So we would like to declare open ESG briefing of Hitachi, Ltd. We would like to follow the timetable that has been distributed to you. First of all, we would like to call upon Toshiaki Higashihara, President and CEO, for his opening CEO remarks.
Good morning, ladies and gentlemen. Thank you very much for showing up so early in the morning to attend our ESG briefing organized by Hitachi, 2021, we have the 2021 Mid-Term Management Plan. We have embarked upon that. This Mid-Term Management Plan is different from the previous ones. We are stressing the social value, economic value, and environmental value. Those three sets of values are to be enhanced to improve the quality of life for the people at large, as well as enhance the KPI of the enterprise, through enhancing social, environmental, economic values.
What is by far the most important, I would like to stress, is that every single employee, every single associate who works for Hitachi, how each one of them is going to contribute to society, how they are relating themselves to their associates and their partners. This is by far the most important among the ESG segments. This relationship should be enhanced. I had four town hall meetings at four sites, four hours each time. This is what happened to me last week, especially HR, finance. Those are people who do not have direct interaction with the customers. I visited those workers who do not have the direct contact with the customers. Asked the workforce, "What kind of social integration you are making to the society, do you know?" For instance, we have cancer therapy. Hitachi provides cancer therapy. We have the particle beam, the cancer therapy.
In the U.S., PBT, that is the proton beam therapy, cures people. Some patients came to me, and they said the patients were remissed by the PBT. I was very pleased by interacting with those patients, from London to the straight of the U.S. and France. This is very punctual train services. They can enjoy breakfast with family members, and they can make the efficient trip to the offices, utilizing their very punctual train services. This is their shared value. This is the area we will be emphasizing as we proceed with the business into the future. This is my thought. This is my passion. 1910, the founder and president, Namihei Odaira, he declared that Hitachi is going to make the contribution to the society through excellent, unique products and technology.
109 years have passed ever since Mr. Odaira made that declaration, and we would like to remind ourselves, so we are also continuously making social contribution through the social innovation business to achieve the sustainable society realization, as we also proceed with the sustainable business management of our organization. The business environment, as we look back, it is very difficult to predict. This is the era of VUCA, volatility, uncertainty, complexity, ambiguity, urbanization, demographic changes, a shortage of natural resources, climate change. There are such broad range of social issues. To face up to the social challenges, Hitachi has embarked upon social innovation business. We would like to identify solutions against such broad social issues here in Japan. A Society 5.0, in order to address the social challenges and achieve the economic development at the same time.
This is like the two sides of the coin, and this is agreed upon by the cabinet of the government, and this is also agreed upon by the business circles. We would like to promote the SDGs through the social contributing business. Back in 2015, the sustainable development goal was defined by the United Nations. Society 5.0 and sustainable development goals, that was defined by the UN. Hitachi is going to practically make contribution and participate in such a movement through the social innovation businesses to contribute to the betterment society, social value, economic value, and environment values. Those three sets of values to be enhanced at the same time. So this is the cornerstone of 2021 Mid-Term Management Plan, to enhance those three sets of values. So digitalization is advancing today. Digitalization technology is to be harnessed to enhance the three sets of values.
Without utilization of digital technology, we cannot achieve these three sets of values to be enhanced at the same time. Cyber physical system, as I will elaborate about this, there is the real world, such as factories, assembly process. This is real physical world. On the other hand, there is the cyberspace. This is computer, IT space. The front line of production that is connected with the cybers, they are uploading the information to the computer and let the computer run the simulation through the information that is uploaded from the cameras or sensors from the factory. So this is the cyber physical system. Somebody is conducting welding that is captured by the camera vision, and the camera vision assists the professional. They serve as a connoisseur of judging whether the welding operation was good enough or not. This judgment is done by the digital system.
So this is a cyber physical system. It is increasingly deployed by businesses. This has commonality, Industry 4.0, in Germany. Hitachi is going to maximally utilize the cyber physical system to improve the quality as well as work efficiency, operational efficiency, and also to enhance the quality of life. This is the way of promoting social innovation through the cyber physical system, why Hitachi is in the position to be able to promote the cyber physical system for the enhancement of social contribution. We have the OT technology accumulated over 100 years by supplying physical products and providing services ever since the 1960s. We have the track records of IT, of selling and supplying and servicing computers. We are the uniquely positioned company, and there are not so many such companies in the whole world that has the combination of OT and IT.
We can combine the cyber physical system to provide the economic, environmental, as well as social values, and enhance those three sets of values together with the people around the world, to improve the quality of life for the people around the world. Those are the directions we are heading in. Those are the activities we are going to engage ourselves in. Within Hitachi Group, ESG is decided by the Executive Sustainable Committee. ESG stands for Executive Sustainable Committee, that makes the strategic decisions concerning sustainability environment, in order to create long-term value for the shareholders and investors. What is important in this aspect is that every single employee of a group should be aware of the three sets of values, environment, social, and economy. Every single employee should be mindful of those three values to be achieved.
So in the sessions that will follow, we will focus upon the environmental aspects. 2015, there was a Paris Accords under the sponsorship of the UN , and following that, in 2015, Hitachi has identified the Environmental Innovation 2050, to identify in what direction, in what way we are going to address the environmental issues. For instance, the reduction of the environmental burden that is important for the Hitachi Group, as well as collaborating customers, to reduce the environmental stress and burden. This is going to be shared by VP Osamu Naito, who will be addressing this environmental aspect. The social values, the second set of values. We provide to 18.5 billion people, we provide the safe and comfortable and environmentally friendly railway services. And daily basis, we provide access to safe drinking water to 70 million people. And we have contributed to cancer therapy.
Up to date, 60,000 patients are treated, and we would like to increase this number up to 80,000 patients to be cured by the proton beam therapy or the PBT. So these are the activities, and that will require the talent to enable those social contribution. How to secure the talent, and also to enhance the mindset of talent and workforce, this is very important. So we have a set of talent strategy, human resources strategy. This will be shared by SVP Nakahata, who is in charge of the human resources. Concerning the governance, the enterprise governance, today we have 11 directors serving on the board. Out of that, eight individuals are external board members, outside board members. And as is described here, Mr. Mochizuki referred to the directors are like the whetstones or grinding stones, and the grinding stones and the executives may be regarded as the swords.
