A report that fully depicts the Company-Wide Reform Campaign aimed at returning to a growth trajectory

Reading through Denka Report 2024 ("the Report"), the key word that left an impression on me is "reform." Well-received reports share the feature of clarifying what the report intends to convey to the readers, and why it aims to do so. In Denka Report 2024, one is able to see “Denka's reform for returning to a path of growth”. As quoted by the president with the words "Every great company is born in winter", every part of the report, including the president's message, conveys the determination and enthusiasm for reform in order to be "born in a winter". In undertaking reform, specific actions and processes leading to the achievement of reform are essential, along with determination and enthusiasm. These are described in detail in the Report. In one example, in the area of new business creation that Denka views as a materiality, the company launched a Business Idea Contest as a component of its Company-Wide Reform Campaign. The report presents a new business roadmap that incorporates the outcomes of this initiative, and convincingly describes the increasing sophistication of its mechanism. I anticipate the creation of an even more finely detailed roadmap in the future.
I also evaluate the report positively for the inclusion of messages from the president as well as from other managers. These include messages from the CxOs, the Chairman of the Board, executive officers, outside directors, officers, and department heads. Messages from CxOs and outside directors attract attention not only from investors but also from many stakeholders. This is likely because expressing one’s perceptions and determination in the first person has the power to dispel stakeholders' anxieties and doubts and further build their trust.
The way that this year’s report included information on the two negative terms also came across as sincere and substantial. In my third-party opinion on last year's Report, I noted that in response to the message from the president, "a full page should be dedicated to providing information on the background behind the two incidents, investigation into the causes, and measures taken to prevent recurrence." This is covered to an adequate degree in this year’s Report. From next year, I hope to see reports that verify the effectiveness of measures to prevent recurrence, ensuring that the awareness of these incidents does not fade into the background over time.
The current Report's discussion of materiality has also been enriched. About 90% of companies' integrated reports identify materiality. This is because companies view the identification of materiality as playing a vital role in enhancing the quality of communication, including highlighting core challenges and opportunities faced by organizations and clarifying value creation strategies aimed at achieving vision. However, in many corporate reports, the analysis of materiality evaluation is carried out in an unclear manner, with materiality becoming a matter of “disclosure for the sake of disclosure”. This renders the effect of promoting management reforms originating in disclosure unlikely. Therefore, reports must present materiality linked to key management issues. Last year's Denka Report linked materiality to the Denka Group ESG basic policy and directions for solving issues. This year's report further links materiality to the three growth strategies of the company's management plan.
In writing this third-party opinion, I read Denka Report 2024 together with the company's Sustainability Book, which states, "Denka will proactively disclose information that it deems useful to stakeholders, even if such information is not required to be disclosed by law or regulation". In line with this statement, the amount of information disclosed in the Report is abundant. The disclosed information includes items not often seen in other companies' reports, such as a list of subsidies provided, minimum wages for new employees, and ratios of minimum wages to regional statutory minimums.

Establishing integrated thinking and enhancing the resolution of value creation stories

I have mentioned several points that I evaluate positively, but criteria for the evaluation of reports are becoming increasingly advanced. For this reason, it is vital that progress never halts in continuous improvement. In improving Denka Report, I see increasing the resolution of the company's value creation story as a key point. While all company reports address this point, the Ministry of Economy, Trade and Industry's June 2024 interim report of the Round Table Conference on Ideal Approaches to Information Disclosure of Companies points out that not all integrated reports fully achieve essential disclosure in terms of conveying value creation stories. In report evaluations by investors, there are voices saying that evaluation hinges on the increasingly important question of whether the report depicts a story, not obtainable through statutory disclosures, of the company enhancing its corporate value on the basis of the uniqueness of its business model. (See "Perspectives and Key Points on Evaluations and Approaches in the Selection of Excellent Integrated Reports and Most-improved Integrated Reports," Government Pension Investment Fund (GPIF).) Accordingly, it would be no exaggeration to say that the evaluation of a report rests on the success or failure of the report's value creation story. The heart of an integrated report lies in its value creation story.

To create a storyline, it is important that a report is conscious of the continuity of disclosed items. However, when a report discloses a large volume of information, as the Denka Report does, precisely connecting all of that information can be challenging. Likewise, it is surely difficult for Denka to convey its value creation story in a simple manner due to its multiple business models. While companies approach these issues through their individual methods and refinements, I think that effective actions include (1) showing connections centered on materiality, (2) presenting value creation as a logic tree and explaining that tree, and (3) composing the report under what is known as the octopus model. As these actions require a foundation of integrated thinking, the establishment of that integrated thinking is the first step.
There is a growing awareness that human capital is a vital factor in the enhancement of corporate value. In the area of human capital, the Ministry of Economy, Trade and Industry's ITO Report for Human Capital Management encourages more proactive disclosure linked to management strategy, stating that, in the era when human capital serves as the source of competitiveness, each company needs to quantitatively ascertain and evaluate its human capital and people strategy from the perspective of coordination with the corporate strategy and disclose and disseminate the data and results to stakeholders. In Denka Report 2024, the CHRO's message calls for the integration of management and human resources strategy. This sentiment is in line with the intent of the ITO Report. However, while I can understand Denka's human resources strategy, I find it difficult to read the noted integration into the Report. I hope for the visualization of the linkage of the two strategies in future descriptions.

• Junkan Workers Club, Specified non-profit corporation:
  A citizens’ group that adopts a global perspective to examine the nature of society in harmony with the natural ecosystem that should be passed down to the next generation. It engages in research, support, and practice involving initiatives by regional citizens, businesses, and government administrations aimed at the formation of a recycling-based society, and holds Sustainability Workshops to conduct research into and present recommendations on optimum report formats.
  URL:http://junkanken.com/

Career Summary

After 25 years with a newspaper company, Tamio Yamaguchi moved to an environmental startup company, then started freelance work after working at a publishing house. He has pursued ideal methods of information disclosure by companies as a university lecturer and participant in NPO activities, while conducting lectures, presenting papers, writing third-party opinions, and consulting.
His published works include "Kankyō keiei e no kiseki (A Path to Environmental Management)," "CSR hōkoku-sho no dōkō to kisai jirei-shū (CSR Report Trends and Examples)" (2010-2017), "Nihon no hōkoku-sho: Dōkō to jirei-shū (Reports in Japan: Trends and Examples)" (2018-2019), "Kōka ga mieru CSR jissen-hō (Methods of Effective CSR Practice)" (co-authored), and "Kankyō soryūshon kigyō sōran (Overview of Environmental Solutions Companies) Vol. 1–6" (co-authored).