Dialogue (2) Welcome NGE! Promoting Global Sustainability

Takeshi (Ken) Miki
Executive Officer,
Group Technological Affairs & Environment Office,
and Chief Sustainability Officer(CSO), Nippon Sanso Holdings Corporation
(Additionally appointed as Executive Officer, Executive General Manager,
Technological Affairs Division, Taiyo Nippon Sanso Corporation)
/Inaki Uriarte
Operations & Safety Director
Nippon Gases Euro-Holding S.L.U.

Takeshi (Ken) Miki
Executive Officer,
Group Technological Affairs & Environment Office,
and Chief Sustainability Officer(CSO),
Nippon Sanso Holdings Corporation (Additionally appointed as Executive Officer, Executive General Manager,
Technological Affairs Division, Taiyo Nippon Sanso Corporation)

Inaki Uriarte
Operations & Safety Director Nippon Gases Euro-Holding S.L.U.

Nippon Gases Euro-Holding S.L.U. (“NGE”) joined the Group in December 2018. NGE’s Operations & Safety Director, Inaki Uriarte, recently had a discussion with executive officer and Chief Sustainability Officer (CSO) of Nippon Sanso Holdings, Takeshi (Ken) Miki, regarding the sustainability issues that should be addressed in a coordinated effort by the newly launched Nippon Sanso Holdings Group going forward.

Pursuing Global Synergies

Miki: The Group has been holding an annual Safety Meeting since 2015. The idea is that persons in charge of health and safety from each of the overseas companies gather together in one room to exchange information and opinions about safety measures. Inaki, you attended the meeting for the first time last year; what was your impression?

Uriarte: My colleagues and I were quite inspired by the meeting. People from Japan, Matheson Tri-Gas, Inc. (“MTG”) in the United States, and Group companies in Asia really did have a lively exchange of opinions. I think it is tremendous that the entire Group has such a shared interest in learning from each other’s experiences.

Miki: The meeting was held in Japan last year, so you were also able to observe the Technical Academy at the Kawasaki-Mizue site. How was that?

Uriarte: I had heard a lot about the Technical Academy from both the NGE President and the CFO who visited the Academy before, and was myself deeply impressed by the experiments and demonstrations involving the knowledge of so many professionals that I saw there. A particularly memorable item was the hazard experience with experiments that envisages various accidents or faults that can occur on a site such as using high-pressure gas, over and sub oxygen atmosphere hazards, the electric shocks live experiment, and the combustion caused by adiabatic compression. All the devices produced an excellent simulation of risks that we could have on a site with the support of using virtual reality (VR). I would really like to create this kind of experience and learning space at NGE as well.

Miki: As a company that handles industrial gases, our first priority is ensuring safety. Also, there are many aspects of the operation not limited to safety that are handled differently between Japan and Europe, so we have a lot to learn. It is important that we share each other’s best practices to create better systems for one another. I would also like to receive active advice from you, Inaki.

Uriarte: We also have a lot to learn from Japan. The first area is in insight about the handling of specialty gases, which is an area where we have received thorough support from Japan. The second is insight about HyCO, which is an area where MTG has brought synergies. Meanwhile, the area where NGE can contribute to the Group is by providing knowledge of various standards. As our knowledge of aspects such as operations, security, health and safety, and quality grows deeper, I would like to coordinate with Nippon Sanso Holdings to standardize them. Knowledge is a universal asset that can be applied in any situation. Therefore, it would be good to accumulate knowledge about specialty gases in Japan, and about HyCO in the United States, and then bring them together and share the knowledge. Conversely, if we were to attempt to build up all of the knowledge and functions independently in each area, it would be extremely inefficient.

Miki: Thank you for that valuable proposal. NGE’s participation in the Group is a huge benefit not only to Japan but also to MTG in the United States and our companies in Asia. I would like us to continue to pursue synergies through integration as we go forward.

Vision for Sustainability Disclosure

Miki: In response to changes in social awareness, companies now face the important task of enhancing their non-financial disclosures and initiatives, such as responding to ESG and the SDGs. In Europe there is a considerably high level of interest in sustainability, and NGE has recently issued its sustainability report for FYE2020. Could you explain your initiatives in Europe?

Uriarte: The sustainability report is a mandatory disclosure for large corporations in Europe, just like a financial report. The minimum content for disclosure is set by the authorities. Our sustainability report is published on each of the company websites so that all stakeholders can access it. This is extremely important for gaining the understanding of our stakeholders regarding our activities. We have promoted the creation of a system that starts by first formulating a framework, then identifying where stakeholders’ interests lie. Basically, we decided to use this report as a marketing tool. The main point for creating the framework was to establish an internal Sustainability Committee. The committee has 13 members, including the president, CFO, CCO*1, CHRO*2, and the directors in charge of procurement, quality, marketing, safety, and Group integration. The committee had weekly meetings over a 10-week period. Each member establishes their own team, which examines issues brought back from the meetings. Roughly 50 people were involved in operations lasting a total of about 70 days. We received over 150 questions from Audit & Supervisory Board members and consultants, and revised the draft for the report six times. However, having issued the sustainability report for the year, our task is not finished. This activity continues indefinitely, as we strive to make further improvements. NGE has committed itself to eight of the SDGs and has defined 17 targets within those. Seven of these SDGs are also shared with Nippon Sanso Holdings. I would like us to focus particularly on energy efficiency, community engagement, compliance, and safety, while constantly improving our business and communicating this to stakeholders.

