It is time, so we would now like to start Hitachi Limited Environmental and R and D Strategies Web Conference. Thank you very much for taking time out of your busy schedule to attend this web conference. The presentation materials used today are posted on Hitachi Limited IR website and news release site. Environmental strategies will be explained in English, and R and D and intellectual property strategy will be in Japanese. They will be interpreted simultaneously and distributed on English and Japanese channels.
On the Japanese channel, you can listen to English presentation, too, with language selection function. Please select the language you like from the interpretation button at the bottom of the zoom screen. The location of the display may differ between devices. On PC, you can find the interpretation button at the bottom of the zoom screen. Now let me introduce the presenters.
Alastair Dormer, Executive Vice President and Executive Officer Norihiro Suzuki, Vice President and Executive Officer, CTO Yuji Toda, General Manager of Intellectual Property Division. 3 presenters will present today. Today, environmental strategy will be explained by Mr. Dormer R and D by Mr. Suzuki and IP strategy by Mr.
Toda followed by Q and A session at the end. First, our environmental strategy will be explained by Mr. Dormer. Please wait for a moment until we switch the screen.
Mr. Dormer, please.
Thank you very much. Well, good afternoon, ladies and gentlemen. My name is Alastair Dormer, and I'm delighted to have this opportunity today to talk to you about Hitachi's environmental strategy. To briefly introduce myself to you all, I have been working for Hitachi for close to 18 years, so time certainly flies when you're having fun. My previous roles included Vice President and CEO of Itachi's Rail Business located in London.
And I moved to Tokyo 2 years ago to take responsibility for the mobility sector, which includes Hitachi's railway and elevator businesses, and I've recently been appointed Chief Environmental Officer for Hitachi Limited. I'm super excited about this new role. I mean, it is a huge challenge and that's because Itachi has a major role to play in decarbonization. And I see this as a great value creating opportunity for the company working across our 5 key verticals. But please turn to the agenda.
So in today's presentation, I would like to briefly cover Hitachi's commitment to carbon neutral. We are serious and aiming for world class ESG performance. I will talk about the macro trends, which will create the opportunities for Itachi to help governments, cities and companies to cut carbon emissions. And finally, how we see this global challenge of carbon reduction, combined with the requirement for further digitization, to be the engine for growth in the energy, mobility, industry and IT sectors. So let's move on to Hitachi's commitments on the next slide.
Hitachi is committed to carbon neutrality by 2,030 for our global operations. Now we have a comprehensive plan driven by my old friend Masai san, Head of Hitachi's Monozukuri. His team of highly experienced manufacturing professionals are working right across Hitachi's extensive manufacturing operations to minimize energy consumption and will invest around JPY 84,000,000,000 to reduce our energy consumption by at least 22% on a like for like basis over the next 10 years and reduce carbon emissions by 24%. Our procurement organization is negotiating group wide deals to switch to renewable energy, to fully utilize Hitachi's buying power starting first in Europe. The objective of this big effort is that because we want to demonstrate leadership in this important area and we want to negate the risk of needing to buy carbon credits by 2,030.
Our plan is detailed, comprehensive and has been recently endorsed by Science Based Targets, which is the real gold standard for accreditation. The slide shows a number of Hitachi sites, which are now carbon neutral, So we are delivering on our commitments. And this includes our central research laboratory, so thank you, Doctor. Suzuki. And finally, our executive pay will be linked to environmental performance as well as financial performance from April 2021, initially for objectives, but we will continue to develop our internal carbon pricing system over time.
Can we go to the next slide, please? Now, looking further out to 2,050, 86% of Hitachi's carbon emissions are through the life of our products. We have committed to reduce these emissions by 50% by 2,030 80% by 2,050. Now we see this journey of co creation with our customers, our key partners, suppliers, governments, cities, and we're working with all of the organizations shown on this slide to reach our goals, and I'll talk a little bit about that later. Next slide please, Slide 2.
Now there have been a multitude of government announcements to tackle climate change, and we see that as a real positive for Hitachi. The last 12 months has been a very difficult time for many with the pandemic. However, one real positive to come out of this is that governments around the world have committed to carbon neutrality. Prime Minister Suga has committed Japan to carbon neutrality in 2,050. China is committed to carbon neutrality by 2,060.
And Europe and the UK have announced huge investments in renewable energy and policies to move away from fossil fuel usage. And now Joe Biden is moving fast, recommitting the U. S. To the Paris Accord and committing over $2,000,000,000,000 to clean energy. This will dramatically change energy generation and distribution with huge increases in demand for electricity forecasted.
With renewable energy becoming the dominant source of energy, this introduces additional complexity of less stable supply and demand balancing. So we need smarter systems to manage. This is a really dramatic change in a very short space of time. And the world has finally got serious about reversing climate change, and Hitachi is uniquely placed to help. I see this change as the next great opportunity for Hitachi.
In our history, we have changed from a product out business to a customer centric business. And now we have this opportunity to transition to a value based business to anticipate the needs of society and bring added value. Turn to the next slide, please. Now through the acquisition of Itachi ABB Power Grids last year, we are in the forefront of the challenge to electrify. Multiple studies have concluded that demand for energy and electricity will double by 2,050.
Now I was talking to the Power Grids CEO, Claudio Faucien, the other day. He told me in 2020, our Power Grids business was approximately 95% about moving electrons and 5% about moving data. Now we know that the electrons will double by 2,050, which will require extensive expansion of the grid, but the expansion of data will increase exponentially, which is why Hitachi's combination of Power Grids and Lumada is so important for the future. Let's turn to the next slide, please. Now this shows just some of the exciting projects Hitachi ABB Power Grids is managing, And these are just so impressive.
From distributing solar energy in Africa to connecting offshore wind in the North Sea and the China Sea, linking the grids with Norway and Germany, the UK and France, providing intelligent infrastructure to Britain's railways, e bus networks in India and serving industry providing high voltage substations for data centers and secure energy for Dubai. Hitachi ABB Power Grids are at the forefront of this opportunity. And we have a strong track record as the major player in this growth sector and are well placed to catch this wave of investments. So let's move to the next slide on mobility. Now I talked about the investment in energy, which is truly significant, but the transition from predominantly fossil based fuels in the mobility sector energy sector.
