SUSTAINABILITY REPORT 2020 Daido Steel Group Management Philosophy Pursuing the potential of materials to support our future Guidelines Aim High Sincere Action Personal Growth Team Strengths Open to Challenges Daido Steel Group Logo Kutcharo Natural Forest Daido Lake Kutcharo lies near the town of Hamatonbetsu, in the Esashi District of Hokkaido Prefecture, around 80 kilometers south of Japan’s northmost point, Cape Soya. The lake was the third in Japan to be designated as a registered wetland under the Ramsar Convention* in 1989. At a latitude of 45o north, it is a rarely visited site of unspoiled nature. Each year in spring and autumn, several tens of thousands of swans (Cygnus bewickii) rest their wings at this stopping point, while in the winter various migratory birds arrive, such as sea eagles (Haliaeetus pelagicus) and white-tailed sea eagles (Haliaeetus albicilla), which are designated as an endangered species. On the shores of this precious lake, the Company has acquired land and it is working to maintain and preserve the forest there. In 2005, the Company named its forest on the shores of Lake Kutcharo “Kutcharo Natural Forest Daido,” and has conducted a range of environmental activities such as environmental education as part of its social contribution activities, using it as a symbol of awareness raising about environmental preservation and nature appreciation. * Ramsar Convention: An international convention for the protection of wetlands, which are vital breeding grounds for waterfowl. CONTENTS 2 Overview of the Daido Steel Group 41 ESG Initiatives (Social) Responsibility and Contribution to Society 4 Daido Steel and Society 42 Initiatives for Stakeholders 6 Manufacturing Capabilities Supporting 104 Years of Growth 52 ESG Initiatives (Governance) Corporate Governance Initiatives 8 Financial and Non-Financial Information 59 Corporate Data 10 Top Interview 60 Nine-Year Financial Summary 14 SDGs Initiatives and 62 Company Information Identification of Material Issues 16 Feature 1: Contribute to the Evolution of Next-Generation Mobility Editorial policy 18 Feature 2: Developing Human Resources As part of society, companies are called upon to contribute to the and Promoting Diversity sustainable development not only of the environment, but of society overall. As a reporting tool to explain its efforts to realize sustainable 20 Daido Steel’s CSR Activities development together with society based on ESG and taking a long-term perspective, Daido Steel Co., Ltd. initially published an Environmental 21 ESG Initiatives (Environment) Report, which was replaced in 2006 by the CSR Report. From 2020, we will be publishing the Daido Steel Sustainability Report. Our Responsibilities and Contributions to Scope the Global Environment The readership of this report is broadly divided into the Company’s stakeholders (people who have dealings with the Company, such as 22 Environmental Management customers, shareholders and investors, local communities, employees, etc.), public institutions, media, education-related readers, and others. 27 Initiatives to Reduce Environmental The scope of this report is primarily information related to long-term Impact strategy and sustainability. 35 Initiatives for a Recycling-Oriented Reporting period April 1, 2019 to March 31, 2020 (Includes some activities that take place Society in fiscal 2020). Photographs appearing in the report were taken prior to the COVID-19 pandemic. 37 Plant Data Publication date 40 Response to ISO Environmental November 2020 (previous publication on October 2019) Management and Audit Systems Regarding Initiatives to Prevent the Spread of COVID-19 The Company has taken the following initiatives to prevent the spread of COVID-19. We have adopted a system that encourages working from home for employees working at the Head Office, branches, and sales offices. When employees come to the workplace, they work with staggered shifts, wear masks at all times, and take thorough measures to prevent infection, such as handwashing and gargling. For manufacturing sites and research and development laboratories, we have taken measures to prevent infection to the greatest extent possible, such as encour- aging employees to work from home and using staggered shifts. We will also continue business activities with only the minimum necessary staff for operating. Going forward, we will prioritize the safety of all stakeholders and employees, and work to continue business operations appropriately. DAIDO STEEL GROUP SUSTAINABILITY REPORT 2020 1 Overview of the Daido Steel Group (Countries of operation are shown in red) South Korea Germany China Taiwan India Hong Kong Thailand Vietnam Philippines Malaysia Singapore Indonesia Engineering Trading and Service ¥26.6 billion ¥17.4 billion Parts for Automobile Net Sales Specialty Steel and Industrial Equipment by Segment ¥181.7 billion ¥490.4 billion ¥97.3 billion (consolidated for fiscal 2019) High Performance Materials and Magnetic Materials ¥167.4 billion Overview of Business The Company has five Specialty Steel High Performance Materials business segments which and Magnetic Materials conduct wide-ranging The segment produces and sells The segment manufactures and business activities on a structural steel, tool steel and sells high-performance materials global scale. others, mainly for use in automo- and magnetic materials used biles and production machinery. chiefly in automobiles, comput- ers, mobile phones and consumer electronics. 