Survey of Integrated Reports in Japan 2018

Integrated Reporting Center of Excellence KPMG in Japan

March 2019

home.kpmg/jp Message from global thought leaders In this, the fifth year this survey report has been issued, KPMG has solicited the observations of thought leaders on corporate reporting.

Japanese businesses pride themselves on a longer-term focus compared to the rest of the world, where prioritizing short-term gains has too often become the norm. Focusing on long-term value creation and taking into account all of the resources an organization uses is the sustainable, profitable, and proven way to manage a business. Many Japanese businesses are just beginning to implement integrated thinking and reporting. The findings in this report show that senior management must take ownership to spread integrated thinking in their businesses – not just in accounting but in strategy, operations, marketing, and the rest of the company as well. This report makes me optimistic and excited for Japanese business leaders as they strive to think, act, and communicate in an integrated and sustainable way.

Dominic Barton ― International Integrated Reporting Council, Chairman

Integrated Reporting improves communication between companies and investors and where most effective, sets the stage for enhanced corporate value creation over the mid to long-term. Investors desire integrated reports which provide comprehensive information disclosure useful for making investment decisions. The International Corporate Governance Network (ICGN) has encouraged integrated reporting for many years. In 2015, ICGN s Disclosure and Transparency Committee ’ released Guidance on Integrated Business Reporting. The Guidance amplifies that strategic decisions should be based on factors that are broader than those reflected in the financial statements. ICGN s current policy guidance states that, Companies should ’ “ provide for the integrated representation of operational, financial, human capital management practices, environmental, social, and governance performance in terms of both financial and non-financial results in order to offer investors better information for assessing risk. Companies should provide an integrated report that puts historical performance into context, and portrays the risks, opportunities and prospects for the future, helping shareowners understand a company s strategic objectives and its ’ progress towards meeting them. ” There are numerous benefits to integrated reporting including, 1) companies articulate, with greater clarity, their business strategies and the resilience of their business models to changes in market expectations and requirements, 2) clearer picture of how the strategies, governance, performance, and vision of the company are linked with each other, and 3) enables investors to have a better assessment of the short, medium, and long-term effects of risks and opportunities that are considered material. We applaud Japan s leadership in encouraging listed companies to disclose their value ’ creation stories through integrated reporting. It has been exciting to see strong progress in the adoption of integrated reporting in Japan as well as enhancements in the quality of integrated reports. We hope to see the positive aspects spread to the rest of the global market.

James Andrus ― International Corporate Governance Network, Disclosure and Transparency committee

01 Message from global thought leaders

We are very grateful to be able to provide this Survey of 01 Message from global thought leaders Integrated Reports in Japan again this year. This is the fifth 02 Introduction survey report since we began issuing it in 2014, and we are gratified that they have been received with great interest by 03 About the survey/ many people both in and outside of Japan. About the Issuing Companies

The first step in the integrated reporting process is for corporate leaders to take another deep, comprehensive look 04 Key Recommendations at their own organization. They need to get a birds-eye view - Three recommendations for of its history thus far, its current situation, and the vision for communicating more robust value the future. This view, in turn, enables them to share the value creation story creation story with the people who will help to bring it to life, 05 Key Findings support the efforts of those individuals to sincerely fulfill their roles and act responsibly, and become a leader who leads by 07 Intergrated Thinking example. 09 Value Creation

Integrated thinking is essential in integrated reporting. The 11 Materiality scope of integration is not limited to one s own organization. ’ 13 Risks and opportunities In some cases, it is necessary to engage with stakeholders who hold opposing viewpoints. Society faces complex crises, 15 Financial Strategy but the process of reaching a shared consensus on how to 17 Key Performance Indicators build a sustainable world is underway. This means that companies must take a long-term perspective, raise the value 19 Governance they add, and return both tangible and intangible benefits to 21 Basic information society.

We believe that the effort of integrated reporting helps 25 List of Japanese Companies Issuing companies translate the various issues they face into Integrated Report in 2018 improvements in medium- and long-term value. 27 Afterword KPMG Japan will continue to contribute to companies efforts ’ to address these issues in order to fulfill our purpose, Inspire 28 Survey Team/KPMG Japan Integrated “ Confidence, Empower Change. Reporting Center of Excellence (CoE) ” I hope this report will be useful to everyone who is striving to Column rise to the challenge of today s complex world. ’ 10 Are companies beginning to take SDGs seriously?

12 Augmenting the narrative information of securities reports and the future of corporate reports

14 Disclosure of climate-related financial Lead partner, information KPMG Japan – Driver to improve the capacity to create value - Integrated Reporting Center of Excellence Toshihiro Otsuka 16 Chief Value Officer - New Role of CFO

20 Reconsidering the value of KPIs 24 Corporate Reporting Dialogue - The effort to bring better alignment among different reporting standards

Introduction 02

Index attributes of issuing companies About the Issuing Companies Nikkei 225 JPX Nikkei 400 component percentage component percentage

148 219 414 companies 66 55 n=225 ％ n=400 ％ +79 companies companies The number of companies issued 335 integrated reports in 2018 280 Percentage in total market capitalization(TSE) 215 138 58 95 JPY 324 trillion％ n=382 n=JPY 562 trillion 61 companies (2,128 companies listed 32 on the First Section of 24 the Tokyo Stock Exchange) * As of December 31, 2018

2010 2011 2012 2013 2014 2015 2016 2017 2018 List of Japanese Companies Issuing Integrated Reports p.25 > Source: List of Japanese Companies Issuing Integrated Reports, Corporate Value Reporting Lab “ ” 03 About the survey/About the Issuing Companies

For improving the quality of integrated reports

Communicate the value creation story “ of the management and board Related surveys ” 1 When integrated reports began to emerge on the scene, simply issuing p.08 Integrated Thinking 3 Clearly demonstrate the involvement and one was enough to set a company apart for its proactive stance on “commitment of top management ” information disclosure. Over the past few years, however, more and more p.11 Materiality 2 companies have been issuing integrated reports as the demand for Indicate the process for materiality “assessment included in the management constructive dialogue with stakeholders grows. Today, an integrated report system ” has no value unless it conveys the value creation story that reflects the p.13 Risks and Opportunities 2 thinking of management and the board. The efforts of the team putting the Show major risks of concern to management“ actual report together alone are not enough to communicate the value ” p.19 Governance 1 creation p.19 Governance 1story sufficiently. An integrated report should Explain governance to corroborate be a vehicle for conveying the value creation story that results when “feasibility of value creation and encourage trust among readers management and board take responsibility for thinking deeply about social ” and corporate sustainability.

Detail how management is driven by integrated thinking, “ don t be manipulated by buzzwords ’ ” 2 Corporate leaders are being asked to consider environmental, social, and p.07 Integrated Thinking 1 List not only the elements required by governance (ESG) performance, the UN Sustainable Development Goals “the framework, but also provide adequate evidence of integrated thinking (SDGs), and other targets. But simply lining up relevant keywords in an ” integrated report has nothing to do with value creation. The first step in p.08 Integrated Thinking 2 Reflect integrated thinking not only in integrated reporting is to practice management driven by integrated “diagrams and keywords, but also in the explanation of connections thinking. Companies have purposes and objectives that they value. Many “ ”” Japanese companies profess an aspiration to give back to society through p.09 Value Creation 1 Explain the company s unique value their business and create both economic and social value. So what kind of “creation process ’ ” value must be created to achieve this, what kind of capital should be used, p.11 Materiality 1 and how and for what purpose? Answers to these questions must be Address issues with a high degree of influence“ on corporate value conveyed logically and succinctly without getting caught up in buzzwords. ”

For facilitating readers comprehension ’

p.12 Materiality 3 Detail current conditions and state of progress Adequately explain the specified material “ issues“ based on the value creation story ” p.14 Risks and Opportunities 3 ” Reflect risks and opportunities discovered 3 Integrated reports are a medium for communicating a medium- and through materiality assessment in strategy long-term value creation story. However, even if a long-term vision is p.15 Financial Strategy 1 Explain the allocation and cycle of presented, it is difficult for the reader to understand if the steps for “financial capital and lay out the trajectory for achieving the value creation story achieving it are not specified. Do the various initiatives, achievements and ” governance mechanisms presented in the integrated report serve as an p.17 Key Performance Indicators 1 Include KPIs related to strategy for explanation linked to the value creation story? Instead of simply laying out “creating value ” the rationale behind forecasts based on achievements thus far, what is p.19 Governance 2 Rationally explain how the governance really needed is backcasting from the long-term vision. Ideally, the steps “system and the composition of board of “ ” directors leading to value creation are conveyed by presenting and explaining ” indicators that illustrate the extent to which the strategy has been p.20 Governance 3 Improve transparency of the process for achieved, the financial strategy, and the governance system which is the “enhancing board effectiveness to earn trust foundation for value creation. ” Key Recommendations 04

Integrated Thinking p.07 > Integrated Thinking Integrated thinking refers to the inclusive At the same time, many reports explain the consideration of the interaction between the relationship between various elements and elements that affect the ability to create the value creation story (including the value for a long-term. KPMG identified relationship between different elements), Companies explaining the impact seven elements that should be considered and there were efforts to improve ease of that social and environmental in the integrated thinking process, but no understanding by providing diagrams of outcomes has on economic value more than 50% of reports considered business models, as well as to explain the impact that social and environmental thinking behind the value creation story. “ outcomes have on economic value and However, if integrated thinking had been ” specific strategic objectives related to practiced, the content provided in the “ social and environmental outcomes. integrated reports would have been ” The minimal references to the relationship considered by management as well. Only 50% between economic value and social value 1% of companies included a statement from and strategic objectives related to social and corporate leaders attesting to the validity of environmental outcomes made us the integrated report. KPMG believes such conjecture that integration of business statements would demonstrate that strategy and sustainability strategy is still in management actualities are based on the initial stages. integrated thinking.