And swords and the grinding stones, they will discuss, and the whetting stones will be worn out, but as a result, the swords, executive officers, will be polished and shine. So what is important is that there should be the common information that is accessible to the directors as well as to the executive officers. We share the information based upon the common information. We provide the foundation so that we can discuss the direction for the future. In the past, we have the directors who have great track records of serving as global leaders at various enterprises. We are learning from those directors. We are going to make ourselves the global leader so that Hitachi will be synonymous with social innovation.
Concerning governance, the director Mr. Yoshihara is going to share the report concerning the status of governance that is prevailing at Hitachi. So facing the customer society, what kind of contribution we can make from Hitachi. So w e are pursuing the social innovation business to provide value to customer and society. At various scenes around the globe, we are providing social, environmental, economic values, working closely with customers to enhance those values to accelerate innovation. We would like to appreciate your honest feedback. Powering Good, this is the buzzword we are going to adhere to in the coming three years. We would like to focus upon the good aspects of society so that the whole world will shine. Thank you very much for your attention.
This will be followed by the environmental session initiative for Hitachi Environmental Innovation 2050 in creation of environmental value. Mr. Osamu Naito, Vice President and Executive Officer, Head of Executive Officer Support, and General Manager of Government and External Relations Division.
I am Naito, and I am responsible for sustainability matters. So there have been lots of natural disasters, such as floods and forest fires, due to climate change, and the living environment for humans have degraded because of the increase in such disasters. So there was, in the Climate Change Summit, the 16-year-old activists were reprimanding the grown-ups for ruining the environment, and I am in total agreement with her. Our CEO has explained that Hitachi has been taking actions to address climate change since its foundation, and in the 2021 mid-term plan, has also specified the simultaneous increase of social value, environmental value, and economic value.
And we need to revise our sustainability environmental plans accordingly. Here are the key points I wish to explain today. First, Hitachi Group's governance system for advancing sustainable management from a long-term perspective. Number two, in addition to setting long-term goals, we have implemented internal carbon pricing system from this fiscal year. So this has just started, so we still don't have much data. But we would like to introduce our new internal carbon pricing system, as well as disclosing the result of scenario analysis on the impact of our main business on climate change. TCFD also sees this scenario analysis as necessary. And number three is the case studies on achieving resource-efficient society and a harmonized society with nature. And this slide shows Hitachi Environmental Innovation 2050, which was set in September 2016. This is following the Paris Climate Accord of 2015.
Hitachi will resolve environmental issues and achieve both a higher quality of life and sustainable society through its social innovation business in collaborative creation with its stakeholders. This is our environmental vision. And we have three targets, low carbon society, resource-efficient society, and harmonized society with nature towards 2030 and 2050. Although these long-term goals are very challenging, we will make sure to realize this by implementing concrete measures and achieving action plans set every three years. So especially important items are also included in the 2021 Mid-Term Management Plan as environmental KPIs, which the entire Hitachi Group commits to, such as reducing CO2 emissions throughout the value chain in FY 2021 by over 20% compared to FY 2010, as well as improve efficiency in water usage in Hitachi Group by more than 26% and improve resource use efficiency by over 12%. This is the Executive Sustainability Committee.
Appropriate management and governance is necessary. The top row shows The Executive Sustainability Committee, chaired by Hitachi President and CEO and participated by the chief executive. Important matters relating to Hitachi's overall environmental management are deliberated here, and more concrete measures will be handled in the bottom row, called the Eco- Management Meetings. And in this body, concrete measures to achieve the long-term environmental targets as well as activities to reduce environmental compliance risk are deliberated. Heads of environmental promotion divisions of major group companies participate in this meeting. The middle row, on the other hand, is the Sustainability Promotion Meeting, and the chiefs of management planning teams of the business divisions in charge of business strategy participate in this meeting. In the beginning, this meeting discussed about how to implement sustainability needs in the business. In the 2021 mid-term p lan, the three values, economic, social, and environment.
And this meeting talks about very forward-looking matters such as how to change businesses in order to meet the sustainability needs. So, Hitachi's environmental governance is managed through these two bodies. And every three years, the E nvironmental Action Plan is drawn up. Performance data is collected by the Sustainability Promotion Division. This data is collected and assessed twice a year, and the results are visualized and are used in the Environmental Action Plan. So we created a PDCA cycle to manage the results. Ms. Araki here is the Head of the Promotion Division. As part of internal audit, an environmental audit is performed by the Sustainability Promotion Division every year to check the implementation status of the action plan on each business unit and group company. Next slide, please. So Hitachi is promoting carbon reduction measures.
If you see the top line, we are trying to solve the issue of climate change throughout the value chain. And looking at the entire value chain, emissions from production at the production floor is only 3.6%. Most of the emissions comes from emissions during use, which is 88.3%. We need to create a scheme in order to reduce carbon emissions throughout the entire value chain. So our goal in the 2021 mid-term plan is to reduce CO2 emissions by more than 20% throughout the value chain by 2021. And we also set targets to reduce emissions by 21% at use and 9% at production by FY 2021. And 3.6% is decarbonization at plants and offices. To innovate, we have internal carbon pricing in order to promote decarbonization in our plants and offices, and this starts from 2019.
And this internal carbon pricing system is a system in which an organization uniquely prices carbon emissions and applies the prices to its management decision-making. So within Hitachi Group, when a factory or office is to make a new capital investment, we decided to price the CO2 emission at JPY 5,000 per ton. We came up with this figure based on data coming from IAEA. So we visualized these carbon emissions in terms of amount. Before, when making capital expenditure decisions, CO2 emissions was not the first thing the decision-makers took into account. We have added this price that is factored into the ROI calculation. And our people are very serious, and so they started to seriously think about CO2 once this was factored into the budget. And risks and opportunities climate change will bring to Hitachi's business in the long term.
