Denka Company Limited established our Basic ESG Policy in November 2021, and we are contemplating further strengthening our ESG management in the next management plan, which will be launched in FY2023.
Given this, to get suggestions on what form Denka’s ESG management should take, we hosted a dialogue on the importance of ESG management and issues in its promotion. Our Representative Director, President & CEO, Toshio Imai, spoke with Minoru Matsubara, Executive Officer and General Manager of the Responsible Investment Division at Resona Asset Management. Matsubara is active in the field of ESG investment and is deeply knowledgeable about sustainability.

1. Denka’s Reputation and the Market’s Evaluation

Denka’s reputation and expectations for us

[Matsubara] From the perspective of long-term investors, Denka has the reputation of a company that has long been solid and is continuing to build the foundation of society. Denka has a wide range of business areas, but it’s the areas of chemical and pharmaceutical manufacturing that are attracting particular interest from the market. As we enter an era of stakeholder capitalism, the market will pay attention to what kind of business you’re aspiring to.
On one hand, companies in the chemical sector are perceived as being problematic for the environment, but companies should recognize that and have solutions to address it. We have expectations for Denka, so we’ll be watching to see how you present and monetize these solutions.

Specialties consistent with our ESG commitment

[Imai] Thank you for your faith in us. Under our Denka Value-Up Management Plan, we’re focusing on the three priority areas of the environment and energy, healthcare, and high-value-added infrastructure as our business portfolio. All businesses in these areas are consistent with the SDGs, the aim of which is to contribute to social development. However, as Mr. Matsubara points out, there are issues such as the large amount of energy consumed in the production of chemical products and the high level of greenhouse gas emissions. That’s why I use the phrase "what we can do better than anyone else," to emphasize the importance of both making profits and contributing to society through our work. The concept behind our management plan is specialty. With the premise of consistency with the ESGs, we will concentrate our management resources on high-value-added businesses with our unique technological capabilities. We will continue to focus on specialty as our basic philosophy going forward.

2. Our Corporate Value

Our strong commitment to society as corporate value

[Matsubara] President Imai, I felt that your message that all the businesses are consistent with the SDGs reflects Denka's desire to contribute to the world by solving social issues of some kind and while improving the level of specialization where your business model leads you. I understand that monetary value is only one aspect of what a company considers to be corporate value. The kind of corporate value that a company aims for is providing what society needs, and being the kind of company that is essential to the development of society.

Diverse values that enrich capital markets

[Matsubara] Sometimes the ESG efforts that companies make are not reflected in their capital market evaluations. But what creates liquidity and enriches the market is bringing people with diverse values together in the capital market. It’s not a question of who is correct, short-term investors or long-term investors, because both these things are necessary.
Investors sometimes refer to a company as a stock and consider it solely from the perspective of how it can make them money or increase their assets. The accumulation of short-term profits is what makes a company sustainable so you can’t give up on those, but we do pay attention to the medium- and long-term value creation of the companies in which we invest. If we evaluate a company based solely on a business framework, we might lose sight of its intrinsic strengths.

Righteousness is the source of profit, and profit is unity in righteousness

[Imai] In order for a company's value to be evaluated properly and for it to grow into something irreplaceable to society, it is necessary for each and every individual to do their job as well as possible. This kind of mastery means we can increase profits, protect the environment, and contribute to society. That is what “specialty” means to Denka. Doing the right thing over and over in the course of our day-to-day business activities will absolutely make the company better. There is a classical Chinese saying that goes “Righteousness is the source of profit, and profit is unity in righteousness.” There’s no shortage of time-consuming activities that require proper work from day to day—for example, reducing our environmental impact or contributing to society. When these efforts accumulate, it enhances our competitiveness and our corporate value, rewarding us for our hard work. ESG management is the natural conclusion of our corporate initiatives.

