Message from Senior Executive Officer of CSV Strategy
"Creating social value as well as economic value in the form of enhanced competitiveness and business growth"
Further strengthening non-financial perspectives to deepen CSV-driven management
Senior Executive Officer
Non-financial indicators in the Medium-Term Plan
Non-financial indicators were introduced as KPIs for the first time in the 2019 Midterm Business Plan. What were the reasons for that, and what do you perceive as the current challenges?
We added three non-financial KPIs, "CSV Commitment," "Corporate brand value" and "Employee engagement score" to the conventional financial KPIs. The objective was to ensure not only short-term profits but also sustainable growth over the medium to long term, and to monitor that outputs are linked to economic and social value.
Since the “CSV Commitment” incorporates our four CSV Purposes ("Health and Well-being," "Community Engagement," "The Environment" and "Responsible Alcohol Producer") into the action plans of the operating companies, we set it as KPIs for monitoring the strategies of those companies. Since 2020, these KPIs have been linked to executive remuneration. We will continue to improve them because many of the milestones, other than those of The Environment, are not suitable as a measure of achievement.
“Corporate brand value” is both an output and input of business activities, and we use it for target setting and evaluation of the operating companies. On the other hand, since there are issues in terms of universality and transparency in the way that corporate brands are evaluated, we feel the difficulty of committing externally.
Like Corporate brand value, “Employee engagement score” is monitored as both an output and input of the business. The Covid-19 pandemic has underscored the importance of our human capital. We have added “Employee engagement sore” to our executive remuneration index this year, and also increased the weighting of non-financial KPIs linked to long-term executive remuneration from 10% to 20%.
We acknowledge one of the challenges is to define non-financial KPIs in ways that make it easy to understand how they tie into business strategy, economic value and social value. We are planning a fundamental review of them in conjunction with the formulation of the next medium-term business plan.
Experiences from Covid-19 pandemic
The Covid-19 pandemic brought changes to the external environment. What have been the impacts on the non-financial side?
The pandemic has reconfirmed the materiality of our four CSV Purposes.
It goes without saying that it has reconfirmed the importance of "Health and Well-being." The risk of infectious disease has highlighted immune functions in particular. Last year, Japanese Consumer Affairs Agency accepted Lactococcus lactis strain Plasma for the first time in the Japanese history to make the functional claim of immunity. The products containing Lactococcus lactis strain Plasma and the other health-related projects will provide opportunities to expand our health science business.
The restrictions on contacts with other people have underscored the importance of "Community Engagement." We are reconfirming the role that alcohol and soft drinks play in encouraging communication and building social capital, while the risk of drinking alone without being seen and the need to tighten regulations on e-commerce, which expanded during the pandemic, have increased our responsibility as “Responsible Alcohol Producer” .
Like the pandemic, "The Environment" is a long-tail risk that we have been warned about but failed to adequately address. However, it is increasingly recognized as a challenge that can no longer be put off, as can be seen, for example, in the "Decarbonization Declaration" published by the Suga Cabinet of Japan.
From the beginning of 2020 and continuing on until very recently, we have seen declines in Kirin's weekly shareprice β. Although the calculation period is still short and there may be some influence from the fact that Kirin owns businesses in the pharmaceutical sector, it is also possible to interpret that our cost of capital has declined even during the Covid-19 pandemic by working on ESGs.
Kirin Group has taken leadership on environmental issues, including being the first foods company in Japan to upgrade to SBT 1.5°C, participating in the RE100 initiative to switch to 100% renewable energy by 2040, and moving to 100% FSC certified paper for paper containers and packages in our domestic beverages business. Likewise, our further progress on the CSV Purposes will contribute to the goals of "building back better" and "green recovery" from the Covid-19 pandemic.
Accelerating CSV-driven management by reinforcing the PDCA cycle
Next year will mark the start of a new Medium-Term Business Plan that will bring us closer to KV2027. What are your thoughts on this as the person responsible for CSV strategy in the Group?
We must continue to make progress towards the goal of becoming "a global leader in CSV" articulated in KV2027.
This year, for the second year running, Kirin Group received a Gold Medal in the Environment and Sustainable Companies category of the Ministry of the Environment's ESG Finance Award Japan, and earned particularly high praise for "expectations that Kirin will be one of the world's leading ESG companies as it works to establish its position as a global leader in CSV, advance its initiatives, and further involve its group companies." Our job as the Kirin Group is to continue to meet these expectations.
As part of this, we are evolving from a rule taker to a rule maker, and advancing our activities to address global as well as domestic concerns. Specific examples include our participation in the SBT Network's Corporate Engagement Program to formulate new SBT frameworks, and in AEPW (Alliance to End Plastic Waste) to address global plastics problems.
In order to draft the new Medium-Term Business Plan, we will be updating and enhancing the granularity of our Group Materiality Matrix, providing clear indications of priorities within CSV strategy and aligning the vectors of the entire Group and each operating company.
World-class corporate governance will be crucial to achieving the target in the new Medium-Term Business Plan of becoming a "global leader in CSV." We are taking many steps to advance our practice, including the appointment of an independent director to chair the Board of Directors, requiring that the majority of the Board be independent directors, and appointing multiple foreign and female directors. Likewise, we continue to make improvements in how the Board operates by making better use of video conferences and expanding the time available for substantive deliberations. We will further improve the Board's auditing functions and transparency.