Panasonic Holdings Corporation (6752.T) Earnings Call Transcript & Summary

Thank you. For the manufacturing. Some of them do not use too much energy. So this is based on mainly the -- simply, it's easier. But in the case of fuel cells, in the case of PVs and also [ fuel cells ], we have many of them. And then in a situation, simply use of the [indiscernible]. So however, on the other hand, for example, welding and also applying heat, so these factories in the area of energy and industry so -- there may be in the industry. Some of them are only mainly on the assembly, but some of them are melting resins. So in this situation, it's different. In the case of cells, maybe they could have the electrode. And then in some cases, sometimes they have to use the furnace to dry them. So in this situation, energy consumption is large. So the energy itself is now looked at. So it is -- we have to focus on the reduction of energy use for -- in these factories. So it is not that we introduced renewables. And in a situation, renewables cost will be much larger than we expected. So it is better to -- it is important to start with low-hanging fruits. So this way, they sometimes -- well, sometimes the renewables are much cheaper than other sources, especially outside of the country. But still generally speaking, especially in Japan, renewables are higher in terms of cost. So in that situation, cost reduction should be the starting point. And then only after that, we have the introduction of renewables. That is the reason why we have different completion times.

Thank you. This is the only -- that was the one question that we were able to accept. It's already past the scheduled closing time. I see many hands. We are very sorry to close this session. So with this, would like to conclude the question-and-answer session and with this ends the first part of this meeting of the Panasonic Sustainability Briefing 2. Thank you very much.

We'd now like to start the panel discussion. We have 4 invited panelists: Professor Motoshige Itoh, Professor Emeritus, University of Tokyo; Mr. Shinichi Kihara, Deputy Director General for Environmental Affairs, the Minister of Economy Trade and Industry; Ms. Emi Onozuka, President and CEO of Eminent Group; And finally, Mr. Tatsuo Ogawa, Executive Officer and Group CTO, Panasonic Holdings Corporation. My name is Ito. I'll be serving as the moderator today. First of all, let me explain the purpose of this panel discussion. For the realization of carbon neutrality, we are now at the stage where society and companies are taking concrete actions. In this context, there is a need for a system in which corporate efforts to decarbonize are appropriately evaluated. The establishment, for example, of a system with which company's contributions to decapitalization are properly evaluated to promote corporate endeavors such -- and in the case of the companies evaluating their own contribution and also their supply chains' contribution, there has been a system. But as was mentioned by President Kusumi, the reduction contribution is something that would be made possible -- if it is possible to visualize this, then the society might change. So with this as a starting point, we'd like to have a discussion here in the panel. First, we'd like you to introduce yourself. And also at the same time, could you tell us a bit about how you look at carbon-neutral efforts? Professor Itoh, would you like to start?

Thank you very much for your introduction. So I'd like to start with the grand picture. So there are 3 methods with which we are able to tackle with global warming. The one is the global approach, the engineering approach. This is something we have been working on. Each company and the industry established its own goals to implement that. So this is the socialistic or maybe planned economy kind of approaches. And the second is about the regulation by the government. So this is, again, based on the intervention by the government. So there is no need for explanation. And there are -- these 2 are very important, but these 2 would not be able to solve all these problems associated with the global warming. So this is something everybody knows based on what we have experienced in the past. The third approach, which is very important, is the utilization of the market. In what way are we able to utilize the market to tackle with the global warming? There could be many different stages or maybe layers. And ultimate goal is to have the carbon pricing. Maybe we could introduce carbon pricing so that it is possible to reduce the carbon emission. And also, one more thing would be the green finance. I'm sure we will be able to -- be speaking about this. In what way are we able to use is the capability of finance to reduce carbon emission? And also information disclosure, in what way are we able to establish governance role? So the one thing that we are discussing is how to utilize the market. So in the -- we are the economists, and we have to say that this is the typical case of the failure of the market. In order to the reverse the situation, there is only one way, which is to utilize the market. So -- and this is the conclusion of the economists. And also, one more thing that we have to consider is that this is not only for the Japanese companies but also for the companies outside of the company -- outside the country. Many people are very passive. They are given the rules and also the practices and the I guess as backdrop, they try to do their best. So engineering approach is that -- is done based on that. But in what way are we able to involve ourselves for the rule formation? And in what way is it impactful for the treaties for the companies? It is not that they do what is needed, but also they create value. As was mentioned today, they tried to think about the ways in which they are able to have good business for the company. So rule-making is the starting point, and this would become even more important for the company. That's all for me.