Value creation p.09 > Value Creation Every year more companies provide company to simply refer to the IIRC explanations of the value creation process framework and then plug in their chosen using the diagram, with the percentage keywords. When their business Companies including a value reaching 66% in this survey. However, if we environment differs, even companies in the creation process diagram think about integrated reports as a medium same industry and business will be different for explaining the value creation process and not only in terms of the capital they have the progress made in this process, then invested, but their strategies and 66% is not a particularly high percentage. approaches to risk and opportunities. As long as a company is issuing an The value creation process should be more % integrated report, it should provide an unique, highlighting the differences with 66 adequate explanation of this value creation other companies. The value creation process. process must explain the flow from the Many companies refer to the diagram input, business activity and its output, and the illustrating the IIRC Framework when outcome both within and outside of the creating their value creation process organization. However, very few companies diagram. However, it is not enough for a clearly define this kind of cycle.

Materiality p.11 > Materiality The number of companies that provide a overall corporate value, only 34% specified materiality assessment in their integrated that management was involved. Many Among companies reports is increasing year by year, and has companies did not appropriately incorporate including materiality now reached 36%. Matters that have a materiality assessments into the assessments material impact on corporate value (material management system, which suggests that issues) should be discussed in an integrated this process and the results are not report, but a high 74% of the companies adequately expressed. Companies need to who included a materiality assessment confirm that material issues, which have a focused on CSR issues instead. significant effect on a company s value, are ’ Many of the companies that include the starting point for the value creation story 74% materiality assessments also explain the in the integrated report, and reconsider the focused on evaluation process. Of those companies role of the materiality assessment. CSR items that carried out a materiality assessment for

05 Key Findings

Financial Strategy p.15 > Financial Strategy The number of companies reporting on risks significant impact, are mentioned in the and their strategies. Viewing risks and and opportunities was up from the previous integrated report, reflecting managements opportunities as related to the results of the ’ year. Explanation of unique risks and concerns. At the same time, some materiality assessment and strategies is opportunities faced by individual companies companies are simply copy and paste the absolutely essential when discussing value was also up. This indicates a more proactive explanations of risks from securities reports, creation overall stance in the companies. However, many such as operational risks. companies still fail to specify the timeframe Risks and opportunities are related to issues Companies addressing in which they are considering risks and identified in the materiality assessment, and all of the elements opportunities. companies should consider how to address in the financial Specifically, there was a trend in which these and then reflect the results in its capital cycle specific risks, such as cyber security threats strategy. However, only 11% of companies % and climate change, likely to occur in the explain risks and opportunities with a clear 23 medium to long term and would have a connection to material assessment results

Key Performance Indicators p.17 > Key Performance Indicators In looking at KPIs, KPMG started with the financial KPIs related to shareholder returns premise that KPIs related to the value creation and capital efficiency in the highlights sections, story and the strategies would be covered in but few companies provide information on Companies providing the highlights section of the report. Based on fundraising and investments. Although the additional explanations this assumption, we then surveyed whether number of financial KPIs is on the decline, of KPI achievements companies included outlook and targets of financial KPIs are increasingly important for and objectives KPIs together with their results in the highlight determining whether a measure is feasible and section. Only 6% of companies had done so. makes sense financially. Presentation of results together with targets Since KPMG began carrying out this survey in 6% and forecasts is expected as a part of 2014, the percentage of non-financial KPIs in explanations on KPIs in an integrated report, as the highlights section has continued to this facilitates a quantitative discussion of the increase, reaching 38% in this survey. This extent to which the strategies have been illustrates companies ongoing determination to ’ achieved and the progress made. augment non-financial KPIs. A high percentage of companies disclose

Governance p.19 > Governance Unlike corporate governance reports that are governance system and improving its of a director. KPMG believes that matters such essentially required by the regulation, effectiveness. Improving the reliability of as training on future executives that have a integrated reports are expected to explain the report content is essential in ensuring the substantial impact on corporate value from a relationship between governance and the effective use of integrated reports in dialogue long-term perspective should be explained in company s aspiration to create value. In other with investors and other stakeholders who terms of their connection to other issues. ’ words, the content should convince the reader have an influence on the company. A message that the strategy can be implemented and that from the chair of the board is very significant in medium- and long-term results can be this sense. Companies achieved. A substantial increase in the number of including a One way of doing this is to include a message companies providing the rationale for the message from from the chair of the board, but only 9% of corporate governance system they have the chairman of the board % reports do so. The chair of the board, who is selected was seen. However, only a few 9 responsible for corporate governance, clearly companies explain the reasons for appointing plays a crucial role in building a strong directors or the skills and experience required Key Findings 06

Provide adequate evidence Survey on integrated thinking 1 of integrated thinking

Over the past few years, companies have become As shown in Figure 1-1, KPMG surveyed the integrated increasingly aware of the impact that social and reports to determine whether the seven elements KPMG environmental problems could have on their ability to create believe needed in integrated thinking were mentioned. Five value. There are also higher expectations for the roles that elements, including social and environmental outcomes, were referred to in more than half of the reports. This showed that companies should play in resolving social issues, and at the progress has been made in instilling consideration of the same time, awareness in the corporate sector is also input, output and outcomes an element of the business changing. The high level of attention given to the Sustainable model advocated by the IIRC— Framework. “ Development Goals (SDGs) and the disclosure of ” However, only half of the reports explained the impact that climate-related financial information, as advocated by the social and environmental outcomes would have on economic Task Force on Climate-related Financial Disclosure (TCFD) value, and a mere 30% of reports included specific strategic testify to this. Progress in engaging with integrated reports targets for social and environmental outcome (Figure 1-1). is further evidence of this. There were few references to the correlation between The preface of the International Integrated Reporting Council economic value and social value and to strategic objectives related to social and environmental outcomes, which (IIRC) Framework states that integrated reporting aims to “ suggests that integration of business strategies and support integrated thinking. This is based on the conviction ” sustainability strategies is still at the initial stage. that integrated thinking takes into account the connectivity and interdependencies between the range of factors that Sustainable value creation rests on the premise that even affect an organization s ability to create value over time and deeper integrated thinking will integrate business strategies ’ and sustainability strategies and the pursuit of social and leads to stability in the financial system and sustainability for environmental outcomes will lead to economic rationality. An companies and society. It indicates the need for companies explanation of the relationship between economic value and to iterate the process of integrated thinking and integrated social value and a description of the specific strategic reporting in an uncertain business environment as they aim objectives for social and environmental outcomes should to create value while making difficult decisions. convince readers of the company s capacity to survive for the long term. ’ KMPG analyzed integrated reports from the following perspectives to determine the extent to which integrated thinking permeated the report. To what extent are the seven elements that KPMG believes Figure 1-1 should be considered in practicing integrated thinking Explanation of elements considered apparent in the integrated report? in integrated thinking Is the content detailed in the integrated report actually considered in managing the company? Social and environmental 349 outcomes companies 84% The message from the top management, the strategy section, and the value creation section were included in the Medium- and long-term 314 companies 76% scope of this part of the survey, based on the hypothesis business environment that these sections would be most revealing since Important 275 integrated thinking is long term and panoramic. non-financial capital companies 66%

Perception of organization s resilience and need for’ 216 companies 52% business model reforms

Impact that social and environmental outcomes 207 companies 50% have on economic value

Consideration of value provided to stakeholders in 164 companies 40% company s long-term vision ’ Specific strategic objectives related to social and 126 companies 30% environmental outcomes n=414 companies

07 Integrated Thinking

© 2019 KPMG AZSA LLC, a limited liability audit corporation incorporated under the Japanese Certified Public Accountants Law and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 19-1022 Clearly demonstrate the Reflect integrated thinking in the involvement and commitment 2 explanation of connections 3 of top management “ ” KPMG took this further and surveyed five of the seven A statement from corporate leaders attesting to the validity of elements of integrated thinking that it believes require an the report helps the reader to determine whether what is explanation of the connection between that element and the presented in the integrated report based on integrated ability to create value. These results showed that, when thinking is considered in management decisions of the reading the message from top management, the section on company. KPMG s survey of this found that only 1% of strategies and the section on value creation together, many reports had such ’statements (Figure 1-3). reports included some sort of explanation of the connection This suggests that management was not proactively involved between these elements and the value creation story in preparing the integrated report. This makes it difficult for the (including the relationship between each of these elements; reader to determine whether the social and environmental Figure 1-2). considerations explained in the integrated report are taken into More reports included business model diagrams and account in business activities and whether they are given diagrams of their value creation process, and in many cases appropriate priority in management s decision-making on these five elements were listed in the diagram. The reader resource allocation. The surveys of ’risks and opportunities and can obtain a better understanding of the value creation story materiality, discussed later, also raise the concern that and recognize that the company is practicing the integrated management is not really actively involved. thinking that lies at its foundation when the correlation with Integrated reports are a medium for reporting on value creation and the connection between elements is management driven by integrated thinking. KPMG believes explained, instead of merely listing these elements as that repeating the process by which management conditions keywords in the diagram. are reported in an integrated report at the responsibility of the Greater progress in integrating the business strategy and person in charge of governance can earn the accord of those sustainability strategy and clarifying the connections with the within and outside of the organization and can help achieve its value creation elements will make the value creation story value creation story. This process will be effective if top that reflects integrated thinking more persuasive and firm. management is more actively involved. A statement on the When the company provides this information, relationships appropriateness of the integrated report is one way to indicate with readers can be deepened as the company receives the actual status of management driven by integrated feedback from readers, and together, the parties reach a thinking, and to ensure that companies fulfill their disclosure consensus view. responsibilities truly and raise reliability.

