LIXIL Corporation (5938) Earnings Call Transcript & Summary

Ladies and gentlemen, it is time for us to start LIXIL ESG briefing. Today, the theme is transformation for impact. The external environment is changing drastically, and we would like to brief you on the initiatives that we are taking. I will be introducing you the presenters for today in the order of their presentation: to your left, Director, Representative Executive Officer, President and Chief Executive Officer, Kinya Seto; on the left, Director, Executive Officer, Chairperson of the Corporate Responsibility Committee, Jin Montesano; in the center right, Independent Outside Director, Chairperson of the Board, Masatoshi Matsuzaki; on the right, Independent Outside Director, Chairperson of the Nomination Committee, Yuji Nishiura. My name is Hirano from IR office, and I will be your facilitator for this afternoon. I would like to provide you the flow of today. The agenda is on the screen. There are presentations to talk about the progress of LIXIL's ESG initiatives. After the presentation, we have Q&A session. During the session, you would be able to input your questions any time you would like. Please use the Q&A box. We are expecting to finish at 5:00 p.m. Please enjoy today's briefing session. Without further ado, I would like to ask Mr. Seto to take the floor.

Hello, everyone. My name is Seto from LIXIL. There has been a lot of dramatic changes in the past year. The world has changed, and we used the word paradigm shift. For example, raw material prices and fuel, the commodity prices has significantly increased. Due to the lockdown of COVID, there was a disruption in the supply chain. At the end of February, there was invasion by Russia to Ukraine. These are all difficult issues, and there are unique issues as well, and we tend to be distracted by that. But all of the issues are in some way related to the environmental issues. Today's theme is transformation for impact. At LIXIL, there are many reforms going on. This leads to our growth and sustainable generation of volume, and also it significantly contributes to provision of solution to environmental and social issues. ESG initiatives are considered as necessary costs for the continuation of the business. We consider it as part of value generation for us. Provision of solution to environmental issues and by contributing to the solution we would be able to generate businesses and volumes and provide positive impact to the shareholders. And the -- our employees create the value. As you can see in this chart, we believe that there are 6 elements that govern the creation of value, clear strategic directions as materialized by LIXIL playbook and also with the LIXIL's behavior. We will be going through the proper direction, and we will have a robust governance platform. Everything is very important for us. So we consider a company as a microcosm for the world. For S in ESG, we have to think about how we want our employees to work, how they feel about working. We need to contribute to the outside world. And also, we need to contribute to our employees in our microcosm, and we need to think comprehensively. So let me talk about the environmental strategy for value creation. We don't consider environmental issues as cost but rather opportunities. There are 3 important points there. One is climate change mitigation and adaptation, carbon neutrality, water sustainability and circularity or the circular economy. These are the 3 areas where we are focusing on. The first point, climate change and mitigation and adaptation. As optimized in TCFD, we are targeting carbon neutrality by ourselves, but we need to contribute to the outside world. In Japan, heat insulation in housing is hindering the environmental issue solutions, and so we are trying to renovate the windows and also the water that we use in plants. We will be working to reduce the amount of water, just like we aim at carbon neutrality. But in addition to that, through the water purification technology, we would like to provide better quality water to many people and through operations like SATO we would like to improve the quality of the water and for the contribution in the sustainability of the water. In terms of the carbon, reduction of the carbon must be done region by region, and that applies to water. And in terms of the resources, we should be working to reduce the waste, but at the same time, we need to think about the recycling of the plastics so that we would be able to connect all of the resources to the future. So rather than reducing the resources that we use or recycling it, we need to do that towards the outside world and generate new businesses and contribute to the society. Next is S, the society. Like SATO Project, we can directly contribute to various people, but at the same time, we have 60,000 people working for LIXIL, and changing our company would, in the end, lead to betterment of the society. We want to generate inclusive culture, and we want to create innovation and the employee centricity for sustainable company. We have been working to change the work style of employees even before COVID, but we are accelerating those initiatives after COVID-19. We are pursuing the accomplishment of our purpose, and we first look internally so that we can create an inclusive environment where the employees would be able to exert their capabilities to the fullest. So on here, you see 4 things: fairness and equity. This is very important. We consider inclusion at the very top of our minds. All the employees need to feel that they are important to the company so that they would be feeling that they want to contribute more to the company. The minority people should feel that they are treated fairly. And in order to do so, we need flexible and hybrid ways of working. So even if you have some disabilities and if you have some issues at home, we need to have a workplace that's flexible and hybrid ways of working so that they will be able to work well. So in that sense, well-being is also very important. So well-being project vision of that is, of course, difficult, but we need to provide it. And in order to do so, we need digitalization by democratization of the digital tools. We would be able to more practically provide a better environment for our employees. In today's briefing, the paradigm -- I would like to talk about a paradigm shift in the external environment to generating new risks, but we will be responding in various ways. Jin Montesano will be talking about the environment and society, related initiatives -- related to environment. We created Environment Strategy Committee, and Mr. Mukai, who is the CTO and the Head of the Committee, will be providing the information about the environmental matters. And also, for SATO operations, which is core of the -- our corporate responsibility strategy, Erin McCusker will be providing us updates. And also, our external directors will explain to you, Mr. Matsuzaki and Mr. Nishiura, will explain to you about the evolution of governance at LIXIL. So that will be all from my side. Thank you so much for your kind attention.

