About the expectations of Gen Z for materials and chemical companies

Why can the materials industry resolve social issues?

(Left in the photo)Nami Matsuko  General Manager, Sustainability Department, Showa Denko K.K.
(Right in the photo)Kyohei Sonoda   Faculty of Economics, Doshisha University

The report entitled “The Japanese materials industry will resolve the social issues of Japan and the world and play a key role in Japan’s reconstruction” resonated with us, prompting us to hold a dialogue between Kyohei Sonoda, a university student who led the team that compiled the report, and Nami Matsuko, the General Manager of Resonac’s Sustainability Department. Mr. Sonoda explained why his team focused on the materials industry and what kind of companies they believe would achieve growth, providing us with fresh perspectives. We were thrilled at Generation Z’s high expectations regarding materials and chemical companies.
We intend to create more opportunities for a broader range of employees and top management members to acknowledge such viewpoints and consider Resonac’s own vision for the future.
(The dialogue was held in a former Showa Denko conference room on June 21, 2023.)

The power of chemistry can provide fundamental solutions, delivering significant ripple effects on downstream industries.

I read your report on equity investment entitled “Material Innovation,” which is about finding companies to invest in based on your own criteria by conducting research and interviews with numerous businesses. Your focus was on materials companies, and it is an absolutely fantastic report!
Japan is often described as an issue-driven nation, striving to resolve a number of unsolved social issues. In the report, you said that Japanese materials/chemical companies have strong potential to find solutions to the issues, enabling Japan to become the first country to resolve current as well as global issues yet to emerge, thereby contributing significantly to the world. This “story” you structured was truly an eye-opener, and greatly encouraged us.
Now, the first question I’d like to ask you is this: Why did you decide to focus on materials companies, especially Japanese companies, in the first place? 
The three major social issues the world faces (super-aging societies, natural disasters, and resource and environmental constraints) are certainly extremely serious, but they seem only remotely relevant to B-to-B companies, especially upstream and midstream materials businesses.

There are three main reasons why we focused on the materials industry. The first reason is that the power of chemistry is capable of providing fundamental solutions. The second is that because the materials industry is positioned in the upstream or midstream, it can have a significant ripple effect on downstream industries. The third is that the materials industry has a strength that is unique to Japan.

As for the first reason, the materials industry is positioned in the upstream or midstream of the industrial structure, meaning that it underpins the foundation of all final products. We believe that by making revolutionary changes in the foundation, the materials industry is capable of presenting innovative solutions to issues that are difficult to resolve using conventional measures.
With regard to the second reason, we believe that the materials industry should be able to instigate revolutionary changes across Japan by involving downstream industries. In fact, an empirical study revealed that materials not only affect downstream industries directly through products, but also exert a considerable impact through intangible assets such as knowledge and technology.

As for the third reason, the Japanese materials industry steadily acquired unique expertise, especially in technology, during the period of rapid economic growth after World War II, and we believe that this strength will deliver enormous results. Faced with the oil crisis, Japan steered away from the heavy chemical industry to focus on knowledge-intensive industries, taking steady steps to accumulate expertise ever since. We consider that this allowed the materials industry to remain highly competitive, maintaining a high level of technological prowess, while other industries lost their global competitiveness.
These are the three reasons why we focused on the Japanese materials industry.

I see! What you just told me has made me feel fortunate about being employed by a materials/chemical company at this very moment. Thank you very much.

We want to choose companies capable of leveraging their technology to set strategies by working backwards from the future goals they wish to achieve.

Now I’d like to proceed to the next question. In selecting investee companies, you assessed their potential strengths other than those visible in numerical terms such as financial strength and net sales, based on your unique perspective. We were surprised by this. The criteria and items of evaluation that you used in screening the companies were entirely convincing from our point of view as well.
Could you draw a couple of examples to explain why you thought the evaluation items were important in assessing the investees?