Figure 1-2 Figure 1-3 Explanation of the correlation Statement from corporate leaders with the value creation story attesting to validity of integrated report

Explained Not Explained ■ ■

Social and environmental 58% 42% n=349 companies outcomes 203 companies 146 companies Included Not Included Medium- and long-term 75% 25% n=314 companies 99% business environment 237 companies 77 companies 1% 409 companies 5 companies Important 53% 47% n=275 companies non-financial capital 145 companies 130 companies n=414 companies Specific strategic objectives related to social and 71% 29% n=207 companies environmental outcomes 147 companies 60 companies

Impact on economic 63% 37% n=126 value of social and companies environmental outcomes 79 companies 47 companies

Integrated Thinking 08

Explain the company s Explain value creation process 1 unique value creation’ process 2 in terms of a cycle

More companies are providing a diagram of the value Companies should aware that the value creation process is a creation process, reaching 66% overall in 2018 (Figure 2-1). cycle so that it should explain a flow in which input, However, given that the integrated report is a medium for business“ ” activities and their output are transformed to explaining the value creation process and its progress, 66% outcomes within and outside the organization. is not high enough. When issuing an integrated report, Of the 272 companies laying out the value creation process, adequate explanations of the value creation process should 38% (103) described the input, output and outcomes for the be provided. organization and outside of the organization (Figure 2-2). Of Many companies reference the IIRC Framework when they these, 21% (22) of the companies explained how the input create a diagram of the value creation process. The IIRC was transformed into output and outcomes (Figure 2-3). Framework is an effective method of organizing value For example, simply describing the input is not enough if there creation at one s own organization. However, it is not enough is no explanation of how it is transformed into outcomes and for a company ’to simply plug in certain keywords from the how it translates into value creation. Moreover, a description IIRC Framework. If the business environment differs, even of outcomes should imply the impact resulting from the value companies in the same industry and business sector will provided, otherwise the company is not fulfilling its input different capital and will also have different approaches responsibilities as an entity making use of various and limited to and strategies for risks and opportunities. The value resources. This kind of information is needed to help readers creation process should be more unique, differentiating the understand the long-term perspective underlying a company from others. company s vision. If the organization is united about what kind of value it creates ’ and how it does so, and then explains that value creation process clearly in the integrated report, readers can be convinced of the feasibility of this value creation, the sustainability of the organization and its business, and the need for capital to be invested.

Figure 2-1 Figure 2-2 Figure 2-3 Inclusion of value creation process diagram Input, output Explanation of and outcomes transformation from input to outcome

Explained 21% Included 22 companies Not Included Not Mentioned Mentioned 34% 66% 62% 142 companies 38% 272 companies 169 companies 103 companies

n=103 companies n=414 companies n=272 companies

09 Value Creation

Are companies beginning to take SDGs seriously? - Observations based on the integrated report survey -

More companies are addressing the SDGs in integrated First, of the 149 companies providing a materiality reports. This survey showed that 75% of companies assessment, 112 companies referred to the connection issuing integrated reports (312) mentioned SDGs in to the SDGs. However, KPMG surmises that this was some way. The IIRC Framework requires that because many companies carry out materiality companies tell their value creation story in terms of value assessments from a CSR perspective. Given that defined as value created for the organization and value materiality assessments are the starting point in the created for “others. In that sense, explanations” that“ are value creation story, the correlation to the achievement conscious of the SDGs,” which are goals to realize a of the SDGs should be positioned within the materiality sustainable world, are in line with the approach to assessment for overall corporate value. integrated reports. Next, the survey found that only 57 companies brought When companies describe their engagement with the up the SDGs with a connection to outcomes in the value SDGs in integrated reports, two perspectives are creation process. The SDGs are goals with a 2030 target possible: the perspective when the company is date. KPMG believe that the SDGs can naturally be identifying social issues that it can help solve, and the equated with the value that companies create in other perspective when the company is considering social words, the social outcome and connected to— the value outcomes that should be achieved as part of its own creation process. — value creation story. In this survey, KPMG looked at this Integrated reports should explain not only the value as an expression of the status of the SDGs in the creation story, but should also include an explanation materiality assessment in the case of the former and in from management on the progress made on achieving the value creation process diagram in the case of the this story (achievements and forecasts). When the SDGs latter. are utilized to help management identify the issues that the company can help solve, seen as an outcome of the value creation story, fed into specific targets and the integrated report then explains the progress —made on achieving these targets it is clear that companies are truly engaging with the —SDGs.

Mention of SDGs

Mentioned in materiality assessment 112 companies Not Mentioned Mentioned 25% Mentioned as outcome of 57 companies 75% value creation process 102 companies 312 companies (Overlap)

n=414 companies

Value Creation 10

Indicate the process for Address issues with a high degree materiality assessment as a part of 1 of influence on corporate value 2 the management system

Upon examining what the 149 companies mentioning Companies must assign priorities in allocating limited materiality assessments (Figure 3-1) actually covered in their management resources to the activities that are essential to assessments, it was found that 111 companies (74% of the achieving medium- and long-term growth. To this end, 149 companies) specified the importance only of issues companies must identify activities that might have less needed to select the scope of CSR activities (Figure 3-2). impact on corporate value in the short term, but will have a While selecting the scope of CSR activities that make the significant impact in the medium and short term. The most of a companies key characteristics is significant in materiality assessments that should be explained in the terms of fulfilling social’ responsibilities, integrated reports integrated report represent exactly this kind of determination. should discuss issues that have a high degree of impact on Investors and other stakeholders are looking not only for corporate value (material issues), and items related to assessment results, but also for indications that this decision management overall should be covered in the materiality is being reflected appropriately in the company s management assessment. system with involvement from corporate leaders.’ When reviewing material issues, more than half of Many of the companies describing materiality assessments companies considered stakeholder interests and impact explained the assessment process (Figure 3-4). Of the (Figure 3-3). However, the integrated reports did not indicate companies carrying out materiality assessments for overall any awareness of stakeholders different interests depending corporate value, 34% (13) specified that corporate leaders on their attributes and the impact’ on corporate value. were involved (Figure 3-5). Many companies do not Moreover, no companies considered the impact on corporate appropriately incorporate their materiality assessments in their value, such as the impact on value and the probability of management systems, and, thus, the process and results of occurrence and timeframe. Companies should recognize that the assessment are not adequately explained material issues that have a major impact on corporate value The materiality assessment is not for the integrated report. are the starting point for illustrating the value creation story in Together with the formulation of a long-term vision and the integrated report, and reconsider the role of materiality medium-term management plan, it must be included in the assessments. company s management system. ’ Figure 3-1 Figure 3-2 Figure 3-4 Materiality assessment Target of materiality Explanation of materiality assessment process assessment Overall Overall corporate value CSR items corporate value

26% 38 companies Included Not CSR items Explained Not Explained Included Not Explained % Explained % 64% 36 74% 111 companies 79% % 75 25 companies companies 83 265 companies 149 21% 30 companies 28 companies n=149 companies 8 companies

n=414 companies n=38 companies n=111 companies Figure 3-3 Matters considered in review of material issues Figure 3-5 Overall CSR items corporate value Management involvement in the materiality assessment process

Overall corporate value CSR items 50% 19 companies 63 % Stakeholders companies 57 ■ X company s own business ’ Involved Not Involved % 3 2 8 companies companies 2% Risks X opportunities Not Involved 6 ■ Involved 5 companies % Others 19% companies 5 % % 13% ■ 34 81 21 companies 66% 13 companies 90 companies 40 25 companies 11 companies 36% Not mentioned 29% companies ■ The below are not relevant. n=38 companies n=111 companies Probability of occurrence X extent of impact Timeframe X regional frame n=38 companies n=111 companies

11 Materiality

Initiatives related to material issues with a major impact on The Principles were formulated because the explanations on corporate value, which is essential to the reader, should not management strategies in securities reports lacked specific only be adequately explained in details; efforts should also be descriptions of the medium- and long-term vision, many made to let the reader know where these details may be companies made no connection between MD&A and risk found. information, and management s thinking was not reflected. ’ For this reason, rather than boilerplate descriptions or descriptions imitating other companies reports so often seen ’ in conventional securities reports, companies should provide their own views reflecting the management strategies Figure 3-6 discussed in board meetings and management meetings. To Detailed description of material issues achieve this, securities reports should not just be prepared by the persons in charge in cooperation with other departments management should also be deeply involved — and should take responsibility for considering the material to be disclosed. Provided Integrated reports, which are disclosed voluntarily, and Not Provided securities reports, whose disclosure is mandated, are the same in that management should take responsibility for their % 94 6% issuance as corporate reports. For this reason, KPMG believe 390 companies 24 companies that experiences with integrated reports should be utilized in corporate reports overall and also used to help augment the content of securities reports. The time has come for a n=414 companies comprehensive reconsideration of how Japanese companies Figure 3-7 approach reporting so that deep and constructive dialogue Indication of location (such as page number) between companies and investors can be ensured. of detailed description of material issues * The Principles shall be adopted by companies beginning with the fiscal year ending in March 2020. All important issues

Not Indicated 50% Financial Service Agency website 12 companies 37% 9 companies Indicated

Some 63% important issues 15 companies

13% For those browsing online, please click the QR code 3 companies n=24 companies

Materiality 12

Explain risks and opportunities Show major risks of 1 taking the timeframe into account 2 concern to management

