Key CSR Issues:Develop and Prosper in Harmony with the Global Environment

Balancing a Response to Climate Change with Corporate Growth
What Is Required of the TDK Group

As the global community seeks to address climate change with increasing urgency, what is required of the TDK Group to balance corporate growth with the creation of social value?
In an effort to gain an outside perspective and develop more appropriate responses and strategies, on July 8, 2020, we held a dialogue with Keisuke Takegahara and Maiko Hachiya of the Development Bank of Japan.

The dialogue was held on July 8, 2020 with a WEB conference system.

Aiming to Integrate Sustainability and Business under the TDK Environmental Vision 2035

The TDK Group believes that developing and prospering in harmony with the global environment is one of key CSR issues, and is advancing efforts to achieve the TDK Environmental Vision 2035 formulated in 2016.

The dialogue began with a description by Sachiko Nagahara, General Manager of the Sustainability Promotion HQ, of TDK Group policies aimed at expanding social value under “Value Creation 2020,” the TDK Group’s Medium-Term Plan, and its efforts to address energy and environmental problems. The participants then affirmed an overarching theme for the discussion: “What is important in enhancing social value in environmental terms, and in enabling the TDK Group to achieve sustainable growth?”

Next, Mr. Takegahara offered a view of the current and future state of ESG investing. He said, “ESG investors are focused on whether companies can look beyond future uncertainty and grow sustainably. Their ability to recognize long-term social issues and present a business model that incorporates those issues in their strategy is being challenged.” With regards to the current ongoing spread of the COVID-19, he also commented that, “While uncertainty about the future has only grown stronger, this basic approach to ESG investing is not going to change. Climate change, in particular, continues to be the greatest risk factor from a long-term perspective through 2050 and beyond.”

Regarding the TDK Group’s own efforts, he offered a positive assessment of work being done under the TDK Environmental Vision 2035 to calculate and disclose the Company’s environmental load across its entire product lifecycle, including Scope 1 (the Company’s own direct emissions), Scope 2 (indirect emissions associated with the use of electricity, etc. supplied by other companies), and Scope 3 (indirect emissions other than Scope 1 and 2). Ms. Hachiya noted that, “Under its Environmental Vision 2035, TDK has set a high goal, seeking to halve its CO2 emission basic unit from a lifecycle perspective. Their efforts to integrate sustainability and business-incorporating both a reduction in the negative environmental impact of business activity and an increase in the positive impact of environmental contributions made through their products-represent a very advanced approach.”

That said, Mr. Takegahara and Ms. Hachiya also pointed out that it was difficult to see any consistency with international benchmarks. “Representing everything in terms of CO2 emission basic units allows quantitative data to be collected, but seen against global efforts toward the goal of controlling rising temperatures, it can be harder to convey TDK’s advantage. The types of frameworks and KPIs you use will likely come into question going forward.”

Keisuke Takegahara
Keisuke Takegahara

Development Bank of Japan Inc.
Executive Officer, Deputy Chief Research Officer, Chief Manager of Sustainability Management Office, Corporate Planning & Coordination Department

Joined the Japan Development Bank (now the Development Bank of Japan Inc.) in 1989. Worked as chief representative in Frankfurt, before assuming current position. A pioneer in environmental finance in Japan, including development of the DBJ Environmentally Rated Loan Program.
Holds numerous public positions, including ad hoc member of the Ministry of the Environment’s Central Environment Council and the Industrial Structure Council of the Ministry of Economy, Trade and Industry.

Maiko Hachiya
Maiko Hachiya

Development Bank of Japan Inc.
Senior Vice President, Sustainability Planning & Support Department

Joined the Japan Development Bank (now the Development Bank of Japan Inc.) in 2002. Worked in the Hokuriku Branch, the Credit Analysis Department, before assuming current position. Member of the ESG Finance High-level Panel Positive Impact Finance Task Force.

How Should a Midstream Company Work
to Reduce Emissions in the Supply Chain?

At the COP25 conference held in December 2019, a target was presented to limit global warming to 1.5 degrees Celsius, exceeding the long-term target set by the Paris Agreement of limiting rising temperatures to within 2 degrees Celsius above pre-industrial levels. This new target has gradually become a global standard. Tetsuya Kuwashima, General Manager of the Safety & Environment Group of Sustainability Promotion HQ explains TDK’s policy as follows: “As concern about climate change grows worldwide, I think the target of 1.5 degrees Celsius is right on the nose, and is something we should work toward aggressively in our efforts to address environmental issues. It is essential that we first take the initiative in pursuing reductions in our own emissions.
Laying the groundwork for its Environmental Vision 2035, the TDK Group established a carbon neutral target under its TDK Environmental Action 2020 plan, a goal it achieved ahead of schedule in fiscal 2014. This background today forms a foundation for ongoing efforts to aim for even higher targets. TDK has set forth a goal of contributing to energy transformation (EX) under the internal slogan of “Eco-TDK,” and is advancing efforts to improve productivity and to promote rigorous energy savings and a shift to renewable energy.