Thank you very much. Next up is Mr. Montesano, Chairperson of the Corporate Responsibility Committee, to explain about our initiatives in the area of environment and society. Over to you.

It's a real pleasure to be here today. The building and construction industry has a responsibility to be an active leader to solve the current climate crisis. But the good news is that the industry is getting greener. There's been a lot of progress in the last few years and governments continue to adopt new policies to push for net zero carbon. But today, buildings are still a massive consumer of raw materials and national resources, responsible for an estimated 37% of the global energy-related carbon emissions, with the residential sector alone accounting for 17%, and that's according to the World Green Building Council. This is a statistic that we, as an industry leader, together with our partners, are actively working to reduce, especially with focus on residentials. Domestic water consumption has also increased by over 600% since the 1960s, and that's with population increase and growing water use in the home. We are evaluating and reflecting new governmental regulations across the world as well as current building trends and practices that will shape a positive impact on the environment. We are making progress across the pillars of our environmental strategy to conserve water, energy and other natural resources utilized in and buy LIXIL products and services across the value chain, from procurement through production, distribution, end use and product disposal. We are convinced LIXIL can be a force for good, innovating and scaling solutions to have a positive impact on our planet, but we don't act alone. Together with our partners we're shifting from pledges to actions. And our transformation for impact has really just started. So today, we'd like to share with you our progress and continuous efforts to achieve our goals as well as sharing the next steps in the development of our strategy to further strengthen and evolve our environmental impact. As discussed at last year's ESG briefing, we have been developing interim targets that will serve as the kind of road map to 2030, so we can be even more confident about delivering our 2050 environmental vision. We use the TCFD framework, science-based targets and other initiatives to monitor and disclose our climate change progress. We understand how important it is to set targets that reinforce the perspective of capturing business opportunities and creating impact for society through LIXIL's products and services. And as Kinya pointed out earlier in the opening, at LIXIL, we're transforming our business operations. This transformation is not only to secure growth and sustainable value creation, it's really also to enhance the positive impact we can make on society and the environment. To do that, we must have the right governance structure in place to track the progress, to monitor the risks as well as the targets and metrics. Our business strategy and activities around ESG really need to go hand in hand, and we understand that. So that's why this year, we newly established the Environmental Strategy Committee within LIXIL to create a company-wide environmental strategy and ensure this is properly embedded right throughout our organization. The committee works very closely with senior management and the business units, reporting into the Corporate Responsibility Committee, which monitors progress across all of our CR-related activities. And through our overall sustainability governance structure, we ensure ultimate oversight from our board of directors. To explain our progress on the environment in more detail, I would now like to introduce you to Uchu Mukai, our Chief Technology Officer and the Chairperson of the Environmental Strategy Committee... [Presentation]

