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I would like to talk about the Hodogaya Chemical Group’s approach and attitude toward sustainability management.

Contribution to Help Realize a Sustainable Society through Our Business

The Group’s vision is to contribute to a sustainable society through its business. The Hodogaya Chemical Group placed considerable emphasis on Responsible Care (RC) activities well before environmental issues became a major issue. We position sustainability management as an extension of these activities. Meanwhile, we established the Sustainability Development Committee in 2021 to fulfill functions and roles that differ from RC activities. Activities of this committee are conducted through an organization structure that includes the TCFD*1 Subcommittee and the Global Environment Subcommittee.
In addition to our RC activities since 1997, our FTSE Russell*2 score has improved each year on the back of our proactive information disclosure efforts under our sustainability promotion system. In FY2022, we were selected as a constituent of the FTSE Blossom Japan Sector Relative Index*3 and received the Silver Medal presented by EcoVadis*4. We see this as proof that the Group’s ESG management has received a certain level of recognition. Our environmentally friendly and other products that use environmentally friendly raw materials have attracted considerable attention. As an example, our soil improvement oxygen supply materials, bio-based urethane materials, and release agents have been included in the FTSE Green Revenues Data Model*5. These products accounted for about 3% of Hodogaya Chemical’s (non-consolidated) sales in FY2015. With this figure climbing to 12% in FY2022, we are becoming increasingly aware of the contributions that our businesses make to realizing a sustainable society.

*1 TCFD: Task Force on Climate-related Financial Disclosures

*2 FTSE Russel: UK-based company that provides indexes.

*3 FTSE Blossom Japan Sector Relative Index: An index provided by FTSE Russell that reflect the performance of Japanese companies that excel in responding to environmental, social and governance (ESG) concerns in their respective sectors.

*4 EcoVadis: A platform for evaluating corporate social responsibility and sustainable procurement.

*5 Green Revenues Data Model: A model that identifies companies that derive revenue from green products and services and classifies the greenness of their products.

Addressing Environmental Issues

The Hodogaya Chemical Group expressed its support for the TCFD recommendations in November 2022. We are now required to report the carbon footprint of individual products, including differences in raw materials, and will work to proactively disclose information, including our Scope 3 efforts going forward. We have already introduced CO2-free electricity at several plants and offices. In FY2022, we introduced Internal Carbon Pricing (ICP) as a method for estimating carbon price within the Group to promote low-carbon investments and measures as well as energy conservation.
The Group nevertheless continues to face some issues. For example, CO2 is generated in the process of producing hydrogen from natural gas, which is necessary for the manufacture of hydrogen peroxide and its derivatives, one of our core businesses. Should green hydrogen*6 and blue hydrogen*7 become readily available at a low cost in the near future, we are confident we will be able to reduce CO2 emissions. Moreover, the use of our hydrogen infrastructure will significantly contribute to the hydrogen society advocated by the government.

*6 Green hydrogen: Hydrogen produced using renewable energy sources.

*7 Blue hydrogen: Hydrogen produced from such fossil resources as petroleum or natural gas that has been treated so that no CO2 is emitted into the atmosphere during production.

Human Capital Initiatives

I believe that our personnel are the most important resource, or capital, to achieve sustainable growth. Based on this understanding, I have placed considerable emphasis on promoting human capital management, since my appointment as President in 2016, in the belief that it will lead to the Company’s growth. In my initial address as President, I stated that we have a legacy to carry forward as a company that has celebrated its 100th anniversary. Over and above such tangible capital as the Group’s businesses, products, technologies, production bases, customers, and business partners, we are also charged with the responsibility of fine-tuning our legacy by incorporating the intangible and important contributions born from our personnel, including the joy of developing and selling products as a manufacturer, the vision set forth in our Mid-term Management Plan, and the gratitude we feel toward our customers and all other stakeholders. Recently, we have taken steps to put in place a flexible workstyle framework to provide all officers and personnel with a greater sense of fulfillment in their work. This framework includes further entrenching the Group’s teleworking system, the Come-back Entry Program, a reemployment registration system, the ability to take annual paid holidays on an hourly basis, refreshment leave, and allowing personnel to dress more freely. As a result, Hodogaya Chemical has been certified as a Health & Productivity Management Outstanding Organization since FY2021. In order to improve personnel satisfaction, we have also endeavored to gauge the level of engagement from both the qualitative and quantitative perspectives by regularly measuring engagement scores from FY2021.
With overseas sales accounting for half of the Group’s total sales, we recognize that the development of global talent is a pressing issue. Hodogaya Chemical introduced an overseas trainee program in 1989 and has worked diligently to develop personnel on a continuous basis. As a member of the first batch of personnel to participate in this program, I was dispatched to the United States. On a personal note, this initiative helped highlight the importance of not only learning a new language, but also experiencing first hand local business practices and cultural differences. In addition to Europe and the U.S., we are currently expanding this dispatch program to Chinese- and Korean-speaking countries.
New initiatives are underway in the areas of personnel evaluation and remuneration. We began providing performance-linked bonuses from FY2019. We also introduced a multifaceted evaluation system for certain department general managers, including evaluations from peers and subordinates. More recently, we launched a personnel stock compensation plan for management personnel in April 2023 to realize the sustainable improvement and growth of both corporate value and personnel.