KPMG found that 85% of companies explained either risks or As in the previous survey, KPMG surveyed the divergence opportunities, up from 79% in the previous year. Of these, between the risks perceived by management in the 2018 30% explained both risks and opportunities, 54% explained Global CEO Survey*3 (hereafter, CEO Survey ) carried out “ ” only risks, and one company explained only opportunities by KPMG and the risks described in the integrated report, (Figure 4-1). Compared to the previous surveys, the number of which are identified in this survey (Figure 4-3). companies looking at both risks and opportunities has Cyber security risk and environmental/climate change gradually increased year by year. Of those companies that risk“ were given the” same“ ranking in both surveys. These explained both, 28 companies used SWOT analysis*1 or risks” are likely to occur in the medium to long term, and the PEST analysis.*2 Normally, SWOT analysis and PEST analysis extent of their impact is beginning to be recognized, and as a are widely used when devising strategies. Given this, result these risks tend to be referred to in integrated reports, companies might be reluctant to include this in an integrated reflecting the managers perception. At the same time, the report, but this indication that some companies use it in their rankings of return to territorialism’ and operational risk are “ ” “ ” integrated reports is an intriguing sign of their proactive stance reversed in both surveys. While integrated reports are a about disclosing risks. media issued on an annual basis , CEO surveys directly reflect the awareness of individual CEOs, which may have resulted in At the same time, 89% of companies did not specify their deviations. However, many of the risks described in the thoughts on the timeframe during which they expected risks integrated report are still described in a similar way to their and opportunities to occur (Figure 4-2). It is difficult to present description in securities reports, which indicates that they are a specific number of years. However, clarifying whether the factors for management s views are not reflected in the timeframe is short, medium or long when management is integrated report. ’ deciding on risks and opportunities is valuable information for Ideally, management should explain the risks that they are users in understanding the overall picture of future value most concerned about in the integrated report. For example, creation. some reports albeit few mention a return to *1. SWOT analysis: An analysis performed by dividing the internal environment into territorialism —as a factor in— the business“ environment in their strengths and weaknesses and the external environment into opportunities and ” threats. explanation of regional business strategy, and we expect that *2. PEST analysis: An analysis of the macro-environment from the perspectives of this kind of example will increase. politics, the economy, society and technology. *3 KPMG International Global CEO Survey 2018 The survey covers 100 CEOs of Japanese companies.

Figure 4-1 Figure 4-3 Companies explaining risks and opportunities Gap between integrated reports and CEOs in Japan

% 85 KPMG Japan % 351 KPMG Global 79 companies 271 Survey of Integrated Reports Risk CEO Survey 2018 (Japan) 30% in Japan 2018 Partial revision % 53% 18% 125 Risks and weight 49% 51 62 companies ■ 148 opportunities 70 105 1% 4 companies Opportunities Operational risk 1st Return to territorialism 61% ■ only 209 54% 224 Cyber security risk 2nd Cyber security risk companies Risks only ■ Environmental/ 3th Environmental/ 2014 2015 2016 2017 2018 climate change risk climate change risk n=142 n=205 n=279 n=341 n=414 companies Regulatory risk 4th Emerging/disruptive technology risk

Figure 4-2 Interest rate risk 5th Reputational/brand risk Specification of Emerging/disruptive technology risk 6th Interest rate risk timeframe for risks and Supply chain risk 7th Supply chain risk opportunities Human resources risk Specified Reputational/brand risk 8th *7th place in same rank Tax risk 9th Regulatory risk Not Specified 11% 89% 37 companies Return to territorialism 10th Operational risk 314 companies Human resources risk 11th Tax risk n=351 companies n=351 companies n=100 companies

13 Risks and Opportunities

© 2019 KPMG AZSA LLC, a limited liability audit corporation incorporated under the Japanese Certified Public Accountants Law and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 19-1022 Reflect risks and opportunities discovered through materiality SPOTLIGHT 3 assessment in strategy Simply explaining risks and opportunities is not enough; rather, Disclosure of climate-related companies need to indicate how risks and opportunities are financial information reflected in their strategies. However, of the 351 companies – Driver to improve the capacity to create value describing risks and opportunities, only 21% (75 companies) explained their relationship to strategies (Figure 4-4). The Task Force on Climate-related Financial Disclosure (TCFD) is a project established by the Financial Stability In addition, a further survey of the 149 companies that Board set up under the G20. The TCFD released its final described materiality, according to the results of the report in June 2017 in the form of recommendations to materiality survey, found that only 11% (17) of companies disclose the climate-related financial information explained how risks and opportunities are related to the needed to make appropriate investment decisions, materiality assessment and strategies (Figure 4-5). based on the severity of the impact that climate change risks would have on a company s finances. Risks and opportunities should be those risks and ’ opportunities related to the issues identified in a materiality The final report provides specific recommendations on analysis. Moreover, companies should consider how they will the content that should be disclosed for four core address these risks and opportunities and then reflect these elements in organizational management (Governance, results in their strategies. Interpreting risks and opportunities Strategy, Risk Management, Metrics and Targets) so as linked with materiality assessment results and then that readers can understand the potential financial strategy is essential when discussing the overall picture of impact that climate-related risks and opportunities could value creation. have on companies. After the final report was released, many initiatives were carried out to spread these recommendations. According to the status report released by the TCFD in September 2018, many companies already disclose information in line with these recommendations (at least for one or more disclosure subjects). Future issues include reporting on the resilience of strategies under anticipated climate change scenarios and comprehensive reporting of the elements that cause climate change as overall risks in management. However, this is something that many companies have no experience with, and KPMG believes that it will take Figure 4-4 considerable time and effort before this is addressed. Relationship with strategy Addressing TCFD recommendations should not be seen simply as a compliance issue. These recommendations were made with the understanding that climate change poses medium- and long-term financial risks that companies cannot ignore. They Explained suggest that failure to address these risks could result in significant impairment of corporate value. Integrating Not Explained 21% strategies and risk management with climate-related elements through initiatives to disclose climate-related % 75companies 79 financial information is an activity aimed at enhancing 276 companies value creation abilities on an ongoing basis for many n=351 companies companies. Going forward, KPMG believes that companies will come to understand that this issue is at Figure 4-5 the very foundation of sustainable management. Relationship with materiality assessment and strategy TCFD website Final report (June 2017) Status report (September 2018)

Explained

Not Explained 11% 89% 17companies n=149 companies For those browsing online, please click the QR code 132 companies Companies identifying materiality

Risks and Opportunities 14

Explain the allocation and cycle of financial capital and lay out the trajectory Explain optimal capital costs 1 for achieving the value creation story 2 as the starting point for dialogue

Explaining the financial strategy is critical because doing so In order to maximize the cash flow essential to realizing their demonstrates that the company has the financial capital medium- to long-term value creation stories, companies needed to achieve its medium- and long-term value creation strive to expand business scale and improve capital story. Allocation of financial capital based on a changing efficiency while maintaining an optimal financial capital business environment is essential in pursuing business structure. strategies. Companies should use the integrated report to ROE (return on equity) is the most typical indicator used to describe their efforts to ensure the optimal balance with monitor capital efficiency. The KPMG survey was premised their financial capital cycle, encompassing fundraising, profit on the assumption that companies decide on an appropriate generation, cash allocation, growth investments and level of capital efficiency or set an ROE target as a milestone shareholder returns. They should explain how these efforts and then work to improve ROE in the medium to long term. have led to improved cash flow, as well as their reasoning The survey found that 69% of companies referred to ROE for this. in their financial strategy. Of these, 68% noted both the KPMG defines the elements of the financial capital cycle as target level and the actual level (Figure 5-3). Moreover, 44% funds (financing), investments, efficiency and dividends and of companies referred to capital costs, which are seen as a surveyed 181 companies describing their financial strategy, premise for calculating the target ROE. Of these, 13% of and found that only 23% (42 companies) provided an companies explained their assumed capital costs used in exhaustive description using specific figures (Figure 5-1). specific figures (Figure 5-4). Moreover, a review by element shows that most references When noting an ROE target, explaining the optimal capital had to do with dividends (Figure 5-2). costs behind this figure, as well as the business By cycling through financial capital with the optimal balance environment on which this calculation is premised, helps the and laying out these elements adequately, companies can reader come to a better understanding. describe the trajectory leading them to achieve their value creation story.

Figure 5-1 Figure 5-3 Mentions all elements in financial capital cycle Mentions of ROE

Only actual figure mentioned Both targets Mentioned % and actual Not Mentioned 21 figures mentioned 26 companies 77% % 23 Only target 139 companies 68% 42 companies mentioned 84 companies n=181 companies n=124 companies Companies describing 11% Companies mentioning their financial strategy 14 companies ROE in their financial strategy Figure 5-2 Figure 5-4 Mentioned by element in financial capital cycle Mention of capital costs Assumed capital Funds (financing) Mentioned costs also mentioned % (D/E ratio, liabilities, FCF, etc.) 102 companies 56 13% Investments(Growth investments, 16 companies 86 companies Mentioned capital investments, etc.) 48% Not Mentioned % Efficiency 56 % 139 companies 44 31% 77% 70 companies (Capital efficiency, etc.) 54 companies 38 companies

Dividends 152 companies 84% n=124 companies n=181 companies

15 Financial Strategy

© 2019 KPMG AZSA LLC, a limited liability audit corporation incorporated under the Japanese Certified Public Accountants Law and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 19-1022 In addition to initiatives to generate cash flow, chart its SPOTLIGHT 3 trajectory to improve capital efficiency Chief Value Officer ROE, which is a typical indicator for capital efficiency, can be – New Role of CFO broken down into the following three elements. Chief Value Officer: Accounts Can Save the Planet ROE = Sales-profit ratio X total asset turnover X financial leverage (Routledge, December 2016) was written by Dr. (Net income sales) (Sales total assets) (Total assets ÷ ÷ ÷ Mervyn King, an authority on corporate governance and shareholders equity) ’ corporate reporting from South Africa who worked to The survey found that 69% of companies referred to ROE in establish the IIRC. In this book, Dr. King makes the case for the need for a chief value officer (CVO) in a their financial strategies, but of these, only 11% of these company s value creation, given new developments in ’ companies broke down the elements making up ROE and the responsibilities of boards of directors and the start explain their policies and initiatives to improve each element of a new era in corporate accounting. (Figure 5-5). In the era when corporate value was reflected in the Fluctuations in the specific elements comprising ROE balance sheet and its value in the market was determined by this information, financial value was the resulting from temporary increases in profit and reductions in core value, and corporate value was decided by the capital do not lead to long-term improvements in corporate way in which capital fluctuated over a specific period value. Efforts to raise ability to generate cash flow that are (usually one year). undertaken with a medium- to long-term perspective result However, the responsibilities of board directors are no in improvements in capital efficiency, and such efforts and longer limited to the activities of a single company and policies should be explained in the integrated report. For their scope. External factors that affect companies, example, in the section on financial strategies, some such as the environment and society, are closely companies specified their target balance sheet and related to value creation, and this requires that they take a more comprehensive and long-term perspective. explained their policy for improving profit margins and inventory turnover rates individually to achieve this. Information used in decision-making now broadly includes elements such as the impact that the results Ideally, the policies and initiatives aimed at efficiently and of corporate activities have on society, the value that continually generating cash flow using diverse forms of can be expected in the future, the company s ability to ’ capital as management resources would be discussed in the pursue strategies for sustainability, and its contributions financial strategy section in a way that is specific and to a sustainable society. The increase in ESG investment is one sign of this. consistent with the business strategy and laid out so that the reader can see how it is connected to the value creation In these times, the CFO must identify the relationship which financial value and indicators have with the story. various factors that affecting a company s ability to ’ raise value, understand this based on an integrated thinking and use this to help devise corporate strategies. Not all of this will be definite or quantitative Figure 5-5 information. However, going forward CFOs will be Explanation of improvements expected to act as CVOs, handling and analyzing a for each element of ROE diverse range of information related to value creation and playing a central role in carrying out accurate evaluations. Explained Not Explained Chief Value Officer 89% 11% English Japanese 110 companies 14 companies

