Mitsubishi Corporation (8058) Earnings Call Transcript & Summary

Hello. This is Kobayashi, the CSEO. Thank you for taking time out of your busy schedule to join us as well as joining us online. Last year, on March 1, we had our first ESG meeting. And as the CSEO, that was my debut. And time flies, it's been already 1 year. And we have slightly fine-tuned the format this year. But with the theme of ESG, we -- I am very happy that I'm able to have this opportunity to talk about you today. So since assuming the position of the Chief Stakeholder Engagement Officer in April last year, I've been engaged in dialogue with investors through various opportunities, both domestically and internationally. We have also enhanced our disclosure through financial results briefings and integrated reports so that our investors can better understand our past history and future growth story. We have also established a cycle in the past year in which feedback from investors obtained through disclosure and dialogue is fed back to our president and at management meetings so that it can be reflected onto our management. The opinions of those of you here today who are in charge of exercising voting rights are extremely important to the consumption and implementation of various measures, so we appreciate your frank and honest feedback. At the ESG briefing session held in March last year, in addition to investors, we also invited financial institutions and people from the media and had a fairly large meeting. However, this time around, we have limited the meeting to those who are in charge of exercising voter rights so that we can have a more interactive dialogue. So I hope we could get a lot of feedback as well as questions in the Q&A session after the presentations today. Last but not least, we will be joined this time by Director Akiyama, Independent Director and Auditor Kogiso, to comment on our various initiatives. We hope that the Q&A session will be an opportunity for a direct dialogue with our independent directors. So thank you very much once again for coming today.

Thank you very much for the opening remarks. Next, I would like to move on to the presentation for each of the initiatives. Regarding governance, I'd like to invite Mr. Nojima, the Corporate Function Officer in charge of Administration and Legal to make the presentation. I'd like to also ask Director Akiyama to make some additional comments later.

Yes. So I will now explain our governance initiatives. I am in charge of the Corporate Administration, my name is Nojima. As publicly disclosed on March 15, we plan to transition from the current company with an audit and supervisory board structure to a company with an Audit and Supervisory Committee and will submit a proposal to change the articles of incorporation at this year's Ordinary General Meeting of Shareholders. Today, I would like to discuss the purpose and the overview of these changes to the organizational design to help facilitate your understanding. So please take a look at the presentation material. At the bottom right, you see the page numbers. Please turn to Page 2. First, I'll give more insight into the background and purpose of this organizational change. As you can see from the slide, since the 2000s, we have continuously strived to strengthen corporate governance and to enhance corporate value. As you can see on the bottom left, since 2001, Mitsubishi Corporation has advocated the separation of management and execution with an Audit and Supervisory Board structure and continue to enhance corporate governance on 3 key points, reviewing the size and composition of the Board, deepening the matters for the deliberation to have a discussion of the strategy and also promote the delegation of authority to the executive team. So we have been trying to enhance the level of corporate governance on these 3 key points. As a result the Board of Directors has shifted from the conventional management type role of decision-making on individual investment in financial proposals to a supervisory body that monitors management policies and strategies. So each year, we evaluate the effectiveness of the Board of Directors. And as the company with the Audit and Supervisory Board, we have been receiving a comment that we have [indiscernible] status. Also, the Governance Nomination and Compensation Committee has continued to deliberate over what the best governance system is for the company, while also hearing opinions from the independent directors. And we have decided to transition into a company with an Audit and Supervisory Committee, an organizational structure with a stronger focus on monitoring. And as you can see in the big in circle on the right hand side, as a result, there are 2 key points. One is that we will be further enhancing the deliberations on management policies and strategies at the Board. And also, we will further accelerate decision-making process by appropriately delegating authority. We will strengthen and advance the supervisory function of the Board, fortify their ability to respond to accelerating changes in the external environment to develop the business further and also to increase the corporate value. Next, please turn to Page 3. So this slide is explaining the 3 points about Mitsubishi Corporation's governance structure after the transition. Also we have the 3 key bullet points in the center. The first bullet point is that we will be delegating more authority for important business execution decisions to executives under the president and strengthen supervision by having the Board of Directors focus more than ever on deliberating management policies and strategies. And the current fiscal year FY '24 is the final year of midterm corporate strategy 2024. As such, we will work to ensure effective deliberations regarding management policies and strategies, including the formulation of the next midterm plan, at the same time, to delegate more authority to the executives. A note to the Board, the independent Board members would also need to have a thorough understanding of the company's diverse business activities. Therefore, we will further enhance the quality and quantity of information provided to the independent directors outside of the Board meetings, including information about individual investment financial proposals, thereby strengthening the foundation for appropriate supervisory functions. Next, as stated in bullet number 2, we will reshape the Governance Nomination and Compensation Committee and Advisory Board to the current Board into 2 committees, Corporate Governance and Nomination Committee and Compensation Committee. The Governance Nomination and Compensation Committee's current scope of deliberating is expanding in broader compensation matters, including the sustainability linked compensation introduced last year, is also being addressed by this committee. And the two-committee structure that I mentioned earlier is intended to promote thorough deliberations and higher transparency. Also, I will move on to the next page. Looking at Page 4, you can see our governance structure. At the bottom, we have the corporate governance and the Nomination Committee and the Compensation Committee. And as you can see from this section, both committees, the majority will be independent directors so that we can ensure objectivity, transparency and also fairness. The Corporate Governance and Nomination Committee will deliberate on such matters as succession planning and governance structure. The nature of this committee is responsible for appropriately getting information from the executive team and the opinions of independent directors to facilitate active discussion. And so that said, the company Chairman will be a person who has a thorough understanding of internal matters and has built strong relationship of trust with each independent director through the Board and other forums. So it will be Mr. [ Takeuchi ], who will be serving as a committee chair. And for the Compensation Committee, this will require even higher level of objectivity and transparency. Ms. Akiyama, the Independent Director on my right, will be serving as the Chairperson. And going back to the previous page on Page 3, regarding the last bullet point number three, we will enhance the audit functions by deepening collaboration between the Audit and Supervisory Committee and the internal audit department. Given the existing organizational design, the current Audit and Supervisory Board and the internal audit department, they're already working together closely. With the current structure, we have the total independency of the statutory auditor, and there will be a closer collaboration with the committee infrastructure. But even with the new structure, we will continue to work closely so that we can further deepen and continue to improve effectiveness of the audits. And I won't go into details today, but I ask that you please see the attached materials with further details that summarizes the skills metrics of independent directors and our review of the construction and the structure after the transition. This concludes my presentation. Thank you very much.