Strengthening Corporate Governance

Hodogaya Chemical was quick to reform its corporate governance structure and systems. We transitioned to a Company with an Audit & Supervisory committee in 2015 and introduced a stock-based compensation plan for officers in 2016. A female Outside Director with expertise in personnel strategies was appointed in June 2023, increasing the diversity of the Board of Directors and broadening its skill set. Moving forward, we will look to appoint female Directors from within the Company as well to further increase the diversity of the Board of Directors.
Succession planning is another important issue. I believe that a person who understands Hodogaya Chemical’s corporate culture and has a strong desire to manage the Company would be a suitable successor. In addition to conducting executive training for selected members, we also have General Managers of departments attend Management Committee meetings where they can explain the operations of their own departments, learn about the kind of information management requires, and gain an understanding of the committee’s deliberations. In addition, we provide opportunities for dialogue with Outside Directors so that Board members can gain an insight into the next generation of candidates.

Green Innovation to Realize a Sustainable Society

An issue that I believe the Group must definitively address over the long term is Green Transformation (GX).
In addition to the development and manufacture of battery materials, we are undertaking research on perovskite solar cells*8 as part of our technological development activities to promote GX. Perovskite solar cells use organic compounds as an alternative to silicon, an area in which the Japanese government is also focusing its research efforts.
Hodogaya Chemical is endeavoring to contribute to early commercialization by providing highly durable and highly efficient materials.
Moreover, we will focus on the promotion of digital transformation (DX), an important issue under SPEED 25/30, as we believe that the accelerated promotion of GX will help secure our competitiveness by promoting innovation through the use of digital technology.
Our goals are also to develop sustainable products that reduce the environmental impact, especially in the agricultural and food fields as an extension of our technologies. Building on our collaboration with ASAHI AGRIA CO., LTD. announced in February 2023, we will focus on the similarities between our soil preparation and soil improvement technologies to develop a composite material of compost and oxygen supply materials that is expected to generate fertilizer effects, prevent moisture damage, and improve efficiency. We believe this initiative will contribute to the efficiency and stability of crop cultivation. We also see this as a significant step toward the reduction of chemical pesticides and fertilizers. More than just a pipe dream, we strongly believe that this business will help address the global social issue of food shortages attributable to population growth as it gets off the ground and expands through Asia to the rest of the world.

*8 Perovskite solar cells: Solar cells made from perovskite, which has a crystal structure that converts light into electricity. Expectations of reduced costs through coating and printing technologies that enable mass production.

Toward “Your Dream is Our Business” for over the Next 100 Years

For many years, the management philosophy of the Hodogaya Chemical Group has been to “contribute to the creation of an environmentally conscious society”. In recent years, we have been reminded of the importance of this management philosophy when we consider the SDGs and the role that companies are expected to play in society. Enhancing corporate value over the medium- to longterm and contributing to creating a sustainable society are not separate concepts but rather the purpose we aim to achieve as the Hodogaya Chemical Group. To realize the ideal figure and target figure given in SPEED 25/30, the R&D, Production and Sales Divisions are required to work as a single entity, and the five business segments should continue to engage in corporate activities demonstrating a high degree of specialization in their respective fields.
For the Hodogaya Chemical Group, which has celebrated its 100th anniversary, to grow over the next 100 years, we need to create a vision of the future in which our corporate motto, “Your Dream is Our Business”, is realized in various ways. While dreams may seem like something in the distant future, the future is merely an uninterrupted continuation of the present. Personnel who joined us this year will transform into core personnel 30 years from now, in 2050. What can we do to successfully pass the baton to these personnel who will be the face of the company in the future? We can offer our customers products and services that contribute to establishing a sustainable society. We also believe that engagement of personnel must be improved by creating an organization and corporate culture in which personnel can have aspirations, find their work rewarding, and feel happy to work for the company.
To realize the ideal figure for FY2030, the Hodogaya Chemical Group will focus on the various measures outlined in our mid-term management plan to contribute to creating a sustainable society, thereby continuously enhancing our corporate value over the long term. I thank all stakeholders for your understanding and look forward to your support for the Hodogaya Chemical Group.