Dialogue between the CEO and Outside Expert

Toward the Sustainable Development of Society and the Improvement of Corporate Value

President Kohei Morikawa of Showa Denko talked with Integrex Inc.’s President One Akiyama, a close follower of ESG investor trends. The two met at the Showa Denko's head office in June 2018.

Trends in ESG investment and sustainability of companies

写真:対談

Akiyama : The Principles for Responsible Investment (PRI) launched with the support of the United Nations in 2006 has moved investors to evaluate companies from ESG viewpoints.
The PRI is an initiative that calls for declarations of a commitment to incorporate ESG viewpoints in investment decision-making.
Lots of institutional investors are signatories to the Principles and the total amount of assets managed by these signatories is said to reach 80 trillion dollars. According to the PRI, environmental, social, and governance (ESG) issues are common to all companies and have a substantial influence on their sustainable growth.

Morikawa : The chemical industry produces things that do not exist in nature and it should therefore take a proportionately heavy share of responsibility. Based on this recognition, the industry has long been taking measures for the creation of a sustainable society, and Showa Denko too has been conducting Responsible Care (RC) activities on a company-wide basis since 1995 as voluntary activities to give due consideration to the environment, safety, and human health throughout the life cycle of chemical substances, including at the development stage through to the disposal and recycling stages.

Akiyama : In the past, companies conducted environmental activities mainly to minimize the environmental impact of their own business activities. Since several years ago, however, more attention has been paid to environmental contributions made by companies through their products and services.

Morikawa : In accordance with changes in society, what is expected of companies has also been changing. The international community now expects companies to contribute to the achievement of the Sustainable Development Goals (SDGs), which are a collection of 17 global goals to be met by 2030. What Showa Denko aims to achieve is certainly in line with the SDGs. As a company in the manufacturing industry, Showa Denko will of course fulfill its responsibility for “Goal 12: Responsible Production and Consumption.” Moreover, we are working to develop and supply products and services that help solve social issues, such as climate change, depletion of resources, and demographic changes.

The Showa Denko Group’s initiatives for the environment and society

写真:対談

Akiyama : For example, for the environment, what measures is the company implementing?

MOrikawa : We are chemically recycling used plastics. The recycling of used plastics into hydrogen contributes to the stable supply of hydrogen as a material for ammonia and also helps reduce the use of fossil fuels. In addition, CO2 generated in the recycling process can be used to make carbonate gas and dry ice. More than anything, we can contribute to the better treatment of used plastics discharged from households.
Graphite electrodes used in electric furnaces to melt iron scraps also contribute to the recycling of iron. By recycling iron scraps into iron, we can reduce the use of energy by 75% compared with making new iron from iron ores.

Akiyama : If employees are aware of the fact that they can contribute to the future of the Earth, society, and humankind by such development and manufacturing activities, it will increase their motivation for work.

Morikawa : We are committed to giving satisfaction to all our stakeholders, and employees represent a major stakeholder for the company. I believe that the management team should provide employees with comfortable workplaces as its responsibility. The Showa Denko Group regularly conducts a survey on employees’ work satisfaction and implements firm-wide measures to solve any problems identified through the survey. I also take the view that it is one of my missions as a top executive of the company to communicate my ideas directly to employees. Accordingly, whenever I visit company bases located in Japan and abroad, I always take time to talk with local employees.
Moreover, we have assigned female employees to a range of workplaces, including manufacturing and other on-site work facilities. We are striving to improve our workplaces for employees by measures such as introducing a flexible work system and providing facilities where they can rest and refresh themselves. Also, for the employment of people with disabilities, we are working on the provision of workplaces where all kinds of people can make meaningful contributions. 。

Akiyama : Work style reforms have recently been attracting a lot of attention. It is important for employees to work efficiently in order to have their own time and achieve job satisfaction.