Hello. I am Sakie Akiyama, Independent Director, and I would like to make some comments on governance. I have been involved in MC's governance since June 2020, so it's been approximately 4 years that I've been serving as independent director in not only this company, listed companies have a committee-based organizational structure, I have been serving as independent directors for multiple companies. And because of the times at other companies, various people who are serving as independent directors, especially female independent directors that are serving, there are some occasions -- many occasions where I have the opportunity to engage in dialogue with them. And based off this experience, regarding MC's governance, in short, you can say that for MC, it is really capable of transforming itself. That is the kind of management that MC is engaged in. That is how I feel. The corporate governance code was upgraded and also from market participants, interests are heightening. So various companies have been engaging in various measures to enhance corporate governance and to self-transform. But on an annual basis, when you look at the evolution of companies, I do feel that MC has been making huge strides. Relative to other companies, why is -- why am I feeling that MC has an upper hand? Of course, the independent directors are committed, and we are engaged in various dialogue. However, what's most important are the management that is engaged in the execution of business and are focused on self-transformation, including governance. It's a matter of how determined they are and how passionate they are in promoting the initiatives that need to take place. I feel that, that is most important. Therefore, for independent directors, we are in a position to appropriately supervise what the people who are engaged in execution are doing. And I believe the role that independent directors should play comes into play more when a company is in a contingency rather than normal times. So independent directors who can function at types of contingency, how should that be? That means that in normal times, it's a matter of understanding the way management thinks as well as understanding the business well, and also engaging in candidate discussions on a daily basis. I think it all comes down to that. Therefore, serving as an independent director for Mitsubishi Corporation, what's challenging is there are many occasions where we engage in dialogue. So it's very time consuming. I really need to be committed to that. However, having said that, I think that is preparing me for times that may become real in the future when we need to fulfill our responsibility. So I think that's a characteristic of governance. So Mr. Nojima talked about the changes that are going to be made to the organizational changes. So in the current midterm corporate plan and its formulation, we were also involved back in the times. And we were discussing how the business portfolio should look like in the future and how assets should be replaced during the process. At the discussions we had at the Board, there was a lot of increased amount of time that was spent to discuss these themes evolving the organizational changes. Design changes were made in order to evolve the way we are having these discussions. And in conjunction with the changes up until now, we had the corporate governance and nomination and compensation committee as one. And all the independent directors were involved regarding the Governance Committee. But now the compensation committee is going to be carved out in the new organizational design. As Mr. Nojima explained, especially regarding compensation, sustainability is now going to be an evaluation item in assessing executive compensation in order to be more transparent for the president's performance. That newly independent Compensation Committee is going to discuss the affairs, and this is a committee that I am going to head, whatever the case may be. The format will be changing, but we need to ensure that it functions correctly. And essentially we need to improve governance. But in the case of the passion to make the changes, all of the directors, auditors as well as the executive officers are all in sync and everybody is on the same page. So through the dialogue we have with you all, we would like to continue to focus on improving governance at the company. Thank you very much.

