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Materiality (Priority Management Themes from an ESG Perspective)

Approach to Materiality

“Materiality” refers to priority management themes from an ESG perspective. We identify materiality from the perspective of risks and opportunities, referring to global guidelines in considering the impact of our materiality on both NEC and society through dialogue with experts and stakeholder representatives in various fields.

A part of our financial strategies in the Mid-term Management Plan 2025 involves identifying and implementing initiatives to address seven priority management themes to strengthen the non-financial foundation that encompasses ESG and underpins the sustainable growth of companies and society.

In fiscal 2024, we have further clarified our approach to increasing corporate value by addressing ESG issues in an integrated manner to both reduce risks and generate growth and opportunities. We positioned our seven priority management themes as our “Fundamental Materiality” with the objective of reducing risk and increasing our growth rate. The social and environmental themes to be created by the growth businesses in the Mid-Term Management Plan 2025 and the next pillar of growth businesses have been organized into five themes as “Growth Materiality” to create growth/opportunities and improve the growth rate.

The chart below contains a matrix showing the positioning and objectives of our Growth Materiality and Fundamental Materiality through the lens of our formula for calculating corporate value. We will promote businesses with significant social, environmental and economic value by addressing our Fundamental and Growth Materialities while aiming for continuous inclusion in major ESG indices.

The picture of Corporate Value Formula and Materiality
Corporate Value Formula and Materiality

The job descriptions of inside directors and relevant officers clearly task them with addressing materiality, which is also a component of the key performance indicators used to evaluate the performance and effectiveness of officers. In addition, we will employ evaluations and feedback from various stakeholders obtained through ESG surveys, direct dialogue and other channels to structure a robust and resilient financial and non-financial base over the medium to long term.

Continuously Improve Non-Financial Measures to Maximize Financial Impact

In line with the Mid-Term Management Plan 2025 goal of continuous inclusion in major ESG indices, we continued to be included in the Dow Jones Sustainability Indices (DJSI) and the FTSE4Good Index Series in fiscal 2023. Risk management is a focus of evaluation for many ESG indices, so we recognize the insufficiency of indicators for evaluating initiatives linking ESG and sustainability with opportunities and growth. In addition, we cannot measure the direct impact of non-financial initiatives on financial performance.

Accordingly, in fiscal 2022 we conducted analyses in collaboration with ABeam Consulting Ltd. that clarified the particularly strong correlation between human capital and price book ratio. We then carried out a causal analysis of our initiatives that clearly showed their causal relationships with an improved engagement score, one of the KPIs of the Mid-term Management Plan 2025, in order to confirm and improve the effectiveness of measures related to human capital in fiscal 2023.

The chart below shows the results of an engagement survey of all NEC employees, categorized with reference to the “three perspectives and five common factors in human resources strategy” in ITO Report for Human Capital Management. The chart summarizes the causal relationships that affect engagement scores, and the results from analyzing the structure and degree of impact using NEC’s unique causal analysis solutions. We realized that for NEC, engagement score causality originates from two points: the organizational perspective of “Strengthen the link between a human capital strategy and a business strategy” and the individual perspective of “Motivate employees to re-skill themselves.” In addition, we found that the impact path is connected from these starting points to “Nurture transformational corporate culture,” “Embrace diversity and inclusion of employees’ knowledge and experience,” “Environment that inspires productivity,” and “Engagement score.”

The picture of Causal analysis of NEC’s human capital management initiatives and engagement scores
Causal analysis of NEC’s human capital management initiatives and engagement scores
  • 1.
    See “Three perspectives and five common factors essential for a human capital strategy” in ITO Report for Human Capital Management , published by Japan’s Ministry of Economy, Trade and Industry.
  • 2.
    Analyzed with NEC’s AI-driven causal analysis.

The results were aligned with NEC’s longstanding goal of coexistence between the NEC Way and My Way (that of each individual).

At the same time, our analysis was unable to confirm a causal relationship between “Build a dynamic talent portfolio” and “Engagement score.”