Atsuo Kobayashi, Senior Vice President, said that, “An issue for the Company now is to promote the use of renewable energy at our sites in Japan. The cost of generating renewable energy in Japan remains high compared to international standards. While it is relatively easy to move ahead with the shift to renewable energy at our sites overseas, Japan continues to fall behind.” The number of global companies joining the international RE100* initiative has grown in recent years, and TDK is also being asked to respond.
Both Mr. Takegahara and Ms. Hachiya offered the opinion that, “While RE100 is one strategy for dealing with climate change risk, whether membership is essential or not depends on the individual company’s position. As a midstream company in the value chain, TDK needs to carefully consider how much of a priority it gives to the goal of achieving 100% renewable energy, and compare that goal to its other efforts, including contributing to the environment through its products.”
Looking at the environmental load of TDK Group products across their lifecycle, the Company should also focus on the fact that there is an overwhelming environmental load generated at the product usage stage. Mr. Kuwashima said that, “As a B2B, midstream company, we need to consider how we treat and reduce environmental loads resulting from the use of our products by consumers in the form of our customers’ end products. I think that will be the key to contributing to a shift to a low-carbon society.”

*RE100: Member companies of this initiative, launched in 2014, are committed to the goal of 100% renewable energy use in their business operations.

Atsuo Kobayashi
Atsuo Kobayashi

Senior Vice President in charge of Quality Assurance and Safety & Environment

Sachiko Nagahara

General Manager, Sustainability Promotion HQ

Tetsuya Kuwashima
Tetsuya Kuwashima

General Manager, Safety & Environment Group, Sustainability Promotion HQ

Tomohiko Yamaguchi (Facilitator)
Tomohiko Yamaguchi (Facilitator)

Consultant, Cre-en Inc.

Reassessing the Risks and Opportunities
Around Climate Change as They Connect to Business

During the dialogue, participants exchanged opinions on the Task Force on Climate-related Financial Disclosures (TCFD)*, for which TDK expressed its support in fiscal 2019. Mr. Takegahara said that TCFD, which requires companies to analyze and disclose information about the impact of climate change on corporate finances, is a “tool designed to facilitate a dialogue between companies and investors as they head into an uncertain future.” He noted that, “TCFD’s scenario analysis emphasizes not accuracy so much as breadth. Investors are focused on whether companies are able to incorporate every possibility in reviewing their own risks and opportunities, and whether they have strategies for surviving in any situation.”
Sympathizing with that approach, Mr. Kuwashima said that, “Looking across all enterprises, I think companies need to treat risks and opportunities as a central part of their business strategy itself. TDK is bringing an outside-in perspective to thinking about technologies, solutions and products based on the social issues set out in the SDGs, and in doing so, adds to the depth of that discussion.” Touching on the TDK Group’s existing efforts to create value through its business, Mr. Takegahara commented that, “Recently, the impact of the COVID-19 has accelerated the Company’s shift to digital. I think your ability to generate a diverse range of products to support that shift may make it easy for TDK to draw up a vision for contributing to the more efficient use of energy.”
Mr. Kobayashi described TDK’s approach, saying that, “There are many ways the Company can utilize its products and technologies to contribute to addressing climate change. Digital transformation (DX), such as that represented by 5G, is -along with EX- a pillar of the Company, and it is crucial that we advance our environmental contributions through those two pillars.” Another participant indicated their agreement with these remarks, noting that, “As we move in that direction, it is essential that we encourage understanding of the value TDK offers, not just outside the Company but internally as well. We need to involve employees in every position, including workers in our manufacturing sites and other front-line employees, and get them to take these issues personally.”

Meanwhile, the TDK Group faces a new issue with its current effort to drive business forward under the concept of Kotozukuri (integrated solutions). Mr. Kuwashima pointed out that, “In Monozukuri (manufacturing excellence), products have clear specifications for energy savings and so forth, making it easy to measure their impact on the environment. But the fact is that with Kotozukuri, it is difficult to quantify the extent to which our business is helping to reduce society’s environmental load. I think issues remain with visualizing that impact.”
Both Mr. Takegahara and Ms. Hachiya agreed that this could be difficult, but they also expressed hope for TDK’s efforts: “The major premise is that good services and solutions can only succeed if you have high-quality, superior products. TDK is singular in continuing to take on the challenge of reducing environmental loads even as it shifts its business model from Monozukuri to Kotozukuri in response to changes in society. The world is still searching for ways to express social impact, and there are no clear guidelines. We look forward to seeing TDK attempt to develop new standards and become a global leader.”

* The TCFD was founded in 2015 by the Financial Stability Board (FSB), an international body seeking to achieve the stabilization of the financial system.