Thank you, Mr. Nojima and Mr. Akiyama, Next, we would like to talk about human capital. Mr. Kogiso (sic) [ Ms. Kogiso ] will be commenting after the presentation delivered by Ms. Kashiwabara, the GM of the Human Resources Department.

My name is Kashiwabara, the Head of HR. So MC HR Vision DEAR is a title of my part, and I would like to talk about the details. So human capital is our maximum asset. And the source of our value creation geared toward creating MC shared value, the external environment is becoming more volatile. But in order to remain a company and an organization that continues to create MC shared value, we have recently established DEAR, our vision for human resources looking 10 years into the future. Today, I will provide an overview of this vision as well as explain some of the related measures we aim to implement. Please look at Slide 8. First, I will discuss the background of the vision's formulation. On this slide, you'll see our projections for both the internal and external environment for human resources in the next 10 years. As is shown in the upper portion of the diagram, various changes are taking place with the external environment. These changes include increasing difficulty in securing human resources, the diversification of workers' values and the shifting relationship between the company and its employees from a traditional dependent role to a partnership aiming for mutual growth. Mitsubishi Corporation is no exception. At the bottom of the page, the chart detailing workforce composition by generation located shows that in just 10 years, millennials and Gen Z will become the core workforce. Even amidst such changes in the environment, the key focal point for Mitsubishi Corporation as a desirable employer will remain attracting and retaining excellent human resources, producing next-generation leaders and continuing to create MC shared value. Please look at Slide 9. This slide summarizes our values and organizational culture for the development of our vision. Mitsubishi Corporation's values and organizational culture have been nurtured on the basis of the 3 corporate principles. The blue circles represent areas we should uphold and strengthen, while the circle's exteriors indicate areas we must change and evolve in accordance with the times and the environment. We will continue to uphold and strengthen the values and organizational culture we cherish. We also believe it is necessary to promote reforms unique to MC in light of changes in environment detailed on the previous slide. Please look at Slide 10. With these issues in mind, we have established the MC Human Resource Vision DEAR, leveraging, nurturing and rewarding a diverse and versatile workforce for the next 10 years. DEAR is based in our belief that it is essential to have a concise vision for human resources and share it with internal and external stakeholders alike. D-E-A-R, which is an acronym, was chosen out of MC's desire to express that people are what we as a company view as most important. Please look at Slide 11. From here, I will go into more detail about some of the measures being promoted under DEAR. First, I will discuss the promotion of diversity, equity and inclusion from which the first 2 letters of our vision originate. MC has gradually expanded the scope and reasoning for DE&I, beginning with the hiring of women for career track positions in 1987. To take our efforts to the next level, we established a DE&I working group in 2023 to clarify DE&I as a condition necessary for the sustainable growth of the company and organized issues that need to be addressed. We have already implemented various measures recommended by the DE&I working group. To accelerate this momentum, a DE&I ambassador organization was also established this year with efforts towards the implementation firmly -- towards its implementation firmly underway. Please turn to Slide 12. As part of our first advanced DE&I, we will focus on the promotion of women's activities. The most important thing going forward will be strengthening our pipeline to consistently produce female executives. We are placing particularly high priority on the following: one, improving female employees' capabilities and skill sets even after major life events through diverse work experience, such as overseas assignments and secondments; and two, active promotion to responsible positions; and three, recruiting more women. We'd like to create a virtuous cycle that encourages the active participation of women by hiring, training and increasing the number of candidates ready for promotion at all levels from managers to executives. Please proceed to Page 13. To drive these initiatives, we set goals for FY '27 and FY '30 as milestones for recruitment and strengthening our management pipeline. As initiatives on recruitment, including raising the female ratio among applicants will be gradual and continuous efforts, we set the target range. In strengthening our talent pipeline to consistently develop new female managers and executives, we set our eyes on FY '23 to accelerate our efforts to promote women to the management level, focusing on general manager and general manager candidates position where the female participation level remains particularly low. To achieve this goal, we will rapidly introduce measures to support career development, strengthen the system and expand support for balancing work and family life. Through the establishment of these milestones and the implementation of these measures, we aim to quickly achieve our target of 30% to more female participation at all levels. Please turn to Page 14. With more diversification of talent, we address employee engagement as an important theme. As such, from FY '23, we set, quantitative KPIs, the results of which were analyzed and discussed by the management. On this page, it illustrates examples of our business process reforms initiated by the result of the employee awareness survey. Business processes are identified as an issue in a detailed analysis of the FY '22 survey and in order to reform the company, we have been promoting the 3 company-wide measures shown in the center of this slide. There is no silver bullet to improve the results of the employee awareness survey, and we will not overreact to the slight changes of a few percentage points. That said, for FY '23, every KPI indicator improved over the previous year. Going forward, we would like to continue to build on this momentum through actions such as sharing good practices in the field. Pages 15 and 16 provide an overview of the measures represented by DEAR's final two letters: A for accelerate; and R for reward. For the sake of time, I will be brief on this point. Based on our philosophy that people are the greatest assets, Mitsubishi Corporation has been actively investing in human resources. Going forward, we continue making these investments, placing the right people in the right positions and rewarding employees based on their performance to create an environment in which all of our employees can unleash their maximum potential, making their growth an integral part of the company's development. That will be all from me.