Thank you, Mr. Mukai, for that detailed explanation of our products, services and operations that deliver environmental impact. We know we still have much progress to make. But as Kinya and Mr. Mukai just mentioned, we have a real opportunity to contribute to the environment while creating value for LIXIL. With the rapid changes in the environmental space, material shortages and energy debate, we must make sure we get this right. And therefore, we plan to outline our environmental impact strategy in full later this fiscal year, highlighting our medium-term strategy and setting a clear direction. Science-based target, or SBT, validation is going to be one of the guiding principles for us. We obtained SBT certification in November 2017. As SBT announced new sharpened requirements around CO2 emissions recently to accredited companies to be applied by the end of 2025, we have agreed to meet these new SBT criteria. We're now updating our medium-term targets and are committed to ensuring that we contribute to meeting the goal of 1.5°C target and achieving the goals set out in our environmental vision for 2015, including reaching net zero. The TCFD framework, the SBD targets and other initiatives provide a guiding framework for delivering our 2050 environmental vision. We're on a journey to transform, to ensure that we make a positive impact on this planet. We understand how important it is to set targets that allow us to not only manage the risks and meet our obligations but really, more importantly, to capture the business opportunities and provide value for society and the environment through LIXIL's innovative products and services. So we'll push and move on then from the environmental initiatives, I would now like to introduce you to our activities for social impact, including our global people strategy as well as an update on our activities on sanitation and hygiene. So last year, we shared our D&I strategy and key targets and actions we developed to activate our D&I agenda. A lot of work has been done with our commercial leaders across the world to implement the new D&I strategy in order to drive the overall transformation of the business. Now as Kinya indicated, we would like to spend a few minutes today just updating you on LIXIL's own global people strategy. We believe this is a very important step on our ESG journey by ensuring that we're embedding a purpose-driven and inclusive culture across the company, we can empower our employees to truly deliver on our purpose and have a positive impact for society today and into the future. As Kinya also mentioned, the world of work and the relationship between companies and employees continues to rapidly evolve, perhaps faster than it's ever evolved before. If people are truly our most important asset, investing behind the growth and development of our human capital is critical to our success as a company. This Strategy House you see here summarizes quite a complex and holistic set of activities and initiatives that are underway to transform the way we support our employees by enhancing their experiences and careers with LIXIL. So in line with the KPOs or key performance outcomes that serve as the pillars of this strategy, I'd like to share a little bit more with you about just 3 key areas in the interest of time: how we're embedding inclusion into our DNA, how we're elevating talent across the enterprise and how we're enhancing the employee experience at LIXIL. Since the launch of our D&I strategy last year, we made great strides on building the foundations for a more inclusive culture. At LIXIL, gender diversity is the metric we've chosen to use to track our progress, but our goal is inclusion. To become a truly inclusive organization and achieve our enterprise targets for 2030, we focus our efforts on 3 key areas: embedding D&I into our HR policies, enhancing talent management practices, and really enabling our managers to build a more inclusive workplace. In terms of the HR policies, we enhanced our talent acquisition guidelines by reviewing and unbiasing policies and processes that would enable us to attract and recruit a more diverse talent worldwide, hiring managers who are going to be trained on these new guidelines this year. For talent management, we've done quite a lot, but we've launched very newly a mentoring program for high potential diverse talent in Japan. This program included 60% or 114 of those participating in our Talent Acceleration Program and empowers mentees to choose their mentors based on their own career aspirations. I myself am mentoring 2 talented female managers working in the LWTJ and LHT businesses. We launched D&I training as well for all managers across the company, starting with senior management. To date, we've conducted approximately 100 workshops globally, with nearly 2,700 participants already having completed that. And based on the feedback, we continue to tweak and calibrate the program and expand these workshops all across the enterprise this year. Now on building a more inclusive environment, we have embraced many flexible ways of working such as abolishing the core working hour in Japan, making work remote permanent -- sorry, making remote work permanent and introducing concepts such as super-flex and it really gives a lot of support to the very individual needs of our employees. Many employees with caregiving responsibilities say that this new way of working really enables them to have better work-life balance. And we've actually seen a growing number of external talent interested in joining LIXIL because they have heard about our progressive flexible working policies. We also launched 5 global ERGs, or employee resource groups, and each one has an executive officer as a sole sponsor. These ERGs really enable employees to connect and support one another within the communities that are dedicated to promoting gender equity, celebrating diverse cultures, supporting working parents and caregivers and creating a safe and supportive LIXIL for LGBTQ+ employees. Last but not least, empowering colleagues with disabilities. About 2,000 employees joined these communities just 2 months after the launch. So we're continuing to move forward at pace. Now nothing is more vital to ensuring delivery of our transformation agenda then getting our best people into the right roles and ensuring that we have the structure in place to really enable their success. To this end, every year, executives and leaders take part in a talent and succession planning review process we call POD, or People & Organizational Development. And we use this process to review the status of our teams, individual talent, the pipeline into critical roles and make sure our organizational structures are actually aligned to delivering on our business strategy. The POD not only provides us with invaluable insights into our people. It also allows to identify critical roles, and they're not always the same every year, and ensure we put the right talent pipeline into place for these roles. Kinya and I attend every POD session. This year, we had 27 POD sessions across the organization globally. And we reviewed people and organization structures, business unit by business unit as well as the corporate functions. Through this process, we continue to strengthen our pipeline of successors into critical roles and identify and track high-potential talent. In addition, we're now systematically tracking female talent, raising the visibility of those identified as high potential talent and potential successors. This year, women represented 29% of those identified as high potential, and I'm very pleased with that number. The comprehensive insights gained from the annual POD is then embedded into how we invest in talent development to support LIXIL's sustainable growth. Managers in this respect play a really critical role. And it's not just about their functional expertise, which is very important, we're also expecting managers at LIXIL to empower and be equipped to lead, direct and nurture employees really build the right culture within their teams to foster collaboration and good communication. To build a strong foundation of manager skills and capability amongst our 5,500 people managers at LIXIL, we've curated a pretty comprehensive digital learning platform, which emphasizes learning on the go with content that is timely, market-relevant and self-directed. For 300 of our senior executives and high potential leaders, we've actually collaborated with the TUCK Business School of Dartmouth College to build a really tailored program for LIXIL's specific needs. The TUCK Innovation Program builds a shared common language around innovation among top leadership, which will be critical to enable more efficient decision-making and to inspire collaboration. Building this common language had really sparked new thinking within the business, and ideas borne out of the TUCK program have actually gone on to become fully fledged incubation projects, which we're very excited about. Now to break away from the traditional seniority-based high-context culture in Japan and to build the right foundations for sustainable growth, we also developed a talent acceleration program called NEXT and NEXT2, which supports 200 of our top high-potential talent. This program was designed to identify and develop Japanese talent who have the potential to become the next generation of management executives and accelerate our efforts to diversify and infuse new perspectives into the ranks of middle and top management across the enterprise. Though we have successful talent development programs outside of Japan, this is our first Japan-wide talent acceleration program. To become an employee-centric company, focused on delivering a best-in-class employee experience, the first step is really to listen, to listen better and to our people. We leverage a data analytics platform called Qualtrics, and that powers something we call LIXIL Voice, which is our company-wide employee engagement survey, where we previous focused only on engagement, the enhanced LIXIL Voice survey additionally captures inclusion and well-being -- these KPIs are backed by 25 drivers, which provide us with deeper insights into what makes LIXIL a great place to work. The announced survey is then coupled with an updated dashboard that equips all managers with robust data analytics to better understand their teams and their team atmosphere. Specific data enables managers to then act upon their results with impact and inform the way they lead, direct and nurture their employees. Employee listening also plays a critical role in our ability to adapt to the increasingly diverse needs of our employees as well as the rapidly evolving world around us. To ensure we support our employees regardless of their working style or their individual needs, we conduct ad-hoc pulse surveys to better understand those needs in real time and leverage those insights to inform our overall strategic planning. Now last but definitely not least, I would be remiss if I didn't actually take a moment to explain our efforts in Japan, our largest and most strategic market. Japan is really leading the way in terms of the extent of our transformation of HR policies, and people strategies. So I'd like to briefly share a snapshot of this progress. We are working to transform traditional operating models to enable more agile, meritocratic and entrepreneurial ways of thinking. We aim to foster a growth mindset for innovation based on meritocracy and D&I. And to that end, we're transforming our HR policies and programs so that they empower our people to fully utilize their capacity to grow regardless of individual background, including age, gender, nationality or ability. Historically, talent management processes have been differentiated between Japan and the rest of the world. In Japan, our talent management practices were based largely on seniority. And while this was aligned to the local market, we accelerated our transformation journey in Japan to focus on meritocracy and to build a more diverse and inclusive workforce at LIXIL. This is foundational work, and it's critical for LIXIL as a company that was built through the merger of companies with distinct philosophies, strategies and policies. So from April 2022, we introduced comprehensive changes to HR policies and practices for Japan managers and above, which will become the basis for future harmonization across all levels of employees. From April 2020, we globalized our corporate functions across the enterprise to make the shift toward a more harmonized foundation in talent management. So for example, the grading structure is now broad banded and will be implemented consistently across the globe. We drive enterprise and meritocratic thinking by linking short-term incentives more closely to company and individual performance. We will continue to evolve the way we work with the focus on flexible working and streamlining office space to promote collaboration, communication and face-to-face connection. We are also reassessing our performance management practices to shift the focus away from bonus outcomes and towards genuine feedback and development around performance. While this is challenging in a remote working environment, this will be a central focus in our manager effectiveness program commencing this year. Now staying on our initiatives to have positive social impact, we will now provide an update on our work on sanitation and hygiene. And this is a pillar of our corporate responsibility strategy and an example of how we are living our purpose to make better homes a reality for everyone, everywhere. Please let me start by introducing a video explaining the progress of our SATO business. [Presentation]

