Displaying present location in the site.

Requirements for Accelerating the Integration of Responses to Climate Change into NEC’s Business Strategy : Addressing Heightened Demand for Sustainability Information Disclosure

Note:The following dialogue was held on February, 2024.

The fifth meeting of the NEC Sustainability Advisory Committee was held in the second half of fiscal year 2023, under the theme of “What is Needed to Accelerate the Integration of Climate Change Response and NEC’s Business Strategies: In Response to Growing Demands for Sustainability Information Disclosure.” In the session, external sustainability experts introduced advanced global case studies and provided suggestions from various perspectives on points that need to be considered in order to accelerate the integration of climate change response and NEC's business strategy.

Reforming our business from an ESG perspective and winning global competition.

NEC Corporation
Corporate Executive Vice President, CFO
Osamu Fujikawa

Fujikawa The suggestions we received from past committees have served as an opportunity to evolve our activities. For instance, last year, after reaffirming the importance of natural capital at the committee, we became the first Japanese IT company to publish a TNFD report. This report enables us to gain a correct understanding of the business opportunities and risks associated with natural capital and provide our customers with the knowledge to address them.
Since last year, we have also been engaged in discussions on how to enhance corporate value and sustainability. Sustainability not only contributes to reducing the cost of capital or risk, as evidenced by NEC's issuance of Sustainability-Linked Bonds, but it also presents business opportunities in the IT industry. Therefore, it is essential to consider how to leverage sustainability for growth and increased free cash flow.

To drive this growth, we have recently established the Carbon Neutral Business Promotion PMO Group, an organization dedicated to promoting environmental business throughout the company. Moving forward, we aim to further accelerate efforts to integrate climate change response and business strategies, connecting them to global-scale business opportunities.

Sustainability-Linked Bonds

Co-Founder, Next Leaders’ Initiative for Sustainability (NELIS)
Peter D. Pedersen

Pedersen In response to increasing demands for ESG information disclosure, many companies, including NEC, recognize the need to reform their businesses from an ESG perspective. Accelerating sustainability innovation has become essential, as companies face a new competitive environment.

Corporate Knights, a Canadian media and investment research firm, has published the Global 100, a list of the 100 most sustainable companies in the world. The ranking reveals that approximately 50% of the top 100 companies in the ranking generate revenue from sustainability solutions and products. This data clearly demonstrates that sustainability innovation today contributes to corporate growth.
Therefore, it is crucial to acknowledge that winning in the global market requires a strong sustainability strategy. In this regard, we would like to explore the necessary steps to accelerate the integration of climate change response into NEC's business strategy and discuss how we can turn the climate crisis into a business opportunity.

How to integrate sustainability into your business strategy

Deloitte Touche Tohmatsu LLC
Director of ESG & Sustainability Advisory
Fumihiro Nakajima

Nakajima The importance of linking sustainability and strategy and the need for the board of directors to oversee it is also stated in "Modernizing Governance: ESG Challenges and Recommendations for Corporate Directors" by the WBCSD*1 and "Global Governance Principles" published by ICGN*2. Some of the leading global companies in the same industry as NEC have achieved profitability while lowering GHG (greenhouse gas) emissions. They are integrating sustainability perspectives into all elements, such as their boards of directors, various committees, non-financial KPIs, and executive compensation It can be said that the strong will of the company's top management to "driving sustainability" has transformed the company's structure significantly.
However, the reality is that only few companies have integrated climate change risks and opportunities into their business strategies to such an extent. Introducing a mechanism to link mid- to long-term executive compensation with sustainability indicators would be effective. By having these indicators, investors will be able to evaluate whether the board is making decisions that contribute not only to their tenure but also to future stock prices.

BSR
(Business for Social Responsibility)
Managing Director
Asako Nagai

Nagai There are several ways to incorporate sustainability indicators. In some cases, sustainability indicators are aligned with the company's overall goals, while in other cases, the indicators incorporated into the compensation of executives who are responsible for achieving the environmental goals of each division. This approach enables investors to clearly understand the company's goals and the challenges. This makes it easier for investors to understand the company's efforts and intentions.

NEC Corporation
Senior Vice President and CSCO
Shigeki Shimizu

Shimizu My key performance indicators (KPIs), such as NEC’s CO2 reduction and CDP evaluation, are partially linked to my compensation because I am in charge of the environmental initiatives in NEC. I believe it is also necessary to establish sustainability-related targets, including KPIs, for all executives and employee engagement. We will continue to evaluate the possibility of implementing sustainability related KPIs based on company’s strategy.

To sensitize each employee to sustainability and make it a personal matter.

Nakajima I would like to draw your attention to the fact that the stock prices of leading companies have also significantly outperformed compared with other companies. This is not solely due to their successful business operations. It is also related to the secondary factors such as their ability to employ talented human resources with high environmental awareness and actively choose to work for these companies. This, in turn, leads to greater customer preference for these companies.

Japan Sustainable Investment Forum (JSIF)
Chair
Masaru Arai

Arai It is crucial to align its priorities that the company considers important with those of its employees. Employees in each department should consider how they can collaborate with customers to address their issues and make proposals that demonstrate a sense of ownership. By actively supporting customers' environmental initiatives through their business practices, employees can work with conviction, knowing that it will enhance their reputation and contribute to the company's profitability.