n=124 companies

For those browsing online, please click the QR code

Financial Strategy 16

Include financial KPIs related to Include KPIs related to strategy financial strategy to bolster the 1 for creating value 2 feasibility of the value creation story

Of companies issuing integrated reports, 89% include KPMG examined the extent to which the financial strategies highlights sections. KPIs, chosen from companies explained in the integrated report and the financial KPIs laid quantitative data, tend to be listed in the highlights’ section. out in the highlights sections are connected. Many of the KPMG carried out this survey on the premise that KPIs indicators included in the financial strategy and laid out in the related to the value creation story and strategies are put highlights section were related to efficiency (ROE, ROA, together in the integrated report s highlights section, and ROIC) and dividends, while few indicators were related to found that only 6% companies include’ KPI results together capital (financing) and investment (Figure 6-2). with their outlook and targets (Figure 6-1). Presentation of In the value generated by companies, the impact of intangible results together with targets and outlook is the best way to capital such as human capital and intellectual capital is disclose KPIs in an integrated report, as this facilitates a increasing. In reports, the non-financial KPIs provided are quantitative discussion of the extent to which the strategies being augmented, and the financial KPIs are declining in have been achieved and the progress made. relative terms (Figure 6-3). However, in the current business In addition, as indicated by the trends for KPIs by capital environment marked by high uncertainty, KPMG forecasts a (Figure 6-3), the percentage of non-financial KPIs is increasing. growing need for reporting financial strategies, which help the As the survey on integrated thinking showed, however, only reader to determine whether a measure is feasible and has a 30% of companies include indicators related to outcomes for financial basis. Management should examine indicators the environment and society in their strategic goals (Figure related to the company s financial strategies and succinctly 1-1, page 7). This is partly because many of the non-financial explain to readers results’ that bolster the feasibility of the KPIs shown in the highlights section are KPIs related to CSR company s value creation story and the financial KPIs that activities. Non-financial KPIs connected to the strategies that help to assess’ the future outlook, including terminology will help companies achieve their value creation story should definitions in some cases. be included to give readers a better understanding.

Figure 6-1 Figure 6-2 Inclusion of highlights Percentage of companies disclosing section compiling KPIs KPIs consistent with the financial strategy Included strategic goals (outlook) Financial KPI Financial KPI ■ ■ % consistent with the inconsistent with the 6 financial strategy financial strategy 26companies

Not Included 43% 57% n=102 Capital (financing) 44 58 companies 11% Included companies companies 44companies 40% 60% n=86 % Investment 34 52 companies 89 companies companies 370companies 88% 12% n=139 Efficiency 122 17 companies companies companies n=414 companies 70% 30% n=152 Dividends 106 46 companies companies companies

* Of the 181 companies describing their financial strategies, companies referring to the elements of their financial capital cycle were surveyed. Please refer to Financial Strategy on page 15 (Figure 5-2) for details.

17 Key Performance Indicators

36% R&D expenses ■ 12% Ratio of R&D expenses ■ 6% Number of patents ■ 2014 2015 2016 2017 2018 Figure 6-3 Nature KPIs Percentage of KPIs by type of capital 53% CO2 and greenhouse Total of non-financial KPI ■ 33% gas emissions 1% Other KPIs 18% Energy consumption and input 26% 2 27% 4 29% 4 36% 2 38% ■ ■ 3% Social and 17% Waste emissions 1 1 1 3 ■ ■ 3 relationship *Including the basic unit 3 3 3 KPIs 7% 3 3 3 3 2014 2015 2016 2017 2018 7% 8% 10% 12% 3% Intellectual 10% ■ 9% 10% KPIs Human KPIs 15% 16% 3% Manufactured ■ KPIs 54% Number of employees Nature KPIs ■ ■ 40% Number or percentage of ■ female managers Human KPIs % 74% 13 % 73% 71% ■ 19 Number or percentage of 64% % 62 Financial KPIs 12% ■ female employees ■ 2014 2015 2016 2017 2018 Social and relationship KPIs 2014 2015 2016 2017 2018 n=134 n=199 n=262 n=270 n=370 companies companies companies companies companies 9% Number of ■ members/customers 9% Social contribution event held ■ 6% Social contribution expenditure ■ (amount donated) 2014 2015 2016 2017 2018 n=370 companies

Key Performance Indicators 18

Unlike corporate governance reports, which are required by Unlike other jurisdictions, Japanese companies can choose regulation, integrated reports are expected to include their corporate governance system from three system designs. explanations on the connections between corporate Around 2015, we began to note a shift from companies with a governance and the value creation to which the company board of corporate auditors to companies with audit and aspires. In other words, the content should give the reader a supervisory committees, and more companies are also sense that the strategies have a high chance of being establishing non-statutory Nominating Committees and implemented and that the forecast medium- and long-term Compensation Committees.*1 results have a high chance of being achieved. Since there is no system among the three that is inherently The foundation for building corporate governance mechanisms inferior or superior, it is effective to provide a rational explanation is the policy made based on the characteristics of the as to why a particular system was chosen in raising the company s business. The survey showed that 58% of reader s trust. 54% of companies explained their thinking on companies’ mentioned their own corporate governance policy, the system’ they selected, which is much higher than in 2017 and 43% of companies provided a summary of its substance in (20%; Figure 7-3). the integrated report (Figure 7-1). However, there is still room for improvement in explanations on Next, KPMG attempted to examine whether the message from the selection of the directors responsible for corporate the chairman of the board expressed the company s efforts and governance. Explanations of the reasons for their selection and status on corporate governance and the sincerity of’ its attempts descriptions of the experiences and skills needed by the to fulfill responsibilities to stakeholders. However, only 9% director are still minimal. Moreover, the explanations are included a message from the chairman of the board. The board skewed toward the external directors (Figure 7-4). chairman plays a major role in building the governance system In addition, companies should consider the diversity of their and improving its effectiveness. Improving the credibility of directors overall, which is required to fulfill board functions integrated report content is essential to the effective use of the adequately, and they should use skill matrices to logically and report in dialogue with the investors and other stakeholders succinctly explain these approaches. who affect the company. The content of the board chairman s ’ *Tokyo Stock Exchange How Listed Companies Have Addressed Japan s Corporate message has significant implications (Figure 7-2). “ ’ Governance Code (as of December 2018) (provisional draft) ” Figure 7-1 Figure 7-3 Corporate governance policy Explanation of rationale for Including a summary governance system selected 43% 176 companies Not Mentioned Explained 42% Mentioned 173 companies 54% 58% 224 Only that 239 companies % companies it exists 20 67 companies 15 % n=412 companies 63 companies 2017 2018 n=331 companies n=412 companies Figure 7-2 Message from the chairman Figure 7-4 Internal directors experience, skills, ’ Company s mission, vision, etc. 17 % and reasons appointed ’ companies 46 Experience, skills and reasons appointed Reasons appointed 16 ■ ■ Issues from board s perspective companies % Only a personal history Not mentioned ’ 43 ■ ■ 4 15 1% companies Value to be created through business companies 41% Internal 10% 45% 44% 3 Directors 41 186 181 Important stakeholders comp- % n=37 companies companies companies companies anies 8 Companies including 3 message from board Evaluation of management team comp- 8% chairman External 2% 45% 25% 28% anies 9 184 105 114 (some messages Directors companies companies companies companies 5 had more than Other companies 14% one element) n=412 companies

* In this section, out of 414 issuing companies, we surveyed 412 excluding two audit firms that did not apply the Corporate Governance Code (as surveyed in the previous year using the same criteria). 19 Governance