Thank you, Erin. That video is so powerful for me. We are so proud of the progress being made by SATO and how this intrepid social business is improving lives around the world. But this is not the only work we're doing in this space. LIXIL is also engaged in a variety of other initiatives to improve access to safe sanitation and hygiene. This includes 3 key areas, and I just want to touch on them briefly. First is really supporting advocacy and mentorship. LIXIL is actually a founding partner of something called the Toilet Board Coalition, which works with businesses, investors and governments to scale market-based solutions in the area of sanitation economy. The coalition runs a business accelerator program to promote and scale innovative business solutions that address the global sanitation crisis and, in turn, developing the overall sanitation economy. The TBC now has 53 sanitation entrepreneurs, what we call sanipreneurs who come through accelerator program, impacting 2.2 million people daily around the world. Secondly, we invest in and support capacity building. LIXIL is scaling educational and vocational training programs through initiatives such as the GROHE GIVE in EMENA and Trade Up in the Americas. We're working to counteract the shortage of skilled installers in the sanitary ware industry while also giving back to society and offering young people a prosperous future. These programs build awareness and loyalty with our brands. This supports job creation, but also maintains the health and safety of our communities as trained graduates are able to provide access and improve sanitary facilities, provide safe and clean drinking water and contribute to improved health care. And last but not least, we're advancing partnerships and innovation in the community. For example, in America, more than 2 million people today live without basic access to safe drinking water and sanitation. Specifically in Lowndes County, Alabama, for example, an estimated 80% of the homes have no access to a municipal sewage system, and an estimated 35% of homes dump raw sewage on their property. LIXIL Americas is working with multiple local partners and national partners on a pilot program to find viable solutions for at least 100 homes in that county and is exploring partnership opportunities with other state governments to scale the solutions that we're bringing to the market. Through these and other initiatives, we're expanding the positive impact that we're having through our business activities, and contributing to our corporate purpose to make better homes a reality for everyone, everywhere.

