Value creation process and Materiality Mnanagement
Value creation process
We have established a "value creation process" for the purpose of "balanced creation of both social value and economic value." The value creation process consists of a process to continuously strengthen our own management base (the six types of capital) while maximizing the stakeholder value, and a system to manage this at the management level.
In some cases, social value is created by our Group’s corporate activities, but in many cases, it is created through the chain of effects from one stakeholder to the next. Our Group’s social-issue-solving business consists of activities that contribute to the realization of SDGs and ultimately create positive impacts and minimize negative impacts on the economy (Prosperity), society (People), and the environment (Planet).
We have also established the materiality management and risk appetite framework to manage these business processes at the management level. In the materiality management, we have classified high-priority issues (materiality) that affect our value creation process over the medium to long term into three categories, and manage them: (1) impact materiality—issues on which social-issue-solving businesses can create social value; (2) governance and management framework materiality—issues that have an impact on the core elements of our value creation; and (3) financial materiality—issues that directly affect our financial performance.
In particular, we have positioned “the age of a 100-year life”, “ESG/Sustainable management”, and “regional ecosystems and the global investment chain (Networking)” as the three areas of value creation, and will promote a virtuous circulation of funds, assets, and capital with a view to the society we wish to realize in FY2030.
Definition and identification process of materiality
With the balanced creation of both social value and economic value at the foundation of our management, we identify the medium- to long-term high-priority issues (i.e., items of materiality), taking the economy, changes in social conditions, our Group’s risk awareness, and requests from stakeholders into account, and decide them at the Board of Directors.
We first identified items of materiality in FY 2015 and revised them in FY 2019 and FY 2022. In identifying the current materiality, we took as our starting point the common metrics in “Toward Common Metrics and Consistent Reporting of Sustainable Value Creation”, which was compiled by the Big Four accounting firms based on the recommendations of the World Economic Forum’s International Business Council. The first step was to identify “materiality themes” based on the points categorized into “Planet”, “People”, “Prosperity”, and “Principles of Governance” in the common metrics. In the second step, materiality themes were organized into items related to the society and values we aim to achieve in line with our corporate purpose and strategic management themes, and identified as materiality.
We conduct periodic reviews of materiality and materiality themes and report them to the Board of Directors in order to appropriately capture points arising from changes in economic and social conditions.
Identifying materiality from common metrics
| Materiality | Overview | |
|---|---|---|
| Impact Materiality Items in which our corporate activities have impacts (both positive and negative impacts) on the economy, society, or the environment. Items that are in a phase where we can take concrete steps toward achieving both social value and economic value. |
The age of 100-year life | Providing products and services that support a prosperous life by preparing for changes in social systems such as pensions and social security in a super-aging society, and social issues such as extending healthy life expectancy. Create conditions in which clients can use beneficial and affordable financial products and services that meet their requirements. |
| ESG/Sustainable management | Responding to climate change, biodiversity, resource recycling and the circular economy, air, water and soil pollution, respect for human rights, and providing support and means for environmental, social and governance-friendly management for the companies to whom we extend investments and loans and our suppliers. |
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| Regional ecosystems and global investment chain (Networking) | Build mutually complementary relationships among agents in the region and establish relationships with economic agents outside the region to promote multifaceted collaboration and co-creation. Provide investment opportunities by strengthening the investment chain through collaboration with advanced overseas players. |
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| Trust × Digital Transformation | Driving force and function which promote a virtuous circulation of funds, assets and capital. Realization of virtuous circulation through the power of trust, including asset management and asset administration with appropriate management and thorough administration, and the power of DX, which creates new businesses through structural transformation of existing business processes and cross-business integration. |
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| Governance and Management Framework Materiality Non-financial items where environmental or social issues do not immediately affect our corporate value enhancement process, but are likely to affect our finance over the long term, so they are highly defensive. |
Corporate governance | Establish a management framework that achieve balanced creation of both social value and economic value. |
| Fiduciary spirit | Fulfill the trustee’s responsibilities and act faithfully on behalf of clients (beneficiaries) with the due care of a prudent manager. Realize our clients’ best interests. |
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| Human capital | Recruit and promote human resources with diverse values, and build a group of them. Create a situation where employees can be of healthy mind and body, sympathize with our Purpose, build healthy relationships that respect diversity, and pursue wellness in their own work by utilizing their own values and strengths. |
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| Risk management and resilience | Accurately assess risks and take necessary countermeasures to secure earnings and support sustained growth by ensuring sound management, and taking risks based on management strategy. |
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| Compliance and conduct risk | Comply with laws and regulations, market rules, internal rules and regulations, as well as social norms in general. Ensure that the conduct of directors, executive officers, and employees, which violates professional ethics or fails to live up to the expectations and trust of stakeholders, does not result in adverse effect. |
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| Security | Prevent cyber-attacks against core infrastructure providers and address incidents when they occur.Continuously review and improve the system risk management system. Acquire and use client information in accordance with rules and regulations, and manage it strictly. |
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| Financial Materiality Items where environmental or social issues affect our finance. |
Financial strength expected by stakeholders | Sound finance, sustained growth. Securing stable earnings. |
Reflecting in the value creation process (materiality management)
By incorporating materiality as a common concept in various management systems, such as management strategies, internal controls, and the risk appetite framework (RAF), which implement our value creation process, and by increasing the interconnectedness of each function, we can further improve our value creation capabilities. We have formulated a medium-term management plan for fiscal 2023 and beyond based on newly identified materiality. In the future, we will confirm the status of the measures and KPIs set out in the medium-term management plan from a materiality perspective, report it to the Sustainability Committee, an advisory body to the Executive Committee, and utilize it in communication with stakeholders to create a virtuous circulation in the value creation process.
In addition, in order to incorporate the perspectives of stakeholders into management based on such materiality, we have implemented an “internal engagement” system described below, and the status of internal engagement is reported to the Board of Directors as materiality-related matters after discussion by the executive side, including the Sustainability Committee and the Executive Committee.
We adopt a concept of “dynamic materiality”, in which social conditions and values change, and these changes affect corporate value. Specifically, the Sustainability Committee will review the need to revise materiality in accordance with the situation based on the results of the aforementioned reviews and reports, and internal engagement. At that time, the Risk Committee responds to questions from the Board of Directors about matters concerning materiality, deliberates on the appropriateness and other aspects of such matters from a professional point of view, and then reports its findings to the Board of Directors.
Materiality Management
Stakeholder Engagement
The Group’s stakeholder engagement is divided into three approaches: (1) direct engagement by relevant departments at each company of the Group according to the theme, (2) direct participation in domestic and international initiatives, and (3) internal engagement by the Sustainability Management Department with relevant departments at each company of the Group based on dialogue with its own stakeholders and information gathering from ESG assessment organizations. These approaches are used to diversify dialogue channels and enhance the quality and quantity of inputs.