Fujitsu Limited (6702) Earnings Call Transcript & Summary

Hello, everyone. My name is Yamanishi, Corporate Executive Officer, EVP and CSSO. Thank you very much for attending our sustainability briefing today. First, let me briefly introduce myself. I became CSSO in this April. And after joining Fujitsu in 1989, I built my career based on supply chain. Perhaps the phrase CSSO is not familiar to you. This stands for Chief Sustainability and Supply Chain Officer. This is a new role in Fujitsu to lead both sustainability and supply chain. Supply chain is a very important element when it comes to sustainability because there is no sustainability for the business without supply chain becoming sustainable. It is often said to be the biggest challenge in achieving sustainability. And from the supply chain side, too, the element of sustainability is becoming more important as responsible procurement for society. In addition to risk and other factors, sustainability is becoming more and more important. So it is very rational to look at both sustainability and supply chain at the same time. Also, supply chain is a major function of the business. I believe we can put into practice the principles we have been advocating for sustainability by having someone close to business lead on sustainability. Here are today's agenda: Fujitsu's sustainability strategy for achieving our purpose and sharing case study in our actions against climate change. In 2020, we set our purpose: make the world more sustainable by building trust in society through innovation. And Fujitsu is promoting purpose-driven management. Based on our purpose, last year, we set the materiality of Fujitsu: planet, solving global environmental issues; developing a digital society; and improving the well-being of people. These are what we must achieve. And we set the basic foundation for achieving these three. In terms of materiality, Fujitsu's vision for 2030 is to become a technology company that realized net positive through digital service. Net positive means that Fujitsu exerts a more positive impact compared to the negative impact. In order to achieve net positive, there are various pathways. But the biggest impact comes from business, technology and digital service that we provide to the customers. However, there is a large area of nonbusiness activity as well, for example, our actions through community as well as internal actions for employees. And supply chain-related activities have a large impact when it comes to net positive. In all of these areas, we need to make both financial and nonfinancial impact positive. That is what we mean by net positive. In order to achieve net positive, we must quantitatively measure each impact. In that sense, visualization is the key to achieving net positive. Not just visualization, but we would like to achieve decision-making through data. Data driven is what makes visualization possible, and this is the basis of our sustainability management. We developed ESG Management Platform as one menu of Fujitsu Uvance, a group of digital services of cross-industry solutions for societal issues. This is a service to support sustainability management by visualizing financial and nonfinancial indicators that are currently dispersed in the company. We have been -- we are able to visualize the GHG impact, legal, regulatory compliance and the impact of financial and nonfinancial indicators. And of course, we are utilizing this internally for our sustainability management. Nagashima-san will explain how this platform is used and how we visualize financial and nonfinancial indicators through a video. And later, we would like to talk about GHG visualization, our initiatives with suppliers. Please enjoy the video.

Hello, everyone. My name is Nagashima, in-charge of Fujitsu Uvance Sustainable Transformation business. Thank you so much for your participation today. I would like to give a short explanation and demo of the ESG Management Platform just introduced by Mr. Yamanishi. Fujitsu has developed and is operating a system to realize optimal decision-making using data. This is the ESG Management Platform. This system is already offered to customers. ESG Management Platform can easily collect and integrate data from various internal and external systems, then analyze the collected data and recommends optimal measures based on the current situation. Further, it can simulate the effects of these measures. Fujitsu is utilizing this system to analyze the correlation between nonfinancial and financial indicators and to make recommendations for management decision-making. From here, let me give a brief demonstration. These are the 3 highlights of the demo. First, this is a dashboard visualizing nonfinancial and financial KPI. Here, I would like to focus on employee engagement. You can see the engagement score by year or by organization and compare them side by side. Additionally, by enlarging the engagement score by division, you can confirm the gap between KPI target and the actual result to identify which division requires more action. Next, this is the second point. You can see the full list of nonfinancial indicators with financial impact. Which nonfinancial indicators have a higher impact on financial performance can be seen as materiality ranking. Thirdly, this is a very important point. You can visualize the relationship between nonfinancial and financial indicators to support planning. Here, relationships and degree of relationships are shown in lines of different color and thickness. In this demo, green indicates a positive correlation, red indicates a negative correlation and the thickness of the line indicates the certainty of the relationship. These features are used not just for visualization, but for using AI commentary and recommendations as well. For example, when you click the AI commentary button, the relationship between indicators and characteristics will be explained by AI. Moreover, there is a recommendation button as well. If you push the recommend button, the relationship between indicators that you should focus on will be highlighted to identify areas for further analysis. Moreover, you can interact with generative AI in the form of a dialogue for recommendations. In this demo, when you input the three important nonfinancial indicators for improving operating profit margin and the reason why they are important, AI responds according to the customer situation. In this way, Fujitsu is able to provide total support, not just for the visualization of nonfinancial and financial indicators, but also for analysis and recommendations using AI. ESG Management Platform has many functions in addition to the financial and nonfinancial analysis I have introduced today. Later, Mr. Yamanishi will explain some initiatives we are working on with our suppliers. That is all from me. Thank you very much.