Thank you very much. Next, I would like to invite Mr. Matsuzaki, who is the Independent Outside Director and Chairperson of the Board, to talk about the enhancement of the Board of Directors' supervisory structure and functions. The floor is yours.

My name is Matsuzaki. Chair of the Board of Directors. And I'd like to give you update in regards to our corporate governance. So I would like to talk about the result of effectiveness evaluation we've conducted recently. Now I joined on the Board in 2019, 3 years ago. And so what we have been working on so far, rebuilding of our corporate governance and how have we progress in that regard and what level are we at in terms of effectiveness. We wanted to understand this objectively, and so we use a third-party organization to conduct this effectiveness evaluation. Now the result was that the corporate governance rebuilding effort is making a steady and solid progress. and that high level effectiveness on the Board of Directors have been secured. This is the evaluation result. And so based on this, the Board have been working on restructuring of the governance structure. That was its priority. But going forward, the focus will be shifted to focusing on sustainable growth. Now the evaluation that we received on this occasion, restructuring is progressing steadily. A high level of effectiveness is secured. In order for us to gain this evaluation, I feel that there are 4 factors from my perspective. First is that our Board, as far as our role is concerned, is to proactively provide oversight of the executive team. Not looking at the individual aspect but we look at the overall situation to understand what is happening for our company and provide feedback on that. And by doing so, we will retain the appropriate distance to the management side so that we are able to provide our oversight. Second is in regards to setting agenda for the Board meetings, not just the agenda items that comes from the management, but there are items that we want to confirm or discuss from the supervisory side. So we have been able to choose those as the agenda of the meeting. The third is that outside directors have dedicated themselves both in time and energy to create governance structure more suitable for LIXIL. And the typical outcome of that is the Nomination Committee. There was a restart from scratch so we wanted to aim for the ideal form and that is what we have done far. And in regards to the update in that regard, Mr. Nishiura, the Chair of the Nomination Committee, will provide more detail by phone. The fourth point is that, and I feel this is quite important, in order for the governance, when the executive and the oversight is separated, the executive side needs to have certain level of competence. What I mean is that given the fact that our company have 7 outside directors, and if they say various things, unless there is a competence, there will be in digestion or we lose sight of the focus. But we don't have that at this company, and we have a clear vision on what management needs to take place. And so the management side will take up what should be taking up or take preference in regards to what we suggest and provide feedback on. So that is how the operation takes place. Now in order -- so we want to have a Board of Directors operate to contribute to a sustainable growth of the company, and we want to focus on these areas. First, LIXIL Playbook. And this is something that describes our midterm strategy. And there are 4 strategy measures, and there are also corporate supportive measures described. And we will check the progress of these initiatives. The second is the sustainability-related matters. The high level of interest from the world today, there is a lot of expectation placed upon the Board. Now these sustainability-related matters, it's not the case that everything is outlined in the LIXIL Playbook. And so we will take them up a separate topic, and we'll confirm the status of efforts to address these. And the third is that other than these 2 factors, there are also important the agenda for us to achieve sustainable growth. So what are we to discuss through the Governance Committee, we consider and the result will be reflected at the Board of Directors. And to give more detail in regards to the first point, and we receive a report from the executive side and we also receive report for the executive officers management in charge to confirm the progress, and the decision made by executive teams are reported. And we look at this as to whether they are tied to the strategic measures on supporting measures in other words, the Playbook. And as Mr. Seto has explained today, we are seeing a paradigm shift right now. The management environment surrounding us is changing. So together with that, we need to update the Playbook. And we'll confirm the contents thereof and check the state of execution. In regards to the second item, because of the revised corporate governance call last year, the Board of Directors is responsible for establishing the fundamental policy for sustainability related issues. Now in our case, the policy established by the executive side is approved at the Board meeting. And in line with that policy, measures will be implemented, and we will be in position to confirm the progress. And the third item is, as I've explained before, through the Governance Committee, we will consider and will reflect that at the board level. And that completes my explanation for today. Thank you.

Thank you very much, Mr. Matsuzaki. Next, Mr. Nishiura, Chairperson of the Nomination Committee, will explain about evolution of governance at the Nomination Committee. Over to you.