Miki: I read the FYE2020 report, and found the content to be well-organized and thought out. I would really like to draw inspiration from your initiatives. We are still just developing our activities in this field, but with our recent conversion into a holding company, we will radically strengthen our initiatives. Last year, we expressed our support for the TCFD*3 recommendations, and this year we also responded individually to the CDP*4 survey. In this integrated report, we have already enhanced our reporting regarding sustainability. Our task now is threefold. First, we are enhancing our disclosure of non-financial data, which we have tried to do in this integrated report. Second, we will systematically organize and disclose our various policies. We also plan to review and add to our current materiality matrix. And third, we will set KPIs. It is important to set targets and work through a plan-do-check-act (PDCA) cycle. We are thinking to take specific action on these in our next medium-term management plan.

Uriarte: I think a good way to set KPIs is to start by first getting an overall image, and then narrowing down the areas that are to be evaluated. For example, NGE has 106 facilities in all, but over 95% of our energy consumption occurs at just 27 of these. I think it is important to get an accurate overall image like this, then properly discern which facilities and processes to pursue data on.

*1 Chief Compliance Officer
*2 Chief Human Resources Officer
*3 Task Force on Climate-related Financial Disclosures. A task force established by the Financial Stability Board, the TCFD recommended that companies disclose the financial impacts (risks and opportunities) of climate change.
*4 A U.K.-based NPO (formerly called the Carbon Disclosure Project). The CDP cooperates with institutional investors and others to require companies and government agencies to disclose information about their countermeasures for environmental issues, and conducts surveys and analyses.

Industrial Gases as a Sustainable Business

Miki: The air separation process is important in the manufacture of industrial gases. This process separates air, the raw material, to produce oxygen, nitrogen, and argon. These products are finally returned to the natural environment, and the process generates almost no waste at all. Furthermore, the distillation process used for air separation is conducted at extremely low temperatures, and although it uses electricity it does not involve combustion of fossil fuels. Since air is the raw material, there is no supply chain risk. In addition to reducing the environmental impact of this kind of manufacturing process, another important point is the contribution of the products themselves. Gas helps to reduce the environmental impacts of various industrial processes. In addition, the injection of gas to extend best-before and use-by dates for food helps to reduce food losses. This shows that industrial gases are actually a substantially environment-friendly business. In addition, Thermos brand products, which keep foods hot or cold, help to reduce energy losses. However, outside of the Thermos Business that I’ve just mentioned, our main business is in the B2B field, which makes it difficult for general investors to understand. I think we need to communicate more about it.

Uriarte: I feel exactly the same way. Through gas applications, we can make a significant contribution to helping customers reduce their environmental impacts. We can contribute to promoting sustainability not only by safely supplying gas but also through our customers using our gas and improve their processes.

Miki: I believe that under its new framework, the Group now needs to pursue “collective strengths” and “autonomous strengths.” I want to respect the autonomy of Group companies, and while putting our so-called centrifugal force to work, simultaneously develop collective strengths that generate synergies within the Group. The field of sustainability should also present significant potential for creating such synergies.

Uriarte: By promoting the sharing of gas application technologies, we can both make further progress in developing environment-friendly businesses and products. We may also be able to cooperate in the manufacturing process to reduce CO2 emissions and water usage. I hope that we can further strengthen this kind of technology sharing between Japan and Europe.

A Member of the Nippon Sanso Holdings Group

Miki: We started working with Inaki at the preparation stage before the management integration. At that time, what kind of image did you have of the integration?

Uriarte: I had a positive impression of Taiyo Nippon Sanso, as it was named at the time, before it was decided that the Group would buy us. I thought that Taiyo Nippon Sanso had businesses in Asia, North America, and Europe that matched us perfectly, so I was rather delighted with this outcome.

Miki: Having NGE join our Group has been hugely stimulating for us in many ways other than earnings. In the integration, we respect NGE’s autonomy as much as possible, and I think that NGE has joined our Group in a form that enables everyone to continue working as they had before.

Uriarte: We haven’t experienced any particular difficulties with the transition. If I had to point to something, I would say that we did not know each other as individuals, but the Japan side often attends our meetings, and we have also visited Japan several times, so this issue resolved itself quickly. Now that we have become familiar faces to one another, the integration has really moved ahead.

Miki: The so-called PMI*5 process has really gone smoothly, and we have built trust naturally through our visits with one another. The difficult part was really at the stage before the integration. At that time, we were both separate companies with confidentiality obligations, and most of our consultations were by telephone, so we didn’t have a chance to properly meet. In this business dealing with high-pressure gas, the most important part is safety and security. From the date of the management integration, we would become an entity with a shared destiny, and we needed to finish smoothing out various wrinkles by then. I was looking forward to completing the integration and building relationships of trust as soon as possible.

Uriarte: I felt the same way. Ken, please do come and visit us again once the COVID-19 pandemic has passed. It will be an excellent opportunity to develop a deeper mutual understanding. And let’s continue to cooperate closely going forward.

Miki: Thank you for your invitation. I have complete trust in you, Inaki, and in everyone at NGE. With workstyles and lifestyles now changing around the world due to COVID-19, we must make our business more sustainable and contribute to the realization of more sustainable societies. With our recent transition to a holding company, I aim to further develop our cooperation framework with a view to promoting global sustainability.

*5 Post-Merger Integration. The integration process that occurs after an M&A.

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