2022 Sustainability Dialogue with Experts (Environment)

From left: Paul Dickinson of CDP (screen projection), Shingo Konomoto, Takeshi Hihara, and Eiko Ibuki of NRI

Nomura Research Institute, Ltd. (hereinafter "NRI" has been holding dialog with external experts every year since FY2010 in order to understand global sustainability trends and reflect those trends in management strategy and risk management.
In our 10th such dialog, held in FY2022, we exchanged opinions with experts in various fields related to the environment and human capital. This article describes the dialog held on November 11, 2022 with Paul Dickinson, founder of CDP (see below), the global environmental disclosure system for companies, investors, cities, states and regions, helping them to measuring and act on their environmental impact . In this dialog, opinions were exchanged between Paul Dickinson, Shingo Konomoto (President & CEO, Member of the Board at Nomura Research Institute), and Takeshi Hihara (Senior Managing Director) regarding the themes of "Growth Story of the NRI Group and DX3.0" and "Global Climate Change Related Trends and the Expected Role of Corporations." At the start of the dialog, Mr. Hihara provided an overview of the growth story of the NRI Group in the V2030 long-term management vision that is currently being formulated, as well as DX3.0, which is set to achieve the social transformation that the NRI Group calls for as a pillar of growth.

Participants

(Affiliation and position as of November 2022)

Paul Dickinson

CDP Founder Chair

Paul Dickinson founded CDP in 2000 with an ambition of creating a global economic system that operates within sustainable environmental boundaries and prevents dangerous climate change. Paul previously co-founded Rufus Leonard Corporate Design and EyeNetwork, which was the largest videoconference booking service in Europe.
He has served as a member of the Environmental Research Group of the UK Faculty and Institute of Actuaries. Paul has authored various publications including the book Beautiful Corporations published in 2000 by Financial Times Prentice Hall. The book introduced the concept of sustainability product marketing which is growing in significance as a force in contemporary commerce.
He is Chair of the NGO ShareAction, a trustee of the Findhorn Foundation, an advisor to the NGO InfluenceMap, a director of the insulation company Mitchell & Dickinson, and co-presenter of the Outrage and Optimism podcast with Christiana Figueres *1 and Tom Rivett-Carnac *2, with more than 3.4 million downloads.

^*1

Christiana Figueres is a Founding Partner of Global Optimism, co-presenter of climate podcast, Outrage + Optimism, and co-author of The Future We Choose. From 2010 to 2016, she was Executive Secretary of the UN Framework Convention on Climate Change, leading the process that secured the landmark Paris Agreement on Climate Change.
^*2

Tom Rivett-Carnac co-founded Global Optimism together with Christiana Figueres in 2017, when the pair departed the UN, having successfully secured the historic Paris Agreement on Climate Change. During his tenure at the UN, Tom ran political strategy, prior to which he was President of CDP North America.

About CDP
CDP is a global non-profit that runs the world’s environmental disclosure system for companies, cities, states and regions. Founded in 2000 and working with more than 740 financial institutions with over $130 trillion in assets, CDP pioneered using capital markets and corporate procurement to motivate companies to disclose their environmental impact, and to reduce greenhouse gas emissions, safeguard water resources and protect forests.
Nearly 20,000 organizations around the world disclosed data through CDP in 2022, including more than 18,700 companies worth half of global market capitalization, and over 1,100 cities, states and regions. Fully TCFD aligned, CDP holds the largest environmental database in the world, and CDP scores are widely used to drive investment and procurement decisions towards a zero carbon, sustainable and resilient economy.
CDP is a founding member of the Science Based Targets initiative, We Mean Business Coalition, The Investor Agenda and the Net Zero Asset Managers initiative.
Find out more via www.cdp.net or follow us on twitter @CDP.

Shingo Konomoto

President & CEO
Chairman, Member of the Board
Representative Director
NRI

Takeshi Hihara

Senior Managing Director, Chief Sustainability Officer, NRI

In charge of corporate strategy, corporate communications, legal & intellectual properties, and IR.

（Other participant from NRI）
Eiko Ibuki
Group Manager, Sustainability & Responsibility Group,
NRI

Introduction to NRI Group Initiatives

Hihara (NRI) : I would like to talk about the following three topics regarding the initiatives of the NRI Group. After my explanation, I would like to hear Mr. Dickinson's opinion regarding DX3.0.

