1 Building a sustainable society and the automobile industry

In recent years, stock investors have witnessed crustal movements in the industrial structure caused by the demands of the international community such as carbon neutral. First, let's confirm the flow of building a sustainable society.

It is well known that the movement of decarbonization in each region is remarkable. In Europe, it is reported that Green New Deal (Adachi (2019)), and in the United States, the return of the Paris Agreement under the Byden administration (Nihon Keizai Shimbun (2021)) and the strengthening of specific industries through public fund investment (Arima (2021)). In Japan, while the Kan administration's environmental policy (Ministry of Economy, Trade and Industry (2020)), the Corporate Governance Code emphasizes "sustainability" and the independence of the board of directors (9th Council of Experts (Financial Agency (2021))). Attention is paid. In China as well, there is a 2060 Net Neutral Declaration (Tamura, Liu, Kim, Arino (2020)) under the Green Policy, and policy changes in the demand areas of the Japanese manufacturing industry are remarkable.

In particular, the automobile industry is required to undergo structural and management changes that are said to be once every 100 years through IoT (Connected), automatic driving (Autonomous), shared (Shared), and electrification (CASE). There is. This is a change in business assumptions in the automobile industry. For example, it has already been reported in the United States, China, Europe, etc. that gasoline vehicles are banned across the board (Nippon Keizai Shimbun, November 18, 2020, December 3, 2020). Fossil fuel reductions, restrictions on automobiles, and changes in the value chain are inevitable. In fact, following the report that "Toyota requests parts companies to reduce emissions by 3% in 21 years" (Nippon Keizai Shimbun June 2, 2021), Honda aims for "EV and FCEV by 2040" at 100%. Announced that it will close Maoka's parts factory (gasoline engine-related factory) by the end of 2025 (CRT Tochigi Broadcasting, June 4, 2021). The value chain that has been built on the basis of gasoline engines is sustainable. Against the background of social and policy demands to create a society, there is a risk of being swept away by a wave of change. In addition, a request from a stock investor to a corporation (Kato (2021)) has been reported.

2 Positioning of sustainable management

The social and policy demands for creating a sustainable society, the indication that Japanese companies generally have low profit margins (so-called Ito Report, Ministry of Economy, Trade and Industry (2014)), and the social demands for improvement seem to contradict each other. appear. Sustainable management is management that pursues these two purposes at the same time. The two seemingly contradictory issues are actually expected to have a positive impact on sustainable management.

In this section, sustainable management is defined as "management that aims to contribute to a sustainable society while providing value to shareholders (owners of companies) and other stakeholders." From the statement that it includes shareholders, it can be seen that, first of all, because the company is sustainable, it is expected that sales and profits will be generated to an appropriate degree according to the business risk.

However, the sustainability of a company's business over the long term depends on the sustainable growth of the society to which it belongs. It should be an indispensable strategy for companies to provide customers with goods and services that meet the needs for social sustainability. It is also necessary for the sustainability of the company that the employees and business partners, who are the main stakeholders, are in good condition regarding health and human rights, and have appropriate relationships with family, friends and other economic entities. Is. Therefore, sustainable management keeps its business domain (domain) by backcasting from the future that it envisions, with an antenna for the times and regions such as social issues, environmental issues, and policy directions related to them. Should follow the process of rebuilding.

Shareholders expect the company's commitment to purpose (meaning of existence, management policy) and the substance of governance in order to realize management that aims to contribute to a sustainable society while providing value to stakeholders. Specifically, (1) management strategy for sustainable cash flow generation ability in business activities, business portfolio / business strategy, corporate finance conscious of capital cost, (2) for providing value to stakeholders. Attractive workplaces, consideration for sustainability of the supply chain, provision of innovative services and products, (3) harmony with the natural environment as a sustainable contribution to society, compliance with social norms and laws, etc. Shareholders expect the company from the perspective of sustainability governance.

The inputs of sustainable management are environmental issues, social issues, etc., and are requests from the international community represented by SDGs to companies through member countries. It will be projected to the future envisioned by, and the business domain will be reconstructed with an eye on the future profit base. And the output provides value to stakeholders (attractive workplaces for employees, sustainability of the supply chain, sales growth of innovative services and products), and sustainable cash from the resulting success of business activities. It includes creating flows, continuing their expectations, and contributing to harmony with the sustainability of nature and society as the outcome.