I'm sure you're aware of TCFD, Task Force on Climate-related Financial Disclosures. Since June of last year, Hitachi announced its endorsement of the TCFD and started disclosing information in the integrated report based on the disclosure criteria in the TCFD recommendations. I also participate in TCFD meetings. We have two scenarios, a two degrees increase and four degree increase by the end of the 21st century, and we have analyzed these two global warming scenarios. The categories based on TCFD. Left side is policy and legal risks, technology risks, as well as physical, acute, and chronic risks. Looking at these risks in short to mid to long term, how can we address these risks? This is elaborated in more detail in the integrated report. We see that there are risks, but we found that these risks can be handled.
In this slide, we selected five specific businesses and assessed the impacts on the businesses in the two and four degree scenarios. Although the likely impact in the scenarios are different for each business, we found that in all cases, resilient business continuity can be achieved through following market trends, discovery of customer issues, and flexible strategies and innovation. What is important is not the conclusion, but the fact that the business unit themselves reviewed their businesses from this perspective for the first time. So that is what is important. And having announced the three values, social, environmental, and economic in the midterm management plan, we feel it is an important message to review our business from this angle once again. And this slide maps out how we intend to contribute to alleviate climate change in each of the five sectors.
For example, in mobility, we have smart mobility and also smart city and vehicle electrification under life solutions and power grid solutions under energy as well as IT solutions. Hitachi aims to grow through co-cleviation using Lumada and offer various solutions through the five sectors defined as growth areas in the 2021 mid-term p lan. Many of these initiatives are so-called decarbonization businesses that can generate high value with little CO2 emission. From page 56 of the integrated report, the value creation stories of each sector are explained. We have identified these business areas, although it is not yet perfect. From here, I would like to briefly introduce specific business examples. The mobility sector offers safe, secure, and comfortable products and services to people around the world. For example, reducing rolling stock body weight and lowering electric loss.
The Honolulu railway service, which is still to be operated, contributed to reducing 210,000 tons of CO2 emissions per year. In June of next year, we plan to close the ABB power grid acquisition. With ABB in our group, we will be able to provide stable energy supply to 1.8 billion people throughout the world.
In smart life sector, we have identified the automotive examples. In the industrial sector, in the production floor of the customer's premises, AI analysis, operation technology, and IT data. These AI analysis results will be fed to the simulation system to optimize the whole production. For instance, 22% power bill reduction can be achieved. The cases that have been referred to in these pictures, this was a sector-by-sector business report, as well as IR meeting that was conducted in May, June timeframe. Those are the examples that were better suited for the business reports by each sector. So the business report is one thing, and ESG report we have organized this time are separate. However, into the future, there should be the correlation between the business report or business perspective and ESG in a correlated manner.
The sustainability promotion division will have to promote an integrated session where the business and ESG can be integrated and correlated and presented. CO2 reduction by the energy saving, high efficiency machinery introduction. There has been the decline from 2016, 2018. More than 20% reduction in CO2 by 2021 will be achievable. How to drastically reduce the CO2 reduction down to 50%-80%, this will require innovation. Now, our engagement to achieve resource efficient circulating society. There is a sense of crisis in the whole world, such as the depletion of water resources and the contamination and pollution. In Europe, there is the opinion supporting circular economy to transform the entire society. That is a trend prevailing in Europe and other countries. In order to achieve the circular society, and Hitachi has been engaged in the efficiency improvement in terms of the water and resource consumption within the Hitachi Group.
Taking an example of the water consumption versus the revenue or the production output. So comparing the water consumption versus the unit of activity, taking the base year 2010, the achievement is 100. It has been constantly coming down in terms of water consumption and water efficiency. It has been constantly improving. We are engaged in production operation in various footprints around the world. As the freshwater resource is getting more and more scarce and short in supply, based upon the water risk analysis, how to proceed strategically to apply the water utilization efficiency improvement. We need to establish the guidelines. It is making progress, and it is gradually coming down in terms of water consumption, but this may require more drastic measures to reduce the water consumption, improve the efficiency. The example of the Hitachi Chemical printed circuit board, ion exchange water optimization to drastically reduce the water consumption.
This is a case in Singapore, Hitachi Chemical. Ion exchange water based upon the industrial water going through the reverse osmosis system and concentrated water and reverse osmosis, and we take the ion out of it. So his is a complex process. The water to be utilized a cleansing process. This process was optimized so that the absolute water intake can be reduced. This is what we did. And the Hitachi Metals Waupaca Foundry, they have a closed-loop water system so that they are reducing the consumption water. They have established a closed loop, the water circulates inside the closed loop. This is the drastic improvement in terms of the value chain, the resource circulation. In order to make the resource circulation and improve the efficiency, starting with the procurement, development, design, manufacturing, distribution, sales, and the disposal.
Utilization of reclaimed or recycled material and the making of a product that is resource efficient, long life, recycling of the resources, and reduction of factory waste. For instance, the household appliances. 4% of the total resource is plastic, but out of the 4% plastic, 80% of plastic material utilized for the household appliances. In the household sector, the recycling or the efficient use of plastic will be required. This diagram indicates the resource utilization efficiency. It has been making good progress over the years. Resource utilization efficiency improvement. On the left-hand side is the HiAMS, Hitachi Automotive Systems group. In the circular utilization of iron scrap, the right-hand side is the Hitachi Metals Waupaca Foundry. The slag that comes out of the used foundry slag, utilizing the reclamation or recycling facilities, the slag can be recycled in the entire foundry process.
In molding and the foundry, they utilize the slag or the sand, and they used to dispose of it, but they have switched over to the circulatory use of the slag to improve the overall efficiency. The actuals and the targets plotted on this diagram for the first search, the environmental long-term goal, the drastic improvement either way. In order to achieve a 2050 goal, we would like to make steady efforts to achieve the goal by 2050, to achieve the society that achieves the harmony with nature and the negative impacts such as chemical substance, as well as the CO2 emission should be reduced as much as possible. Positive impacts such as forestation or the ecosystem to be preserved in our site. So this is the kind of social contribution by our workforce to make the positive impact to the environment.