Yes, as you said, we focused on the potential capacity of companies. For example, in terms of materials development, we looked at development using material informatics and inverse analysis. I understand that the mainstream method of material development up until now has been to spend several years to several decades developing a material and then thinking about how it should be used. However, if companies are to help achieve a sustainable society, this traditional development method will be too slow considering the world’s faster pace of change. We believe it is necessary to think backwards from the ideal future vision. That’s why we wanted to choose companies that are capable of leveraging their technology to incorporate the desired future vision into their current strategies and R&D.

In areas other than development, we looked at how companies explain their corporate vision and their direction forward, checking whether they use words like “creativity” and “revolution” in their vision and whether they value providing solutions. Traditionally, upstream industries, including the materials industry, have played a largely supporting role in society, but going forward, they need to see themselves as the leaders of a revolutionary change that engages downstream industries. Based on this belief, we decided to include in our assessment criteria the corporate capacity to bring about revolutionary changes by getting others involved.

That’s very convincing! So, you focused on whether companies are able to fully capitalize on cutting-edge technology, whether they uphold a solid vision and put their words into action, and whether they have the strength to create value by engaging downstream companies. You’re absolutely right, but you must have had a difficult time assessing companies based solely on publicly disclosed information.

Indeed, it was very difficult. We mainly looked at companies’ websites and integrated reports, but we also conducted interviews with their employees to clarify matters and dig deeper. In the process, we felt that companies that had their own “story” to tell deserved to be highly rated. When a company had a clear and coherent “story” about the purpose of their initiatives and their resulting future, we were convinced that they were worthy of a high rating.

We also disclose a wide range of information with diverse stakeholders in mind, primarily through our integrated report, so your words are inspiring and, more than anything, they make us a bit nervous. Were the companies willing to be interviewed?

Yes. At first, we tried contacting them by email, but it was a struggle to get them to respond. We may have become a nuisance, but we repeatedly sent emails and made phone calls to companies we really wanted to talk to. We got in touch with those who kindly responded, which helped us better understand them.

That proves how important it is to never give up. Many other companies must also want to engage in dialogue with the people of your generation.

Priority order and weight of financial and non-financial information in assessing companies

Let us look into the financial strength of companies. You made maximum use of non-financial information in assessing companies. Our policy is to clearly communicate diverse areas and experiences that source Resonac’s value creation, including the company’s vision, technological strength, human resources and customer base, which cannot be seen by looking at financial figures.
At the same time, I believe you also used financial information as a key criterion in the final stage of selection. Could you tell us why you didn’t use it at the initial screening stage when you narrowed down candidates, but only in the final decision-making phase?

We used financial information as the final criterion for our investment decisions because if we used it at the beginning of the screening process, we wouldn’t be able to correctly assess the candidate companies’ potential capacity and their future growth stories. We were looking to invest in companies that are capable of changing society, so we wanted to first see if they have a growth story depicted in their roadmap. Screening based on financial standards came last in the process, but as it was vital that investee companies provided extensive financial information and had a solid financial foundation, we made our final decision based on their financial information.

I’ve now reaffirmed the significance of the weight and priority order of financial and non-financial information in assessing companies.

Advice from Gen Z to Resonac

Lastly, could you provide us with some feedback on our integrated report, including what you think we could have done better, points you found less convincing, and points you liked.

We thought Resonac’s integrated report for last year was truly wonderful. You have clearly depicted the kind of society you aim to create through the power of materials, and what actions you need to take to achieve your vision. Having written a report on materials myself, I was truly impressed and inspired by the report. Having said that, if I were to share my thoughts as a student, with all due respect, I would advise you to cast off your modest perception that B-to-C companies, not B-to-B companies, are the ones in a position to change society solely because they are closer to end users, and to more forcefully express your belief that the upstream materials industry has what it takes to instigate social reform by engaging downstream players. Your belief should be shaped into Resonac’s unique story, complete with illustrative presentations, and conveyed through the integrated report and dialogue to show your commitment toward an ambitious goal, thereby making the company look even more appealing.

Thank you very much! Your input will definitely be of great help when we compile our next integrated report. We will make dedicated efforts in the hope that Resonac will continue to be an attractive partner in some way to you and your team in the decades to come.
Let us both keep up our efforts!