Thank you very much. Kihara-san, would you like to follow on?

Kihara from Ministry of -- METI. I'm very happy to be able to participate in this very important panel discussion and about the kind of things that we do, and to speak about the policies of the national government. 2 years ago, carbon neutrality have been declared. And ever since, already 2 years have elapsed, and the 3 policy packages have been released. One is for 2050. So these are mainly the -- for the technological development, which is a green strategy; and also for the 2030 energy basic plan was established in order to streamline the mix -- energy mix; and then also clean energy the interim report of the clean energy strategy, which was issued in May. In what way are we able to achieve the goals in 2030 and 2050? So "how to" is the keyword for that in streamlining this. And then the very basis of the strategy is decarbonization and economic growth. So we achieved both of them. It is not that one is sacrificed for the purpose of the other -- for the sake of the other. So for that purpose, it is important to have the major shift of the economic system centering around renewables. And also social systems and infrastructure should also be changed. So these are the drastic changes we have to consider. There are 5 pillars of this -- the policies. In the next 10 years, both private and public, we have to have JPY 15 billion worth of investment. So in order to drive that, there are 5 policies. One is about the budget. And for the budgetary treatment, we have JPY 20 trillion worth of investment. So this is supported by the government budget. So GX, the economic bond. That's the -- not the formal name, but this is something we have to do. And the second point is regulation and rules. So the -- we have the financial expenditures, and also that we have these regulations and rules. And the third point is the financial package. We have transition finance. This would be the new way of driving the finance. So we have the pump priming within Japan, and also that would be impacted -- that would have an impact in the entire world. In GX League, so starting this year, we have the 430 companies participating, and about 40% of the CO2 emission is already covered. We have already started this. So this is for the emission trading, and rule-making should be the starting point. So the companies are the driving force of the establishing rules and also global strategy. These are the 5 pillars that we have already established. And starting this April -- starting this summer, we will have the committee that will be established within the Prime Minister's office.

Thank you very much. Onozuka-san is viewed as the [ Venus ] of the ESG.

Thank you very much for the introduction. My name is Onozuka, the [ Venus ] of ESG. So allow me to introduce myself. In the last 25 years, also, I was in the financial sector. And most of them are dedicated to global -- the Goldman Sachs. And in the second half of the year, the -- of that, I got into ESG. Starting 2015 to 2016, the -- I have been in the GPIF -- well, GPIF decided to focus more on the ESG investment. So that was the area in which I was able to support as the member of the asset manager. So -- and also in recent years, I have been a member of the Sustainable Finance Committee of the FSA. So we moved on to the sustainable finance, which is one step forward from the ESG itself. So I have been quite active. Especially starting July, I have been independent and I have been exerting my effort here. And the background of my work at this moment is, as was mentioned here, the kind of the change of the finance and change of the industry itself or maybe the change of the future. So there could be a change in many fields with the changes of the development. And then as one company, as a member of one company, I am not sure what kind of things the -- I was not sure whether I was able to make a necessary contribution from the previous company. So that's the reason why I became independent. In this Panasonic's briefing, I'd like to share with you some of the points. And one thing here is about sustainable finance. That rule-making has been mentioned several times already. So global interface would be very important impact in Japan, in many cases. Rules will come only afterwards. And the reasons of not being able to respond -- comply is the mainstream. And as has been mentioned already, the reduction contribution if that could become part of IFRS or other standards, that will be very beneficial. So I think it is important that Japan take initiative in that. Second point, sustainable finance. Conventionally, ESG investments pertained to the equity investors. They were the main players. But in sustainable finance, the players will increase dramatically. There will be banks, not just the major banks but the regional banks as well. And from there, the public funds will be part of the picture. And in the case of green bond, securities firms would be helping the companies to issue such bonds. So there will be diversity -- further diversity in the players. So to make sure that there is proper understanding for the proper financing would be critical. And this would include impact social impact, which is the theme of this panel discussion. That needs to be measured from many axes, including the social axis. So how do you capture that, I think, will be a critical question. That's all. Thank you.