By achieving the positive impact and reducing the negative impacts, we can attain a society in harmony with nature, the final aspect. Internal assessment and external assessment indicated in this diagram. Investors' assessment, investors' perspective. This is a third-party standardized assessment. We need the criteria for the comparison. The CDP you should be familiar with. The CDP score as of 2017, it used to be B. 2018, we have been improving the assessment by CDP one notch, a score A minus, so we would like to move away this minus from the A. So c limate change, we are making improvement in terms of the external assessment and also MSCI. This is another external assessment. It fits FTSE for good. You may say those indices are missing. We have produced our assessment, or we have produced and submitted our dossier, and the results or assessment results will be made next year.
Honestly speaking, our resources are stretched and limited, so we cannot apply for all of the external assessment. Globally, we have to focus upon make concentrated efforts in some of the aspects we can cope, and we would like to achieve improvement so that we can win more external assessment. We have won the energy saving awards by the Ministry of Economy, Trade and Industry Hitachi Group, as a whole, we have 300,000 workforce under our umbrella. With the joining ABB into the future, we have even larger workforce, and we would like to cope with the social issues, including the global environment, to create values together with the customers and regional community. ESG from the environmental aspects. The environment does not exist in vacuum. Therefore, this requires long-term perspective and governance and management strategy to be pursued by the directors, executives.
The social value and economic value should be visualized and so that we can identify new business frontiers together with the customers by co-creation with customers to achieve long-term growth. It is not just the commitment by the executives, but also the entire workforce of the group, including the stakeholder dialogue at various levels and thus integrating the management as well as the ESG aspect. So we need to continuously promote the stakeholder interaction and dialogue. Are we number one? Not yet. It is a long way to go. We are seeing the backs of the pioneers running ahead of us, so we need to be standing front. Now, we would like to move on to Q&A.
Q&A. So , Mr. Naito, as well as Ms. Araki from the Sustainability Promotion division, will be responding to the questions. The gentleman in the front row.
Thank you for the presentation. I am Moriyama from JP Morgan Securities. I have one question about the environment, your initiatives and actions globally. You have 300,000 employees globally. So how do you share this environmental awareness globally? Do you take periodic communication or through technology, or do you have internal newsletters or gazettes? So please give us some examples of global or international information sharing.
Thank you for the question. From the top messages, head of group companies and BU heads. Each group companies have their own local sites. Environmental-related information is published on the websites. However, that is not enough. We also have e-learning internally to become more environmentally aware. So the employees go through this e-learning process. We follow up with the managers if not enough employees are going through that environmental e-learning training. And at the end of the day, we need face-to-face dialogue to become serious and earnest about environment. However, we see awareness is higher outside Japan, especially in Europe. Europe has a very highly aware population. So the management team gets together, and it turns out that European managers know more about environmental matters. So Europe might be very advanced, maybe too advanced.
And also, America, maybe the president does not have much awareness, but the West Coast in the U.S. is also very aware about sustainability. The managers really get together from time to time.
May I add additional comments? In the material environmental governance of Hitachi, we have sustainable environmental promotion office. There are overseas sites. At major overseas sites, environmental CSR, there are officer in charge of sustainability and the environment, so we maintain day-to-day communication. We have at least once per annum face-to-face discussion to exchange views and opinions concerning the issues that we face with the overseas counterparts. Thank you very much.
Any other questions? The lady at the back.
I am [Ogi from Ni Japan] . You talked about TCFD and your risks and opportunities and actions according to TCFD, and I truly admire that. I have one question. Reducing CO2 emissions throughout the value chain will be the key to achieving your goals. And to promote that in the business, do you have any incentives in the business for the businesses to invest in environmental and sustainability? And the other question is about internal carbon pricing. You started this from FY 2019, to make it part of CapEx decision-making. And were there any projects which were dismissed because of high carbon emissions or promoted because this was carbon friendly?
Thank you for the question. Regarding incentives, up till now, there are lots of performance evaluation systems, but we are not only putting environment into consideration, but some assessment is done when some contribution is made to society. Especially in the Mid-Term Management Plan, we have announced three values. Increasing these three values are extremely important for us. Just increasing economic value is not enough. Both social and environmental value needs to be enhanced to be part of Hitachi and this is our CEO's determination and message. How should we evaluate the performance based on this value? We need to really put that into our system. Moving to internal carbon pricing, this has just started. When we do capital investment, pure capital investment, if we look at the total amount, facility insulation of buildings are also included, and machinery and tools.
If we put that all together, the JPY 60 billion is our entire CapEx. Environmental related, direct environment on environment, tended to be about 15% of the entire capital investment. We tried to increase the proportion, and that's why we have introduced this carbon pricing, and this just started, so we do not have much data on the outcomes yet. More recently, in making air conditioning more efficient, that was one project we saw recently. Once this becomes more widespread in our company, I think internal carbon pricing, we need to communicate internally in order to ingrain internal carbon pricing more into our company.
Any other questions? Second row.
Thank you. Citigroup Securities, I am Ezawa . I have two. Concerning achievement of carbon neutrality, U.S. major companies, some of them already achieve neutrality. Some companies have declared they are going to achieve neutrality by 2040. Now, Hitachi is declaring you are going to reduce CO2 emission, but there is a time lag. The purchase alternative energy, the price is so expensive, so compared in the U.S., maybe there is not so much you can do about it. Comparing Japan versus U.S., you are behind. Second aspect is the nuclear business. The nuclear energy power plant, looking at the total span of their life, their CO2 reduction, environmental responses, do you think it is better to promote nuclear energy to improve the environmental or the carbon footprint? What is the position in terms of nuclear versus carbon footprint? Thank you very much.
Carbon neutrality achievement. So you have indicated we cannot cope with the U.S. counterparts. We are behind. In terms of neutrality, emission of carbon will be canceled out by the environmental measures.
But what we would like to achieve is not just neutrality. Rather than achieving trade-off by the emission trading, what we would like to achieve is the total reduction of CO2. It is better to consider total reduction, absolute reduction of CO2, rather than technically achieve the neutrality by trading. Maybe we are lagging behind, we are far behind the U.S. counterparts, I am not sure. But our preference is to achieve the total reduction. Maybe whether our accounts, Hitachi accounts, reduces the carbon footprint, that is another story. Also positioning the nuclear versus the carbon. We have been engaged in nuclear power generation in the past six decades or so.