My name is Nishiura of the Nomination Committee. Thank you. . Now the keyword for the session today is transformation. And how is Nomination Committee being involved as far as transformation is concerned. And that is what I would like to outline in my part. Please look at this first slide from me. And this is a simple illustration of what we are thinking of right now. In an earlier part of discussion today, we talked about transformation of the business structure. So that would be to the left, the arrow on this illustration. And Mr. Matsuzaki, also talked about the initiatives that we are engaging for the next step in terms of corporate governance. And so that is the transformation of the governance shown on the right side of the illustration in order to support the sustainable growth of the company, corporate governance itself needs to also evolve. And when these 2 make progress in sync, it makes possible the sustainable growth of the company. And what will make this possible is people. And so we need to work on transformation of the human capital or a transformation of the management team. So specifically, what have we been doing? And that time is explained in the second slide of my part. As I showed you before, we have been working on restructuring the corporate governance, and the specific measures, that are 3, are outlined in this page. But one in the middle, clarification and enhancement of transparency of election and appointment process, in regards to the officers. And this is something that we have been doing, not only for the CEO succession planning, but the directors and executive officers are also part of this. And so for this, we've worked on revising various regulations and also not just increased transparency, but also enhance objectiveness. We have also prepared evaluation system for directors and executive officers. Last year, for the very first time, we implemented the individual assessment of outside directors. And through these initiatives, we have been able to strengthen and solidify our foundation for growth. So what are we going to work on going forward, and that is explained on the next page. Recently, we have started to focus on evolution of governance and the specific measures are explained in the box. First is the CEO succession plan. And not only we put this together, we review this on an annual basis. We also update the list of candidates every year. The second is formulation and promotion of outside director succession plan. And we are somewhat unique in this respect. There are 7 outside directors with the company right now, and 5 out of the 7 joined the company together in 2019. So how are we going to pass on to the future, the outside directors? That is going to be one of the key issues for the nomination community to address. The third item is to promote understanding of the next generation of executive management personnel. And we are now spending more time and energy for these areas. So the management team of the next generation. How are we going to hand on the baton to that next generation of the management team? And being able to do that, that would lead to a further improved contribution for further growth. Now I want to summarize what I have described as 3 points. First, CEO successor appointment, which will occur in the future is key to sustainable growth in corporate value. Now not after the succession taking place, but we need to be prepared in advance. So we need to review the plan and candidate list should also be updated every year. This is what we are doing. And second point, as I was saying before, smooth transition of outside directors is one of the key issues to improve the stability and quality of governance. And so while keeping a close view on the first and second point, and this is outlined in the third point, and it's an important point for the Nomination Committee is that our director have a 1-year term. And so the committee members' term is also 1 year, and the key responsibility is to elect the directors and executive candidates for the next term. So despite the fact that we are electing people for the next team, but we should also make consideration from the perspective of mix structure or 2 terms later. And we have this mindset in working on the selection of directors and executive candidates. So transformation for the next generation is a key challenge that is placed upon the Nomination Committee and it's something that we'll continue to consider from the perspective that we discussed today. Thank you.

Thank you very much, Nishiura. That concludes the presentation from the LIXIL side. We would like to go into the Q&A session now. We will make preparation of the venue for a Q&A session. And during that time, I would like to explain how we go about the Q&A session. First, we will be taking the questions from the investors first. That will be followed by the questions from the media. In the case there are overlaps to the question, we may be skipping that overlapping question. So please I hope to have your understanding on that matter. In the bottom of the screen, there is a Q&A box. You will be able to enter your questions from there. Please put your company name and your name and input your questions. With regards to the contents of the question, we will be limiting it to the presentation contents that was given today. Now the venue is ready, so we would like to go into the Q&A session. The 4 presenters will be responding to your question. We will be taking the question from the investors.

There are several common questions, but 2 questions received from the investor, so we would like to go to those questions first. The first question, how does LIXIL measure its impact on society and its various stakeholders? That's the first question.

So I would like to answer that question. Actually, we are conducting various initiatives. And the way that we measure it, differ item by item. But in order to gain the stakeholders' understanding, we would like to use tools of measurement, which would be aligned with the market, for example, using TCFD quantitative risk analysis in carbon neutrality. And with regards to carbon neutrality, from our company perspective, the heat insulation of the housing is a very big portion in the market. How we would be able to increase the ratio of the advanced windows and how much CO2 we would be able to use through that is what we measure. With regards to D&I, we look at the ratio of the female in the management and also ratio of females in the new recruits and also the ratio of females in the top management. So we have targets and measurement. So we look at the progress through the calculation. And in terms of the talent development, we not only look at how we develop the talent, but we make the engagement surveys sometimes multiple times per year, and we look at how we have been able to respond to the needs of the development on the side of the employees and the solving the global sanitation issues. We aim to improve the sanitation environment of 100 million people by 2025. We monitor that. But in -- together with Oxford Economics, external entity, we look at how much losses economically, the deteriorating situation of sanitation is generating. So for the areas where we are working on alone, we work uniquely on it in terms of the measurement. And in terms of what everyone is working on, we use a common measurement. And as for the future matters, we make proposals of how we measure it. So that's how we look at this problem.

Thank you very much. We have also received a question from multiple people about another question, so let me introduce that. When do you expect the SATO business to become profitable? Also, what kind of benefits do you expect from SATO?

