HITACHI POLISHES ESG REPUTATION
Hitachi has tightened oversight of five core businesses including industrial machinery, seeking to improve its poor reputation for governance after a quality testing scandal at one of its units.
The industrial group has appointed executives charged with auditing at the five businesses from fiscal 2019. The aim is for business units in each division to share information with the parent’s auditing section to prevent any transgressions.
Hitachi explained its approach to environment, social responsibility and governance — a set of factors collectively referred to as ESG — at a recent briefing in Tokyo.
With a global network of about 800 affiliates that makes unified governance difficult, Hitachi ranked below many peers in a recent ESG evaluation by the American financial market indexing company MSCI.
The Japanese company received a BBB rating, the fourth-highest of seven grades, with particularly low marks for labour management and procurement risk. Companies like Siemens and the professional services firm Accenture earned top-tier AAA scores.
Last year, faulty testing, including tampering with data, involving a number of products was uncovered at listed unit Hitachi Chemical. Other publicly traded Hitachi affiliates are also struggling on the earnings front, with one analyst pointing out the governance challenge Hitachi faces.
On the environmental front, Hitachi aims by fiscal 2021 to cut carbon dioxide emissions throughout its value chain by over 20% compared with levels in fiscal 2010.
Hurdles remain, however. In January, Hitachi froze a nuclear power plant project in the UK. Asked about the nuclear energy business, vice-president and executive officer Osamu Naito said Hitachi “must consider nuclear”, citing climate change and the need to provide a stable energy supply as factors, but offered no more detail on how the business is positioned within the group.
The Japanese manufacturer earlier announced that it plans to raise about ¥1 trillion (US$9.26 billion) through bonds and loans by the fiscal year ending March 2022, adopting an aggressive financing approach to accelerate growth.
The company intends to invest a total of about ¥4.5 trillion, using capital from its regular business operations as well as proceeds from asset disposals, in addition to the fresh financing.
The decision to shift into a higher gear comes after progress on structural reforms prompted by the global financial crisis in 2008. The company’s finances have improved thanks to the disposal of noncore businesses, allowing Hitachi to seek capital efficiency and take on debt.
Many Japanese companies have been scaling back investments to prioritise debt repayments, but Hitachi’s move could be a sign that the corporate sector is starting to turn a corner.
Hitachi intends to raise the ¥1 trillion mainly with bank loans but will also issue bonds. Its credit rating is AA-, the highest level in 10 years as a result of its financial recovery. This means the company will be able to obtain funds at a low interest rate.
The group also intends to sell noncore and unprofitable assets such as cross-shareholdings that would be equivalent to about ¥800 billion. It will also dig into its ¥200 billion worth of cash reserves.
Hitachi is gunning for acquisitions, in particular. Of the ¥4.5-trillion investment, it is allocating a total of ¥2.5 trillion for such deals, including its ¥1-trillion purchase of the power grid business of the Swiss engineering giant ABB.
The remaining ¥2 trillion would go toward capital investment and research and development. One priority is to make smarter manufacturing facilities through high-tech sensors and systems. The company is also eager to invest in research on IT services and medical technology.
By expanding sales and profit growth, Hitachi says it hopes to increase shareholder returns.