The safety measures is most important, but in terms of CO2 reduction, and considering the Japanese domestic situation, CO2 reduction alone, there doesn't appear to be competitive source of energy in terms of providing the absolute amount of energy supply. There is no readily available alternative. So to ensure the stable supply of energy, not just to cope with the climate change, we should also count nuclear energy as part of our portfolio.
Final question. The first thing, in the front row.
I am Amatsuki from Nikkan Kogyo Newspaper. You mentioned that Europeans have too high of awareness about climate change, and I think Japan is behind. In the Climate Change Summit, there has been some criticism that Japan does not have a sense of crisis. Greta Thunberg from Sweden has crossed the Pacific, Atlantic. You have the long-term target until 2050. I think we feel that you should do this more quickly. Do you have the sense of urgency that you need to accelerate? Do you think this as a pending issue?
In the mid-term plan, the three values came up in the mid-term plan. This is not only economic value, but we thought what the social responsibility of corporations are, and this is like a big momentum that is approaching. We have these long-term goals. We have set these long-term goals, but we need to continue revising these goals. For example, accelerating the timing or increasing the percentage. We are in a timing that we need to really think about this seriously. We decided to hold this ESG meeting in the first place to receive your feedback. For example, to receive your criticism saying that we are lagging behind too much. So we hope that we can receive your feedback, not only today, but on other occasions, too. Thank you.
Okay. We would like to close the environmental session. So this is the social value session. Hitachi, HR strategy as an enabler to deliver social value. Mr. Nakahata, Senior Vice President and Executive Officer, CHRO of Hitachi.
Our CEO talked about the three values, social, environmental, and economic, and people will be the key to achieving that. I will be talking about HR strategy. I have three items that I would like to talk about. Number one, the global society. Transform HR management to deliver solutions to diverse social problems in the global society. I will be talking about the background and direction of the transformation. Number two, build platform for Hitachi, so that diverse talent can demonstrate their performance as one team. We will be talking about the initiatives of building the global human management platform. Number three is attracting, developing, and placing diverse talent in the optimal way, including diversity and inclusion promotion, and developing business leader to lead the three values. Number three, strengthening digital talent. And first, about the transformation of HR management.
Hitachi delivers values to customers and society through social innovation business that we will be deploying globally. This is our business direction. Social innovation business is to solve the problems, not only current problems, but future problems close to the customer through products and services. This project must be done beyond country and region. What type of talent is needed? What kind of organization is needed? There are three points. Number one, we need talent who knows the local market as well as the global market. Number two, we need a structure that work as one team across countries and places. Hitachi has 300,000 employees globally and 40%, 130,000 of them, are from outside Japan. The global team generates revenue of JPY 9.4 trillion. Number three is that this talent needs to accurately explore customers' issues. Before, the customers told us their issues, but we need to be more proactive.
We need to find out the issues by ourselves. We need that sort of organization and culture. And past Hitachi is on the left-hand side. The assumption was that Japan's GDP was the world's second highest. What Hitachi had to do is to provide good products and systems to customers in Japan, such as electricity utilities and railways, telecom companies in Japan. We offered systems to Japanese customers. That was the most important. In this case, we had Japanese male regular employees work in the same place and time. So this was a very homogenous group that was the most efficient. Talent management was mainly focused in Japan. However, now overseas market is expanding, and Japan market is either staying flat or even decreasing. So from now on, we need to explore the needs of the global market and offer services that solve the needs of global customers.
It is not enough that Japanese male regular employees stay in offices in Japan. As shown on the right-hand side, we need diversified people, regardless of nationality, gender, and age. In this case, they will be working in various places and various times. Talent will be managed as global group consolidated. There are two examples. Number one is the railway business unit. As shown on the top right, the railway business is transforming greatly, and 82% is overseas. Regarding employees, 7% was overseas back in 2011. But in 2018, 75% of our employees came from outside Japan. The headquarter is in Europe, and a British person, Andrew Barr, is heading the railway business. EVP, Mr. Alistair Dormer, is looking over the entire mobility sector from Japan. This business is not only in Japan, but also China, India, U.S., Europe. Global operation is necessary, and talent needs to be managed globally.
The second example is our HR group. This is my group, and there are 52 members of staff. We have Mr. Levent Arabaci leading the Global Human Capital Group, and 17 are non-Japanese, and two are working in Japan, and the rest are working in other parts of the world. HR system, we use Workday, and an American lady is leading the HR system, heading members from the U.K., India, Japan, et cetera. They are using TV conferencing system to work together. One team operation is necessary. To do this, to have this type of work style, we need a common evaluation and grading system. Before 2011, there were 195 companies having 195 different HR management systems. But from 2011, we have built a global common HR management system to have a common management and grading performance management system. It is taking time since Hitachi has so many big things.
Starting from database, grading, performance management, and leadership development, we are unifying globally. We are using an HR platform on Workday, having 151,000 members in Workday already. We can visualize the skills and competencies of these members globally. Next is attracting, developing, and placing diverse talent. This is about promoting diversity and inclusion. Through this, we intend to contribute to increasing the three values, social, economic, and environmental. Our CEO is a leader, and as an outside advisor, we have Ms. Cynthia Carroll, and we are promoting this as Hitachi Global. Regarding diversification of nationality. Revenue compared to 20 years ago, more and more revenue comes from outside Japan. According to this, talents before 20% were outside non-Japanese. But now we have 133,000 people from outside Japan. We will have 35,000 non-Japanese employees added through ABB acquisition. Number two, female talents.
22.2% is the global female employee ratio, and half reside in Japan. Utilizing female talent in Japan is being worked on. Female manager ratio in Hitachi, 10 years ago, there were 320 female managers, but now we have double that, 635. By 2020, we have a target of 800 female managers. Regarding recruitment, female ratio of new hires, for non-engineering, 51.6% are female. For engineering talent, we have 18% female ratio. The more women's role will require the higher level awareness among the female leaders and leader candidates. Since four years ago, we have been conducting Global Women's Summit. Last year in October, we conducted Global Women's Summit in Singapore. 160 Hitachi female employees across 17 countries got together. We had guest speakers, Cynthia Carroll, under the leadership, Mr. Higashihara, and I attended also. We had discussion. This fiscal year, it is going to be October.