Figure 1 (see below)

On the other hand, there is also a proposal to incorporate sustainability thinking into the management strategy rather than defining sustainable management. In Kitagawa, Sato, Matsuda, and Kato (2019), Kato (Chapter 9) first narrowed down sustainability to "sustainability for overall corporate management," and then SASB (Sustainability Accounting Standards Board). Meeting)) Considering the applicability of the approach in formulating and implementing management strategies. Against the backdrop of the often difficulties in formulating and executing business strategies in Japanese business settings, SASB "skillfully manages financial and non-financial capital that affects its ability to create value over the long term. We propose to apply the point of "creating a" sustainable business strategy "that improves corporate performance" to the management strategy, including disclosure in accordance with SASB and "high-quality dialogue with legitimate investors." .. The process consists of (1) identifying appropriate management indicators, (2) developing knowledge from the collected data, and (3) skillfully creating a strategy based on the findings.

In addition, Kato mentioned above said, "By utilizing the SASB approach, it may be possible to formulate management strategies based on topics and management indicators that capital market professionals consider to be the key points of industries and businesses at the stage of formulating management strategies. "There is no way not to utilize external knowledge for strategy formulation." "It is thought that only high-quality dialogue with legitimate investors will contribute to the formulation of management strategies." In other words, the SASB approach is to incorporate the results of dialogue with investors into the check (C) and analysis (A) of the PDCA cycle of the management strategy up to that point (input) and utilize it in the formulation of the next phase of the strategy (P). It is important in the management strategy to utilize.

3 Corporate value and sustainable management

Again, the listed companies dealt with in this paper, specifically the group of companies in the automobile industry, are not companies that are expected to have financial returns on par with impact-priority markets. Traditional listed companies adopt long-term thinking management and pursue remarkable growth and business sustainability through innovative services and products through the decision-making flow of sustainable management (Chart 1-1), and at the same time, to nature and society. It is assumed that it also contributes to sustainability. It is different from a company that was established with a priority on impact.

Figure 2 (see below)

In this paper, corporate value is in line with financial value, non-financial value (non-financial, that is, human capital, intellectual capital, strengthening of related capital and response to natural capital) and the direction of the times and regions. It is positioned as the sum of expectations for management). The value of sustainable management is often viewed as the value to the economy, society, and the environment, but in this paper, consideration for the society and the environment is the sustainability of the company itself through sales increase and risk reduction, that is, corporate value and shareholder value. We believe that sustainable management is management that aims for sustainable growth.

Given the demand for sustainable management from the background mentioned above, the current (normal state) profits and organic growth of existing businesses such as ROE are evaluated as "economic and financial value" with appropriate business risks. On the other hand, the expansion of the market value of stocks formed by the additional premiums of PBR and PER (assuming a complete market) is assumed to be due to the so-called “non-financial value”. This non-financial value includes current intellectual assets, intangible assets that do not appear in financial indicators such as human resources and organizational strength, and the ability to generate future cash flows generated by new businesses that are not visible now. It is presumed that the evaluation of sustainable management will be taken into consideration by emphasizing the viewpoint of ESG investment. In other words, it means that the evaluation and expectations of management in line with the current direction of society and the region may increase as the stock value through an increase in future growth rate forecasts or a decrease in risk premium.

Therefore, a legitimate stock investor who wants to know the corporate value pays attention to a company that reforms management to break down existing businesses as a practice of sustainable management, so six capitals (financial capital, manufacturing) are used to improve organizational value. Focus on the utilization of capital, human capital, intellectual capital, related capital, and natural capital (International Integrated Reporting Council (IIRC) (2013)). Other than financial capital and manufacturing capital, it is classified as "non-financial" in traditional accounting / disclosure and financial analysis. At first glance, the improvement of low profit margins of existing businesses and the reform of business areas to solve social issues seem to be inconsistent, and we are trying to show that they have a positive impact on each other.

References are omitted. For more information, please contact us at contact@eminentgroup.ltd.