Morikawa : Increasing productivity naturally helps reduce overtime work. At each base of Showa Denko, efforts have been made since 2009 to reduce employees’ working hours based on the company-wide targets set from a medium- to long-term view and in cooperation with the company’s labor union. The targets are: (1) Reduce the number of employees whose annual overtime work hours exceed 720 hours to zero; (2) Reduce the total actual working hours of each employee to less than 2,000 hours per year; and (3) Keep the upper limit set in the socalled “Article 36 Agreement” made in line with Article 36 of the Japanese Labor Standards Act to 60 hours. I expect that all our bases, including manufacturing facilities where construction and repair work might require that employees work longer hours, will achieve these targets.

Akiyama : The Showa Denko Group is unique in that it is engaged in a range of business segments, including organics, inorganics, and aluminum. I think an advantage of your company is that in-house experts in the respective fields can make “chemical reactions” to create something new.

Morikawa : As a matter of fact, we are promoting exchange across business segments, in particular among those engaged in R&D. Nobel Prize laureate Reona “Leo” Esaki said that an ideal research organization was one that existed in a state of “organized chaos,” meaning individual researchers are conducting research as they see fit, but they are all going in the same direction as an organization. I do think it is important for researchers to have a shared philosophy and shared ways of thinking regarding their research.

Values shared by employees of a manufacturing company

Akiyama : I hear that the Showa Denko Group is proactively conducting business also outside Japan and non-Japanese employees account for about 40% of its total employees. How are these employees, who have diverse cultural and religious backgrounds, sharing the same values as Group members?

Morikawa : We aim to manufacture the world’s highest-quality products with the world’s highest efficiency, and I expect employees to value compliance, occupational safety, and product quality as the basis for the Group as a manufacturer.
Specifically, I would like to accomplish the following across all Group companies, both within and outside Japan: (1) make employees alert  to safety and compliance issues; (2) provide workplaces where employees can openly come out and say, “We have a problem” or “It is unsafe”; and (3) create a corporate culture that encourages employees to make quick responses and improvements when someone points out a problem at the workplace. And to ensure corporate governance, it is becoming increasingly important to make all Group employees aware of the direction that the Group is heading.

Akiyama :  ESG investors are also showing strong interest in the measures taken by companies across their supply chains.

Morikawa : We are promoting CSR-oriented procurement among companies from which we procure materials. We set procurement guidelines and ask the suppliers to comply with them. We also ask them to conduct self-checks and visit them to understand their present situations and help them make improvements as necessary.
Since 2010, we have visited a total of 378 suppliers to have dialogue with them on compliance, BCP, and other issues. By promoting CSR measures across the supply chain, I believe that we can enhance our ability to help solve social issues.

Aiming to enhance corporate value while delivering extra value to society

Akiyama : You are thus steadily implementing measures.

Morikawa : As a result, Showa Denko was included in all three ESG indices selected by the Government Pension Investment Fund (GPIF), the world’s largest investor, in July 2017.
Moreover, Showa Denko was named one of the White 500—companies that are demonstrating excellent health and productivity management—for two years in a row and was also granted Platinum Kurumin certification. I believe we were given these honors in recognition of our past efforts.。

Akiyama : GPIF is managing assets for the future of Japanese citizens and is fostering sustainable investments by choosing companies that focus on ESG measures in the investment target. What is most important for companies is to appropriately understand how ESG issues are related to their own businesses, incorporate the findings in their medium- to long-term growth strategies, and show their scenarios for the future to investors. For the Showa Denko Group, the graphite electrode business could provide a model case. I think that the Group can earn a higher rating from ESG investors by fostering measures to continue contributing to the reduction of CO2 emissions throughout society as a whole based on its business strengths.

Morikawa : I think that each and every employee can help the company become a first-class company by making themselves first-class employees and generating first-class synergies. We call first-class businesses “individualized businesses,” that is, businesses that meet the three conditions of: (1) operating income of 10% or higher; (2) operating income of at least several billion yen; and (3) being highly competitive and not easily influenced by changes in the business environment. Individualized businesses are our driving force to achieve further growth.
We will hone our individualized businesses, create products and services that can contribute to the creation of a sustainable society, and make progress toward the sustainable growth of our company and enhancement of its corporate value.

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