It's absolutely huge. Transportation is a significant contributor to global warming, responsible for 20% of the world's CO2 emissions. The trends of population growth and urbanization will continue, and this will drive huge demand for green public transport, green logistics and private electric vehicles will grow enormously. Now let's have a look at the next slide and look at rails opportunities. Now Hitachi Rail Business is at the forefront of this challenge.
We are busy delivering 43 hybrid trains in Italy to replace older diesel trains, which will reduce emissions by 50% on a like for like basis. And at the end of last year, we unveiled our 0 emission battery tram in Florence. I mean, the trial is going really, really well and will help with the decarbonization of this historic city. And in the UK, we are replacing diesel engines with batteries on one of our intercity express trains to demonstrate the feasibility. Now this is a huge fleet and we are really excited about this opportunity.
And here in Japan, we are working with JR East and Toyota on the hydrogen hybrid advanced rail vehicle, which is a really exciting development for the future. So in the short term, in the next 5 to 10 years, we see a combination of electric and battery trains to be the main technology to remove the need for diesel trains. But we believe that the rail industry will benefit from the automotive industry's rapid transformation to EV and rapid advances in battery technology, and this will continue. And really due to the size of the automotive market and the massive scale, this is a big advantage for our Rail business. But hydrogen will have an important role to play.
In the future perhaps, 5 to 10 years' time, and we will continue to work with Toyota on this exciting development. Let's turn to the next page, please. Now let's talk about electric vehicles. I have mentioned the transition to EV, and these charts show the projections, with Hitachi ASTIMO predicting 27% compound annual growth rate for EVs over the next 5 years. ASTIMO is aiming for market leadership in motors and inverters by 2025 and a competitive position in the future of e axle drive units.
This market is really exploding, particularly in Europe and in China. In fact, even my wife's father is now driving an EV, and he was always committed to conventional cars, and they are very impressive, I have to say. Let's please turn to the next slide to further the EV story. Now, one of the big challenges for fleet and bus operators in the transition to electric fleets is how to manage the many constraints introduced by battery operation. We are working in the UK on a program called Optimize Prime with a number of delivery companies, service companies and taxi companies.
Now previously, these companies just really needed to worry about drivers and where is the nearest gas station. But in this new world, they need to fully understand how to manage and optimize within the constraints of battery range, optimum vehicle operation and ultimately battery life, because this affects the vehicle residual value. So it's quite a complex challenge. Now for Hitachi, this is a fantastic harvest of data. And coupled with the experience Hitachi has gained from our renewable energy management and battery energy storage projects in the aisles of Scilly in the UK and Hawaii over the last 5 to 10 years, we have a real advantage in this sector.
We see exciting revenue opportunities through digital asset management services, covering both vehicles and charging infrastructure through as a service, commission and subscription based business models. We are currently engaged in discussions with both municipalities and bus owners in Europe as well as vehicle leasing companies to develop compelling business propositions to help with the transition to EB Bus. These cities and bus companies want to transition quickly to EV and Hitachi has the know how of how to make this happen. In short, we see this business model being similar to our experience with Agility Trains in the UK. So now let's turn to see how Hitachi can help industry with the challenge to decarbonize.
Next slide, please. The manufacturing represents 50 4% of the world's energy consumption and 20% of emissions. We believe that the experience we are gaining applying the UMADA technology to reduce our own emissions is extremely valuable. We are working with customers to help them address the challenge to reduce CO2. Next slide please.
I'm sorry, this is a little bit complicated, this slide, but this diagram indicates the various engagement points where Hitachi is supporting our customers. From helping customers to understand the energy consumption drivers, providing sustainable technology and all the way through X as a service to help the transition to renewable energy. Can we go to the next slide please? Now as part of our research, Hitachi has developed an energy monitoring system and installed this in our central research laboratory. As companies look to demonstrate their commitment to decarbonize, it is important that they can easily demonstrate compliance for their commitments to renewable energy.
Using blockchain technology and visualization technology, we can show both consumption and the source of energy within a facility and thereby certify compliance. We think this is a really useful service for our customers. Now Doctor. Suzuki will talk a little bit more about this in his presentation and also a little bit more about the sustainable technology that we are developing. Can we go to the final slide, please?
So in summary, green technology times digital is a real engine for growth for Hitachi. And you can see on this chart Hitachi's 5 sectors and how the majority of these sectors and regions are positively impacted by the growth in green technology and digital. This is a really exciting time for Hitachi to help cities, to help governments and companies cut carbon and accelerate our potential as a climate change innovator. Thank you. Dor?
Thank you very much, Mr. Dormer. Please wait for a moment until we switch the screen. Next, Doctor. Suzuki, please.
Yes, this is Suzuki. Let me talk about research and development strategy. Next slide, please. There are 3 points I want to communicate to you today. 1st, expand R and D investment for carbon neutrality 2, create innovation in the environment area with the new Hitachi Group companies, Hitachi ADV Power Grids and Hitachi ASTIMO 3, accelerate R and D to expand Lumada Business.
Next slide, please. I will follow the table of contents. Next, please. First, direction of the R and D group. This shows our R and D group's direction.
In fiscal year 2015, we changed our R and D structure significantly, and we shifted gears from the R and D for SI to customer co creation. We are now facing the global social issues, COVID-nineteen. So we are shifting towards the value based innovation for a carbon neutral society and human centric society. Next, please. First, this is the Research and Development Group policy.
In this fiscal year, we focus on value based innovation and contribute to Lumada Business expansion. On the right side, you can see the global R and D organization. We promote R and D under CSI, CTI and CER, the 3 centers with 2,600 staff like we had last year. The business unit and group unit and R and D and sectors will collaborate to promote the innovation. Next please.
This shows Hitachi Group investment in R and D. Left side shows our annual trend of R and D investment. In fiscal year 2019 2020, the investment decreased with the business portfolio reshuffle temporarily. But towards fiscal year 2021, we will reinforce R and D to grow in environment and digital field. On the right side, you can see our R and D efficiency, where profit is divided by R and D expenditure.
