Value creation story and management materiality

Value creation story

Our Corporate Philosophy is to provide safety, comfort and a sense of security in people's daily lives as well for all forms of transportation with our unique motion control technologies. The Nabtesco Way is the statement of the stance and mindset that achieves this Corporate Philosophy, as The Principles We Value. Under this philosophy and the principles , we are promoting a long-term value creation story, consisting of the Long-term Vision that illustrates our aim for 2030, Management Materiality that present the important challenges we need to work on to achieve our Long-term Vision, and the Medium-term Management Plan , which describes measures to put these to work. Through these measures we will bring innovation and improve economic value, environmental value and social value in the long-term, in pursuit of management that sustainably develops both society and our group.

Nabtesco’s value creation story

Nabtesco’s value creation story

Management Materiality

Our Approach to Management Materiality

Our group positions management materiality as the most important management issue and pursues management that can sustainably develop both society and our group by improving economic value, environmental value and social value in the long term.

To promote value creation in the long term, we deem it important to “dynamically” change its management materiality according to changes in the business and management environments. We will regularly review our management materiality so as to respond to such changes in a nimble manner. We will steadily take action concerning each management materiality item to further enhance our management foundation.

Management materiality

Structure of Our Management Materiality

Our management materiality is comprised of three pillars. By fostering financial and non-financial measures, we will keep providing value to our stakeholders, maintaining profitable growth.

For “Measures to improve our financial performance,” we will work to consistently achieve our short-term revenue targets, ensure the efficient distribution of our managerial resources, and increase our capital efficiency for the promotion of ROIC-oriented management. For “Measures to enhance our management foundation,” we have designated items that will greatly affect us financially as “ESG items having a major impact on financial issues.” We will implement measures intensively for these ESG items, considering how they are connected with our financial outcomes. We have also identified “ESG items that drive sustainability power” as elements that will provide the foundation for us to continue creating value. We will implement measures for these items to reduce risks posed to our business continuity.

Moreover, by implementing “Specific measures to achieve the long-term vision,” we will enhance our competitiveness and thereby promote our long-term growth. We will also reduce our capital costs by implementing “Measures to improve our financial performance” and “Measures to enhance our management foundation.”

Structure of Our Management Materiality

Our sustainability governance structure

To enhance our sustainability governance, our group dissolved our previous CSR Committee in 2023 to pave the way for its existence as the newly established CEO-directed Management Materiality Committee. Its chairperson and members are chosen from directors including executive officers and heads of relevant divisions, meeting at least twice a year.

The Committee oversees the progress and management of management materiality, collaborating with other CEO-directed committees “Quality and PL Committee,” “ESH Committee,” “Risk Management Committee” and “Information Security Committee,” setting targets and KPIs for management materiality items, and regularly reviewing them. The activities are deliberated and determined at the Management Committee and reported to the Board of Directors’ meeting.

The Committee also regularly reviews materiality itself and reports to the Board of Directors’ meeting. The reviewed results are deliberated at the Board of Directors’ meeting and decided upon, in order to raise the effectiveness of group-wide sustainability governance.

Structure to promote sustainability governance (as of January 1, 2024)

Structure to promote sustainability governance (as of January 1, 2024)

Management Materiality Identification Process and Regular Reviewing

Our group intensively discussed how to identify its material management issues within the Group and also had dialogues about its management materiality with multiple long-term investors and ESG-oriented investors. Based on the results, we worked to identify our material management issues by attributing importance to the following three points :

  1. 1.Has relevance to the reason for corporate existence, our corporate philosophy and long-term vision
  2. 2.Has unique features that help differentiate our company
  3. 3.Ensure compatibility between higher financial corporate value and the solution of social challenges

In 2021, in order to identify our material management issues, we worked to uncover and list the short-, medium- and long-term issues faced by our administrative departments, which are tasked with promoting company-wide strategies, by using a specific analysis framework and in consideration of the future outlook of the external environment and the managerial resources that support our value creation, both of which we examined in the process of formulating the long-term vision. We have also selected as ESG items those that are closely related to our business in reference to the evaluation items adopted by the ESG rating organizations and based on the framework and standards set for the disclosure of non-financial information. We then categorized the listed items according to their importance, time axis and financial impact. Furthermore, we conducted analyses regarding the important items related to the long-term opportunities and risks posed to each of our businesses from the aspects of the sustainability of the business model and ESG. Finally, we reorganized all the key items into our management materiality.