Nagai It is essential for every employee to enhance their awareness of the environment and sustainability. It is extremely important to develop human resources to improve employees’ understanding and engagement regarding sustainability. Let me provide an example of this human resource development. U.S. firms bring multiple staffs from multiple divisions including business units and R&D function to the annual general meeting of BSR (Business for Social Responsibility). They attend the meeting to study sustainability topics and grasp innovative business ideas.

NEC Corporation
Corporate Strategy and Sustainability Promotion Division
Managing Director
Hiroto Sugahara

Sugahara If NEC does not change, the companies that have successfully undergone transformation will surpass us in our business. Recognizing this sense of urgency, I have come to understand the importance of mindset changes for both management and employees. As part of the fiscal 2024 organizational changes, the Corporate Planning Division, which I'm in charge of, will be renamed the Corporate Planning & Sustainability Promotion Division. The purpose of this renaming is to align sustainability activities with NEC’s strategy.
In my role within the Corporate Planning & Sustainability Promotion Division, I aim to promote sustainability initiatives that are aligned with NEC’s strategies. This includes enhancing the engagement of relevant stakeholders within our company and developing our human resources in this area.

Seize business opportunities with a long-term time horizon.

Nagai As I mentioned, U.S. companies are actively investing into sustainability-related human resources. The fundamental idea behind this is that they see sustainability not as a cost but as an opportunity, and they do it because it creates business opportunities. In fact, we believe that business opportunities for sustainability are expanding considerably. Customers are beginning to set net-zero and carbon-neutral goals, but the challenge is that they have not yet developed a roadmap to achieve them. Thinking about how we can solve this problem will undoubtedly create business opportunities.

On the other hand, it is important to note that the environment often must be considered over a long-term time horizon, such as the 2050 target. This can make it challenging to fully understand and incorporate their impact into business development and sales activities.

Nakajima Time horizon is a key point: NEC is already promoting various environmental businesses within the NEC Group. However, how do you envision the time frame for evaluation? If you only think about the three- or five-year time horizon, the top managements will not be able to decide to invest in highly uncertain things such as climate change and sustainability. It is crucial to consider engagement, employee motivation, and business evaluation in the context of a long-term time horizon.

NEC Corporation
Corporate SVP
Shigeki Wada

Wada For the Business Division, achieving the annual budget and the 2025 Mid-Term Management Plan is the most important task. On the other hand, the New Business Development Division focuses on addressing our customers' future issues from a long-term perspective. We aim to create businesses that can be evaluated over a longer time frame, particularly in the realm of sustainability. To ensure that NEC can respond effectively, we have established the Carbon Neutral Business Promotion PMO Group. This group is responsible for determining NEC's position and identifying business opportunities around carbon neutrality. We appreciate your suggestions to improve the knowledge of our employees and strengthen the system that enables them to evaluate their actions from a long-term environmental perspective. We will certainly take your suggestions into consideration as we continue to promote our business.

At the end.

Shimizu I believe we had a meaningful discussion regarding NEC's challenges, and today's discussion reaffirmed the importance of having a sense of urgency. Although NEC is already on track to achieve its own CO2 emission reduction targets by FY2025, we will face challenges in achieving the five-year targets for the 2030 milestone. The difficulty in achieving environment-related targets will differ significantly from the past five years to the next five years. As we work on the next medium-term management plan, the Environmental Management Department will collaborate with the Corporate Planning Department to incorporate the suggestions from today's discussion into the plan.

Fujikawa Today’s discussion has highlighted two key points. Firstly, it is crucial for each employee to see environmental issues as their own responsibility. To make sustainability initiatives their own business, it is necessary to link their actions to the goals of their department and the company as a whole, and for the company to evaluate their efforts. Although the company has already set environmental goals, I realized that we needed a system that went one step further to evaluate employees’ efforts properly. Additionally, implementing a system to improve environmental literacy within the company is a priority.

Secondly, it is important to think on a long-term time horizon. Solving environmental issues requires a time horizon of 10 to 20 years. As Mr. Wada mentioned, NEC has a business creation mechanism based on a long-term perspective. However, since the IT industry often has short payback periods for investments, it is crucial to implement a disciplined business creation process with short-term milestones. This will allow us to create businesses that align with the next 10 to 20 years and put us on the same time axis as our clients.

Above all, we must have the mindset of working together with our customers as if it were our own business, and then address the long-term challenges they face. The key to connecting sustainability with business opportunities is to be recognized as a genuine partner from our customers.

Based on the insights gained from today's discussion, we will continue exploring ways to integrate sustainability into NEC's business strategies.

From left to right, are Sugahara, Nakajima, Shimizu, Pedersen, Fujikawa, Arai, Wada, and Nagai.
  • *1
    World Business Council for Sustainable Development, an organization that brings together CEOs and executives from private companies globally to collaborate on environmental issues, climate change, and creating a fair society.
    Reference: new window Toward a New Era of Governance,
  • *2
    International Corporate Governance Network: an international organization committed to developing efficient global markets and sustainable economies through effective corporate governance and improved investor stewardship.
    Reference: pdf ICGN Principles of Global Governance,

Guest members (outside experts)

Fumihiro Nakajima

Joined Deloitte Touche Tohmatsu LLC in 2016, serves as a Director of ESG & Sustainability Advisory. Experiences in the client projects include Materiality Assessment, Sustainability/ESG Strategy Planning, TCFD Scenario Analysis, External ESG Assessment Improvements, etc.