Up to 2019 Q1 of fiscal year 2020, it decreased with COVID-nineteen but trended upward in the second half of fiscal year twenty twenty. In fiscal year 2021, we want to improve the efficiency even further. Next slide, please. Right side shows the R and D investment portfolio by sector. IT is the highest at 20%.
With IT and Hitachi ABB Power Grid and Hitachi Astemo, the proportion of energy and automotive parts is increasing. Next, please. Next is our corporate R and D portfolio. R and D group is roughly blue part, the BU funding and the green part, corporate funding. And the ratio is, as you see in the center, roughly 70 to 30.
So business unit funding, this is sponsored research and advanced sponsored research. They're R and D for existing business and next generation business and frontier and platform research aims to generate innovation in the medium to long term. As you see on the right side, the value based innovation, including environment, resilience and safety and security are reinforced. And starting last fiscal year, we started the corporate venturing. We already invested in 7 start ups and accelerating new value creation through collaboration.
Now as one example, Hitachi's first inside out case is the establishment of Happiness Planet in July 2020. We are supporting the work style reform to improve the happiness under COVID-nineteen. So this outside in and inside out activities will be expanded going forward. Next, please. These are the major external recognitions in fiscal year 2020.
In Public Biometrics Infrastructure, PBI, we received Masuda Prize, the highest in best 10 new products awards. We are encouraged to expand our empty handed authentication platform business even further. And the absorbent for nuclear power plant, inspection equipment for ROSE 2, amorphous motor, immunoanalyzer, superconductivity wire and 11 other good design awards were received. These are the awards for offering environment resilience and safety and security values. Next slide, please.
Next is the contribution to Lumada Business Growth. This shows the annual trend of Lumada Business Revenue and R and D Group Contribution. The contribution is rising year after year. Going forward, we will strengthen through Lumada Alliance Program and deploy Lumada for from other research assets, including material development and expand Lumada to energy mobility field through collaboration with Hitachi ABD Power Grid. Next, please.
Now let me talk about the innovation for value creation. Next, please. We are working to capture changes in society and customers, form visions with industry, government and academia and disseminate globally. More specifically, in Hitachi University Tokyo Lab, we formulated scenario for 2,050 Carbon Neutrality and Hitachi Kyoto University Lab New Vision for Societal System. And in China, future innovation linkage program with Tsingtai University.
And in Europe, we participate in decarbonization community. And in Digital City, we are collaborating in Thailand and Australia. We promote creating innovation through backcasting from future vision. Next, please. Based on these visions that we developed, we generate value based innovation and expand technology platform.
As you see in we will fully leverage our technology platform under project structure and promote customer co creation and technology development. We think there are only 2 or 3 companies in the world that have this technology platform of this level. We can also utilize it across business sectors to improve investment efficiency significantly. Now with Hitachi ADB Power Grid and Hitachi Asimo, we enhanced our technology platform dramatically. I will talk about the synergy with these 2 companies going forward.
Next, please. First, Hitachi ABB Power Grids. Hitachi ABB Power Grids has world's number one business in grid automation, HVDC and T and D products. By exerting synergy with Hitachi's technology platform, we will develop core business in environment by leveraging technologies including security, 5 gs and AI and Lumada. We will create the innovation in the demand side system, including RE100 supply, EV, hydrogen and data center.
Next, please. Next is Hitachi Asdemo. Hitachi Asdemo aims to acquire global leader position in AD, ADAS, XEV and advanced chassis. By exerting synergy with cybersecurity, AI analysis and upgrade with OTA and other strengths Hitachi has in software, we are confident that we can be a global leader driving CASE. This is how we plan to realize synergy with Hitachi ABB Power Grid and Hitachi Asimo.
Next, please. Now let me talk about our initiatives on 3 values, starting from environment. Next, please. First initiative on electrification. Hitachi, as mentioned earlier, newly announced the carbon neutral in our production own production in fiscal year 2030.
In particular, we will maximize drive efficiency of the electrified system to realize carbon neutrality. In the industrial motor, we utilized amorphous magnetic alloy foil and achieved IEC's highest standard value of IE5 with rare earth free magnets. In EV inverter, we realized world's highest level high output with dual side cooling module. We received Ichimura Prize in Industry Against Global Warming and Best 10 New Product Awards. And in SiC Power Device, we realized lowest level loss in industry with Hitachi's new proprietary structure.
We plan to deploy this for EV, rail, power system and data center. Next, please. In energy field, we will provide grid control and demand side energy management system for expanded introduction of renewable energy. With grid control, we have track record in introducing it to customers with world's first risk prediction type online grid control. In order to expand function for expanded introduction of renewable energy, simulation verification is ongoing to achieve both renewable energy, NAS series and stable operation.
In the energy management, Hitachi ABB Power Grid has eMESH EMS that realizes distributed energy and renewables by adding function to integrate analysis of real time prediction data and past data, we will improve the operational efficiencies in office buildings and production facilities. Next, please. We've reached realized the visualization of renewable energy usage for each facility and services. As you see on the right side, we attached smart meters in each facility in consumer sites, utilized the blockchain and managed power origin on per facility basis and digitally certified 100% renewable energy usage for each product and service. The system operation started in Kyousou to in Kyousou no Mori and verification is underway.
We plan to expand the scope from green procurement to the entire supply chain going forward. Next, please. This shows the initiatives for hydrogen energy. In the hydrogen coal firing power generation system, by dynamically responding to a combination of wide variety of fuels and compositions and optimizing the operating condition with AI control, we realized high efficiency. This power generation system demonstration was conducted in Fukushima Prefecture with Dengyo Kousan and AISC.
In blue hydrogen production system, Hitachi's proprietary shift catalyst with atomic level structural control is used to aim for a 30% reduction in water resource usage. Now, Osaki Cool Gen Project Stage 2 verification is ongoing. Through these efforts, we will strive to realize sustainable hydrogen value chain. Next, please. Next is resilience.
Next, please. For resilience improvement in industry field, we are working to realize value chain optimization to flexibly respond to changes in the business environment. Last year, Hitachi's Omika Works became first in Japan to be chosen as the advanced world leading factory lighthouse that leads the 4th Industrial Revolution. The high efficiency production model won high acclaim. Various systems utilized here are being deployed to automotive and chemical manufacturers through customer collaboration.