Identification process

Identification process

*Standards and others that we referred to:

  • International Integrated Reporting Council (IIRC): International Integrated Reporting Framework
  • Sustainability Accounting Standards Board (SASB): SASB Standards
  • Global Reporting Initiative (GRI): GRI Standards
  • ISO 26000 (Guidelines on organizational corporate responsibility)
  • Ministry of Economy, Trade and Industry: Guidance for Integrated Corporate Disclosure and Company-Investor Dialogues for Collaborative Value Creation

We regularly review the identified management materiality in order to flexibly respond to change of business and management environments.

In 2022, in order to redefine human capital as a primary source of value creation and implement integrated measures based on the new definition, we revised the human capital-related item to “Enhance human capital management” and also reviewed the actions to be taken for each related item. The results have already been approved by the Management Committee after deliberation by the CSR Committee and have also been reported to the Board of Directors. In 2023, the Management Materiality Committee reviewed progress and set action plans. The review deemed it unnecessary to change the management materiality in 2023, which was approved after deliberation at the Management Committee and Board of Directors’ meeting.

Management Materiality Indicators and Targets

The targets, indicators, key activity results and plans for respective issues concerning “Enhancing our management foundation” with relation to the management materiality are shown below.

Targets, indicators, key activity results and plans concerning sustianability

Measures to Enhance Our Management Foundation
General
Category
ESG
Category
Management Materiality items Desirable Direction
/Major Actions
Targets for FY2023
(Extracts)
Achievements in 2023
(Extracts)
Important targets for FY2024
ESG
items
having
a major
impact
on
financial issues
Enviro-nment
(E)
Countermeasures for Climate Change
  • Achieve medium- to long-term CO2 emissions reduction targets
  • Foster information disclosure in line with the TCFD (promoted scenario analysis)
  • Reduced CO2 emissions by 14% relative to 2015 in line with the MTMP target
  • Fostered information disclosure in line with the TCFD (disclosed financial impact)
  • Reduced CO2 emissions by 20.8% relative to 2015 in line with the MTMP target
  • Implemented the procurement of environmental value certificates at bases outside Japan
  • Reduce CO2 emissions by 25% relative to 2015 in line with the MTMP target
  • Launch environment-friendly leading-edge plants (the Hamamatsu and Tarui Plants)
Society
(S)
Deliver Solutions for Social Challenges Through Business
  • Promote environment- and safety-conscious design and development
  • Create new businesses and products that contribute to the social challenges
  • Foster the use of the intrapreneurship program and the in-house company innovation system
  • Establishment of the Innovation Strategy Division
  • Selected entrepreneurship ideas and launched venture units
  • Acquired Deep Sea Technologies
  • Agreed to collaborate with the Boeing Company for decarbonization
  • Foster the use of the intrapreneurship program (Phase II) and the in-house company innovation system
  • Promote the intrapreneurship activities of the venture units
  • Create new businesses and products that contribute to the social challenges
Build a Resilient Supply Chain
  • Deal with supply risks posed by suppliers
  • Help suppliers solve ESG issues
  • Support suppliers in BCP
  • Promote sustainability audits
  • Foster sustainability awareness-raising activities
  • Support the acquisition of resilience certification
  • Conducted sustainability audits of a cumulative total of 84 companies to identify ESG risks faced by suppliers, propose remedial measures, and promote corrective actions
  • Supported a total of 44 companies in the acquisition of resilience certification
  • Promote sustainability audits
  • Foster sustainability awareness-raising activities
  • Support the acquisition of resilience certification
Gover-nance
(G)
Increase the Effectiveness of Our Management Entities
  • Build a diversity-based management system
  • Enhance discussions on medium- to long-term strategies at Board of Directors’ meetings
  • Increase the management efficiency of the Board of Directors
  • Foster the deliberation of important issues (global strategies, human resource strategies, sustainability governance and others)
  • Promoted the empowerment of the executive team and fostered the deliberation of important issues (global strategies, business portfolio, human resource strategies, climate change-related strategies and others)
