Quantitative Analysis of ESG Issues

Continuing from 2021, we conducted a landscape analysis utilizing the Yanagi Model to clarify the relationship between non-financial capital and corporate value. We also tried using a new type of analysis, Value Tree Analytics (VTA), to explore strategies related to human capital and their impact, specifically the correlation to enhanced engagement.

Q. What sort of analysis did you conduct in 2022?

A. We conducted the "Value Tree Analytics (VTA)" in FY 3/2023, a deeper dive into "landscape analysis" and "value relevance analysis" for a quantitative look at the relationship between ESG (non-financial) initiatives and return on corporate value.

The landscape analysis utilizes the Yanagi Model*1, which analyzes the direct correlation between ESG indicators and PBR. This allows us to show a delayed penetration effect: how a 1% improvement in ESG activities (key performance indicators) will lead to a certain percentage point improvement in PBR over a certain number of years. This time, we increased the number of analysis indicators from the previous 198 to 303.

Significant and desirable correlations*2 in PBR were detected from 113 of the 303 indicators. Compared to the previous result—79 correlations out of 198 indicators—the desirable correlation has increased by approximately 150%. We feel that this reflects the improved analysis accuracy and additional years of data.

Numerical shifts have also been observed in the ESG activities based on our enduring values that were announced in the FY 3/2022 integrated report. That being said, the delayed penetration effect has sped up for four indicators, once again confirming a positive relationship between them and the improvement of corporate value.

Analyzed on ABeam Consulting's Digital ESG Platform (March 2021/March 2022), based on models developed by Ryohei Yanagi in "CFO Policy” (Chuokeizai-Sha 2020)

The value of an indicator is deemed to have a "desirable correlation" when the positive or negative correlation in the analysis result coincides with what we assume to be desirable and takes into consideration whether an indicator's value should aim to increase or decrease. These values are verified by a third party.

Return on Sustainability Index: Relationship Between ESG Actions and Price-to-Book Ratio (PBR)

Analyzed on the ABeam Consulting's Digital ESG Platform (March 2021/March 2022), based on models developed by Ryohei Yanagi in "CFO Policy (Chuokeizai-Sha 2020)"

Material issues designated as ESG factors are expected to have a high financial impact in the future, with consideration to items from external evaluation organizations, including the Sustainability Accounting Standards Board's Materiality Map.

Q. How do you reconcile the results of landscape analysis?

A. We compared the percentage of desirable correlations with those of other companies conducting similar analyses for an objective perspective on our analysis results. As in previous results, we demonstrated higher results across the board compared to the averages of other companies. Our environmental items were determined to be 29.3%, compared to the 18.6% corporate average; social items were 42.1%, compared to the 16.0% corporate average; and even governance items were 21.4%, compared to the 17.2% corporate average. The results indicate that a higher percentage of Nissin's ESG initiatives contribute to corporate value.

We also compared our values with the average values of other companies in the “Top 30 ESG Indicators for Improving Corporate Value.”*5 As a result, Nissin demonstrated 28 relevant indicators, 15 of which were able to detect significant and desirable correlations. Among them, when the "delayed penetration effect," which indicates how many years later it leads to PBR improvement, is less than the average of other companies, it indicates a metric with immediate impact on enhancing corporate value. In this comparison, eight indicators have demonstrated a short delay penetration effect, and many are related to human capital, such as the Reduced Working Hours for Childcare Program and Overseas Trainee System Users (see red chart).

In June 2022, ABeam Consulting compiled analysis results from Japanese companies using the Yanagi Model, publishing the top 30 ESG indicators that readily correlate with corporate value.