We look forward to confirming causal structures by introducing measures such as a role-based remuneration system that provides well-balanced treatment.

Our analysis was unable to confirm financial impact. However, we remain committed to the cycle of confirming and improving the effectiveness of non-financial measures to identify and allocate appropriate investment to non-financial initiatives that support increased corporate value.

Evolution of the Definition Process

NEC defined its materiality in fiscal 2019 and first redefined it in fiscal 2021. We redefined our current materiality in fiscal 2022 upon reformulating the Mid-term Management Plan 2025. We complemented Fundamental Materiality with Growth Materiality, which is focused on generating growth and opportunities.

This materiality was determined with reference to ISO 26000 SDGs and the SASB Materiality Map, among others, and through dialogue with experts in various fields and with representative stakeholders.

Fiscal 2019—Defining Our Materiality

In fiscal 2019, we defined our materiality. When doing so, we were highly mindful of our dialogue with experts in a variety of fields and with representative stakeholders, as well as the connection it would have with our mid-term management plan. As a first step, we created a list of social issues that could potentially be priority themes, with reference to global guidelines and taking into account NEC’s particular business characteristics. We then conducted a survey of employees to determine the impact NEC could have on these issues, and what impact these issues would have on NEC. We then drew up a materiality matrix that centered on these impacts and the importance of these social issues. After this process, we highlighted issues that had a high level of importance, and therefore a high level of impact, on both NEC and society and tentatively defined these issues as materiality—themes that NEC should tackle with a high priority. In addition, we consulted with external experts regarding this approach.

After doing so, we set non-financial indicators to measure the progress of our materiality initiatives, aiming to best quantify outcomes in terms of the level of positive value provided to society. We also engaged in dialogue with external experts at this stage in order to organize our materiality, after which the materiality and the corresponding indicators were reported to the Board of Directors, which then decided upon them.

Definition Process for Fiscal 2019 Materiality

Fiscal 2021—Redefining Our Materiality

In 2020, we revised the NEC Way, a common set of values that form the basis for how the entire NEC Group conducts itself. In keeping with this change, we removed “Dialogue and Co-Creation with Our Stakeholders,” “Innovation Management,” and “Governance and Compliance” as materiality, as these were incorporated into the NEC Way. The six remaining themes were reported as materiality to the Board of Directors, which then decided upon them.

Materiality Reset in Fiscal 2021

Fiscal 2022—Reviewing Our Materiality

We reviewed the materiality set in the Mid-term Management Plan 2025 based on the materiality defined in fiscal 2019. This review was conducted in light of changes in the business environment and social demand, after holding workshops for managers of growth businesses under the Mid-term Management Plan 2025 to examine the social and environmental value created by their businesses, and after dialogue with external experts. Materiality was then defined according to the following criteria.

  • Non-financial (ESG/future financial) management foundation themes that have a significant positive or negative impact on society and the environment, as well as on the Company
  • Themes where progress can be measured or visualized from a social or environmental perspective

As a result, we decided to exclude the two themes categorized under “2020 Growth Focus to Create Social Value,” which are both business themes, and to continue to work on the four themes categorized under “Sustainable Growth Enablers.” Furthermore, at the aforementioned workshops held for managers of growth businesses under the Mid-term Management Plan 2025 to examine the social and environmental value created by their businesses, it was confirmed that “corporate governance,” “supply chain sustainability,” and “compliance” are also essential themes for promoting businesses with high social and public value, and for gaining the trust of society. Accordingly, the seven themes on the following page were reported to the Board of Directors as materiality for the Mid-term Management Plan 2025.

Fiscal 2024: Studies to Review Materiality

NEC believes that in addition to reducing risk, ESG drives the generation of growth and opportunities. As such, we expect to increase corporate value by integrating and managing these two aspects of ESG.