The work site visualization and planning optimization on the right side are some examples. In the work site visualization, the integrated management and analysis of plant, process, human, product and equipment data in customer sites. And in planning optimization, with Hitachi's proprietary mathematical optimization AI, total optimization from procurement to sales is applied through customer collaboration. We are aiming to expand this as Lumada solution. Next, please.
3rd is safety and security. Next, please. In the initiatives in medical pharma for safety and security, we are aiming to raise the QOL with measurement times digital and bio times IP. Our chemical immunoassay has the highest share in the global market. By applying machine learning based image processing technology, accuracy and throughput of testing improved.
It also has antibody testing capability for novel coronavirus. In regenerative medicine, clinical application of iPS cell produced from automated cell culturing equipment started last month through cocreation with Sumitomo Dainipon Pharma and Kyoto University last month. And integrated management platform that manages traceability of the entire value chain for regenerative medicine products is now being offered. Through these initiatives, we will promote the penetration of regenerative medicine. Next, please.
In the security field, we will offer safety and security to people in both cyber and physical space. In the empty handed authentication, world's 1st safe and secure PBI technology, eliminating the need to store biometric data enabled empty handed identification. Service offerings started in October last year. In addition to application with customers and in Hitachi, verification is ongoing in Turkey as well. In human flow and behavior visualization, we provide safety and security in public areas such as train stations and airports using AI image analysis of people and luggage.
We began the sales of high speed people detection and tracking solutions and are conducting the COVID countermeasure verification in Tokyo Dome for commercial application. Next, please. Next is technology development for Lumada Business Expansion. Next, please. In April last year, Lumada Data Science Lab integrating business divisions and R and D was established.
Top data scientists are gathered in Kyo Sonomori to expand Lumada business using Kitachi's unique customer co creation structure and experience By combining the business units, consulting skills, application skills and AI technology capability of R and D, we have already received a few business orders. Now regarding the evolution of Lumada, real time data collection and feedback will be the key to realizing value creation across business domains. To realize this, let me talk about the initiative on 5 gs, edge computing, edge processing and AI, ultra big data processing and quantum computing. So let me give you some examples. Next, please.
First is AI Initiatives. AI Ethical Principles was developed for the progress in AI technology supporting human centric society, standards for conduct and practice common in planning, social implementation and maintenance and management for Hitachi in charge of social infrastructures are stipulated. We actively participate in AI. This AI principle is already being operated in Lumada Data Science, and we are actively participating in international AI competition to enhance AI technology. We won the 1st place in the international AI competition in video and language.
This is a great achievement that demonstrates Hitachi's capability. World's number 1 AI technology cultivated here are being deployed in Lumada solution, including high speed people detection and tracking solutions and improved efficiency of corporate disclosure document analysis. Next please. Next is the initiatives in 5 gs Solutions. We developed 5 gs verification environment for the real time control use case and are promoting co creation.
IntelliPresence remote operation support, for example, AR Glass advanced sensing technology and low latency video transmission and technology allows realistic presence, real time 360 degree comprehension of on-site situation and remote operation support. To accelerate 5 gs solution development, we developed 5 gs verification environment in Silicon Valley site in the U. S. And Kyous Sonomori. Using this verification environment, we will accelerate the collaboration in 5 gs real time control in mobility and energy field.
Next, please. Lastly, initiatives in quantum computing. In Hitachi, we promote R and D for a scalable silicon quantum computer with industry government academia collaboration. Quantum Research has a long history and track record. We have pursued basic physics research in Hitachi Cambridge Lab, established in Cambridge University in 1989.
And in 2,005, silicon quantum bit was verified. CMOS annealing of the pseudo simulated quantum computer was structured with semiconductor integrated circuit as the first in the world in 2015. And we have accumulated track record in non life insurance portfolio optimization. JST Moon Shot R and D program is promoted through government academia collaboration to realize silicon quantum computing. We will accelerate R and D to realize quantum computing soon.
Now last is my summary. So as I mentioned today, we will strengthen R and D in environmental and digital fields to become a global innovation leader driving carbon neutral in the R and D group. Thank you for your attention.
Thank you very much. Please wait for a moment because we have to switch the screen. Lastly is Mr. Toda. I'm Yuji Toda from Intellectual Property Division.
I'd like to talk about intellectual property strategy. Next slide, please. These are the three points that I want to deliver today. Number 1, to strengthen global IP together with Hitachi ABB Power Grid and Hitachi Asimo, who joined Hitachi Group. Number 2, to strengthen environment related inventions, visualize IP library and expand business opportunities Number 3, the IP knowledge accumulated throughout our IP activities over a century, aiming at the next 100 years, will be used for social contribution and business growth for environment and digital.
Next slide. I will follow these contents. Slide 1-1. Under the 2021 IP midterm management plan, We will aim at becoming global leader that increase value by utilizing IP. Hitachi aims at society, environment, economy values improvement.
For this purpose, IP knowledge will be used to strengthen global IP ability and contribute to solution of social challenges with IP. Next, Slide 12. Hitachi is promoting 3 IP activities: competitive strategy, collaboration and co creation strategy and IP for society. Number 1, competitive strategies We'll strengthen product competitiveness by protecting IPs, our patented products such as industrial energy saving air compressor. In cooperation strategy, we will secure IPs such as human flow visualization solutions and central Lumada.
These will be used to promote IP partnership. These activities were recognized. And for the first time this fiscal year, we won the Minister of Economy, Trade and Industry Awards at the FY 2020 IP Achievement Award. IP Society is a new IP activity proposed by Hitachi. For example, Hitachi Hokkaido University Lab.
This covers both co creation and IP for society aiming at improving health of as many mothers and children as possible, we declared license free patent. Also, participation on the partnership of Wiper Green, which is an international environmental technology transfer platform, our international standardization activities on environment would fall under a category of IP for society. Next Slide 13. The last few years, because of M and A and business restructuring, the number of patent applications declined, but we will now be strengthening global IP. The left graph shows international patent applications or PCT applications compared with the competitors of OT companies.