© 2019 KPMG AZSA LLC, a limited liability audit corporation incorporated under the Japanese Certified Public Accountants Law and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 19-1022 Improve transparency of the process SPOTLIGHT 3 for enhancing board effectiveness Reconsidering the value of KPIs In addition to explanations of the governance system, describing the effective administration of the board and their function in The KPIs noted in integrated reports are used to indicate the progress made in the company s value validating operations enhances the reader s faith that the ’ ’ creation story and corroborate this story s feasibility. company can succeed in improving value. Although mentions of ’ the implementation of board evaluations have increased, the Therefore, an integrated report should show the KPIs low number of mentions of the evaluation process and criteria, that have connections to other content in the report, and improvements made based on the evaluation and their such as the capital that affects value creation, initiatives, results, is a concern (Figure 7-5). results and strategies directed at the future. In addition, one of the essences of corporate governance is the Most corporate value is assessed based on intangible appointment and dismissal of management, but only 22% of factors, and although their impact on value creation is reports had explanations of this. Moreover, even if they were substantial, they cannot be measured. However, KPIs explained, the structure of the nomination committee that can contribute to the effective use of integrated reports essentially ensures the validity of appointments and dismissal as an alternative indicator. One example is the risk was not clarified, and about 78% of companies left the information based on analyses of climate change independence and attributes of their committee chair unclear scenarios pursued by the Task Force on Climate-related (Figure 7-6). Financial Disclosures (TCFD). Even with the same indicators, the significance of this differs depending on Rapid changes in the business environment, reforms to the the value that the company is trying to create. board system, and an increase in the appointment of independent directors have led to growing interest in the The reader cannot determine whether the content is substance of discussions during board meetings and their accurate or reliable if the report only uses diagrams and administration. Given this, these crucial descriptions are narrative information. In particular, when fulfilling the insufficient. KPMG believes that additional explanation will be fiduciary duties owed to investors, the reliability and necessary for matters that could affect corporate value from a transparency of the information used is weighed long-term perspective, such as the training system for heavily. succession candidates for CEO. There are several discussions on the issues that must Figure 7-5 be resolved in order to utilize KPIs as effective tools. One of these is that there is no agreed-upon definition Disclosure of board evaluation Disclosed Not Disclosed for most non-financial indicators, unlike non-GAAP ■ ■ indicators, and there is no consistency in the formulas Evaluation 41% 59% used to calculate them. 167 245 process companies companies Moreover, non-financial information includes many kinds of information that are deeply related to strategic Evaluation 24% 76% 100 312 decision making, such as resource allocation, and while criteria companies companies this information has a high utility value for investors, it is Evaluation 50% 50% difficult to handle due to confidentiality of information. results 207 205 companies companies Going forward, if the KPIs related to CSR activities n=412 companies within companies are integrated with key indicators for management and have a greater impact on investors Figure 7-6 ’ decision-making, the reliability of KPI data will become Chair of nomination President is an issue. Presenting KPIs that are persuasive for the committee committee chair 2% 9 companies Executive director other than purpose of constructive dialogue could be an effective the president serves as committee chair tool. We believe that there will be a growing need to consider how the KPIs in integrated reports fit into the 0.6% 3 companies Non-executive director entire information provided by companies. is committee chair No mention of Identified committee chair 19% 77 companies at all, or committee chair mentioned 22% Other person is committee chair but not identified 91 companies 78% 321 companies 0.4% 2 companies*

n=412 companies

*Advisor in the case of one company, and internal director (not clear if the director is involved in execution) in the case of one company Governance 20

Number of companies issuing an integrated report

Number of Japanese companies issuing Percentage in total Self-Declared Integrated Reports market capitalization (1st section of TSE) In 2018, 414 companies issued an integrated report, up from As of the end of December, 2018, of the total market 2017 by 79 companies, or 24%. capitalization of 2,128 companies listed on the First Section This is an indication that integrated reports are recognized as of the Tokyo Stock Exchange (TSE), the market capitalization a constructive tool for dialogue between companies and of the 382 companies issuing integrated reports accounted investors and have become more established in this role. for 58%. Of these listed companies, 18% (382 of 2,128 companies) issued integrated reports, indicating that the issuance of 414 integrated reports is progressing primarily at large +79 companies. The number of companies 335 issuing integrated reports in 2018 280

215

382 138 58 JPY 324 ％ 95 trillion 61 24 32

2010 2011 2012 2013 2014 2015 2016 2017 2018 n=JPY 562 trillion (2,128 companies listed on the First Section of the Tokyo Stock Exchange) Source: List of Japanese Companies Issuing Integrated Reports, Corporate Value Reporting Lab * As of December 31, 2018 “ ”

Industries of issuing companies The survey result shows that the highest number of companies pharmaceuticals (59%), in that order. came from the electric equipment sector for the fourth year in a The industries with greater increase in the number of issuing row. As in the previous year, the percentage of issuing companies were the electric equipment, chemicals, companies by industry was highest for air transport (67%), pharmaceuticals, foods, and services. The number increased followed by marine transport (63%), insurance (60%) and particularly sharply in the service industry, with a 50% increase over the previous year.

companies 40 Percentage of issuing companies (2018) 39 companies Increase in 2018 +6 n=386 companies (listed on the First Section +8 of the TSE; as of September 30, 2018) 67% 63% 59% 60%

+6 +5

Steel Foods Retail Mining ServicesBanking Chemicals Wholesale Insurance Machinery Real estate Construction Air transport Land transport Other products Metal products Pulp andTextile paper products Pharmaceuticals Marine transport Rubber products Electric equipment Nonferrous metals

Electric power andOther gas financial services Warehousing/Transport Transportation equipment Petroleum and coal products Glass and stone/clay products Information and communication Precision mechanical equipment Securities and commodity futures Fisheries/agriculture and forestry

21 Basic Information

Listing market of issuer companies Index attributes of issuing companies As in typical years, companies listed on the First Section of The percentage of issuing companies that are components the TSE led growth in the number of issuances. Of the of the Nikkei 225 and JPX Nikkei 400 has steadily increased issuing companies, 386 (93%) are listed on the First Section year by year, with 66% of companies included in the Nikkei of the TSE, up by 69 over the previous year. 225 and 55% of companies included in the JPX Nikkei 400 issuing integrated reports this year. Given that a requirement for constituents of the Nikkei 225 is that they are companies actively traded on the stock market and a requirement for constituents of the JPX Nikkei 400 is that they are companies that are highly rated financially and non-financially, it is safe to assume that they are very engaged with integrated reporting.

Nikkei 225 component percentage Unlisted: ■ 15 companies 11 113 129 148 1 HKEX: ■ 1 company 11 6 JASDAQ/ 50％ 57％ 66％ 0 6 First Section ■Mothers: 4 of the TSE 6 companies 2 n=225 Second Section 2016 2017 2018 companies 386 ■of the TSE: companies 6 companies 317 JPX Nikkei 400 component percentage (Increase of (As of September 262 69 companies) 30, 2018) 146 177 219

37％ 44％ 55％ 2016 2017 2018 n=400 n=279 companies n=341 companies n=414 companies 2016 2017 2018 companies

Over JPY 1 trillion Revenue of issuing companies ■ 103 117 94 companies companies 28% JPY 500 billion to Survey results showed that a high 86% of issuing companies companies ■ under JPY 1 trillion had sales of 100 billion yen or more. JPY 100 billion to 59 76 ■ Moreover, 82% of the 143 listed companies with sales 44 companies companies 18% under JPY 500 billion companies 86% of 1 trillion or more (Source: Japan Company Handbook JPY 50 billion to ■ Autumn 2018) issued integrated reports, which is a under JPY 100 billion 100 131 164 significant increase from 71% in the previous year. companies companies companies 40% Under JPY 50 billion ■

22 companies 22 companies 26 companies 6% 不明5 14 companies 26 companies 31 companies 8% 社 2016 2017 2018 n=279 companies n=341 companies n=414 companies Overview of integrated reports

Title of reports Integrated Report 69 182 companies As in the previous year, companies that issue an annual report have tended to change the title of their reports“ to Company name 112 + Report 18 companies integrated” report. The number of companies making this “ ” “ ” name change increased by 69 over the previous year, to a Annual Report 49 total of 182. Integrated report is the most frequent report companies “ ” title used. 2017 Corporate Report 8 41 This is likely the result of a growing number of companies companies Increase in 2018 actively adopting the name integrated report as more A title including n=411 companies “ ” 7 15 management and investors begin to recognize the utility CSR companies The following were excluded “ ” from the 414 companies and value of integrated reports. 12 Companies issuing the report Others companies only in English: 3 companies

Basic Information 22

Issuance of English version 1％ 3 English only companies As in 2017, over 80% of companies published their reports in 15 62 ％ companies both Japanese and English. Japanese only Japanese and English 349 companies

84％

n=414 companies * Figures shown are as of January 31, 2018

Timing of issuance (Japanese version) Timing of issuance (English version) An increasing number of companies issued their report six The greatest number of companies issued Japanese and English months after their fiscal year ended. versions at the same time, followed by companies issuing an Companies that changed the name of their reports to integrated English version within one month of the Japanese version. report and companies issuing this report for the first time“ seem This is a sign that companies are trying to provide information to have” spent more time considering the content and seeking to fairly to readers both in and outside Japan. augment it.