Thank you very much. So I am Kogiso, I serve as the Independent Auditor, and I would like to make a few comments on the talent management initiatives. As an independent auditor, I have been serving at MC for 2 years. And regarding the human capital, to date, I have been engaged in many meetings. And I understand that the most passionate discussions took place in these meetings. At Mitsubishi Corporation, independent directors and independent auditors are working together with the management team to actively engage in discussions. And we have been having some briefings. And also, in my case, I was serving as adviser to DWG, the Diversity Working Group, to engage in intensive discussions, to listen to people's feedback and opinions and also to participate in diverse discussions. So that took place in the last 12 months or so. So in just about a year, I think a lot of the activities have taken off on full scale. And going forward, I think the executives under the president is addressing this topic as one of the important agendas to be covered. And from that perspective, I think that we were able to see a very good progress. Also, I have expectations for DEAR initiatives to make further progress. And regarding DEAR's concept, diversity, engagement, enhancement and also helping further development, I think there is a good balance out of those elements. And I think this is a very comprehensive policy from the external perspective. And for MC, it's a [ trading ] house, so regarding the human capital, I think this concept has taken root in this company for many years. So enhancing people's skill sets was an important agenda because many people were seconded to the overseas subsidiaries and invested companies to nurture their management skills. So I think a lot of attention was paid on that front, to enhance the human capital. And more recently, there's been some change in the value held by the people and DX/EX, something that we have been promoting as a company. So it's not a shift in the trend. I think the company has been trying to redefine the human capital that will be important and required for MC. And I think that led to this initiative that were explained. And for business process reform, I've been serving as the auditor for 2 years, but I've been hearing that this was a topic that was discussed for many years. And this business process reform is not just about reforming the backup processes, this is about more overall transition in the corporate culture and looking at the engagement survey and identifying that initiative to reform the business process and to lead that to corporate culture changes as something that MC has been working very hard to lead with a lot of passion. So listening to young people's feedback and voices. Many perfectionists may be a [ tool of old ] that is more than required. So I think those elements need to be identified to see what kind of modifications may be made in the business process and the organizational structure. And last part on the female empowerment, the DE&I or diversity working group was established right under the umbrella of the president. So there's no boss in this working group, so that people can exchange candid opinions. And I think personally, this was a very effective organization. Also ambassadors were identified from different divisions and people who raise their hands to participate in this working group, participating in these meetings. So when it comes to the empowerment of females, sometimes the targets become the more important agenda. But I think at the Mitsubishi Corp., they started with a bottom-up approach to start first with a discussion. And I think that was a very good way to pursue a business initiative. So this dialogue, it was not just about meeting the targets, but I think this was all embedded in the comprehensive policy and strategy of human capital assets. So the priority was not placed on trying to reach certain numerical targets by year X, but more importance was placed on the discussion of how these initiatives should be developed and how the evolution should take place. And I think today, we were able to summarize the progress made. But of course, looking at the numbers, we still need to improve further. And we also need to further discuss what is the right level for MC. And I'm sure that there's going to be further development and evolution of the discussion around this topic. And as an independent director, I would like to continue to actively participate in this discussion, and I hope to invite the employees, those who engage in active discussion about this point.

Ms. Kashiwabara, Ms. Kogiso, thank you very much. Next, regarding sustainability, Ms. Shoji, the GM of the Sustainability Department will speak.