  • Reorganized the CEO-directed committees and established the Management Materiality Committee and Information Security Committee
  • Increase the management efficiency of the Board of Directors
  • Foster the deliberation of important issues (global strategies, technological strategies and others)
ESG
items
that
drive
sus-taina-bility
power
Enviro-nment
(E)
Foster Environmental Management
  • Efficient use of raw materials and waste reduction
  • Conserve biodiversity
  • Spread Environmental Philosophy and Environmental Action Guidelines internally
  • Waste management / conservation of water resources and biodiversity
  • Promoted the revised Environmental Philosophy and the Environmental Action Guidelines between Group members inside and outside Japan
  • Conducted an impact assessment survey for biodiversity
  • Waste/ Water/ Chemical substance management: Lowered than the previous year per sales unit
  • Extend the impact assessment survey for biodiversity to the value chain
Society
(S)
Pursue Safety, Comfort and a Sense of Security
  • Advance quality and safety management
  • Product safety targets
    • -Targeted rate for the achievement of the plans to conduct safety reviews: result 100%
    • -Targeted rate for the achievement of the plans to educate employees for product safety: result 100%
  • Product safety-related targets
    • -Targeted rate for the achievement of the plans to conduct product safety reviews: Result 100%
    • -Targeted rate for the achievement of the plans to educate employees for product safety: Result 100%
  • Achieve the product safety-related targets
  • Promote functional safety measures
  • Workplace safety targets
  • Implemented the Safety Model Workplace Improvement Program (at 9 sites in Japan and 5 sites outside Japan)
  • Fostered habits to prevent unsafe behavior (promoted safety regulations, etc)
  • Establish and put into practice Group-wide safety standards
  • Implement the Safety Model Workplace Improvement Program (at 8 sites in Japan and 5 sites outside Japan)
Enhance Human Capital Management
  • Shift to business- focused management of human resources
  • Promote diversity & inclusion/ Advance the management of human rights
  • Improve employee engagement
  • Foster the project to reform the personnel system
  • Enhance the disclosure of information about human capital management
  • Revise The Nabtesco Way
  • Advance health management
  • Revised the personnel system for managers
  • Established diversity of hiring methods and implemented measures for the mobilization of human resources
  • Disclosed stories about human capital management, established KPI and implementation strategies
  • Revised The Nabtesco Way
  • Certified as a “Health & Productivity Management Outstanding Organization“
  • Partially introduced “one-on-one” meetings
  • Revise the personnel system for general employees, and put the personnel system for managers into practice and get it well-established
  • Enhance the implementation of measures, monitoring of KPIs and indicators, and disclosure of information about human capital
  • Implement activities to promote The Nabtesco Way
  • Set and work to achieve priorities for health management
  • Introduce “one-on-one” meetings across the entire Group and make use of the talent management system
Promote Engagement with Local Community
  • Promote community investment
  • Promote community investment in the areas of the environment, education and welfare
  • Promoted community investment in the areas of the environment, education and welfare
  • Promote community investment in the areas of the environment, education and welfare
Gover-nance
(G)
Ensure Management Transparency
  • Enhance corporate governance
  • Ensure risk management and compliance
  • Proactively engage in dialogue with stakeholders
  • Globally implement measures to ensure compliance with anti-monopoly laws and prevent corruption
  • Hold the IR DAY event
  • Evaluated the current state of the system for Responsibility and Authority Regulations
  • Informed Group sites in all parts of the world of the revisions made to the Nabtesco Group Code of Ethics and implemented activities to prevent corruption in high-risk regions
  • Reviewed the management materiality
  • Revise the system for Responsibility and Authority Regulations to speed up decision-making
  • Provide education to ensure compliance with anti-monopoly laws in Europe and appropriately respond to the EU directive on the protection of whistle-blowers
  • Enhance the disclosure of non-financial information