Written opinion regarding Materiality (initial internal draft)

David Simpson

David Simpson
InterPraxis Consulting,

David Simpson plays an active role internationally as the Director of a sustainability consulting firm. He has previously participated in the development of the international standard AA1000 and was involved in the formulation of ISO 26000 and ISO 37001 on anti-bribery management systems. He has also conducted audits of supply chain management relating to sustainability aspects of prominent companies in various industries, and has participated in projects of the World Bank, the International Finance Corporation (IFC) and other organizations, as well as serving in roles including working with the UN Special Rapporteur on Business and Human Rights and acting as an advisor to Canadian government environmental organizations.

Determination Process

The materiality determination process needs greater transparency in describing how issues were identified and how they were evaluated in terms of their priorities.
A systematic and transparent approach will help to build trust in the process itself and demonstrate that TDK’s reporting is presenting a fair representation of its plans and its performance.

Materiality Issues/Topics

I would expect TDK to focus on the identified themes and link them to the creation, maintenance, or destruction of value, and to point out what it intends to do to address these issues with some very clear targets and deadlines. It may be useful to illustrate prioritization of materiality issues so that the reader can better understand where the Board’s and management’s focus will be on these issues.

・EX / DX

Energy transformation (EX) and digital transformation (DX) appear to be about the company’s strategies. Material issues can certainly be those that are linked to the company’s strategies so I think the reader needs to know a little more about what matters more specifically will help or hinder TDK’s ability to execute its strategy in the area of EX and DX. In the current report, EX and DX are divided into internal initiatives and business initiatives, and these elements are repeated in another category. This is a bit confusing for the reader. Surely this distinction is not valid as all issues will be addressed through the business. TDK’s greatest impact on the environment will not be about its own internal environmental performance but rather it will be about the environmental and energy performance of others whom it influences (partners, customers, project developers, etc.).

・Governance and Internal Controls

This is an interesting topic to have listed as a material issue. Normally, governance and internal controls are considered as part of an organization’s plumbing and you expect them to be working. Accordingly when you see them identified as a material issue, it suggests that they are not working as they should, or can be improved.
The area of “governance and internal controls” is too broad to be meaningful. I would expect TDK to focus on the identified themes.

・Asset Efficiency Improvement

This will be a very important issue for TDK shareholders. Shareholders will want to know how TDK intends to improve asset efficiency and see that management has a clear strategy to achieve this.

・HR Management

It is necessary to place focus on attracting and retaining talent. Employee engagement or employee satisfaction should be included as a material issue based on the evidence that they impact productivity.

・Supply Chain Management

As a stakeholder, I would most likely be interested in learning more about TDK’s supply chain management. This is an issue that has been highlighted in light of the COVID-19 pandemic and the numerous disruptions to various manufacturing companies’ supply chains. In addition to procurement capabilities and mechanisms, it is likely that stakeholders will also be interested in TDK’s supply chain resilience and whether it is dependent on any one supplier or one country for its business critical components, etc.
Going forward, I would expect TDK to be more specific with what is meant by enhancing “global procurement capabilities” and consider implications of COVID-19 and the need for more resilient and diverse supply chains in TDK’s business.

・Risk Management / Opportunity Management

It is not clear in the current report if “risk management / opportunity management” is about strengthening TDK’s capabilities to address risks to itself, for example, by implementing an enterprise risk management program, or if it is about driving innovation by identifying risks and opportunities in the marketplace. I would expect future reports to further detail issues related to risk and opportunity management.

・Some Other Possible Material Matters to Consider

The organization may wish to consider some of the following issues within its future disclosures: supply chain security; protection of intellectual property; reputation management; focus on emerging markets; focus on customer satisfaction; protection of data / human rights; and reliance on any one particular country.

TDK Group’s Economic Growth and Connection with a Sustainable Society

Obviously, the areas outlined in the TDK materiality register such as EX (efficient energy use, focus on low carbon energy, and other environmental issues), responsible procurement, and talented human resources are key examples of how TDK can contribute to a sustainable society. In the areas of DX (digitalization), this can be a double-edged sword. While digitalization may promote “social efficiency”, it will also have implications for employment as economies transition to a “new economy”. TDK will need to explore and analyze this area carefully and think about how it can help workers transition to a new economy and mitigate possible social harms encountered due to this transition.
The key then for TDK is the creation of value, which is shaped by its mission, vision and strategy as well as its external environment. The process or outcome of pursuit of value creation will contribute to both the organization itself and society in general, and this can also lead to contributions to achieving the sustainable development goals (SDGs).