Value creation story and management materiality

Value creation story

Our Corporate Philosophy is to provide safety, comfort and a sense of security in people’s daily lives as well as across all forms of transportation with our unique motion control technologies. The Nabtesco Way is the statement of the stance and mindset that achieves this Corporate Philosophy, as The Principles We Value. Under this philosophy and the principles, we are promoting a long-term value creation story, consisting of the Long-term Vision that illustrates our aim for 2030, Management Materiality that presents the important challenges we need to work on to achieve our Long-term Goals, and the Medium-term Management Plan, which describes measures to achieve our Long-term Targets. Through these measures, we aim to bring innovation while improving economic value, environmental value and social value in the long-term, in pursuit of management that sustainably develops both society and our group.

Nabtesco’s value creation story

Management Materiality

Our Approach to Management Materiality

Our group positions management materiality as the most important management issue. To create long-term value, we are continuously and appropriately adjusting our management materiality in response to changes in the business and societal requirements. Accordingly, we strive to steadily take action on each item to further enhance our management foundation as we pursue the sustainable growth of both society and our group.

Structure of Our Management Materiality

Our management materiality is comprised of three pillars. By fostering financial and non-financial measures and striving to achieve economic value, environmental value and social value from long-term perspective, we will keep providing value to our stakeholders, maintaining profitable growth.

For “Measures to improve our financial performance,” we will work to consistently achieve our short-term revenue targets, ensure the efficient distribution of our managerial resources, and increase our capital efficiency for the promotion of ROIC-oriented management.
For “Measures to enhance our management foundation,” we have identified items that need reinforcement to more effectively contribute to society through our business activities. Consequently, we will implement intensive measures for activities related to ESG items, considering their connections to our profit and growth.

Moreover, by implementing “Specific measures to achieve the long-term goals,” we will strengthen our business activities, including social contributions, and thereby promote our long-term growth.

Our sustainability governance structure

To enhance our sustainability governance, our group dissolved our previous CSR Committee in 2023 to pave the way for its existence as the newly established CEO-directed Management Materiality Committee.
Collaborating with other CEO-directed committees, the Committee oversees the setting of goals and KPIs for each management materiality item, along with their progress and management. The activities are deliberated and determined at the Management Committee and reported to the Board of Directors’ meeting to enhance the effectiveness of group-wide sustainability governance.

Structure to promote sustainability governance

See here for details on our corporate governance structure.

Management Materiality Identification Process and Regular Reviewing

Our group identifies management materiality by extracting social issues addressed through our business strategy and ESG items closely related to our business, analyzing their significance from the perspectives of impact on our company and stakeholders. In terms of their validity, we engage in deliberations with external experts, conduct reviews within the Management Materiality Committee and the Management Committee, and finalize decisions at the Board of Directors’ meeting.
For management materiality, changes are made once a year to respond swiftly and appropriately to shifts in the business and societal requirements. Regardless of whether changes are made, the final decision is made once a year at the Board of Directors’ meeting.

Identification process

#1 Recognition of issues

Based on social challenges from those addressed through our Group’s business strategy and ESG items closely related to our business, the social challenges within the social and business environments surrounding our Group are extracted.

#2 Analysis of significance

Based on the concept of double materiality, the significance of issues or challenges is analyzed from the perspectives of “impact on the Company” and “impact on stakeholders,” with the results organized into keywords.

#3 Identification of materiality

Opinions are exchanged with external experts.
Materiality is identified after obtaining approval from the Board of Directors, following discussions in the Management Materiality Committee and the Management Committee.

#4 Goal setting and monitoring

Goals and action plans are set based on the priority level of the management materiality item.
The status of efforts on the goals and action plans are continually monitored.

#5 Regular revision

Changes are made once a year according to changes in the business and societal requirements, expectations from stakeholders, and changes in the business strategies of our Group.

In 2024, we re-evaluated the validity and significance of our recognition of issues and changed materiality items to incorporate the aspects of “Improve profitability and clarify innovation areas as required by the new Medium-Term Management Plan” and “Double materiality, a key societal requirement.”