My name is Shoji, and I was recently appointed to GM of the Sustainability Department. I will discuss MC's initiatives related to the environment and human rights. Please refer to Slide 18. At the MC Shared Value Creation Forum held last year, we laid out our efforts toward achieving a carbon-neutral society, as announced in the midterm corporate strategy '24 and detailed Scope 3 category 11 emissions and the emissions we were able to avoid. In terms of the progress of MC's initiatives towards a carbon-neutrality, we suddenly reduced Scope 1 and Scope 2 emissions in fiscal '22 by replacing businesses in our portfolio and making on-site reduction efforts. We will continue to make these efforts toward our 2030 goal of halved emissions. Regarding Scope 3 category 11 in fiscal '22, we reduced emissions by 70 million tons from the previous year, mainly due to the decreased orders for infrastructure exports. We are currently compiling FY '23 data and plan to disclose the results about -- during the summer. In addition to updating the numbers for products disclosed last year, we have added new products and have included them in our calculations of avoided emissions. Details are in the appendix. And we have also disclosed the reduction of emissions from new products such as needle cokes needed for lithium-ion batteries which play a crucial part in electric furnaces and lithium-ion batteries and RO membranes, which seawater desalination with low emissions. And last year, we only disclosed the amount of avoided emissions from products we are already supplying -- projects already in operation. This year, however, we have decided to also disclose the amount of avoided emissions from projects either in the planning phase or on the verge of commencing operations. Going forward, we plan to expand disclosure of avoided emissions as a quantitative indicator for taking on opportunities related to climate change. The MC Group will continue working to realize carbon reduction and decarbonization towards a carbon-neutral society by promoting its EX businesses. We will also examine methods of disclosing the company's activities and progress to stakeholders in an easier-to-understand manner. Next, I will discuss the company's initiatives related to natural capital and biodiversity. Please direct your attention to Slide 19. We recognize that maintaining, conserving and even restoring our natural capital, which includes support for biodiversity is an important issue for the company's growth. In line with the TNFD's data disclosure framework released in March '22, MC worked throughout FY 2022 and FY 2023 to analyze environmental issues within the group's business activities. Specifically in Phase 1, we used ENCORE, a tool recommended by the TNFD to map the overall levels of dependence and impact on nature of each business. Then in Phase 2, we deeply analyzed the businesses determined to have high levels of dependence. After Phase 1, we conducted an analysis of Cermaq, our salmon farming business, which depends crucially on nature, based on the TNFD's LEAP process in Phase 2. Going forward, based on the knowledge gained through this analysis, we will explore following up on more businesses and utilizing this knowledge in our business operations. In addition, while referencing the TNFD framework, we will further consider the best analysis and disclosure methods for nature-related issues for the company by examining good practices and engaging in dialogue with stakeholders. Finally, I will discuss human rights and supply chain management. Please take a look at Slide 20. MC operates a variety of businesses around the world, and we believe that respect for human rights is the foundation that supports all of our business activities. First, our human rights policy covers multiple items, including through our corporate philosophy, the three corporate principles as well as the corporate standards of conduct, code of conduct and social charter, demonstrating the company's approach to human rights. In fiscal '23, we revised our approach to respecting human rights as expressed in these statements and established a clarified human rights policy. We will communicate the approach detailed in the new human rights policy with group companies and business partners, including suppliers as well as continue our work towards respecting the human rights of our stakeholders. Secondly, we conduct human rights due diligence to identify, prevent and reduce negative impacts on human rights and the environment in both the group's business activities and supply chain. We do a supply chain survey in combination with on-site inspections of suppliers. In fiscal '23, we added paper and soy beans to the products eligible for investigation. And investigation for shrimp, cacao and coffee, which we already included, were expanded to include both the group's direct suppliers as well as the Tier 2 companies that those direct suppliers purchase from. And in February this year, we conducted an on-site visit to a sea (sic) [ tea ] supplier in Sri Lanka. The details are available in the appendix. We were able to get a first look -- firsthand look and hear opinions on how we have created an environment in which farmers can work with peace of mind by securing a living wage, appointing women managers and providing hospital facilities and nursery schools directly from the farmers themselves. Thirdly is about our release system. Last year, we began implementing a grievance mechanism to process inquiries from external stakeholders through multiple channels, including consultation services via our website and engaging a direct dialogue during on-site inspections. We do our best to reduce or prevent negative impacts on human rights and the environment in the company's business and supply chain. We will continue to value the engagement opportunities that we directly have with our suppliers and stakeholders so that we can reinforce our human rights engagements. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]