Okay. Well, we've always declared that our effort is to work very hard to reach a sustainable breakeven for the SATO social business by 2025. We are still on plan to work very hard to do that. Now we do expect that some markets may achieve this target sooner, but this is where we are with the breakeven. And of course, don't forget, there's a breakeven target, but there's also an impact target. And one can argue the 100 million people's lives improved by 2025 is just as important as the breakeven target. But that's my short and long on that. Now in terms of SATO's impact on supporting and creating corporate value, I think there's a number of ways to think about that. First, fundamentally, SARO works to create sustainable sanitation markets, especially in the countries and communities where that doesn't exist today. So in fact, many of SATO's business markets are not markets that LIXIL is even in if we're going to be specific about it. So that entry into and creation of that first rung of safe sanitation and hygiene behaviors and habits and market creation, I think, is really vital to creating corporate value for LIXIL into the future. That's the first. The second is really that we are solving some of the toughest sanitation challenges and issues and thereby, improving the quality of life for residents and building local economies in doing so. And then I think gets to the heart of helping achieve our purpose to make better homes a reality for everyone, everywhere. And so that's that work of SATO gets us one step closer to achieving our purpose, I think that helps to create corporate value. Now the third point I want to make before I stop is actually the very strong collaboration that SATO team works on with LIXIL entities. I can -- in terms of really actually bringing that connection, loyalty and partnership with our businesses and our business partners. So for example, we've done CRM campaigns in both Japan and in Europe with the GROHE brand to tremendous success. I mean EUR 1.2 million was raised just recently this past fiscal year through a GROHE Energy for Life Campaign that partnered with SATO to really work with business customers and help them contribute to creating safe sanitation around the world. So these are various ways in which I think SATO really enables the creation of corporate value for LIXIL. [Foreign Language]

So we have been able to answer the pre-received questions. We still have some time. If there is any other questions, please use the Q&A box to put us questions. While we are waiting for the questions, so I am Hirano from IR. And when I have dialogue with investors, there is one question that I receive often, so can I ask that? In the Nomination Committee, Mr. Nishiura, I have a question for you. On Page 37 of presentation material, you talk about the assessment of the officers. So you talked about the mutual voting system, and it was very surprising for the market. And the assessment system introduction that you talked about today, what kind of assessment do you do?

It overlaps what is with -- what I've already explained. But in terms of the appointment -- selection and appointment of the officers, directors, it needs to be transparent and objective. In order to secure objectivity, we have tried various kinds of assessment. External directors, if we are to change the composition, we try to identify who we want to have to continue their service. And there were some reappointment systems that were introduced. And as for the officers, we have had the assessment from the external institutions. And also what we have done is individual assessment of external directors. A small number of companies introduced the assessment of the external directors. And as a result, it was very good. We -- there were feedbacks compiled in one sheet of paper for the external directors, and it was well received. So those are the initiatives that we are doing.

Thank you very much. I think that the system that you are using is different, but I think it was a very pioneering project, and it was well received by the investors. Thank you very much for your response. And another question is for Mr. Matsuzaki, the question that I often receive from investors in my IR activity. Something you mentioned in your presentation as well, but the revision of our corporate governance code. Now because of this revision, the Board members need to be more proactively involved in the sustainability related matters. So with the revision of the Corporate Governance Board or even beforehand, Mr. Matsuzaki, as the chair, how have you come up with some agenda in this regard? And in what way have you tried to lead discussions in this area?

Thank you. Now what I've been mindful of is as the agenda setting for the Board meeting, we felt that we need to also propose agenda from the oversight side issues related to sustainability, the E and S, and also -- so the people related areas where people can leverage their skills. And these are something that will link to our corporate value. So specifically, what are the initiatives being undertaking. And even before the corporate governance code was revised last year, we felt that these were the agenda items that the Board need to check upon. And so we've been doing so. And last year, we saw the corporate governance code being established. And so we need to come up with a policy and we complied with that. And we have received our reports in the past, but we wanted to once again confirm the policy of the company. This is what we requested and received our explanation from Jin. And we felt that that was appropriate and we approved that. And more so than in the past, and sharing of the issues more specifically or as the Board, that was the explanation given by the management side. We do understand the initiatives undertaken but could further be improved if you do this or that. In other words, more specific advice regarding our policy, we felt that we should also be able to do that. So that is the thing that I would like to work on.

Thank you. There is one question that we have received from the participant, so we would like to introduce that to you. This is a question from Mrs. Okada from Goldman Sachs, Japan. . In order to reduce the CO2 from homes, I think that there are various products coming out in the industry. However, 90% of the housing is not responding to the environmental standards, and there needs to be an introduction of the high performance window to the existing housing. So do you have any cooperation with the government to realize this? And how do you collaborate with the industry group to conduct this.