So this service is being used internally, data-driven visualization and analysis of financial and nonfinancial indicators, and our decision-making for sustainability management. I touched upon Fujitsu's material issues, planet, digital society and well-being; and technology, talent and the business management, which are the foundation. Actually, there is a further breakdown into 18 items. For each of these materiality, we are visualizing the impact in 4 areas: business activities, supply chain, internal activities and community investments. Based on this visualized data, we implement measures that have a positive impact for both financial and nonfinancial indicators, leading to net positive. Of the 18 items, we already talked about initiatives regarding well-being and human capital in last year's sustainability briefing. Today, I would like to give a concrete example regarding climate change and explain our initiatives. The major goal in climate change at Fujitsu is to aim for net zero in the entire value chain, including all Scope 1, 2 and 3 by 2040. It is a challenging target to aim for net zero by reducing CO2 emission by at least 90% against 2020 and by combining neutralization. Internally, in other words, within Fujitsu Limited, we compiled road map for CO2 emission toward Scope 1 and 2 carbon neutrality. Till now, we set GHG emission reduction target in FY 2030 business activities at 71.4% reduction from 33% reduction against 2013 to achieve carbon neutrality. Going one step further in order to accelerate our effort toward carbon neutrality, we revised the year to achieve the target last year by accelerating by 20 years to achieve 100% reduction from FY 2050 to FY 2030. In addition, with regards to renewable energy that is indispensable for achieving GHG emission reduction target, we accelerated by 20 years from FY 2050 and aim for turning electricity consumer business activities to 100% renewables by FY 2030. Furthermore, to achieve zero emission in the entire supply chain, including Scope 3 supply chain partners, in other words, collaboration with suppliers is essential, we have requested top estimated emission suppliers to set GHG reduction targets. We are expecting suppliers emitting estimated volume equivalent to 80% to set target by 2025. Furthermore, in parallel with setting targets, we embarked on joint initiatives to accelerate emission reduction with suppliers. A CO2 emission at parts sourcing was calculated by the estimate of the industry average CO2 emission against parts. Real CO2 emission volume was not visible. This does not appear in figures despite CO2 reduction efforts by suppliers, and it was not possible to analyze nor to identify points of reduction and compile reduction measures. To know the actual emission volume, there is a need to go back layer by layer in the hierarchy and calculate based on the product carbon footprint, PCF, by adding real CO2 emitted at each process, from raw materials procurement to manufacturing. Fujitsu has been participating in PACT, Partnership for Carbon Transparency program of WBCSD and discussed rulemaking of real non-estimate CO2 emission calculation method and data alignment method. Through PACT, in the standardized CO2 emission calculation and data alignment method, supplier PCF reduction is reflected to sourcing companies as they are. CO2 emitted in the manufacturing process is accumulated as PCF, as they advance from Tier 3, Tier 2 and Tier 1. It would be best if this is shared, but one product is normally comprised of numerous components and materials from many suppliers. And the supply chain information from where and how much volume is sourced is highly confidential so that raw data cannot be exchanged. That is solved by the PACT method. And the data alignment based on that is achieved on Fujitsu's ESG Management Platform. The supply chain is connected by a single platform and exchange extracting only PCF data is enabled. CO2 emission volume is visualized securely, simply and accurately. This is the introduction of the solutions. Here is the summary of Fujitsu ESG Management Platform features. Fujitsu ESG management platform is the first domestic and international offering having features in compliance with latest version of PACT, the global standard, and JEITA Green x Digital Consortium rules. By moving up the supply chain layer by layer, not to mention the availability of accurate real data, but just by entering necessary information for [ calculation ], PCF per unit is automatically calculated. This will eliminate considerable manual work and prevent human mistakes as well. Also, it is certified as PACT Conformant Solution, and interconnection and information exchange with other solutions are possible. In data exchange, the mechanism is to disclose and to share only PCF data so that confidential information such as suppliers and cost is protected. As we address CO2 calculation rulemaking to platform creation enabling supplier alignment across the board, we have achieved solution allowing effectively smooth CO2 emission calculation unlike competitors and arrived at real data alignment with the consent of the real supply chain partners. From this October, we began real data alignment using this platform with our supply chain partners, 12 global suppliers. Going forward, we will combine this data with various internal data, explore reduction measures using AI and enable business impact simulation. Along with the initiative to expand the range of suppliers participating in this activity, we will expand data alignment after Tier N and link the results of analysis to real action transitioning to business discussions and decisions. With the progress of GHG emission visualization in our own supply chain, customers' supply chain, through this initiative, visualization and reduction in the society as a whole will advance. We believe that this will pose considerable positive impact, both financially and nonfinancially. As we mentioned, we collaborate with WBCSD to expand this initiative to the entire society. Fujitsu has been participating since 2013 and supported acceleration to achieve sustainability through business. Strengthening this type of initiative is one of the major roles of CSSO. Fujitsu per se will use ESG Management Platform and accelerate sustainability management through data-driven. To that end, there is a need to collect all kinds of data from our internal business division, corporate division, supply chain and external stakeholders and to collaborate with them. The role of CSSO is to work cross-functionally to lead and to orchestrate toward net positive. Based on impact identified through data driven, we will propose the way of contribution to society, to the management and achieve the purpose. Our efforts are available on our website. Please visit the website if you're interested. That concludes my explanation. Thank you for your attention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]