From Panasonic, Mr. Ogawa.

Thank you. First, I'd like to thank fellow panel members for agreeing to participate in this panel discussion, and I certainly appreciate your professional input. As our CEO Kusumi said, Panasonic GREEN IMPACT, PGI, started and some of the updates have been provided. So what is our aspiration in the GREEN IMPACT? Let me give you the backdrop, including my personal aspirations. Until last fiscal year, Environment Vision 2050 was the formula to create more energy than the energy that we consume at factories and offices. In order to translate into the specific options, we have to use the energy that could be measured. We thought that, that will be the fair approach. That was the starting point. Now everything being converted to carbon is more mainstream now within this decarbonization effort. The 2050 target, the environment vision, the level that we were trying to achieve, we have to make sure that, that target would not be lowered, and at the same time, together with the people in society and customers and other stakeholders, translate into more specific plans. And we had extensive discussion on that on this occasion of changing into the holdings company structure. So Scope 1 point -- 1, 2 and 3, 101 -- 110 million tonnes. In addition to this own impact, we have to contribute to the societal reduction and the future impact. So 300 million tonnes altogether, we know that that's a very ambitious target. But we felt that unless we try to achieve such tall orders, we may not be able to survive as a company. So that's the basic thinking behind the GREEN IMPACT. Since the founding of the company, we have always sought to contribute to society, the company's sustainability and societal sustainability to be integrated, to be approached as one. That would be the major driver. That will be a major challenge that affects us.

I see. Thank you. So let us get to the specifics. The carbon-neutral initiatives by company, what we expect of that and to assess the carbon neutral. What will be the metrics that could be used? We'd like to look at those 2 aspects. So first, your expectations of the carbon-neutral initiatives by company. Onozuka-san, CEO Kusumi-san referred to fuel cell as well as hydrogen. So what is the market view of these technologies?

I'm sure many of you in this room are well familiar with this theme. But in terms of the view from the financial market overall towards 2050, hydrogen, electric vehicles and power semiconductors, on those technology elements, Japanese companies are doing a pretty good job. The working group on decarbonization technology, there are many companies that are on the top 10 list, I understand. And in terms of investment, they are 390 -- over JPY 3,900 trillion available for sustainable investments. And we want to bring many of that into Japan. And I think many investors are paying attention from that perspective. And in fact, the companies that do have the decarbonization and technology capability, their stock price fluctuation was quite different from others. And that is because many of the investors are aggressively investing, focusing on such new technologies. So obviously, in the financing world, more attention is being paid to these technologies. At the same time, there are challenges. These are new technologies, and therefore, full understanding, appreciation of these new technologies. And the world of science, technology and financing are still very much apart, I'm afraid. So personally, what I'm working on is to address such challenges. And more recently, foundation for creating a new initiative based on financing and technology and science was established so that people in different worlds can speak the common language and so also develop the talented people who are well versed with both worlds.

I see. Thank you. So technology that can contribute to the emissions reduction is attracting a lot of attention from the market. And it is clear that the common language is being pursued. So Kihara-san, GX League started in April. And I have a feeling that this could lead to a common language. Can you elaborate on that?