[Measures to improve our financial performance]

Given that the new Medium-Term Management Plan further promotes optimization of portfolio balance and ROIC improvement, this item has been integrated into “Promote ROIC management"

[Measures to enhance our management foundation]

This has been reorganized from an ESG perspective into the following categories:

E: “Countermeasures for climate change”
S: “Promote human capital management” and “Pursue safety, comfort and a sense of security”
G: “Enhance corporate governance” and “Build a resilient corporate foundation”

[Specific measures to achieve long-term targets]

To indicate the directions and strategies of the new medium-term management plan more clearly, this has been revised to the following: “Meet social challenges through smart motion control,” “Transform to innovative manufacturing with digitization ,” and “Enhance global management.”

In addition, for each management materiality item, sub-materiality and KPIs will be established to strengthen the progress management of various initiatives, thereby enhancing effectiveness.

Management Materiality Indicators and Targets

The targets, indicators, key activity results and plans for respective issues concerning “Enhancing our management foundation” with relation to the management materiality for FY2024 are shown below.

Targets, indicators and key activity results concerning sustainability

ESG items having a major impact on financial issues

ESG Category	Management Materiality items	Desirable Direction /Major Actions	Targets for FY2024 (Extracts)	Achievements in 2024 (Extracts)
Enviro- nment (E)	Countermeasures for Climate Change	・Achieve medium- to long-term CO₂ emissions reduction targets	・Reduce CO₂ emissions by 25% relative to 2015 in line with the MTMP^*1 ・Launch environment-friendly leading-edge plants (the Hamamatsu and Tarui Plants)	・Reduced CO₂ emissions by 28.4% relative to 2015 in line with the MTMP target^*2 ・Launched operations of environment-friendly leading-edge plants (the Hamamatsu and Tarui Plants)
Society (S)	Deliver Solutions for Social Challenges Through Business	・Promote environment- and safety-conscious design and development ・Create new businesses and products that contribute to the social challenges	・Foster the use of the intrapreneurship program (Phase II) and the in-house company innovation system ・Promote the intrapreneurship activities of the venture units ・Create new businesses and products that contribute to the social challenges	・Implemented the intrapreneurship program (Phase II) and promoted the launch of projects that were approved in Phase I ・Continued fostering the use of the in-house company innovation system ・Obtained Innovation Endorsement certification for the vessel condition monitoring system “Cassandra”
Society (S)	Build a Resilient Supply Chain	・Deal with supply risks posed by suppliers ・Help suppliers solve ESG issues ・Support suppliers in BCP	・Promote sustainability audits ・Foster sustainability awareness-raising activities ・Support the acquisition of resilience certification	・Conducted sustainability audits of accumulative total of 117 companies to identify ESG risks faced by suppliers, propose remedial measures, and promote corrective actions ・Supported accumulative total of 60 companies in the acquisition of resilience certification, with accumulative total of 41 companies acquiring resilience certification by the end of 2024
Gover- nance (G)	Increase the Effectiveness of Our Management Entities	・Build a diversity-based management system ・Enhance discussions on medium- to long-term strategies at Board of Directors’ meetings	・Increase the management efficiency of the Board of Directors ・Foster the deliberation of important issues (global strategies, technological strategies and others)	・Expanded opportunities for information gathering to enhance external directors’ understanding of the Company ・Deliberated on key issues at the Board of Directors’ meetings (global strategies, MTMP and others)

*1Medium-term Management Plan
*2The figures for CO₂ emission reductions in FY2024 are based on the aggregated data available at the time of disclosure.