Overview of the NRI Group
Example efforts for climate change action (acting as secretariat of GX^*1 League under the supervision of the Ministry of Economy, Trade and Industry, switching data centers to renewable energy, NRI-CTS, etc.)
Growth story outlined in the V2030 long-term management vision of the NRI Group (currently being formulated) and DX3.0^*2 initiatives for the digitization of society

^*1

GX is an abbreviation for "green transformation"
^*2

DX is an abbreviation for "digital transformation"

Growth Story of the NRI Group and DX3.0

NRI : Please tell us what you thought about the "Growth Story of the NRI Group and DX3.0" in the V2030 long-term management vision.

Mr. Dickinson:

Climate change problems are intensifying and we need to enhance global action. It is truly wonderful that the NRI Group has cutting-edge strategies and technologies such as DX3.0 for achieving social transformation.
The global increase in CO₂ emissions is a particularly serious problem. It is said that the emissions of one generation are now more than 70% those of 10,000 generations in the past. Over the next 50 years at least, humanity will be faced with an acute security crisis at the global level, let alone at the national level, and we will be forced to overcome it. Governments alone are already unable to solve sustainability issues. Global corporations and investors must also take action.
The recent Sharm el-Sheikh Implementation Plan adopted at COP27 led to a breakthrough agreement on a "loss and damage" fund, which was quite the concrete achievement. The national reduction targets from various national governments are already posted on the UN Framework Convention on Climate Change (UNFCCC) website. At CDP, we hope to be able to contribute to achieving these reduction targets by providing corporations and investors around the world with data on corporate/government greenhouse gas emissions at the national and regional level, as well as climate change risks, mitigation, and adaptive strategies.
In order to enhance efforts to mitigate climate change, humanity requires advanced computational power at a truly large scale. This is precisely what DX3.0 is about, and as an important pillar of the NRI Group initiatives, will enable NRI to suggest government policies to society and achieve social transformation via business.
Our future response to climate change will surely require effective government policies that involve industry as well as finance. The point of DX3.0 as advocated by NRI, is to create a market for decarbonization via, for example, government policy recommendations for decarbonization, and to further expand that market.I expect that the NRI Group will be able to make a pioneering contribution to society at large by providing suggestions on government policies and regulations for decarbonization, creating markets to realize those policies and regulations, and continuing to provide clients with assistance.

Konomoto (NRI) :

In regard to government policy for decarbonization in Japan, in FY2022 the Cabinet Secretariat established the GX Implementation Council^*3 to ramp up efforts involving industry. Government agencies such as the Ministry of Economy, Trade and Industry have started implementing various top-down policy measures. In this regard, I believe that Japan has taken a step forward. One reason that such actions are gaining strength is because Japan will be hosting the G7 Hiroshima Summit in 2023, so the Japanese government wants to demonstrate leadership in the field of decarbonization.
Japan is seeing such top-down action in addition to the bottom-up action that is gaining traction. One example is the GX League. The GX League was established based on the GX League Basic Concept announced by the Ministry of Economy, Trade and Industry, and is made up of 551 private corporations (as of October 31, 2022^*4). The CO₂ emissions of these corporations together account for approximately 40%^*5 of all Japanese corporations (including emissions due to power supply to household sector, etc.) In regard to government policy formation for decarbonization, which Mr. Dickinson views as important, the GX League will identify the diverse needs that Japanese corporations have toward green transformation, and reflect those needs in government policy. NRI acts as secretariat of GX League administration and is in charge of overall coordination. This means that we are deeply involved in promoting policy debate on GX for the whole of society.
In regard to the deep relevance between GX and information technology (IT) services, NRI works in the consulting business, functions as a think tank that provides policy suggestions, and also provides IT services. Therefore, we can contribute to government policy formation via our think tank and consulting functions, and in the field of IT services, we are promoting actual efforts to contribute to GX execution, such as providing services like NRI-CTS^*6.