In Tokyo, we are involving men as well as women, not just women, although this is going to be the Women's Summit. Diverse talent amongst the management level. Diverse talent should be assigned to the management levels. This has a major impact. Over the past several years, those are the list of the talents who have been assigned to higher positions. Alistair Dormer and Andrew Barr in the railway business. In addition to them, 18 months ago, we have hired Dr. Brice Koch, who has been serving as the Hitachi Automotive Systems President and CEO, with the revenue of JPY 970 billion. He used to be the vice president of ABB Ltd. Ms. Chie Mashima, she is now assigned as the CEO of Hitachi Australia to promote the Oceania business. Within external talent, [Kamran -san], CSO, who is in a position to organize the mid-term management plan.
He has a background from the trading companies. This is a diverse background, a diverse talent, who should occupy the higher position within the organization. Defining the goals and make external communications is important. November 2017, amongst the directors, the 10% increase in terms of foreigners, as well the female members and directors. As of this April 2019, seven foreigners and four ladies, 8.8% non-Japanese, 5% women. This percentage should be raised to 10% each, non-Japanese and ladies. But 10% will not be the ceiling. This is not the ultimate goal. We are going to exceed furthermore. Diverse talent should be trained and assigned. Selection of the candidate for the management leaders in order to lead the business through the era of transformation, this is very important. Not just succession choosing, that will not be sufficient. We need to explore the talent regardless of domestic or abroad, male or female.
We need to screen those talents, and those talents should be intentionally nurtured to serve as the next generation management leaders. Management leaders, what is the requirement for the management leaders? That he or she should not be familiar with his own specialty. Those candidates have the global perspective and familiar with the digital technology. In the uncertain situation, he or she should be able to make the final judgment by learning from external or internal information knowledges. The capability for the transformation response to the diversified situation. This diversified competency will require the selection based upon not only the past performances, but the competency level at the present time, and the growth potential into the future. We also take into consideration it is very difficult to foresee the potential, but we have harnessed the capability of external expert consultants to judge the future potential and be screened and selected.
The candidates are assigned to stretch assignment and provided with off-JT training. There will be the coaching with the top executives. There is another characteristic to select the leaders. Among the executive officers and the nominating committee, they are working in a concerted manner. The nominating committees are familiar with this process. On the executive side, we have the talent committee for each business unit, 30 times per annum. The executives of the BUs, Mr. Higashihara, the CEO, and myself will get involved in discussion and make the selection. We made 400 individuals selected as candidates. That is 0.1% of the total workforce, including females as well as non-Japanese. We will train those talents by assigning them stretch assignments, tough assignments. Nominating committee members, there are four individuals, three of them are external directors.
The director who will be speaking after me is also an external director. We are having the face-to-face discussion with the next generation of the possible candidates for the CEO. We have one-on-one face-to-face discussion to identify the potential and what kind of experiences the candidate should be exposed to. We make the decision. The next generation that is in the 30s up to early 40s, those are identified as Future 50 talents. That is relatively young talents. 50 individuals are the young candidates for the future executives. From the executive side as well as the nominating committee side, there will be face-to-face, one-on-one dialogue with Higashihara-san, and also the exchange with nominating committee directors. The digital talent for us to pursue the digital business in order to address the social challenges and come up with the solutions.
This will require innovation, combining the real technology as well as the digital solutions. Such a talent should be nurtured. 2021 Mid-Term Management Plan, the digital talent to support the Lumada. 30,000, that is the goal of having the workforce, the size of the workforce, 30,000 in the IT sector by 2021. In order to step up the digital talent workforce, what the digital business is like, what kind of talents will be required? So we've had the discussion. The needed talent, we need to have the deep understanding of the customer's vertical industry. We need to have the insight into each vertical. There has to be the domain expert and design thinker who can translate that into the solutions, the data scientists, the security specialists. Those are the plethora of experts, various diversified talents that will be required.
So we will be hiring them as well as nurturing them. With regards to recruitment or the hiring, in order to expand the global business, the new Hitachi Vantara will be organized. The hiring as well as the talent acquisition through the M&A will be conducted. This past April, we have organized the Hitachi Academy for the training. That should facilitate the digital training. And on-the-job training can be provided. The front organization that is exposed to the customer, involved in the digital solutions. Digital talent will require AI talent. We may be distracted by just providing AI talent. AI just is not the means, but the tool. The AI and data scientists, they should have deeper understanding, so the visibility of the project will be required. So the project leader will also be required, and the discrete functionality.
There should be the domain experts who understand those segment. Those experts will sit as the project members to organize the projects. The project leader should be assigned with their business experiences, and the members will be experienced through the Hitachi Academy program. And here is the summary. As I said before, the social value, environmental value, economic value to be attained at the same time will require the talent, high quality of talents. Not just high quality, but also diverse talents. How to harness diverse talents will be crucial for us to enhance the values in these three segments. The endeavors have just begun, but we would like to continue with these efforts.
So we would like to entertain questions. Any questions? In addition to Nakahata-san, General Manager, Global HR, Arabaci-san will also join the Q&A from the Human Capital Group. Any questions?
Thank you for the explanation. Moriyama of JP Morgan Securities, I have one question. Global talent, acquiring global talent and younger talent, retaining younger talent for various diverse specialties. The compensation package, if you just rely upon the conventional salary scheme, acquisition or the retention of the talents will become difficult because we may have to come closer to the foreign companies. This may require innovation. The compensation package, what is your engagement with regards to the compensation package to retain acquired talent?
Compensation package. There is a global grade as well as performance management. Through this combinatory assessment, we will define the compensation. Global, overseas talent. The job market or the labor market, they exist in each locality, so we cannot.