ESG items that drive sustainability power

ESG Category	Management Materiality items	Desirable Direction /Major Actions	Targets for FY2024 (Extracts)	Achievements in 2024 (Extracts)
Enviro- nment (E)	Foster Environmental Management	・Efficient use of raw materials and waste reduction ・Conserve biodiversity	・Waste/ Water/ Chemical substance management: Lowered than the previous year per sales unit ・Extend the impact assessment survey for biodiversity to the value chain	・Waste/Water: Lowered than the previous year per sales unit ・Chemical substance: Failed to achieve the target of being lower than the previous year per sales unit ・Extended the impact assessment survey for biodiversity to the value chain
Society (S)	Pursue Safety, Comfort and a Sense of Security	・Advance quality and safety management	・Achieve the product safety-related targets ・Promote functional safety measures	・Product safety-related targets -Targeted rate for the achievement of the plans to conduct product safety reviews: Result 100% -Targeted rate for the achievement of the plans to educate employees for product safety: Result 100% ・Provided support for obtaining functional safety standards
	Pursue Safety, Comfort and a Sense of Security	・Advance quality and safety management	・Establish and put into practice Group-wide safety standards ・Implement the Safety Model Workplace Improvement Program (at 8 sites in Japan and 5 sites outside Japan)	・Conducted initial implementation of Group-wide safety standards ・Implemented the Safety Model Workplace Improvement Program and conducted a reporting session
	Enhance Human Capital Management	・Shift to business- focused management of human resources ・Promote diversity & inclusion/ Advance the management of human rights ・Improve employee engagement	・Revise the personnel system for general employees, and put the personnel system for managers into practice and get it well-established ・Enhance the implementation of measures, monitoring of KPIs and indicators, and disclosure of information about human capital ・Implement activities to promote The Nabtesco Way ・Set and work to achieve priorities for health management ・Introduce “one-on-one” meetings across the entire Group and make use of the talent management system	・Revised the personnel system for general employees and put the personnel system for managers into practice to ensure that it was well-established ・Executed initiatives to fulfill the human resources portfolio (DX, women, global, and seniors) ・Planned and executed various initiatives based on key priority items for human capital KPIs ・Implemented activities to promote The Nabtesco Way ・Introduced “one-on-one” meetings across the entire Group and held engagement workshops ・Certified as a “Health & Productivity Management Outstanding Organization (Certified KIH Outstanding Organization)”
	Promote Engagement with Local Community	・Promote community investment	・Promote community investment in the areas of the environment, education and welfare	・The company newly sponsored an organization (sponsorship activities for the Japan Inclusive Football Federation and others)
Gover- nance (G)	Ensure Management Transparency	・Enhance corporate governance ・Ensure risk management and compliance ・Proactively engage in dialogue with stakeholders	・Revise the system for Responsibility and Authority Regulations to speed up decision-making ・Provide education to ensure compliance with anti-monopoly laws in Europe and appropriately respond to the EU directive on the protection of whistle-blowers ・Enhance the disclosure of non-financial information	・Currently reviewing further delegation of authority ・Provided education to ensure compliance with anti-monopoly laws in Europe and appropriately responded to the EU directive on the protection of whistle-blowers ・Enhanced the disclosure of non-financial information in the securities report and issued an integrated report

Targets, indicators and key activity plans concerning sustainability

Our Group has been reviewing its management materiality since FY2025. The latest activity goals are as follows:

ESG Category	Management Materiality items	Desirable Direction /Sub-Materiality	Targets for FY2025 (Extracts)
Enviro- nment (E)	Countermeasures for Climate Change	・Strengthen efforts toward decarbonization ・Strengthen efforts toward decarbonization that involve the supply chain	・Reduce CO₂ aligned with medium- to long-term targets (42% reduction compared to FY2015) ・Improve the accuracy of Scope 3 calculation data
Society (S)	Pursue Safety, Comfort and a Sense of Security	・Ensure labor safety ・Ensure safety of product and services	・Initiatives to achieve zero workplace accidents and zero major incidents ・Implement product safety screening and employee training program
Society (S)	Enhance Human Capital Management	・Organizational culture that fosters innovation ・Align business strategy and human resources strategy	・Implement internal communication initiatives ・Plan and implement measures for the mobilization of internal human resources ・Promotion of activities to ensure that the personnel system is well-established ・Plan and implement initiatives for human resources data visualization and utilization
Gover- nance (G)	Enhance corporate governance	・Ensure transparency of management ・Promote compliance	・Continue the effectiveness evaluation of the Board of Directors based on an analysis of self-assessments from each executive ・Conduct training and enhance collaboration with relevant locations to strengthen compliance
Gover- nance (G)	Build a resilient corporate structure	・Ensure business continuity ・Build a resilient supply chain	・Promote information security measures to strengthen cybersecurity ・Integrate Group development meetings with Group-wide intellectual property strategy discussions to promote intellectual property management with the aim of improving core competence (intellectual capital) ・Support suppliers in obtaining resilience certification

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Long-term Vision

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Innovation