So Together with the companies that joined Hitachi Group will be strengthening those efforts. There was an announcement yesterday that for 10 consecutive years, we won the Top 100 Global Innovators Award by Clarivate, which is a global authority. Number of patents and global nature and the influential power was evaluated. Right hand side graph shows the inventions of digital solution related to Lumada compared to the competitors. In terms of quantity and quality, we are aiming at becoming global number 1.
Next is Slide 14. From this year, Hitachi ABB Power Grid and Hitachi Astemo joined Hitachi Group, so IP will be further strengthened. Hitachi ABB Power Grades Digital Solutions will be integrated with Lumada, and there will be a strong IP platform for digital and energy platform joining Hitachi. From special assembly mode, XEV, AD, ADAS, advanced chassis partners are joining. By joining with existing Hitachi assets through synergy, we believe we can expect the energy management system with low environmental load.
Next slide is about strengthening environmental visa inventions and expansion of business opportunities. Slide 21. The upper part graph shows the size of patent portfolio of environmental related inventions for the last 20 years. He's not here from old days. He was aware of circular economy and was engaged in IP activities for environmental related solutions.
Left hand side shows that even before the enactment of home appliance recycling law from 1990s, we have been trying to control the release of CFCs, included insulators through head disassembly, and we're making technical developments considering the global environment and we're active in filing patent applications. This is now implemented into EcoCycle. Technology is transferred to Taiwan and we have been pioneering circular economy. Even now, we are trying to create solution inventions with high quality based on value. Right hand side shows invention that simultaneously evaluates impact on environment and energy consumption and also invention of controlling charge and discharge of EV concerning the CO2 emission of the power grid.
By using Lumada through environment multiplied by digital, we will create solutions and contribute to the circular society and decarbonization. Next, Slide 2. In response to scope 1, 2, 3, those are examples of inventions that we contribute to carbon neutral. For CO2 reduction, highly efficient industrial air compressors are developed and a patent is held on this. Low temperature shift catalyst is developed to reduce the use of valuable water resources to realize sustainable hydrogen production as was introduced by Mr.
Domar and Doctor. Suzuki, to prove the use of renewables, we filed a patent application on a visualization green energy. And lastly, visualization verification investment effects like ESG and sustainable finance platform, file partner application was filed on TISS, and we want to use this effectively to support the business. Next, we are thinking of explaining the business opportunities by using IP, which is our next slide. Hitachi has set environment vision and environment innovation 2,050.
We have created inventions such as rapid diagnostics of battery degradation. We will establish an IP library by linking these solutions with environmental values, and these IPs will be used to scale directly and directly externally to expand business opportunities. In addition, to realize SDG, Society 5.0 in the circular economy, through this, we will contribute to the society. Next, Slide 24. Under the concept of IP for society, we will create an ecosystem with IPs as a catalyst.
To be specific, we will partner with various stakeholders such as OIN, Open Innovation Network and OS community and international standardization organizations such as ISO and United Nations Organizations like WIPO and also startups and academia to improve environmental value and create such an ecosystem. Next to Slide 31. This slide shows the history of our business domains. At first, we started as an OT that manufactures 5 horsepower motors, but ITs were added. And now business area has been expanded to digital solution by using IoT.
For IP, in 1921, a patent section was established. So this year is the 1 100th anniversary. Meanwhile, OT by IT, by product, a broad range of business areas and diverse business challenges were handled, and we experienced creation of a variety of values and solutions using IP. This IP knowledge will be utilized for the future 100 years. Last slide, Slide 32.
Towards the next 100 years, through IP activities that will increase the value of environment resilience and safety and security, we will contribute to a realization of sustainable society and business growth. Thank you very much for your kind attention.
Thank you, Mr. Toda. Now we would like to move on to Q and A session. If you have questions, please press the raise hand button displayed on the Zoom screen. From among those who are raising hands, we will call your name.
So please unmute and state your company name and your name and ask questions. The video of the persons asking question will not be displayed. The question will first be from the media on the Japanese channel. Next, institutional investors and financial analysts, followed by the participants on the English Channel. So we will take questions from the media on the Japanese channel.
Your language and are listening to English. Any questions?
Aoki san, please. Aoki san, please unmute yourself and ask a question in Japanese. Aoki from Yomiuri Shimbun, can you hear me? Yes, we can hear you. Thank you.
Earlier, Mr. Dormer, in your first slide, JPY 84,000,000,000 investment into the environment. Could you give me the breakdown? Thank you for your question. You're asking about a breakdown of environmental investment.
Mr. Dormer, please.
Thank you very much for your question. In terms of a breakdown, I don't want to go into huge amounts of detail, but of that SEK 84,000,000,000, SEK 60,000,000,000 of that is in reducing our energy efficiency or is in improving our energy efficiency and EUR 24,000,000,000 of that is in purchasing of renewable energy. Since 2010, we've already invested around JPY 50,000,000,000 So this EUR 84,000,000,000 I think will make a big contribution towards our reduction of CO2. Thank you very much for your question.
Next,
Mr. Hanoda. Please unmute and ask your question in Japanese, please. I am Hanada from Mippon Keisai Newspaper. Can you hear me?
Yes. I have a question to Mr. Dormer. So you will contribute to the society and environment. So the types of business will be important.
Do you plan for M and A and business realignment? Will this environment be a very important theme in your next plan? And which indices, which KPIs do you focus on in environment? So that's my first question. Next question, in R and D and IP, you said you will focus on the environment.
Specifically, which indices, metrics will you use to select your R and D and themes? Thank you. Thank you. So the first, your view on M and A will be answered by Mr. Dormer.
And the second question, R and D metrics and indices will be answered by Doctor. Suzuki.
Thank you very much for your question. I mean regarding Hitachi, our President, Hitachi Arasan, mentioned over a year ago that Hitachi is looking at economic performance and environmental performance and sustainability or our contribution to society. So all of those 3 are very important considerations. So the environment is important, but I would not say that, that is the sole basis. What is very important is businesses that have good market potential, good potential growth and good returns for our investors, but which businesses that positively contribute towards a society.