2016 n=411 companies 133136 2016 2017 The following were 122 2017 2018 excluded from the 108 2018 96 414 companies n=349 companies Companies issuing Companies issuing both 85 85 the report only in Japanese and English reports 79 79 English: 3 companies 78 71 67 71 59 61 55 52 44 39 38 37 33 2426 26 24 15 17 17 11 11 13 8 8 7 7 5 6 6 5 3 2 0 0 1

1 2 3 4 5 6 7 8 9 Simultaneous 1 2 3 4 5 month months months months months months months months months month months months months months After fiscal year-end After issuance of Japanese version

23 Basic Information

IR 18 75 Public relations/IR 17 72 Issuance of CSR Corporate planning 25 66 report separately Public relations 6 53 121 CSR 11 52 companies Issued 29％ Corporate 30 communication Not Issued 270 Public relations/CSR 9 65 companies 35 Issuance of General ％％ 7 144 companies 23 CSR data book administration companies Project 4 6 2017 Increase in 2018 6 Financial 4 5 ％ n=411 companies Others 36 Uncertain: 3 companies n=411 companies

SPOTLIGHT

Corporate Reporting Dialogue - The effort to bring better alignment among different reporting standards

Integrated reports are attracting more attention around the better aligned where possible across the reporting frameworks world, not just in Japan, and various organizations involved in to ensure greater consistency. This initiative will facilitate both corporate reporting continue to work to promote more companies and institutional investors to better understand the effective corporate reporting in response to the needs of different reporting requirements of the standards and capital markets and society. frameworks. Taking into consideration this growing movement towards The results of this project will be published when it is better business reporting, the Corporate Reporting Dialogue completed at the end of 2020. It is expected that the burden (CRD), which was convened by the International Integrated for companies and readers will be reduced, and will promote Reporting Council (IIRC), has launched a new two-year more effective and coherent reporting. project called the Better Alignment Project in November 2018. 1 Carbon Disclosure Project The CRD was established in 2014 to achieve further 2 Climate Disclosure Standard Board alignment and comparability in the corporate reporting 3 Financial Accounting Standards Board landscape. It comprises the world s leading standard-setting 4 Global Reporting Initiative ’ bodies, such as the CDP1, CDSB2, FASB3, GRI4, IASB5, ISO6, 5 International Accounting Standards Board SASB7, and is convened by the IIRC8. 6 International Organization for Standardization 7 Sustainability Accounting Standards Board These organizations set reporting standards and framework 8 International Integrated Reporting Council for financial and non-financial information based on their respective objectives, which has resulted in disclosure requirements from different focuses on similar issues. This has caused considerable confusion among the companies preparing the reports and the institutional investors who read CRD website them. This confusion is particularly apparent when it comes to reporting for non-financial information. Accordingly, the Better Alignment Project has started an initiative to identify the similarities and differences in the standards and frameworks required by each organization within the CRD, in order to reduce confusion. Metrics will be For those browsing online, please click the QR code

Basic Information 24

Advanex Inc. FUJI ELECTRIC CO., LTD. Keihanshin Building Co., Ltd. NEC Capital Solutions Limited SAKATA INX CORPORATION TEIJIN LIMITED AEON CO.,LTD. FUJI OIL HOLDINGS INC. Kirin Holdings Company, Limited NEC Corporation Sangetsu Corporation Terumo Corporation AEON Financial Service Co., Ltd. FUJICCO Co., Ltd. KITO CORPORATION NEC Networks & System Integration Corporation Sango Co., Ltd. T-Gaia Corporation AGC Inc. FUJIFILM Holdings Corporation KITZ Corporation Net One Systems Co., Ltd. SANKI ENGINEERING CO., LTD. The 77 Bank, Ltd. Ahresty Corporation Fujikura Ltd. KOBAYASHI PHARMACEUTICAL CO., LTD. NGK INSULATORS, LTD. Santen Pharmaceutical Co., Ltd. The Dai-ichi Life Insurance Company, Limited AIR WATER INC. FUJITA KANKO INC. Kobe Steel, Ltd. NGK SPARK PLUG CO., LTD. Sanwa Holdings Corporation The Furukawa Battery CO., LTD. AIRDO Co., Ltd. FUJITSU LIMITED Kokusai Pulp & Paper Co., Ltd. NH Foods Ltd. SANYO DENKI CO.,LTD. THE HACHIJUNI BANK,LTD. Aisin Seiki Co., Ltd. Funai Soken Holdings Incorporated Komatsu Ltd. NHK SPRING CO., LTD. Sapporo Holdings Limited The Kansai Electric Power Company,Incorporated Ajinomoto Co., Inc. Furukawa Electric Co., Ltd. KONDOTEC INC. Nichirei Corporation SATO HOLDINGS CORPORATION The Nisshin OilliO Group, Ltd. Akebono Brake Industry Co., Ltd. Fuyo General Lease Co., Ltd. KONICA MINOLTA, INC. NIHON CHOUZAI Co., Ltd. Sawai Pharmaceutical Co., Ltd. THE SHIGA BANK LTD ，． Alfresa Holdings Corporation GS Yuasa Corporation KOSÉ Corporation NIHON KOHDEN CORPORATION SBI Holdings, Inc. THE SHIMANE BANK,LTD. Alpine Electronics, Inc. GUNZE LIMITED KPMG Japan Nihon Unisys, Ltd. SBS Holdings, Inc. The University of Tokyo Alps Electric Co., Ltd. H.I.S.Co.,Ltd. Kubota Corporation NIKKISO CO., LTD. SCREEN Holdings Co., Ltd. ThreePro Group Inc. AMITA HOLDINGS CO.,LTD. H2O RETAILING CORPORATION Kumagai Gumi Co., Ltd. NIKON CORPORATION SCSK Corporation TIS Inc. ANA HOLDINGS INC. Hakuhodo DY Holdings Inc. Kuraray Co., Ltd. NIPPON CHEMI-CON CORPORATION SEGA SAMMY HOLDINGS INC. Toagosei Co., Ltd. ANRITSU CORPORATION Heiwa Paper Co., Ltd Kurimoto,Ltd. Nippon Chemiphar Co., Ltd. SEIBU HOLDINGS INC. TOBISHIMA CORPORATION ARATA CORPORATION Hitachi Capital Corporation KYORIN Holdings, Inc. Nippon Electric Glass Co., Ltd. SEIKAGAKU CORPORATION TODA CORPORATION Asahi Group Holdings, Ltd. Hitachi Chemical Company, Ltd. Kyosan Electric Manufacturing Co.,Ltd Nippon Kayaku Co., Ltd. Seiko Epson Corporation TOHO Co.,Ltd. ． Asahi Holdings, Inc. Hitachi Construction Machinery Co., Ltd. Kyoto University Nippon Koei Co., Ltd. SEKISUI CHEMICAL CO.,LTD. TOHO GAS CO., LTD. ASAHI INDUSTRIES CO., LTD. Hitachi High-Technologies Corporation KYOWA EXEO CORPORATION Nippon Life Insurance Company Sekisui House, Ltd. Toho Titanium Co., Ltd. Asahi Kasei Corp. Hitachi Metals, Ltd. Kyowa Hakko Kirin Co., Ltd. Nippon Paint Holdings Co., Ltd. Senshukai Co., Ltd. Tohoku Electric Power Co., Inc. ASKA Pharmaceutical Co.,Ltd. Hitachi Transport System, Ltd. Kyushu Electric Power Co., Inc. Nippon Sheet Glass Co., Ltd. Seven & i Holdings Co., Ltd. TOKAI RIKA CO., LTD. Astellas Pharma Inc. Hitachi Zosen Corporation Kyushu Railway Company Nippon Shinyaku Co., Ltd. Seven Bank, Ltd. Tokai Tokyo Financial Holdings, Inc. AUTOBACS SEVEN CO., LTD. Hitachi, Ltd. Lawson, Inc. NIPPON SIGNAL CO., LTD. Shikoku Electric Power Company, Incorporated Tokio Marine Holdings, Inc. Azbil Corporation Hodogaya Chemical Co.,Ltd. Leopalace21 Corporation NIPPON STEELNISSHIN CO.,LTD. SHIMADZU CORPORATION Tokyo Century Corporation BANDAI NAMCO Holdings Inc. Hokkaido Electric Power Co., Inc. LINTEC Corporation NIPPON TELEGRAPH AND TELEPHONE SHIMIZU CORPORATION TOKYO DOME CORPORATION Benesse Holdings, Inc. Hokuetsu Corporation Lion Corporation CORPORATION Shin Nippon Air Technologies Co.,Ltd. Tokyo Electric Power Company Holdings, Inc. Bridgestone Corporation Honda Motor Co., Ltd. LIXIL Group Corporation Nippon Yusen Kabushiki Kaisha Shin-Etsu Chemical Co., Ltd. TOKYU CONSTRUCTION CO., LTD. BROTHER INDUSTRIES, LTD. HONDA TSUSHIN KOGYO CO., LTD. Mandom Corporation Nishimatsu Construction Co., Ltd. Shinsei Bank, Limited Tokyu Fudosan Holdings Corporation Calbee, Inc. HORIBA, Ltd. Marubeni Corporation Nissan Chemical Corporation Shionogi & Co., Ltd. TOMY COMPANY,LTD. CAPCOM CO., LTD. Hulic Co., Ltd. Maruha Nichiro Corporation Nissha Co., Ltd. Shiseido Company, Limited TOPCON CORPORATION Chiome Bioscience Inc. IBJ Leasing Company, Limited MARUI GROUP CO., LTD. Nisshinbo Holdings Inc. Showa Denko K.K. TOPPAN FORMS CO., LTD. Chubu Electric Power Co., Inc. Idemitsu Kosan Co.,Ltd. MATSUDA SANGYO Co.,Ltd. NISSIN FOODS HOLDINGS CO., LTD. SHOWA SHELL SEKIYU K. K. TOPPAN PRINTING CO., LTD. Chugai Pharmaceutical Co., Ltd. IHI Corporation Maxell Holdings, Ltd. Nitto Denko Corporation SKYLARK HOLDINGS CO., LTD. Topy Industries, Ltd. CMK CORPORATION IINO KAIUN KAISHA, LTD. MEDIPAL HOLDINGS CORPORATION NOMURA Co., Ltd Sodick Co.,Ltd. Torishima Pump Mfg. Co., Ltd. Concordia Financial Group, Ltd. INPEX CORPORATION MEGMILK SNOW BRAND Co., Ltd. Nomura Holdings, Inc. SOHGO SECURITY SERVICES CO.,LTD. TOSHIBA CORPORATION Cosmo Energy Holdings Co., Ltd. Isetan Mitsukoshi Holdings Ltd. MEIDENSHA CORPORATION Nomura Real Estate Holdings, Inc. Sojitz Corporation TOTO LTD. CyberAgent, Inc. ITO EN, LTD. Meiji Holdings Co., Ltd. Nomura Research Institute, Ltd. Solaseed Air Inc. TOYO CONSTRUCTION CO.,LTD. Dai Nippon Printing Co., Ltd. ITOCHU Corporation Meiji Yasuda Life Insurance Company Noritz Corporation Sompo Holdings, Inc. Toyo Denki Seizo K.K. Daicel Corporation ITOCHU ENEX CO.,LTD. Menicon Co., Ltd. NS UNITED KAIUN KAISHA, LTD. Subaru Corporation Toyo Engineering Corporation DAI-DAN Co., Ltd. ITOCHU Techno-Solutions Corporation METAWATER Co., Ltd. NSK Ltd. Sumitomo Chemical Company, Limited Toyoda Gosei Co., Ltd. Daifuku Co., Ltd. Iwatani Corporation MinebeaMitsumi Inc. NTN Corporation SUMITOMO CORPORATION TOYOTA BOSHOKU CORPORATION DAIICHI SANKYO COMPANY, LIMITED J. FRONT RETAILING Co., Ltd. Misawa Homes Co., Ltd. NTT DATA Corporation Sumitomo Dainippon Pharma Co., Ltd. Toyota Industries Corporation DAIKEN CORPORATION JACCS CO., LTD. Mitsubishi Chemical Holdings Corporation NTT DOCOMO, INC. Sumitomo Forestry Co., Ltd. Toyota Motor Corporation DAIKIN INDUSTRIES,LTD Japan Airlines Co., Ltd. Mitsubishi Corporation NTT Urban Development Corporation Sumitomo Heavy Industries, Ltd. Toyota Tsusho Corporation DAIKYO INCORPORATED JAPAN ASIA GROUP LIMITED MITSUBISHI ESTATE CO., LTD. Obayashi Corporation SUMITOMO LIFE INSURANCE COMPANY TS TECH Co.,Ltd. Daio Paper Corporation Japan Exchange Group, Inc. MITSUBISHI GAS CHEMICAL COMPANY, INC. OHARA INC. Sumitomo Metal Mining Co., Ltd. Tsubakimoto Chain Co. Daito Trust Construction Co., Ltd. Japan Petroleum Exploration Co., Ltd. Mitsubishi Heavy Industries, Ltd. Oji Holdings Corporation Sumitomo Mitsui Construction Co., Ltd. TSUMURA & CO. Daiwa House Industry Co., Ltd. JAPAN POST BANK Co., Ltd. Mitsubishi Materials Corporation OKASAN SECURITIES GROUP INC. Sumitomo Mitsui Financial Group, Inc. UACJ Corporation Daiwa Securities Group Inc. JAPAN POST HOLDINGS Co., Ltd. Mitsubishi Paper Mills Limited Oki Electric Industry Co., Ltd. Sumitomo Mitsui Trust Holdings, Inc. Ube Industries, Ltd. Denka Company Limited JAPAN POST INSURANCE Co., Ltd. Mitsubishi Research Institute, Inc. Olympus Corporation Sumitomo Riko Company Limited ULVAC, Inc. DENSO CORPORATION Japan Wool Textile Co., Ltd. Mitsubishi Tanabe Pharma Corporation OMRON Corporation Sumitomo Rubber Industries, Ltd. Unicharm Corporation DENTSU INC. JCR Pharmaceuticals Co., Ltd. Mitsubishi UFJ Financial Group, Inc. ONO PHARMACEUTICAL CO., LTD. Sun Messe Co., Ltd. UNITED ARROWS LTD. Development Bank of Japan Inc. JFE Holdings, Inc. Mitsubishi UFJ Lease & Finance Company ORIX Corporation SUZUKEN CO., LTD. USHIO INC. DIC Corporation JGC CORPORATION Limited Osaka Gas Co., Ltd. SYSMEX CORPORATION Wacoal Holdings Corp. DKS Co. Ltd. J-OIL MILLS , Inc. MITSUI & CO., LTD. OSAKA SODA CO., LTD. T&D Holdings, Inc. Yahoo Japan Corporation DUSKIN CO., LTD. Joshin Denki Co.,Ltd. Mitsui Chemicals, Inc. OSG Corporation Tadano Ltd. YAMADA DENKI CO., LTD.