^*3

The GX Implementation Council was established in the Cabinet Secretariat to implement GX (green transformation), or in other words, to transition industrial society away from fossil fuels and toward green energy, and thereby transform the entire socioeconomic system.
URLs for reference: https://www.cas.go.jp/jp/seisaku/gx_jikkou_kaigi/index.html (In Japanese)
^*4

Number of corporations participating in GX League: https://gx-league.go.jp/action/#gxleaguemember (In Japanese)
^*5

CO₂ emissions of corporations participating in GX League: https://www.jpx.co.jp/corporate/sustainability/esgknowledgehub/practical-disclosure-seminar/nlsgeu000006h09k-att/jissenseminar109_gxleague.pdf (In Japanese)
^*6

NRI-CTS is a carbon tracing system developed by NRI that enables corporations to trace information related to greenhouse gases such as carbon in their own supply chain. A prototype has been developed and the concept is undergoing trials.

Regarding the importance of information disclosure in the global fight against climate change, and the role of decarbonization in Japan

NRI: How does decarbonization in Japan fit into the global fight against climate change?

Mr. Dickinson:

I recognize that the iron and steel industry, which plays a key role in the primary materials industry in Japan, has for a long time been promoting dialog with other industries regarding the transformation of manufacturing processes toward decarbonization. However, I believe that Japan needs a mechanism for adopting and adjusting a carbon border tax like the EU. A carbon tax will enable the acceleration of efforts in the finance industry, such as carbon pricing.
Let me tell you why a carbon tax is required. Most importantly, Japanese corporations and industries will have an enormous opportunity to sell decarbonization technologies overseas in the future.
In the 19 years that I have been interacting with Japan, it has seemed to me that despite the technical and strategical preparations of both government and industry, they lack the confidence to contribute to decarbonization and need to realize that they have the capability to do so.Many large corporations have set environmental targets that are SBT-certified^*7. Many investors also support net zero targets. On a global level, various stakeholders are faced with extreme climate charge and abnormal weather, and are urging national governments to do something. The situation in Ukraine has led to rising fossil fuel prices, proving that they are not a reliable and stable source of energy. Looking ahead, I believe that the question of what government policies can be implemented toward decarbonization will mean everything.
Many national regulatory agencies around the world support making disclosure based on Task Force on Climate Related Financial Disclosures (TCFD) mandatory and now is the time to make global climate reporting compulsory. For more than 20 years, CDP has been promoting a transformation in how capital markets, corporations, cities, and governments understand and address environmental problems, and we are happy to see that there is a global push to make information disclosure mandatory and that information disclosure is starting to become the norm in business. Although the number of corporations in Japan disclosing environmental information via CDP has been increasing each year, I believe that all corporations must measure their environmental impact swiftly and comprehensively and take responsibility for its management. At CDP, we hope that Japanese corporations will manage their realizations via disclosure, and utilize those realizations in important long-term action. In order to mitigate climate change and achieve a fair and orderly transition to a sustainable economy and society, I hope that we can promote decarbonization and seize business opportunities to achieve it.

Konomoto (NRI) :

Precisely.
In regard to renewable energy, the extremely limited amount of land in Japan means that there are few suitable sites for installing wind or solar power generation, but solar power accounts for a large part of the country's renewable energy. Because solar power generation is not possible during the night, there is talk of turning the whole of Japan in to a hydrogen society that converts power generated during the day into hydrogen, which can then be used to generate power with few CO₂ emissions.
As you said, the development of green energy technology in Japan may lead to a new export industry for the country. Various discussions are also taking place at the aforementioned GX League. In regard to both the situation in Ukraine and GX, I think that the industry is taking this as an opportunity to move forward in a positive direction.

^*7

SBT is an abbreviation for Science Based Targets, an initiative for demonstrating how corporations are setting environmental targets.

Role and Expectations for the IT Industry Toward a Sustainable Future

NRI: Now we would like to take a look at the relationship between IT and sustainability.

Konomoto (NRI) :

I would like to talk about the relationship between IT and CO₂ emissions.
NRI holds the NRI Dream Up the Future Forum^*8 every year.
The themes of the forum are about how IT can change the future. Another important theme is how IT can achieve sustainability, or a sustainable society.
The theme of the forum in FY2021 was "The Post-Covid Future and Strategy of Japanese Corporations." I would like to show part of that presentation. According to the graph of global CO₂ emissions created by the IEA, the COVID-19 pandemic led to a dramatic decrease in global CO₂ emissions in 2020. As indicated on this slide, NRI estimates that CO₂ emissions can be explained by two variables: GDP and the energy mix of each country. However, during the COVID-19 pandemic, some emissions could not be explained by these two variables.
The reason for this is that the biggest change during the COVID-19 pandemic was the stop of human movement, which led to a huge decrease in CO2 emissions.In other words, IT such as telecommuting can allow us to adopt an economic system that functions without human movement, and thereby contribute to reducing CO₂ emissions. The popularization of digital services such as Mobility as a Service (MaaS) may also lead to reduced CO₂ emissions.