Yes. The private companies are now competing globally from the aspect of decarbonization as well. That's a new challenge, very difficult challenge. From the government viewpoint, we really to support that as much as possible. GX League is currently in the proprietary-phase companies that are picking up the challenge of decarbonization and to become a winner in the international competition. 440 companies are supporting, covering over 40%. So that is similar to the ETS coverage in EU. So this involves many different communities, many initiatives. One is the emissions trading. It's not the trading itself that is the purpose, but it is to enhance the transparency of initiatives in different companies to market. So the demonstration test will start for carbon trading -- machines trading, and companies are making investments towards 2030. They're disclosing their achievement. And the credit would be procured if they cannot achieve it alone. And through this, the capital, labor consumption from many different aspects that GX companies are to be assessed and evaluated. So that's the frame deck work that we are trying to establish. So the companies that are participating, I hope, will be invested in and attract more information -- attraction. And another is the rule-making, which is under the subject. Japanese companies are working on the reduction of emissions. In order for them to be duly evaluated, it is important -- maybe we could accept the criteria for the standard from Europe. But also at the same time, it is important to make a proposal for the -- from Japan. So in many fields, many of the private companies are creating de facto standards. And then the de jure standard is made based that. So this is what is taking place in ISO. So in the GX League, the -- it is -- we go beyond the kind of discussions at the advisory committee of the government. But further, the leaders of the businesses would make discussion -- have the active discussions so that the proposals of the standard will be made. So this is the first year. So there is a template for that. And they are now starting discussions on several points. And here, many of the companies are interested in the emission reduction, emission contribution. So we are taking up this. So support the -- Europe is considered to be the superpower in this field, but we have the capability of the value creation. So it is possible to be to make a contribution for the rule-making. So with support of all of you, we would become the leader in the entire world. That's what we are aiming for in the GX League. The technology is now changing the world.

So here, it is important to have a participation from the Japanese industry. So rule-making based on the initiatives of the industry is very important. Itoh-san, Professor Itoh, about the solution of the global warming and also the growth of the company, in what way are they intertwined with each other?

Well, there are several issues that we have to point out about the global warming issue. This is a very difficult issue that we have to tackle with. So without innovation, it is impossible to reach its final conclusion. And so we could have the utilization -- we could work on the things that we have. It is like wringing the dry towel. But the -- it is important to have the creation of innovation. Then one more thing, that will be a very -- something that we have to be happy about in the last 10 years or so, especially in the United States, the economists are now thinking about the -- now saying that the destructive -- the creative destruction is important, especially in the green and clean fields. So the -- in what way are we able to come up with the creative destruction? This is dependent on the efforts by the industry. We talked about rule-making and finance. And then going back -- coming back to the discussion today, this is not only for Panasonic but also for other companies as well. Many of them are aware of this. The companies would have to deal with the global warming, and there are 2 key words: one is responsibility, and the second is the contribution. The responsibility is something that the -- is to reduce the CO2 that is emitted from their own activities. And then in the case of contribution, when coming up with the new business and also new services and they are proposing the new ones, they are able to make a contribution for the reduction in the society. However, while it is important to fulfill their responsibility, but the response -- the business opportunities are very much limited. In that respect, the creative destruction and also the countermeasures or the climate change. In what way are they able to expand the scope for the contribution? One single company would not be able to do that. So the finance itself and on the society itself should be involved. To do that, the expansion of the scope of the market should be accompanying this move. And based on that, I'd like to expect for the companies to do what they can do. So fulfilling responsibility should be the starting point. But in order to do this, the technology is important.

And then Ogawa-san, would you tell us a bit about it? Panasonic might be able to make a contribution. You are doing R&D activities. In what way are you planning to make a contribution?

Well, in the first part, we partially touched up on this, especially about the reduction contribution. They are impactful. There are several impactful areas. For example, the storage battery is quite an impactful area. And also one more thing, the Blue Yonder solution, which has joined us. With this, we are able to raise the efficiency level of the supply chain itself. For the decarbonization and energy conservation, it is possible to utilize the technologies. And also in the Scope 3 area that we have, the air-conditioning and also the ventilation, it is important to have the integration of the indoor air quality and also A/C. So this way, we are able to reduce the energy conservation -- reduce the energy consumption. So we are -- we think we are able to make a huge contribution here. And then on top of that, we are -- have to drive innovation in clean hydrogen, in what way we are able to create clean energy, clean hydrogen. And also, we talked about [indiscernible]. This is area for the energy conservation and also energy management such as at DERMS. So if you are able to combine all these, then the -- alongside with the reduction of the emission, we are able to make a contribution in the future. So again, we are able to maximize the level of the reduction contribution. We accept that. And also at the same time, we make sure that they have full commitment for the R&D. Yes, we have a high expectation here.