Therefore, in fiscal 2024 we drew up a matrix of the growth businesses and future growth businesses of the Mid-term Management Plan 2025 from which we intend to generate social value and our Growth Materiality, which will generate growth and opportunities and increase our growth rate. In addition, we positioned the seven priority management themes as our Fundamental Materiality with the goal of reducing risk and improving our growth rate. We will further strengthen management that integrates financial and non-financial issues, centered on our Growth and Fundamental Materialities.

Initiatives to Address Growth Materiality

A Society that Enables Well-being through the Digitalization of Government and Financial Institutions (DG/DF)

We will build an infrastructure that enables highly transparent and fair use of government and financial services and ensures that said services are customer-centered and tailored to the needs of each individual through the use of extremely reliable digital technology.

Stress-free Communication with Low Environmental Impact (Global 5G)

We will enable a wide range of entities —from individuals to businesses and government agencies— to make extensive use of information, leading to richer and brighter lives for everyone, anywhere, at all times by implementing high-speed, high-capacity, low-latency telecommunications environments that support enhanced access to information, new DX services, and disaster prevention.

Transforming Society and Industry with the Power of Digital Technology (Core DX)

We will promote digital transformation in both society and industry by leveraging our technological strengths in AI, biometrics, and security, as well as our abundant expertise in human resources in areas such as cloud services, agile development, and data science.

Living Freely in Our New Era of Healthcare and Life Science

We will achieve advanced personalized treatment, comprehensive medical services, and lifestyle support, promoting new business development with AI and image recognition technology.

Driving Carbon Neutrality for Our Customers and Society

We will contribute to carbon neutrality throughout society by supporting our customers’ decarbonization efforts, including initiatives within manufacturing supply chains, with digital technologies such as IT networks and AI.


Targets and progress of Growth Materiality are identical to those of the growth businesses under the Mid-term Management Plan 2025.

Initiatives to Address Fundamental Materiality

Targets and Progress of Fundamental Materiality under the Mid-term Management Plan 2025

Materiality KPIs for fiscal 2026 Results for fiscal 2023
Environmental Action with a Particular Focus on Climate Change (Decarbonization)
  • 25.0% reduction in Scope 1 and Scope 2 CO2 emissions (compared with fiscal 2021)1 to achieve carbon neutrality by 2040
  • Approximately 21.0% reduction in Scope 1 and Scope 2 CO2 emissions (compared with fiscal 2021)
Security to Maximize ICT Possibilities
  • Three times the number of internationally certified personnel (compared with fiscal 2021)1
  • More than 300 internationally certified personnel, double the number in fiscal 2021
Provision and Utilization of AI with Respect for Human Rights as the Highest Priority (AI and Human Rights)
  • Application of the NEC Group AI and Human Rights Principles
  • Application of the NEC Group AI and Human Rights Principles
Diverse Human Resource Development and Cultural Transformation
  • Engagement score: 50%
  • Ratio of female managers to all managers: 20%
    Ratio of female and non-Japanese officers2 to all officers: 20%4
  • Engagement score: 36%
  • Ratio of female managers to all managers: 8.0%,
    Ratio of female and non-Japanese officers3 to all officers: 9.4%4
Corporate Governance
  • Increase sophistication of governance by transitioning to a company with a Nomination Committee, etc., with a majority of independent outside directors5
  • Considered changing organizational design5
Supply Chain Sustainability
  • Suppliers agreeing to the Procurement Guidelines: 75%6
  • Suppliers who have agreed to the Procurement Guidelines: 83%6
Compliance
  • Zero cases of serious involvement with cartels and/or bid-rigging
  • Zero cases of serious involvement with cartels and/or bid-rigging
  • 1.
    Target increased in fiscal 2024.
  • 2.
    Directors, executive officers, corporate senior executive vice presidents, corporate executive vice presidents and corporate senior vice presidents of the Company as of March 31, 2026 (including executive officers, corporate senior executive vice presidents, corporate executive vice presidents and corporate senior vice presidents determined during fiscal 2026 and transferred as of April 1, 2026).
  • 3.
    Company directors, Audit and Supervisory Board members, and executive officers as of March 31, 2023.
  • 4.
    The actual ratio of female managers to all managers and the ratio of female and non-Japanese officers to all officers for the Company as of March 31, 2023. As of April 1, 2023, the ratio of female managers to all managers was 8.9%, and the ratio of female and non-Japanese officers (directors, Audit and Supervisory Board members, executive officers, corporate senior executive vice presidents, corporate executive vice presidents and corporate senior vice presidents) to all officers was 14.8%.
  • 5.
    These KPIs were determined along with other FY2026 KPIs when the Mid-term Management Plan 2025 was announced, but quantitative details were not disclosed until the information on changes in organizational design were announced.
  • 6.
    Percentage based on procurement amount.