In terms of how we measure that, we have our internal KPIs. The first thing is regarding our credibility as an organization that is committed to reducing CO2 and being environmentally responsible, which is why I showed on my slides the various organizations that we are working with for ESG rating, FTSE for Good, FTSE Blossom, all of these external organizations are actively auditing our efforts. And I was particularly pleased in December that our CO2 reduction plan was accredited by science based targets because that is really the gold standard for accreditation in this developing area. In terms of looking at how we grow our business in the environmental area, we are developing our own internal KPIs, but really because our businesses are focused on growing in the energy sector, in the mobility sector, the industry sector and IT sector, we see the environment as really a following wind for our businesses, very positive development because we are operating in these businesses, which can positively affect CO2 reduction and can benefit from the massive investment that is being pledged throughout the world by governments and by cities as they seek to decarbonize. Doctor.
Suzuki?
So R and D KPI, let me respond to your question. As I mentioned at the outset, customer co creation shifting to value based stance. So our stance has changed. Our customer co creation had focused on efficiency solved by digitalization, digital means. But this value based approach means carbon neutral, which is becoming a more central theme and carbon economy, central theme for our customers.
We are trying to solve these. So our environmental strategy exists in the company. And based on that, we conduct R and D. So that is our value based R and D and innovation. So as Mr.
Dormer mentioned, what we are doing is very much in alignment. And in order to meet the KPIs, R and D will work together hand in hand. So that is the value based innovation that I see is desirable. So that is how we plan to pursue R and D.
Thank you very much. Before moving to the next question, in the earlier question, Mr. Dormer's answer about the breakdown in investment, there were some errors in the figures in Japanese out of JPY 84,000,000,000 investment. Energy saving investment is JPY 60,000,000,000 and renewable energy investment is JPY 24,000,000,000 investment. Next question.
Koide san. Koide san, please. Please unmute yourself and ask a question in Japanese. Kouide from Asahi Shimbun. Can you hear me?
Yes. So one question. Anyone can answer the question. With regards to JPY 84,000,000,000 in the first question, at the moment, that is CO2 emission volume or out of that emission, how much is emitted at the factories? What is the breakdown of current emissions at Hitachi?
What is the present situation? Mr. Dormer, please.
Thank you very much for your question. As you rightly said, our businesses that have a significant manufacturing footprint have a higher level of CO2 emission than our businesses which have a lower level of manufacturing. Across Hitachi, we have individual plans for all of our individual businesses, but also all of our factories. Looking across the complete portfolio of Hitachi, just to give you an indication, something like IT is relatively low in terms of CO2 emissions. Our industry sector is higher than IT.
And then our listed companies such as Hitachi Metals and Hitachi Construction Machinery are different again in that metal manufacturing is a higher CO2 emitter in terms of scope 1 and scope 2, which is the production element of CO2 emissions. And Hitachi Construction Machinery, because it has many vehicles, which are using conventional engines, has higher levels of CO2 emissions in scope 3, which is in the service element of operation. So that's probably about as detailed as we should go for now.
So may I ask the next question? Do you know what is the current emission volume? And by 2,030, it will achieve carbon neutral. Then does it mean that the emission volume and collection, for example, of carbon to make net 0? I think that is the purpose.
So what would be the portfolio in 2,030?
Thank you for your question. It's a very difficult question to answer because 2,030 is a long way away. What I can talk about is our portfolio as we stand at the moment. As I mentioned, we have detailed plans for reduction. What I can say is that the CO2 emissions of our operations are fundamentally coming from our energy consumption during production, which is where our focus is until 2,030.
So the two strategies that we have to reduce that CO2 emissions is the reduction of our energy usage, that's both electricity and other forms of energy and switching our energy supplies to non fossil fuel supply, so switching to renewable energy. So those are the two areas that we focus on. We believe we can continue our reduction in energy consumption, which is quite significant, has been quite significant already and we can move over to renewable energy. In terms of the detail of how many tons of CO2 that Hitachi produces, I think our Investor Relations staff or communication staff can supply with that information if necessary later. But I'm very focused on how we reduce energy and where do we buy our energy from in the future.
We will move on to the next question.
And to achieve 2,030 carbon neutral, what are areas that will be major challenges to achieve 2,030 carbon neutrality?
I'm very confident that we can hit carbon neutrality in 2,030. As I mentioned before, working with Doctor. Suzuki's team and across all of the business units, we have a very robust plan. And many companies have announced targets for 2,030 and have talked about how they would do that. Hitachi originally proposed our plans to science based targets over 2 years ago.
And the rigorous nature and process of audit by Science Based Targets organization to approve our plans. That has been very, very challenging, but I think very beneficial for Hitachi. So we know that the plan that we have is extremely robust. We are very confident about our ability to reduce energy. Now clearly, switching our supplies to renewable energy is a developing area and it's different by different nations.
So in Europe, renewable energy has really been accelerating very, very fast and in other areas, there's still a way to go. But we have 10 years and I'm confident that we can source the renewable energy requirements that we need, coupled with our reduction in energy requirements will see us hit that 2,030 target.
Thank you very much. So 80% reduction in the value obtained by 2,050 is another target that you have. But remaining 20% that you cannot reduce, what are the major factors for the remaining 20%?
Okay. Thank you for your question. It's a difficult question to answer, but from my analysis, we are confident about 80%. So we are confident to commit to that 80%. And we are still working on the remaining 20% of the emissions that we currently have as a group.
I will be working hard over the next 2 years to move that 80% to 100% because I think that is what Hitachi should be doing. That is what the world expects. That is what Japan expects. So that is the challenge that we will set ourselves. But at this moment in time, based on the analysis we have done so far, we can only commit to 80%.
What is the reason why you cannot commit for the remaining 20% as of now?
I think the answer to that question is because this is still an evolving science. Measuring the carbon reduction and the emissions from our own factories is challenging because it actually is a big group, but it is relatively straightforward for us to be able to measure that and therefore commit. The total emissions is all of the emissions of all of our products and services, which are in operations with all of our customers around the world. And that is a much more difficult area to manage and measure accurately. So I think Hitachi is taking a cautious approach at this stage because we want to commit to what we can deliver.