Now starting from here, I'd like to move on to the second point. The keyword has been used, the -- about the assessment of -- or maybe the scale with which we are able to assess the -- with a contribution. Professor Itoh would you like to comment -- make a comment?

So this is a new concept, which is the size of the reduction contribution. So can we say that this is the -- this is something that would show the effort by the company, as if I am doing the lecture at the university. When it comes to the market mechanism, we have to have indicators and also indices to drive that. We use the term or metering. So about 40 years ago, I was -- the very end of the socialist Soviet Union, I visited the country. And I was surprised. And I was -- looked at the heating and they had -- they were utilizing the seams, but they did not have any meters. So they turn on the power, and then they do not know when it consumes the available gas. So when it is done, it stops. So this -- we have meters. So these meters or the instrumentation is important for the market mechanism. So with the -- the effort by the companies, it is important to have highly efficient meters. It is not that you buy meters from your outside, but rather, you create your own meters yourself. Panasonic could do something, but it is not that the Panasonic would do something and then -- do something and also the other people would have to introduce that. So innovation is not about something that would pop up in the minds of the very clever people, but rather, innovation is about something that is created after the 5 years or 6 years of effort by very dedicated people. The goals are important, and the action are important. Dynamic operation is key for the purpose. I think it is important to share the same concept in the manufacturing industries and manufacturing businesses.

The importance of the meters are mentioned. Onozuka-san, you talked about something -- you talked about the common language. So in the area of ESG, the reduction contribution, it could serve as the scale with which we are able to measure. What do you think about it?

In the field of finance, we tend to look at things in the monetary figure. So we talked about -- we have been talking about the criteria for the reduction. So in order to deal with the climate change, the -- I think, as was mentioned, hedge funds were the driving force. So they are looking at the technologies and the -- so if they are convinced, there would be the move of the capital. So I have 2 things in mind. The reduction contribution might be the criteria with which we are able to see the strengths of the technology. So we are using this as a scale. So globally, it might be possible to be utilized globally, but the consensus is needed. This is not something that Japan is -- in which Japan is the only -- the only player. So again, in the case of the finance, it is -- it doesn't respect any border. So it is important to convince the investors outside of the country. So the awareness raising among the investors is important. So this kind of kickoff event is very meaningful in that it can convince people outside of Japan as well. And also evaluation of the technology would be the evaluation of the company, but there is one -- there is additional layer. So here, the ESG should be promoted in various aspects. We have been doing this, but many people say that the G is something we have to reinforce in Japan. So the discipline and the investment and how to measure the result of the investment and also stakeholder value and also shareholder value and the balance between the 2, so these are the kind of messages that we want to expect from the nonfinancial companies.

And about the reduction contribution, are we able to utilize this in the policy? Could you tell us a bit about how the policies will be able to promote that?

Yes. The discussion on the reduction contribution is important. Risks and opportunities needed to be looked at, the assessment of the companies in terms of global warming. Conventionally, the emissions amount have been used to measure the risk, and initiatives to disclose such information is well refined. On the other hand, when it comes to developing new technologies to replace the existing technologies that could contribute to reductions. Now there are companies that do have such expertise, technology and services. And then they are investors looking for opportunities. In terms of opportunities assessments, we have yet to see a complete exhaustive discussion having taken place yet. For example, in the case of Panasonic, reduce the CO2 emissions. Let's say that you have successfully developed a system that could have that effect. And the more use of that technology will contribute to society. But Panasonic's activity will go up, and therefore, the emissions will go up, unfortunately. So the opportunities that contribution aspect need to be well assessed, and that's the framework that we need to calculate the reductions. For example, the patents number being disclosed, those initiatives have taken place. But when it comes to the assessment of the opportunities in relation to the risks have yet to be established. And the way to disclose the relevant information vary from entity to entity. So we have yet to see the metrics of that function well, especially here in Japan when it comes to contributions to reductions, what the Japanese companies are doing are, in fact, a source of strength. So building the system for that would be important. And I think that Japan as a country take initiative in building that system. And by doing so, I think that money will start to circulate. The GX League that I mentioned earlier, as we develop the rules, we are trying to build such a system as well. For the metrics for measurement have the financial people be part of that effort so that the system would appear appealing to the investors in the financial market. And another important aspect is to have such information being shared to the rest of the world to publicize and announce all the efforts that are being made in Japan, which I'm afraid Japanese companies are not very good at. So the government will try to support that as well.