This figure shows how the digitization of society can greatly contribute to the 17 themes of the SDGs.
NRI functions as a think tank. This involves, for example, estimating how much IT can contribute to society via digitization, and communicating that information to society. At the same time, I hope we can utilize our IT service business to implement sustainability measures in society. With DX3.0, we aim to create hypotheses for using IT services to increase the sustainability of society at large, and test those hypotheses via social implementation.

Mr. Dickinson:

I deeply sympathize with the thoughts of Mr. Konomoto. To use a general term, his ideas could be summed up as "dematerialization."This concept theorizes that when people purchase a product, what they really need is not the product itself, but the service provided by the product.
For example, I worked on popularizing video communication via video conferences for about 26 years as a director of a company providing video conference services. Video communication was promoted in Japan from 2008 to 2019 as "the most useful thing" but it was not until the COVID-19 pandemic that the world received two years of training on video communication.
In much the same way as video communication, an "energy network" is a system for effectively utilizing energy by using a communication network to control a wide range of diverse energy supply and demand equipment, and I believe that building the infrastructure of a global energy network is truly a huge business opportunity.There is great potential for IT services to increase the sustainability of society at large in this manner.

^*8

The Dream Up the Future Forum is a business forum held every year in autumn to think about the future of Japan and the world together with both internal and external specialists and experts, based on our corporate philosophy of "Dream up the future." The forum was first held in 2003, and held for the 20th time in 2022. The 2022 forum depicted the vision of a digital society that NRI is aiming for (A Vision of the Post-Covid Future Created by Digital Technology, held on October 17, 2022).

NRI: Regarding NRI efforts for transition finance

Konomoto (NRI) :

Thank you very much. There are many other topics that I would like to discuss, but let's talk about transition finance before we wrap things up. NRI is extremely interested in how to build a finance mechanism that enable industries with high greenhouse gas emissions to steadily decarbonize. This is because financial IT solutions account for a large proportion of NRI Group sales, and finance is a specialty area for NRI. That is why we are interested in the social implementation of transition finance, and hope to contribute to its realization. Within the GX League, we are investigating what kind of information corporations who receive funds for decarbonization should disclose, and whether we can make the information for disclosure a bit more diverse.
Of course corporations that receive funds for decarbonization can reduce their own CO₂ emissions, but they can also dramatically reduce CO₂ emissions in other countries by exporting the technologies and products that they develop.I have already mentioned examples of business opportunities, but the other thing that the GX League is discussing is the possibility of building a disclosure framework that includes information on the CO₂ emission reductions achieved by a company's technologies and products. Transition finance aims to disclose such information and provide a mechanism for allocating global funds to corporations that contribute to transitioning to a decarbonized real economy. We believe that creating such a mechanism is also important.

Mr. Dickinson:

That's right. CDP is also investigating how we can quantify how much the technologies and products that we develop contribute to reducing emissions, based on a calculation method that is generally acceptable. If we have the opportunity, I would like to discuss this contribution to reducing emissions with you in the future.

NRI: What expectations do you have for the IT industry in regard to a sustainable future and the transformation of society, including climate change?

Mr. Dickinson:

In order to limit the overall CO₂ emissions of society as much as possible in the future, we believe that it is necessary to radically redesign and rebuild the foundations of global industry.Digitization will play an extremely important role in achieving such revolutionary changes. I believe that the two biggest trends in the world will be decarbonization and digitization.
I hope that the IT industry will establish and promote much more ambitious targets toward a fundamental restructuring of industry to achieve decarbonization.I think that people around the world are looking forward to having the NRI Group confront the challenges of society, in particular by leading industry in Japan via DX3.0 efforts.

Hihara (NRI) :

Thank you very much for the thought-provoking opinions you shared with us today. As a company that promotes sustainability management to "dream up the future," this was a great opportunity for us to reconfirm our role in achieving a sustainable society.
It will be extremely challenging to utilize DX3.0 to form rules for decarbonization and create a market to make decarbonization possible, but I hope that we can press ahead via collaboration with various stakeholders.
Thank you for your time.

(Published in Mar. 15, 2023)