And as we collect more and more data about the operation of our products and services with our customers and partners around the world, we can seek to improve so that we can commit to that 100% target.
Thank you very much. We still see many hands that are being raised. But next, let me move to the institutional investors and financial analysts on the Japanese channel. If you have any questions, please push the raise hand button. And please ask your question in Japanese language, including those of you who switched language and are listening to English.
Any questions? So Mr. Yasui, please unmute yourself and ask your question in Japanese. This is Yasi from UBS Securities. Thank you very much.
I have two questions. First is for Mr. Dormer. You were in the rail business, and China is now shifting to EV and the HVDC and in rail. China is now becoming much larger scale.
So in China market, what is Hitachi's position in China market? And as a global competitiveness, Chinese players will probably emerge coming forward going forward. So including the possible intensification of competition, how do you view the market? 2nd question is to Doctor. Suzuki.
R and D field, is there an acceleration in the environment in R and D? The stock market drew attention. As Mr. Dorma said, the South Korean government clearly announced the CO2 emission target, and it seems like this will spur the moment. So Europe has higher initiative and higher sense and are ahead.
That's my image. Can Japanese companies really win in this competition in environment in R and D? So first question, Mr. Dormer and second question, Doctor. Suzuki, please.
Thank you very much for your question. I think regarding just take the first one of EV in China, I mean, that is actually a big opportunity for Hitachi Astimo because the China market is huge, as you say. From a rail perspective, Hitachi is supplying component into the Chinese market. And the Chinese market is so big that the domestic players in China, almost 99% of their activity is based in China. So we don't really see or we don't really compete against China in our core markets, which are Japan, China and sorry, Japan, Europe and recently in North America.
So but how do we compete continuously with these kind of big players? I think Itachi has done an amazing job over the last 10 years or so to grow our railway business. We now have a very strong railway business in Europe. In the last 6 months or so, we have won very important deals in North America, both in signaling and we're very optimistic in rolling stock. And we see North America as being another great opportunity for Hitachi.
I think if we manage to land the deals that we are currently going for, we will become the number 2 operator in North America in the coming years. So the secret to success is our commitment to our customers, our quality, our digital capability and our competitive position. So we will continue to grow those capabilities, and I'm very confident that we will continue to compete with the very best in the world.
So I would like to explain from R and D perspective, CSI, we have CSI, where we interface with our customers. Up until last year and this year, the situation has changed greatly. The government is now issuing the green growth strategy. And in last year and this year, the automotive industry players I talked with the automotive industry and they talked about carbon neutrality. In circular economy, They say that this is becoming more imminent and urgent.
That said, in each region, how this can be realized will be different from region to region. In Hitachi Tokyo University Lab, 2050 Carbon Neutrality Society is being pursued. So how can we transition to that goal? We are now exploring it. In technology, many breakthrough technology will be required and what we have to have incentives.
And we're thinking of the necessary incentives to make it work. Of course, this is different between Japan and China and different between China and Europe. In China, we are working with Finkai University. And in Europe, we have engaging ourselves in in the European decarbonization community. So we need to align ourselves to the region.
In line with the regulation. R and D has to be in line with that. So the industry, academia and government collaboration will be important in cultivating networks.
Can I just add one more point? Yes. Sorry, just something I think which is important to mention, and that is that over the last 10 years or so, Hitachi has shifted its product mix from what was quite heavy in rolling stock following the acquisition of Ancaldo SDS. Itachi's railway business is now much more balanced on signaling and digital technology, which has got a higher potential for value creation. The signaling market and the digital market, we see as being very attractive and we don't see outside of China competition from Chinese players so far.
Thank you very much. Next, Ezawa san, please. Please unmute yourself and ask the question in Japanese. Ezalo from Citigroup Securities. I have two questions, one to Mr.
Dormer, another to Doctor. Suzuki. The first question, Investment amount, JPY 84,000,000,000 invested in 10 years, you mentioned. During 10 years, amount to be used during 10 years, this amount sounds small as amount to be used during 10 years. Why did you come up with this amount?
Is this an amount small enough, not perfect your performance? Is that the reason? Or do you think you can enjoy large benefits with this amount? In what is the background for formulating this amount of investment? And number 2 is about R and D.
Earlier, you mentioned R and D amount ratio compared to the profit. You showed a graph about it. In Hitachi, going forward, you're going to enter you are not going to enter into a may I say that you are not going enter into a leading period of R and D investment? In other words, you will make investments considering the balance with profit. And you think that, that is sufficient as a R and D to be able to lead the road?
Do you mean Hitachi is in that stage and not a stage of making a lead investment? Those are my 2 questions. Thank you.
Thank you very much for your question. Well, firstly, let me say that Hitachi has already invested EUR 50,000,000,000 in reducing the energy requirements of our manufacturing organization. The further EUR 84,000,000,000 sounds like a very exact number And that is because that number has been derived from a bottom up calculation of our Monozukuri team working across all of our manufacturing sites in Itachi to evaluate their individual plans for investment. Now one of the benefits about having a Monozukuri team, especially one which is so experienced is that we can take best practice across all of the Hitachi Group and we can evaluate on a group level the cost benefit case for investment versus return. So yes, we could always invest more.
Everybody could always invest more. But really, this is about looking at saying what is the best value, what is the best use of our capital, what is the best return for efficiency, but also how to offset any potential increases in cost from buying renewable energy. So I'm confident that the CHF 84,000,000,000 is enough. What we need to do now is get on and deliver it. This
is Suzuki. Let me answer your question about R and D investment. To be able to grow investments, so how to allocate from profit? If R and D investments, there's R and D investment, capital investment, M and D investments, those are the 3 basic types of investments. And among those, Hitachi is now going through a portfolio transformation.
So including M and A in our calculation for 2021 MTP, we are aiming at reaching a 2 digit growth, so we make a lot of investment. But once the organization is fixed and we are at a stage of going to the next stage of growth, then I believe R and D will play a central role. So next will be environment and other new areas for growth. And at that stage, R and D investment could be increased. Depending on the phase, the areas of focus would be shifting.