Thank you. Yes, the international rule-making to be promoted under the initiative of Japan, I think, would be a welcome event. So Ogawa-san, the international standardization of the metrics, I think, would be good news for Panasonic as well. How do you intend to participate in those efforts?

Thank you. We're not advocating this for the sake of our efforts being appreciated. No, that is not the intent. We have been involved in the development of technologies, and that needs to be fairly assessed by society and by the market. And we wanted that to be established going beyond the differences in industries. IEC/TC111 Working 17 is providing discussion on this life cycle assessment approach or compared to the current model or the older generation, focused on the delta. These are the different approaches that are currently being discussed see what will be the best way to assess the fair value. As Kihara-san said, by having good measurement, the opportunities for the companies engaged in good activities would be appreciated. And green bonds and carbon credit, and eventually nonfinancial ESG assessment, I think could ensue. We need to have a global system with that kind of functionality so that the companies engaged in decent activities would be decently appreciated. And we would like to be part of the efforts to vitalize that. And so we are actively participating in the GX League preparation efforts. And so have the carbon emissions reduction contribution as part of ESG, and we're hoping that there will be many companies that would have the similar aspiration to participate.

Now in Japan, the high school baseball tournament -- summer tournament will start shortly at Koshien baseball stadium. And I understand that with the use of LED lighting system to be Panasonic, the energy efficiency have improved dramatically by 60%. But because of that, the Panasonic's activity increased, and therefore, more emissions.

So I think you're talking about devaluation. That would fairly assess your contribution, right. We are asking for the fair assessment so that the system would be sustainable, would contribute to sustainable efforts being made.

Thank you very much. I'm afraid, time flies. But I wonder if each of you have some final comments that you'd like to make. Starting from you, Professor Itoh.

I think I have said everything I wanted to say, so I just want to share my observation. In October of 2020, Prime Minister declared carbon neutrality, carbon zero. And it's been less than 20 -- 2 years since, many things changed over time. And I think there has been a major progress, especially on topics that we discussed today. So we have to make sure that we take advantage of such momentum to move society forward, and I look forward to the efforts being made by Panasonic as well.

Thank you. Kihara-san?

Well, as I said earlier, in terms of transmitting information on a global scale to publicize what Japan is doing, I think there are many overseas account reports that are working on similar efforts. So I hope we can contribute, help to match and align such parties.

Onozuka-san?

Sustainable finance is finally here, I think. I say so because ESG is this system to assess the efforts made by individual companies. Whereas when it comes to the sustainable financing, it pertains to what kind of future the community wants, not the individual companies, and what Panasonic is doing. The Japanese industry is based on manufacturing. And so we need to revitalize the Japanese industry so that we can look forward to a more rosy and more productive strategy. And I think what Panasonic is doing can contribute to that. So those of us in the financing industry, we need to think of how best to be able to contribute to the flow of money, flow of the people to move things forward. Thank you.

Thank you. Ogawa-san?

Thank you. I think I've said what I wanted to say already. But Panasonic GREEN IMPACT, PGI, this will be a group-wide effort. And as was mentioned today, we need the support of the government and the academia and the financing industry, and in addition, our customers and the companies in different industries. So that green impact, not Panasonic GREEN IMPACT but general green impacts would be jointly promoted. Thank you.

Thank you very much. Listening to the discussion, I was again reminded that in order to reduce the carbon emissions as society overall. The initiatives, efforts by companies, private industry is critical. As a consumer, we need to choose the products and services with the right aspiration. And for that, we need a framework that will let us get closer to and be aware of such products. We need metrics for that. We need framework for that, and that's my observation as a consumer. By changing the industrial structure, companies that try to coexist with the environment would be appreciated, will be chosen by the consumers and make profit and grow. Have that system established would be important. So standardization and the metrics that will fairly assess the reductions contribution need to be built for that purpose. I'd like to extend my sincerest appreciation to all the panelists. With this, we would like to close this final discussion. Thank you so very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]