Details of Initiatives for Fundamental Materialit

Environmental Action with a Particular Focus on Climate Change (Decarbonization)

In October 2018, NEC received “SBT well below 2°C” certification for its goal of reducing CO2 emissions by 33% by fiscal 2031 (compared to fiscal 2018. Scope 1 and 2 total absolute values). Furthermore, in May 2021, we raised the target levels of Scope 1 and 2, and were certified as “SBT 1.5°C” with the goal of strengthening our reduction target to 55% by 2030. In 2022, we also signed The Climate Pledge, which aims to achieve net zero carbon emissions by 2040. As in fiscal 2022, during fiscal 2023 we implemented thorough energy conservation and expanded our use of renewable energy.

Security to Maximize ICT Possibilities

We aim to minimize the effects of major security incidents by ensuring that we enhance cyber security measures while also strengthening information security, and provide products, systems and services that incorporate security measures and case studies taken from the NEC Group’s own information security practices as a reference to realize a secure information society.

Moreover, one of our responsibilities regarding social infrastructure is reinforcing the development of information security professionals to protect the information assets entrusted to us by our customers and business partners as well as the Group’s own information assets.

As part of this effort, we are increasing the number of people recognized as Certified Information Systems Security Professionals by the International Information System Security Certification Consortium (ISC)2 of the United States.

Provision and Utilization of AI with Respect for Human Rights as the Highest Priority (AI and Human Rights)

In accordance with the NEC Group AI and Human Rights Principles, NEC is committed to the following three initiatives:

  1. Ensure that all products and services are implemented and utilized by NEC, customers, and partners appropriately
  2. Continue to develop advanced technology and talent to further promote AI utilization, with respect for human rights as the highest priority
  3. Promote engagement and collaboration with a range of stakeholders in using AI

In addition, we apply this policy with the objective of strengthening AI governance based on trends in laws and regulations in Japan and abroad, and maintaining dialogue with various stakeholders.

Diverse Human Resource Development and Cultural Transformation

Based on the NEC Way and our HR Policy, “transformation of people and culture” is a tenet of the Mid-term Management Plan 2025.

We will accelerate diversity, which is the source of innovation, and implement workstyle reforms that support the working styles of diverse talent.

Corporate Governance

To continuously create social value and maximize corporate value, we promote corporate governance based on the following basic policies.

  1. Assurance of transparent and sound management
  2. Realization of prompt decision-making and business execution
  3. Clarification of accountability
  4. Timely, appropriate and fair disclosure of information

Supply Chain Sustainability

NEC endeavors to work not only within itself, but also through collaboration and co-creation with suppliers to conduct business while giving full attention to its impacts on the environment and society as a whole. We believe this enables us to gain the trust of society and contribute to the creation of sustainable social value.

We will continue to promote activities to ensure that all suppliers are aware of the Guidelines for Responsible Business Conduct in Supply Chains and submit declarations pledging to uphold its contents.

Compliance

In order for NEC to continue to be a company society trusts as a Social Value Innovator, it must uphold its Principle of “uncompromising integrity and respect for human rights.” Above all, the practice of compliance is an essential initiative for earning the trust of society as a Social Value Innovator.

All officers and employees have signed the Statement of Agreement for the NEC Group Code of Conduct. Each and every one of us recognizes compliance as a personal matter and acts in accordance with the code every day.