So currently, the investment comparison with profit is what we are looking at right now. Thank you. Yes, I understand. But development R and D investment compared to profit, looking at the graph, in the next medium term plan, do you mean that the figures will be higher at the next stage of our plan? I think that will be the next stage.
Yes. Thank you very much. Understood.
Next, Mr. Hirakawa, please. Please unmute yourself and ask your question in Japanese. Thank you very much. I'm Hirakawa of BofA Securities.
I have a few questions on the Renewable Energy Certificate. 1st, I think this is a very interesting technology. Entry barrier, what is Hitachi's strength? And what allowed you to do this? You said you are submitting, applying for it, but is there potential competitors and the entry barriers?
So that's my first question. And second question, this business model and the expected market size, Upside scenario and base case scenario, I think you have 2 scenarios. So what is the market potential market size? Thank you very much. So Suzuki would like to respond.
Hitachi has offers various social infrastructure And this authentication platform, this is where Hitachi can play to its strength. And especially in the system for the customers, the asset management in asset management, the green procurement is the new demand needs that is emerging. So we are offering this as the added value and this authentication platform, offer this as an authentication platform. So what Hitachi has been doing and what we plan to do in the future is very much suited to it. So first, in our central laboratory, we are doing the verification in Hitachi and expand this to our customers gradually.
Thank you very
much. Next, we'd like to receive questions from the English channel. There are no questions in the English channel. So I would like to go back again to the Japanese channel. Currently, we have a lot of questions on the Japanese channel.
So we want to slightly explain the Q and A session. So any questions from the Japanese channel? From the press, institutional investors and analysts, Any questions? Please shift to the language selection for those who are listening to English translation and please ask a question in Japanese. Any questions?
Ihara san, please. Ihara san, please unmute yourself and ask the question in Japanese. Ihara from Nikkei Newspaper. Can you hear me? Yes.
I have two questions. 1, on the commitment slide from April, the executive pay will be linked to this concept. Are there any specific standard like the relevant business? If how many tons should be reduced to have a POIs of certain percentage? Do you have any That is my first question.
And my next question is about the nuclear power generation business. Going forward, if EV develops in Japan, in countries where renewable percentage is not very high. So the society as a whole, it's difficult to shift it to a low carbon society. In such a case, nuclear power, Do you think it's important in such cases? Or on the other hand, the radioactive waste is another issue.
Of course, you talk about environmental value, not only decarbonization, but I think radiation could also be included. If you think of radioactive waste, that could be a negative factor. Then nuclear power business in Japan and overseas, do you plan to maintain the policy in the future? Or do you think you will reduce this business? Or do you plan to increase the business?
What is your current position?
Thank you very much for your question. So the first question regarding executive pay, we this is currently in discussion with our remuneration committee. So we have approval that our executive pay will be linked to both environmental and financial performance, because this is really to incentivize our executives to reduce our CO2. So more details of that will be developed before April 1, when we move into our next financial year. Regarding nuclear power, I mean Hitachi continues to discuss nuclear power as an option from the perspective of climate change issues, obviously, with a full assurance of safety.
And we will respond to the needs of energy demand in a way that is consistent with the government policy. But that is we are not discussing outside Japan at this stage. As I'm sure you're aware, Itachi decided to withdraw from the Horizon project in the United Kingdom last year.
Next, Mr. Harada, please unmute yourself and ask your question in Japanese. Yes, this is Harada from Goldman Sachs. Thank you very much. I have three questions.
First is about energy about renewable energy. This will become more important going forward. In Japan, as competitors, we have Toshiba and Fuji Denki and overseas Siemens. You have Lumada, and I think this is a differentiator, this business model. So because you have Lumada, you can sell more hardware or the software and hardware, the supply and demand control is a different separate business, another separate pillar will be established.
Is that how I should understand it? So the way we should understand the business model is my first question. 2nd question. Lumada related businesses were raised today. And annually, Lumada sales is about JPY 1,000,000,000,000.
Some large ones, the business model, what kind of potential business model or business size it could reach, if you have any examples, please? 3rd, environment related investment and the investment criteria, if you could elaborate if you have any other criteria for investment. What kind of API or return on investment, lower the cap or the floor, if you have any criteria, please? Three questions. Thank you very much.
Thank you very much for your three questions. Firstly, talking about the business model. Hitachi is more focused on what I would call smart grid technology. So this is a combination of energy distribution and transmission combined with IT. So the requirements for renewable energy and wind energy and solar energy, these are not in terms of energy production is not where Hitachi currently sits.
We are very much more in the distribution and transmission area. But one of the challenges of renewable energy is it can be inconsistent if the wind doesn't blow, if the sun doesn't shine. So therefore, the actual grid needs to be much smarter to be able to manage these fluctuations in energy. And this, I think, is the real added value that it actually can bring. In terms of Lumada related businesses, I think it's very difficult to answer this question at this moment in time.
Clearly, what I showed in my summary slide is looking at the core pillars of Hitachi in energy, in mobility and in industry, the combination of those businesses with IT is very much the future. So all of our businesses will become digital and all of our businesses will be very deeply coupled and committed with Lumada. So I think it's very difficult to say what is the total potential business of Lumada, because I think what we will evolve to in the future is talking about the total digital business of Hitachi because all of our business is digital. Finally, final question in terms of investment criteria. As was announced, our CFO, Karl Morosan, is now responsible for our investment division.
So any investments that are made by Hitachi are made by through rigorous process of our investment committee, looking at our return on investment, but equally looking at whether that business would add value, would create synergy, would create further demand and has a bright future for Hitachi. So I wouldn't want to steal the words of Karamurasan in terms of any caps or flaws. I think if it's a good business that will add value to Hitachi, then we go through a rigorous process of evaluation to determine whether that is the right move for attaching.
I understand very well. Thank you very much.
Thank you very much. Now it is time to conclude. With this, we'd like to conclude the Hitachi Limited's Environmental and R and D Strategies web conference. Lastly, we ask for your cooperation in answering the questionnaire. After this meeting is closed, when Zoom is closed, a questionnaire will be displayed automatically.
We want to use your feedback for our future communication IR activities. We appreciate if you could answer the questionnaire.