3. Accountability and Responsibility

Telling a story with our eyes on the future

[Matsubara] It is clear that, over Denka’s long history, you have provided the businesses that society needs. But what does it mean to be Denka? If your path forward isn’t clear, that means that Denka’s identity isn’t being conveyed properly. When it comes to the story you tell, I think that a novel is preferable to a short story; it will attract more interest from the market and improve how Denka is perceived.
We are in a position to use the funds we receive from corporate and public pension clients and invest them in companies. We will fulfill our accountability and responsibility to those who support the social security system. This is a crucial mission for us. To do this, companies need to explain the businesses they are developing and the corporate value and social value that they expect to achieve, and to do it in terms of causality. I would like Denka to focus more on whether this is communicated successfully to others, and on the importance of two-way dialogue and engagement.
And the story you tell should also convey what ESG issues you want to solve for the sake of the future, and that you are the ones who are resolute enough to achieve this. I think that is the source of a company's strength. I hope that the world will learn more about Denka’s technological and management strengths.

4. Embracing ESG

The strength of young employee’s commitment to social contributions

Connecting our passion to our mission and our vision

[Matsubara] That's wonderful to hear. At the start of the meeting, President Imai, you said that all business activities are linked to the SDGs. It seems like young employees have also picked up on this sentiment and that it resonates with them. You have really conveyed your strong determination for Denka to pursue a business model that always leads to solving social issues. This strong commitment to and passion for contributing to society will be a great driver in achieving Denka’s mission and vision.

Where you can feel yourself grow along with the company

[Imai] Yes, I think that the question is what kind of new vision we can create by utilizing this passion. How can we parse our 107-year history? What do we do best, and what do we focus on? That’s where management’s responsibility lies. Creating a vision that will convince our employees and reiterating what we believe time and again. That’s what promoting ESG management is all about.
When I’ve visited our different offices, I’ve told people that I want each and every one of them to be able to explain how the products they are in charge of connect with society, what functions they serve, and how they contribute. This is called a narrative, and I think that it’s extremely important.
I explain repeatedly, inside and outside the Company, that we’re striving for the ideal form of the Denka Group as making “Endeavors we are better at doing than anyone else to build a better world for everyone and secure our standing as a company that is irreplaceable to society.” What kind of contribution does each individual make in the field and in their own work, and what will they aim for in the future? We want to work together with our employees to make Denka a company where their work feels rewarding and allows them to grow.

5. Balancing Profits and ESG

The importance of philosophy in staying afloat

6. Denka’s ESG-Oriented Management Going Forward

The resonance of ambition

[Matsubara] In the 20th century, finance was a world of “don't,” built around laws and regulations. But looking forward, what do you want to do with the Corporate Governance Code or the Stewardship Code, and what do you expect to accomplish? It’s important to have “wants” and “wishes.” People may talk about a bird’s eye view or a bug’s eye view, but it’s about having a grand vision of creating a new society and a new company through your work. The fact that these aspirations resonate within the company is an important corporate value.
I also hope that the day will come when the companies that will build the future will be able to attract investments by using such messages of support. We want to talk about the future and we want to share the future. I think that the capital market will likely continue to change going forward.

Truth, goodness, and beauty: Science, ambition, and balance

[Imai] I believe that ESG management is based on doing the right things as a company, increasing the value of a company's existence, and enhancing its competitiveness. The Japanese expression shinzenbi means “truth, goodness, and beauty.” I relate this to ESG management. Let’s say that truth is science, good is ambition, and beauty is overall balance. I want to have solid science, high ambitions, and a good overall balance, and I want to maintain an awareness of these in our daily decision-making.
In facing the challenges of the COVID-19 pandemic, the world as a whole has become more conscious of what it means to examine the fundamentals. We will carefully examine the social issues that the Company faces and our specialties in the aim of having the strong will to make “Endeavors we are better at doing than anyone else to build a better world for everyone and secure our standing as a company that is irreplaceable to society.”