I would like to respond. It is [Foreign Language]. There are 800,000 housing created and 62 million housing, which are existing. And for the new housing, we would be able to collaborate amongst the industry, but for the existing housing, we need to depend on the consciousness of the people who are living in those existing housing. The consumers did not spend much money on the housing that they have already bought. And 20 years after the building, they would be rebuilding it. So they did not think about investing into the homes for renovation and also changing the windows. Appearance-wise, it does not change the housing so much. And what happens is the benefit for the individuals is the reduced electricity bills. And if the effect is just that, the payback period will take about 20 years. And from an individual perspective, the economic incentive for changing the windows to high-performance one is low. However, considering the health, it is very beneficial because the people who die from heat shock is bigger than the people who die from car accidents, and also having a large window with high height window, it brings in a lot of light, so there -- it is very good for your mental health. So we already have evidence for that. If we think as a society overall, inclusive of CO2 reduction, well, society should change, I mean in terms of the CO2. But when individuals are not working towards that because of less economic incentive, then there needs to be a system in place in the society to incentivize people to work towards changing their housing. The governmental issues -- the governmental package and the industry package tended to be economic package. And it was more about rebuilding the housing or providing subsidies. But I think that we should change our way of thinking. And we are talking with the governmental ministries and agencies, and they are changing their mindset. And now they are -- their environment ministry is thinking about providing subsidy to changing the windows unit by unit. So the carbon glass, if 30% is replaced, then the 1.4 million tons of CO2 will be reduced. So in the past, in Japan, the window is not so heat insulated. But now changing the windows is considered to be more important. We need to appeal that more.

Thank you. We also have another question, is from Masuoka from Sangyo Press Co., Ltd. The recycling system of the resin that the industry wants to work on, what is the progress of it right now? And do you have any targets in regards to recycling of aluminum and resins in the future.

When it comes to resin, the recycling or a resin sash recycling or recycling of the resin, there are 2 different things. We're unable to confirm which so I will respond to both. In terms of recycling resin and all the resin or plastic, we have developed a dream material that can be recycled. So we will put up a plan and we will be able to address the recycling of plastic Japan-wide or globally. But in terms of the plastic sash, the recycling, this is more the industry, the objective. When it comes to recycling of the resin or plastic sashes, then such is out there in the market right now, they have the glass and resins that is actually fixed together. It's difficult to collect that. In our case, it's easy to separate between glass and resins, so we can do this. But -- so the resin that has been used so far already and reflect that into a product, that can be done. But for now, we don't have sufficient amount of output resin. So at the end of life of resin, we don't have a situation to be able to collect them back sufficiently as yet. But technologically, we can do this. And if our products are used, then the recycling of resin should make more progress. In regards to aluminum, in regarding to recycling of aluminum, it's easier than resin. But the scrap ratio of aluminum, we have been working to increase that ratio. However, if we look at this in Japan or also on a global basis, our aluminum sash is the most green, means aluminum sash that is used for recycling.

Thank you very much. We still have some time. And we have already introduced to you the questions that has come to us. If you have additional questions, please put that into the Q&A box. So we have the last question. So this will be the last question from Nihon Keizai Shimbun, Mr. Yamaguchi. His question is, in order to promote the reduction of CO2, how do you think the ratio of the renewable energy usage should be in the future? So external procurement, the in-house generation of electricity, there are a lot of ways mid to the long term. But do you have any prospect for this? Any effective methods?

We would like to increase the use of renewable energy. We think that we can do this, and that has been done in the calculation of TCFD, and we believe that we can do this. But we have to think of Japan overall. The availability of renewable energy in Japan is very low. LIXIL cannot do everything by ourselves. And in terms of overseas, we will be replacing the usage of energy to renewable energy. We have specific targets. And in terms of Japan, for water-related area, we now know that we can replace the energy that we use to the renewable energy. As for the metal-related area, we believe that we can do this but the renewable energy cost is quite high compared to Germany. It's many times more in terms of cost. So we have to think about how we consider this premium portion. And from a different perspective, when the renewable energy ratio is not going up around Japan, this is -- we are doing it alone, then other people will just continue using the non-renewable energy. Scope 1, Scope 2, Scope 3, many companies are trying to make plans. And the companies are saying that they will be using renewable energy, but I think that their plan is doubtful. We would be able to do this, but the other players may have to use nonrenewable energy. And it is not just about the energy procurement, but it's about the generation of energy issue. So whether we would be conducting the in-house power generation and also the green procurement, we are looking at various opportunities. But I think it will take a very long time for Japan overall to go after the green energy. That's one question that I have in this area.

Thank you very much. We still have many other questions, but we are now at the end of the time. And so we apologize, but we'd like to conclude the Q&A session now. Because of the time constraints, we were unable able to introduce some of the questions. And the IR unit or the Corporate Communications department will provide response to those questions at a later date. I hope this is acceptable. Thank you very much for your participation today despite the busy schedule, and thank you very much for the many questions. We have concluded all of the items we had in our agenda. So with this, we would like to conclude LIXIL ESG briefing on transformation for impact. Thank you once again for your participation today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]