Messages from Outside Directors

Toward Steady Progress in the Third Transformation Outside Director Shigeru Endo

In fiscal 2020, the COVID-19 pandemic disturbed many aspects of society, industry, and everyday life around the world. Early in the year, my thoughts turned to employees, especially those outside of Japan. The JGC Group soon took necessary measures, acting on the information available.

Meanwhile, we were busy formulating both the long-term management vision and medium-term business plan: 2040 Vision and "Building a Sustainable Planetary Infrastructure 2025 (BSP 2025)." Discussions were held on Group strengths, global expansion, the SDGs, environmental, social, and governance (ESG), and other key topics. Group-wide involvement helped maintain and improve overall cohesiveness. The 2040 Vision and BSP 2025 from this work were created with growth firmly in mind. Strategic investment was another focus. I encourage the Group to do their utmost to implement these plans.

The Board of Directors has also been receiving IR/SR reports as needed, and the Nominating Committee and Remuneration Committee continue to expand their reporting to the Board, which recently resolved to establish a special subsidiary promoting employment of people with disabilities.

Society has recently been taking a harder look at the oil majors. In the situation emerging, failing to take concrete steps toward decarbonization may itself be viewed as an investment risk. Now that the purpose of the JGC Group has been defined as "Enhancing planetary health," the Company is committed to helping solve social issues and intends to be carbon neutral by 2050. This social trend calls on companies to be both economically and socially valuable. For the JGC Group, it poses a considerable challenge: how to generate profit while promoting ESG objectives.

The Group's current, third transformation is oriented toward achieving a sustainable society. I view this as a continuous transformation. As for implementation of the holding company structure, we have heard that ties with Group companies are now even closer. Holding company members are gradually adjusting to this new mindset, and I expect them to further refine decision-making from a broad perspective. This is essentially a matter of governance, of building relationships between managers/executives and supervisors, and between the holding company and Group companies.

DX is also being promoted, as led by JGC Corporation. This is intended to boost productivity and efficiency, but along with DX, work styles must also be addressed, along with facets of corporate culture and ethics.

The fluidity of human resources in society has also led to serious thought on reforming the Group's personnel system. Professionalism has been a key sales point, but as progress is made in DX and technologies become more advanced, human resource outsourcing and reskilling will no doubt gain importance. Hopefully, this will produce a broad-minded, diverse workforce.

Looking ahead, I believe that in the next decade, geopolitical dynamics in the international community will be quite different from in the previous decade, which may affect Group business more than ever. Constant combat-readiness will be needed, so to speak. As a group and as individuals, there has never been a better time to hone our ability to cope with rapid changes, read market trends, and sense risks, as we build resilience.

Reform Motivated by a Sense of Urgency Outside Director Masayuki Matsushima

BSP 2025, the medium-term business plan for fiscal 2021 to fiscal 2025 announced in May, represents a landmark for the JGC Group.

To begin with, in tracing a path to the future, it is a forward-looking plan. Rather than being a projection of five years from now, it is part of a plan projected back-ward from the 2040 Vision, our long-term management vision, in which it is positioned as the first phase and described as five years of challenge.

Second, although the JGC Group's core oil & gas EPC business will remain central for the time being, the Group has pledged to achieve carbon neutrality by 2050. To this end, the Group has made it clear that during the BSP 2025 period, while focusing on energy transition, the Group will eventually shift from an over-reliance on oil & gas to a multifaceted approach to energy business that includes decarbonization of oil & gas, clean energy, and other business.

And third, this medium-term business plan is notable as the first since the Group adopted a holding company structure. As an organizational shift, the transition has encouraged rapid decision-making in managing each business unit, especially in growth strategies. And as a trial-and-error challenge, it has encouraged a balance of globally optimal solutions in human and financial resource allocation and overall Group governance. Planning therefore took longer than a year, if we include the 2040 Vision. For me, personally, it was uniquely dense and substantial, which made the experience exciting.

This planning led to BSP 2025, but plans are only meaningful when enacted. It will be useless unless all in the workplace share their thoughts until we're all satisfied, and then routinely put into practice what we deem necessary to attain it.

But at the same time, BSP 2025 is not set in stone, and we can't claim the plan covers all matters perfectly. As the Group focuses on implementing it, the results may also diverge from the plan.

Neither can we deny the possibility of unexpected environmental changes. Accordingly, I hope the plan evolves to become fuller and more practical, as it comes to reflect practical suggestions and opinions from the workplace. There's truth in the adage that persistence pays off. From a medium-term perspective, though, sticking to bad old habits may be detrimental. Especially assuming that technological innovation will keep growing exponentially, it's no exaggeration to say that constant corporate adaptation to environmental changes is vital. Moreover, it's not necessarily pessimistic to have a sense of urgency. Leveraging a sense of urgency for the sake of reform is nothing short of a sign of self-affirmation, showing that we will be clearing a way forward and aspiring to realize sustainable growth.

I encourage all in the Group to commit to corporate reform motivated by urgency, which will leave a heritage of solid corporate value for future generations and contribute to global well-being.

Expanding into New Segments through Human Resources Outside Director Kazuo Ueda

On May 12, 2021, after more than a year of discussion, the JGC Group announced its long-term management vision and medium-term business plan, 2040 Vision and Building a Sustainable Planetary Infrastructure 2025 (BSP 2025). This was greeted the next day by a less than ideal reaction in the market-a drop of ¥164 in the share price of JGC Holdings Corporation, which slid more than 10% to ¥1,064 per share. The Nikkei 225 itself fell sharply that day, which certainly affected the share price, but even now, two months later, there are no clear signs that investors are reevaluating the plan more favorably.

Probably the main factor for the market's reaction on May 13 was a much lower fiscal 2021 earnings forecast than expected. Changes in stock prices generally take into account forward-looking information. Here, the forecast for this fiscal year no doubt had a big impact.

On the other hand, when I read what various stakeholders thought about the 2040 Vision or BSP 2025, they seemed to understand our vision, which is aimed at improving profitability while reducing environmental impact in the energy segment, further nurturing emerging business in functional materials areas, and ambitious initiatives in new growth segments. Still, from the market's perspective, investors may not know at present how these strategies fit in future earnings forecasts. In retrospect, the plan does include many references to building a track record, acquiring new technologies, conducting M&As, and engaging in partnerships, especially in new segments. Undeniably, these things will take time to improve profitability.

We may wonder what it will take to establish these promising new segments as hoped.

This answer is hardly original, but I think the key is human resources. Not in the sense of attracting an array of outstanding experts from outside the Company. I think it's essential to have a framework that encourages members of the JGC Group to wield their skills in boldly taking on new segments, a framework that inspires innovation. We will probably see more cases where out-side experts are brought in or entire companies are acquired, but even then, human resource evaluation and compensation must suit the segment involved. The new personnel system is a development that responds to these points, although after adoption it will need to be refined in various ways. Personally, I will keep these points in mind when contributing to new Group initiatives.

It will take some time for the market to form an opinion, but because the general plan is more or less understood, I am hopeful that even modest positive developments may lead to a better assessment than expected.