Dialog between directors
～Progress in governance～ Improving the Effectiveness of the Board of Directors to Contribute to Business Structure Reforms
We interviewed Outside Directors Kikkawa and Suzuki about the challenges the Company’s business structure reforms are facing and the roles and functions of the Board of Directors.
The Path toward Carbon Neutrality Narrowed over the Last Year
―― Please give us your honest thoughts about the Company’s initiatives in FY2023.
Kikkawa In FY2023, we screened 16 new projects aimed at achieving carbon neutrality and selected four priority projects. We significantly narrowed our focus to achieve carbon neutrality.
Suzuki I assumed the office of Outside Director in June of last year and participated in the process of selecting projects. During discussions at the Board of Directors, the Outside Directors each drew on their own expertise to present concerns about each project from different perspectives, and I was impressed by that.
Four Priority Projects Reflect Idemitsu Kosan’s Characteristics: The Biggest Challenge Is How to Invest
―― What are your thoughts on the energy sector’s challenges and the roles that the Board of Directors should play?
Kikkawa The four key areas have very characteristic features of Idemitsu Kosan. Many companies work on ammonia, but the Company stands out by focusing on blue ammonia using CCS※1 technology. The Company employs a unique approach to first produce e-methanol and then gasoline, sustainable aviation fuel (SAF), and diesel for different markets. We are exploring options beyond HEFA※2 and ATJ※3 and focusing on MTJ※4 to produce SAF. We are working on developing lithium solid electrolytes, which is our own unique initiative.
Our main challenge now is how to invest in the four key areas. If we misjudge the timing, we will have to retreat. We believe that we can be the first penguin.
Suzuki Timing is the most difficult part of investing. In my experience in management, when making investment decisions, I first assessed whether the investment was in line with our strategy. We then conducted risk mitigation by identifying all risks and preparing measures and finally examined the economic rationale. Business plans are built on assumptions, and it is important to assess your ability to adapt immediately if those assumptions change. I aim to consider this in evaluating investment opportunities.
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CCS: Carbon dioxide Capture and Storage
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HEFA（Hydrogenated easters and fatty acids）
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ATJ（Alcohol to Jet）
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MTJ（Methanol to Jet）
Can an Integrated Research Center Lead to Innovations?
―― What are your thoughts on the challenges in the materials area?
Suzuki Of course, it is important for a business to contribute to society. Ensuring a strong profit is also crucial. Over the past year, I have spoken with individuals of the Advanced Materials Company and stressed the significance of finding a winning strategy for their business.
In these discussions, I was surprised by the idea of investing approximately 50.0 billion yen in the “Innovation Center” (tentative name), an integrated research center. However, I examined the investment plan and determined that the investment is reasonable, considering the investment required for maintenance and renewal. Idemitsu Kosan has a range of excellent technologies. The integrated research center can achieve success, I thought, if these technologies are connected and if the cross-functional development structure and external collaboration are enhanced. Our challenge will be to open up the integrated research center to other areas and outside the Company and use it to drive innovation.
Kikkawa In the field of management studies, it is common knowledge that the era of centralized research laboratories is over. In that sense, the integrated research center can be seen as a challenge to conventional business wisdom around the world. We are currently stepping up cooperation with the companies in the complexes to achieve carbon neutrality, and the integrated research center will serve as an open research and development base for this purpose. I hope that Idemitsu Kosan will lead the companies in the complexes.
Clarifying Our Position within the Overall Strategy: Investments in Human Capital
―― What do you think is necessary to further improve the effectiveness of the Board of Directors?
Kikkawa The composition of Outside Directors is important to ensure the effectiveness of the Board of Directors. Business structure reforms at energy companies require knowledge about materials and management practices. The Company has appointed skilled individuals for this purpose and completed the skill matrix of Outside Directors. I believe that this has improved the effectiveness of the Board of Directors.
Suzuki I believe that we can have better discussions if it is clear where each agenda item at Board meetings and individual projects are positioned within the overall strategy. The current Medium-term Management Plan will end in 2025, and discussions about the next Medium-term Management Plan will begin. We must always keep in mind the long-term overall strategy and discuss matters such as company operations, business policies, project selection, and how and when to invest.
Kikkawa Idemitsu Kosan’s Management Philosophy is “Truly inspired.” The Company emphasizes developing its employees through its business. To put this philosophy into practice more clearly, we need to discuss investments in human capital and human capital strategy.
Suzuki As you mentioned, succeeding in Idemitsu Kosan’s current energy transition challenge requires increasing employee motivation. Idemitsu Kosan prioritizes its human capital in its management approach to human capital. This focus on human capital is deeply ingrained in its corporate culture. I believe it will be meaningful to have in-depth discussions once more about improving human capital management at meetings of the Board of Directors.
Kikkawa How to invest in the energy transition is currently a major theme for management, and much of the discussion at meetings of the Board of Directors is centered around decisions relating to investment in the transition. Outside Directors need to deepen the discussion from every perspective, drawing on their respective expertise.
Suzuki We aim to fully support the direction that emerges after a comprehensive discussion from every angle. We aim to increase the effectiveness of the Board of Directors, applying both the brakes and the accelerator.