ESG Topics Indicator Name Units NISSIN FOOD PRODUCTS
Delayed Penetration Effect (years)*6 Sensitivity (%)
Employee Recruitment Mid-Career Recruitment (Men) ppl. 5 0.167
Employee Recruitment Mid-Career Recruitment (Women) ppl. 0 0.246
Employee Retention Retirees / Turnover (Women) ppl. 3 -0.43
Human Resource Promotion New Management Appointments ppl. 7 0.67
IP Acquisition / Conservation Registered Patents Domestic cases 3 0.9
Foreign 1 0.418
Realization of a Sound Material-Cycle Society Recycling Rate % 5 49.1
Regional Community Relations Visitors to Factories, Museums, Showrooms, etc. ppl. 7 0.453
Employee Recruitment Number of Employees ppl. 0 0.789
Climate Change Measures CO2 Emissions - Scope 2 t-CO2 9 -0.64
Work and Childcare Balance Users of the Reduced Working Hours for Childcare Program ppl. 1 0.65
Reduction of Atmospheric Pollutant Emissions Nox Emissions t 7 -0.92
Human Resource Development Overseas Trainee System Users ppl. 2 0.35
Human Resource Development Training Hours Per Employee Hours/person 2 0.662
Employee Recruitment Employees with Disabilities % 0 1.232

Demonstrates how delayed penetration effect correlates with PBR over a certain number of years. Sensitivity refers to the rate of increase in PBR when ESG rises (or falls).

Q. Would you please explain the new Value Tree Analytics (VTA) method?

A. In FY 3/2022, we conducted a value relevance analysis to verify the flow from capital (measures invested and implemented as capital) to outcomes that create economic and social value in the NISSIN FOODS Group's value creation process, leading to increased corporate value. For the value relevance analysis, we analyzed both the correlation between ESG indicators and corporate value and the correlation between ESG indicators. This tells a story that verifies the correlation between the indicators that result from each measure and improved corporate value by showing what path each ESG initiative takes to contribute to improved corporate value. We were able to statistically verify the hypothesis by looking at each correlation, yet failed to also verify the effect of the measures and actions that formed the basis of the indicators. We conducted Value Tree Analytics (VTA) as an attempt to quantify the effects of said measures. We targeted the human capital area in this analysis, taking into account the importance and the granularity of data retention.

The analysis is organized to cover issues related to the area of human capital, as well as our human resource management process. We verified the measures connected to said issues, observing if or how they correlate with the improvement of engagement factors*7 for genders and job types (departments).

As a result, the Value Tree Analytics (VTA) demonstrated that human capital measures embodying the "value" of the NISSIN FOODS Group's value creation process contribute to each department's engagement in promoting elements like work-life balance. This creates outputs/outcomes and improves corporate value.

Comparing the quantified results, we found, for example, that women's leadership development programs tend to contribute significantly to improving engagement in the areas of "Departmental Environment," "Corporate Environment," and "Sense of Growth" for women. We feel that these measures may be viewed as important and effective, improving shareholder value through improved retention rates and expansion of intellectual capital.

The NISSIN FOODS Group conducts an employee engagement survey consisting of 32 items under five categories: Ease of Working, Job Satisfaction, Departmental Environment, Corporate Environment, and Supervisors.

Value Tree Analytics (VTA)

Issues related to the area of human capital are organized based on our human resource management process. We verify the measures connected to said issues, observing if or how they correlate with the improvement of engagement factors for genders and job types.

VTA Result Example

For all, P-value ranged 0 - 0.05 (with significant correlation observed), coefficient of determination 0.01 - 0.045

Employees who use the teleworking system 10 days or more a month

From this analysis, we were also able to verify the flow of the human capital shown in last year's value relevance analysis, creating outputs/outcomes and improving corporate value as a result of the actual measures implemented.

ESG Action Correlation Analysis

VTA Analysis of Human Resource-related Measures

Human resource initiatives such as the personnel system have contributed to employee diversification. Employee retention measures that support employee diversification and global human resource development measures have empowered diverse employees in their careers. Work-life balance measures and those promoting the empowerment of women in the workplace have reduced overtime hours, resulting in improved employee engagement.

Toward FY 3/2024

We can now demonstrate quantitatively the relationship between ESG and corporate value. Yet, to use this for ranking measure implementations, we recognize the need to verify our analysis methods, improve our systems for evaluating and monitoring the effectiveness of our measures, and improve the quality of the data. Going forward, we will strive not only to quantify the increase in Nissin's corporate value but also the impact that the NISSIN FOODS Group has on society.