2 DAIDO STEEL GROUP SUSTAINABILITY REPORT 2020 United States Mexico Trading and Service Specialty Steel Number of 16 companies 23 companies Group Companies Engineering by Segment* 74 companies 3 companies (as of March 31, 2020) Parts for Automobile * Consolidated subsidiaries and High Performance and Industrial affiliate companies Materials and Equipment Magnetic Materials 17 companies 15 companies Overview of Business Parts for Automobile and Industrial Equipment Engineering Trading and Service The segment manufactures die The segment’s activities include The segment conducts sales of forged parts such as crankshafts the design and manufacture of, products made by Group compa- using specialty steel, precision cast and related after-sales services nies, employee benefits services, parts for use in turbochargers, as for, melting and refining equip- real estate and insurance services, well as engine valves, jet engine ment, vacuum carburizing fur- golf course management, analyt- shafts, and parts for gas turbines. naces, heat treatment furnaces ics, and sales of software to for auto parts, environmental external customers. equipment, and machine tools. DAIDO STEEL GROUP SUSTAINABILITY REPORT 2020 3 Daido Steel and Society Did you know that specialty steel is a recycled product made mainly from scrap iron? Steel products that have finished playing their role in society become scrap material and are reborn as new products. By adding various alloys to recycled scrap material, specialty steels with different properties can be created. These find use as materials in automobiles, aircraft, and a wide range of industrial fields where they support people’s lives and the development of society. Parts for Automobile and Industrial Equipment Engine shaft alloy High-strengthen shafts with excellent High Performance Materials durability help to reduce fuel consump- and Magnetic Materials tion and increase the power output of aircraft engines, supporting safe air Neodymium hot deformation processed travel. magnet MQ3 These ring-shaped magnets combine high magnetism with corrosion resistance, helping to realize quiet, smooth movement for industrial robots and contributing to the electrification of automobiles. Parts for Automobile and Industrial Equipment Turbine wheel Parts for Automobile and Industrial Equipment Proprietary methods realize materials enabling thin forging and improved Turbine disk thermal resistance which are used for Power generator parts with the central section of turbochargers high thermal strength, high that increase automobile fuel efficiency. corrosion resistance, and high durability contribute to improved efficiency and stable supply of electrical energy. 4 DAIDO STEEL GROUP SUSTAINABILITY REPORT 2020 Specialty Steel Parts for Automobile and Industrial Equipment Gear steel Gear steel combines high strength with durability to realize smaller, lighter auto- mobile transmissions, helping to reduce environmental impacts such as CO2 High Performance Materials emissions. and Magnetic Materials Ultrafine stainless steel wire Parts for Automobile and Thinner*, stronger, high- Industrial Equipment precision steel wire supports the advancement of a digital Soft magnetic powder for reactors society. Step-up reactors increase the voltage of batteries for hybrid vehicles. The iron core is formed from soft magnetic power developed by Daido Steel, and can store a large quantity of energy. It also reduces energy loss and helps to reduce power consumption of the battery. * We manufacture stainless steel wire that is only 11 microns thick, thinner than a Engineering human hair (50–100 microns). Vacuum carburizing furnace High Performance Materials “SyncroTherm®“ and Magnetic Materials Contributes to higher-strength, lighter automobile parts through titanium alloy heat treatment using the vacuum Light and strong, titanium carburizing method. It realizes alloy is widely used for the low-volume production for the faces of golf club heads. ultimate in on-demand, as well as Daido Steel’s titanium alloy rapid response for smart