The global grade is common, but as for the compensation level, that will be decided upon, take into consideration the rates that prevails in each geographical market. Concerning the AI and data scientists, they are in acute short supply, digital talent. For the compensation for the digital talent, we may require a different level of compensation package specifically for those digital talent. We have professional employee scheme for the Hitachi global grade, Hitachi, the annual level. We may go beyond the predefined scale of Hitachi global grade to acquire those highly specialized digital talent in the future. The labor market is not mature yet here in Japan, but the labor market will going to emerge, and therefore, we can align our compensation package with the labor market that is going to emerge and mature here in Japan.
Any other questions?
I am Kurahashi from Good Banker. Thank you for your presentation. I have been investigating and hearing from many companies, and recently, work style reform and productivity and efficiency are getting very hot in the companies. Reducing work hours is something that the companies are working on. How do you intend to keep or evaluate your productivity? I do not think there is a yardstick to measure productivity. How do you intend to measure productivity?
Work style reform from December 2016. Japan working hours is quite different from global, so we have been working on improving that. Hitachi has not been targeting reducing overtime or holiday work, but we want to offer opportunities of diverse work styles. One outcome of that is reduced overtime work. What is most important is whether if there is any waste in the current work that the employee is doing, this is something that we need to do. We have a methodology called EX approach to visualize how the people are working. We discuss every day on whether that is the correct way of working. Through that, we want to start making our work more efficient, and we hope that this will lead to increased revenue and profitability. I do not think this is easy to measure simple productivity through that, but this is the style that we are.
Yeah, if I may, Nakahata-san, may I add something?
Yeah. Please. Yeah.
It is a great question. One thing I wanted to add is, we need to also look at a lot of other aspects of work style reform. So in order to enable that, there are other aspects of it. For example, investing in technology and things like that. I'll give you an example. In HR, we introduced Workday, and Workday eliminated about 50,000 transactions per month. By enabling that, also enabling for people working from home or doing other things, also enabled work style reform. Of course, just HR is not enough, we have to introduce these capabilities and technology across all functions. So that is something we are looking into, but we started in HR, and we are going to continue to look at other departments, improve the efficiency of employees so that actually we can reduce the overtime, the work style, and so on.
So those are some of the initiatives we have already started, and we will continue to expand that to other functions.
Does that answer your question?
We are running out of time, we would like to entertain one last question. The lady.
Omi from Moody. Training the management leaders, this is very important. What is the assessment and what is the requirement? On page 14, you give the idea. You have earmarked 400 individuals. What is the distribution in terms of diversity, distribution of nationality? The past successes does not guarantee maintaining or improving diversity. What is the criteria of selecting the 400 talents that you have come up with?
What you have just described is what the activities we are going through. We are looking by the potentiality, potential capability. This is the criteria we are focusing upon. The capability of transformation is similar to the greater growth potential. Past track records, the current capability.
In the past, we used to select mostly from the past performance or present competency. But those conditions alone does not guarantee we can select the diverse talent, we need to look at the potential access. Intentionally, we have included potential access in the selection criteria compared to three years ago. The candidates, non-Japanese, have increased by three times. Out of the 400, we were able to select more than 10% of female. So we would like to continue with these activities with our intentions.
Okay. We would like to adjourn the HR section and move on to the next presentation.
Okay. This is governance by Hitachi, from Director, Hiroaki Yoshihara.
Good morning. I am Yoshihara. I am an external director. I will be talking about Hitachi's governance. Before that, the company told me to introduce myself, so I would like to start with my own biography. I worked for KPMG for three decades. Maybe you might be familiar with this company as a part of the Big Four accounting firms. This office started in New York and London. Not only accounting, but it now offers auditing and consulting and has operations in more than 140 locations around the world, with JPY 3 trillion-JPY 4 trillion revenue. It is an advisory firm, and I have spent most of my career in Silicon Valley. Four years in Japan, three years in London, and now I am retired, but I am still based in Silicon Valley.
And when I first joined KPMG, I belonged to the auditing group. In the listed companies, I was auditing listed companies as well as startups in Silicon Valley. I then moved to the advisory team to really solve the management challenges, divestiture, M&A, restructuring. I was working in this area mainly in Europe and U.S. In KPMG internal, in the U.S. partners meeting, I became a board member of KPMG U.S. when I was 43 years ago, and I became Vice Chairman Global Managing Partner in 2003, and was part of the KPMG Global International Executive Team. KPMG is a matrix organization. Vertical axis, we have the VPs of the function. In horizontal axis, we have one KPMG officer who is in charge of entire KPMG. I was this horizontal director, and I was engaged in discussing about the global strategy with each of the heads of each function.
Global deployment, global marketing, global regional account program, and developing senior leaders on every account. That was my responsibility. When I was a vice president, my boss and mentor and great friend, who was a chairman, he was an American, had found a brain tumor, and tragically, he died three months later. The following year, I noticed finally that life is limited. So I retired KPMG that year and started my second life. My second life is to be teaching at Stanford University and Hitotsubashi University. Four times a day, I was coaching junior baseball. Also, I am serving as outside director. Also, U.S. has many volunteer activities, so I was volunteers in communities and university to foster next generation youth. I also serve as mentor for youth. That is what I do in my daily life. I will now move on to the main topic, which is governance.
This is Hitachi's development of corporate governance in Hitachi. In 2003, Hitachi separated oversight and execution and moved to a company with committee system. This line does not show Hitachi's performance. As you may be aware, in the year of the economic downturn, it faced a JPY 400 billion loss, and the following year suffered another loss of JPY 200 billion. One transition of governance was in 2010. Hitachi enhanced interactions with capital markets, and from the following year up till now, Hitachi has been working on enhancing corporate governance and still doing so. This is the corporate governance framework of Hitachi and I do not think anyone will be very impressed looking at this. Every company with committee, the governance system looks the same. But the purpose is to have thorough separation of oversight and execution and realize extremely rapid and transparent management.
