee was established in April 2023. I believe that this committee will promote more proactive efforts by the executive division. In the future, it may be worth considering the participation of directors beyond observers and the establishment of committees within the Board of Directors.
There are still some matters that have not yet met expectations. Last year, in response to the statement, "We are preparing to visualize non-financial initiatives linked to future finances," I expressed the hope that you would demonstrate how non-financial initiatives will transition to financial and non-financial over time. As far as I can see from the reports of Japanese companies, there are still only a few that do this. However, this is a request from investors for information on how ESG information impacts corporate earnings, rather than vague ESG information. Similar requests can be found in ISSB standards, the revised Corporate Governance Code, and Cabinet Office Ordinances on Disclosure of Corporate Information.

A report that concretely shows the "future is words, future is systems, future is participation"

This report has been significantly expanded (from 58 pages to 84 pages) in response to points raised during dialogues with institutional investors. This reflects our strong intention to overcome challenges and enhance medium- to long-term corporate value through constructive dialogue. Furthermore, we hope to convey our commitment to further deepen ESG management in the new eight-year period to stakeholders other than investors. A symbolic example of this is the establishment of new organizations (The Sustainability Committee, The Portfolio Transformation Committee, Finance Strategy Department, New Business Development Department, etc.) and our participation in various organizations (United Nations Global Compact, Green x Digital Consortium, etc.). As Director Yamamoto stated, "The future is words, the future is systems," I would like to add to this the phrase, "The future is participation." I believe that through participation, our horizons will be greatly expanded, and we will be able to establish a new corporate image that maintains global standards.
Next, I would like to mention two points that I hope to see further enhanced in the future. The first is human rights. In June 2023, you expressed your support for the UN Global Compact (UNGC), and in September, you established your Human Rights Policy and took the important step of identifying "respect for human rights" as one of your materiality issues. While I commend these efforts, it is important to recognize that this is merely the "first step." The United Nations Guiding Principles on Business and Human Rights outline the following three expectations for companies.

1. Commitment based on the policy to fulfill responsibility to respect human rights
2. The human rights due diligence process to identify, prevent, mitigate, and account for rights impacts
3. Processes that enable the correction of negative impacts on human rights caused or contributed by the company

In particular, due diligence is a very important initiative and disclosure item, and as stated in the report, I would like you to address it in a planned manner and disclose the systems and results. Furthermore, as a responsibility of companies that respect human rights, it is essential to address corrective actions, and the systems for this must also be clarified.
The second point is the disclosure of the relationship between investment in human capital and management strategies, finances, etc. In August 2022, the government published the "Guidelines for Visualizing Human Capital." I believe this is because human capital is a core element for the sustainability of society and companies, and many investors are now increasingly calling for explanations regarding human capital. One point of interest in these guidelines is the idea of "establishing a relationship between your management strategy and investment in human capital and personnel strategies (integrated story)" as one method of visualization. In this report, you also state that "it is necessary to strengthen the link between our management plan and personnel strategy." However, the analyses of those links and the results have not been disclosed. While these analyses are not easy, I would like you to take on the challenge and disclose them.
Finally, I would like to mention the disclosure of negative information. I have heard that one of the points for editing this year's report is "accident responses." However, while there are mentions of this in several places including the top message, I feel that the impression it leaves on readers is rather weak considering the seriousness of the accidents. I believe that, following the top message, you should allocate pages in the main text to summarize the facts of the two incidents, the causes, and the measures to prevent recurrence. Furthermore, from next year's report onward, I would like you to provide verification reports on the effectiveness of the measures to prevent recurrence.

• Circulating Society Study Group:
  A civic organization that considers the way of a society in harmony with natural ecosystems that should be passed on to the next generation from a global perspective, and conducts research, support, and practice for the formation of a circulating society by citizens, businesses, and government in local communities. At the sustainability workshops, the group studies and makes proposals for the ideal form of reports.
  URL:http://junkanken.com/