DyDo GROUP HOLDINGS INC. JTEKT CORPORATION Mitsui E&S Holdings Co., Ltd. Otsuka Holdings Co., Ltd. Taiho Kogyo Co., Ltd. Yamaha Corporation DYNAM JAPAN HOLDINGS Co., Ltd. JUKI CORPORATION Mitsui Fudosan Co., Ltd. Pan Pacific International Holdings Corporation Taisei Corporation Yamaha Motor Co., Ltd. East Nippon Expressway Company Limited JVC KENWOOD Corporation Mitsui O.S.K. Lines, Ltd. Panasonic Corporation Taisho Pharmaceutical Holdings Co., Ltd. YAOKO CO.,LTD. EBARA CORPORATION JXTG Holdings, Inc. Mitsuuroko Group Holdings Co.,Ltd. PARCO CO., LTD. TAIYO NIPPON SANSO CORPORATION YASKAWA Electric Corporation Echo Electronics Industry Co,.Ltd. Kagome Co., Ltd. Mizuho Financial Group, Inc. PENTA-OCEAN CONSTRUCTION CO., LTD. TAIYO YUDEN CO., LTD. YASUHARA CHEMICAL CO., LTD. Eisai Co., Ltd. Kajima Corporation Mochida Pharmaceutical Co., Ltd. Pigeon Corporation TAKARA HOLDINGS INC. YKK Corporation Electric Power Development Co.,Ltd. KAKEN PHARMACEUTICAL CO., LTD. Monex Group, Inc. POLA ORBIS HOLDINGS INC. Takara Leben Co.,Ltd Yokogawa Electric Corporation FamilyMart UNY Holdings Co., Ltd. KANEMATSU CORPORATION MORINAGA MILK INDUSTRY CO., LTD. PwC Japan Group TAKARA PRINTING CO., LTD. YOSHINOYA HOLDINGS CO., LTD. FANCL CORPORATION Kansai Paint Co.,Ltd. MS&AD Insurance Group Holdings, Inc. RAITO KOGYO CO., LTD. Takasago Thermal Engineering Co., Ltd. Zeon Corporation FISCO Ltd. Kao Corporation Murata Manufacturing Co., Ltd. Recruit Holdings Co., Ltd. Takeda Pharmaceutical Company Limited FP Corporation Kawasaki Heavy Industries, Ltd. Nabtesco Corporation Resona Holdings, Inc. Takenaka Corporation Freund Corporation Kawasaki Kisen Kaisha, Ltd. NAGASE & CO., LTD. Ricoh Company, Ltd. TDK Corporation FUJI CORPORATION KDDI CORPORATION NCXX Group Inc. S.T. CORPORATION TechnoPro Holdings, Inc.

25 List of Japanese Companies Issuing Integrated Report in 2018

List of Japanese Companies Issuing Integrated Report in 2018 26

The number of Japanese companies issuing integrated reports surpassed 400 in 2018. This is a three-fold increase since 2014, when KPMG first conducted its survey on Japanese companies integrated reports and only 142 companies ’ issued these reports. We believe that, over these years, significant strides have been made, not only in the number of reports, but also in their content, driven by the impressive efforts of the companies who issue them. What makes an integrated report worth reading is a unique value creation story. To achieve this, companies must identify the unique value that they alone can offer to society, discuss this issue within the organization, and create a climate that fosters individual action. The company must continue to work together as a single unit. Ongoing efforts from a long-term perspective are essential, and achieving results requires self-awareness and an aspiration to fulfill the responsibilities companies owe society. In this year s survey, we used Robotic Process Automation (RPA) for the work ’ that could be automated to improve work efficiency. We tried to spend more time in working through the actual reports and valuing the discoveries we made in that process. Every person who was involved in this survey made many discoveries in this work. We found that preparing integrated reports is certainly no easy matter. We came away, however, with a strong sense that the work of preparing an integrated report can yield insights (and occasionally highlight problems) for companies as they engage in the process of elucidating the very foundations of — how they create value, it can truly help to raise value on an ongoing basis. We will be extremely pleased if this report, which compiles KPMG s ’ recommendations, is helpful to all of those working day and night to improve corporate value through integrated reports.

KPMG Japan Integrated Reporting Center of Excellence

27 Afterword

Hiroto Yamane Sakurako Ohtsuki Koichiro Saio Yoshiko Shibasaka Norie Takahashi Hiromasa Niinaya Kiyoo Kamiyama Daisuke Ikadai Sumika Hashimoto Katsunao Hikiba Hiroshi Yabumae Keigo Yoshida Shinichiro Akasaka Atsushi Ono Takahiro Hagawa Tsuyoshi Yamazaki Yuka Otsubo Satoshi Gohara Akiko Hanada Yuki Ito Shotaro Kanatani Hiroki Chihara Miyuki Tanabe

Support members

Hiroshi Ishikawa Ami Imai Yukari Katsumoto Masumi Kan Kazusa Shimazato Kumiko Someya Maino Hioki Yuri Fukawa Yukari Minami Kaori Muramatsu Natsuki Muramatsu Chizu Kadota Kaori Kobayashi Kumiko Nishimura Hiroyuki Sakai

KPMG Japan Integrated Reporting Center of Excellence (CoE)

In response to the growing demand for the better business reporting that the integrated report represents, the CoE was formed in 2012 by professionals across member firms of KPMG in Japan.

Making full use of KPMG s research expertise in corporate reporting and its practical experience, the CoE ’ seeks to contribute to the reliability and transparency of capital markets and support better communication between companies and capital markets by contributing to the advancement of corporate reporting.

Our website The KPMG Japan Integrated Reporting Website contains recent trends, commentary, and seminar information and others.

KPMG Japan Integrated Reporting website home.kpmg/jp/integrated-reporting

Email Magazine The KPMG Japan Integrated Reporting Email Magazine reports in a timely manner on recent trends, commentary, and seminars information related to integrated reporting (in Japanese only). If you would like to receive the email magazine, please subscribe from the page below.

Email magazine subscription page home.kpmg/jp/mail-magazine

Survey Team/KPMG Japan Integrated Reporting Center of Excellence (CoE) 28

+81-3-3548-5106 [email protected] home.kpmg/jp/integrated-reporting

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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.