To that end, what I feel Hitachi cherishes, I have identified as the essence. First is tone at the top. This is the top management attitude. Hitachi's top management has the necessary insight and resolve. I cannot be open about what is discussed in the board meeting, but what is discussed here is very sincere and earnest, and tone at the top is what really expresses that. Mr. Toshiaki Higashihara and Chairman, Mr. Nakanishi, from the bottom of their hearts, believe that they are very earnest and sincere to give a very transparent atmosphere in the board meeting and offer quick access to the necessary members of Hitachi. Number two is operation methods. As an assumption of governance, Hitachi's definition of corporate governance is not just complying with the regulations and articles of incorporation.
At the same time, for important matters, the decision-making process, the board meeting, Hitachi understands the necessity for the board to be engaged in the decision-making of important matters. And at the same time, in the operation, what is seen as important, for example, we go to other offices. Last year, we went to Hitachi Vantara, which is an important location for Hitachi IT, and we met with Vantara management to really discuss about how important Vantara is to the entire Hitachi strategy. This is performed by the entire board of directors. And in the same visit, the Centre for the Fourth Industrial Revolution, this is sponsored by the World Economic Forum, so we invited speakers from this organization to really come to terms with the future directions. And other than this, governance must continue to evolve.
So effectiveness is measured, and at the same time, there are meetings held only by external directors to talk about how we can improve the board operations. And the result of the discussions by the external board members will be fed back to Mr. Higashihara and Nakanishi. We continue to try to improve the governance. What makes that possible is the diversity of the experience and specialty of each of the directors. Mr. Higashihara mentioned about the relationship between the sword and the stone, and we have the right people to be part, and the nominating committee selects the right people for the directors.
We are not selecting just because of the skills and experience, but we make sure that the candidates of board members have the will and the passion to work for Hitachi. The directors organize the foundation of the company, and they spare no efforts in providing support to secure and build upon this foundation. So 11 members as of 2019, eight directors, 50% of them are non-Japanese. I am Japanese, but I am sometimes counted as non-Japanese, and two of them are ladies. Furthermore, the chairman of the board as well as the chairman of various committees, they are all non-executives, which means they are outside directors. They are all outside directors chairing the board as well as committee in order to improve the transparency of the organization.
This should be no surprise for you, the way we organize the discussion 2018 Mid-Term Management Plan, we look back and the settlement of accounts for 2018. As we discussed 2018, as you remember, Mid-Term Management Plan, operating profit margin 8%, operating profit unprecedented JPY 750 billion. Furthermore, excluding Horizon impact, ROA net income. We exceeded the midterm management plan numerically. So this was a good result as we looked back. Just the beginning, two, three minutes, we said it was a good result in hindsight, but this is just the past achievement. For us to become the global leader, what we try to achieve, what is needed, what is missing from Hitachi? Are we on the right track to achieve the position as global leader? We have focused upon what is required for the global leader.
For instance, the social business unit, they achieved the budget, so they were very pleased in making the report to the board. They were very achieved and overwhelmed with the achievement of the budget, and the directors looked at their financial outcome. You may achieve the budget, but sacrificing the mid- to long-term important CapEx, what is the pipeline of the R&D? You may have sidestepped those important, the CapEx that is needed. Even for a successful business unit compared to the competitors, global giants, the performance is not as good. We will focus upon how to define more ambitious goals and what kind of investments, capital investment, is needed. Although the settlement achievement has outperformed the budget, but even though the profitability hardly exceeds 5%, maybe they are in the process of making constant improvement.
But the 5% is the criteria of defining the low profit business, defined by Higashihara-san, low profit business, 5% or below, is the improvement activities is on schedule. This is asked with very tough questions. Some business that is not working according to the plan, what kind of decision should be made? We have very tough decision going on with the executives and board members and their committees, nomination committee. Nakahata-san referred to the nomination committee, and also sitting on the nomination committee while he served for the KPMG, I was participating in nomination committee. Nominating committee is so proactive, nine sessions. Hitachi's nominating committee is more proactive than others. What is the vision? What should be the state of the company down the road, and what kind of executives will be required for the next generation? Who should be the next candidate for the CEO or the President?
What should be the performance and what should the potential requirement for the next generation of leaders? Personally, I am engaged in the coaching for the CEO candidates. For the next generation of CEO candidates, we have plural number of candidates, and we provide coaching. In the nomination committee, Higashihara-san and Nakahata-san are spending by far the greatest time available to them to interact with the other candidates, and they are involved in top succession planning drafting. Future 50 to have the talent who will be available as the pipeline for the next leaders. We give lecture talks. Two weeks ago, we had a roundtable. We had the open discussion with the Future 50 talents, and we try to entertain their questions, down to earth questions, business questions. We had group discussion. They come to the nominating committee, and they have discussion, expressing their views with the management issues.
And the compensation committee, there was earlier question with regards to how to attract talent through the good compensation package. So the designing the scheme for the compensation systems of the package, the system as a whole, system by itself. For Hitachi's to become the global leader in social innovation business, does the current compensation and short-term or the mid-term, long-term incentive sufficient to attract the talent? Not just the percentage numerical goals. In order to nurture the leader for the future as we require, what kind of system will be needed? What kind of institutional framework will be needed? And the performance review and the goal set by each executive, the outcome should be fairly represented and reflected upon the compensation they are entitled to receive. And I serve as the chairman of the audit committee, as you know. We have 800 subsidiaries.
This is nothing to be proud of, and we are trying to transform ourselves to a globalized company and global group. And we are exposed to the global risk. We need to identify the risks we are exposed to. As many as 800 companies. The five committee members are not sufficient to identify all the risks, so we are seriously engaged in tripartite audit. This looks like a very simple triangular form, but we deploy this tripartite audit in a global manner in order to identify the global risks. We work seriously and cooperatively with the audit committee in internal audit division. The audit committee will demonstrate leadership. We share all the information with internal audit division accounting auditors. Concerning the status of progress of the audit, we share the information constantly with the internal audit division accounting auditors.
With regards to the internal audit office audit plan, we review the content by the audit committee. What is the area we need to focus? So we give our preferences communicated to the audit divisions, what the audit should be like. And each year, involving the finance divisions and internal audit division, and also involving accounting auditors. So concerning the performance, there is a mutual feedback exchange in order to brush up the tripartite audit system. And furthermore, IT, AI tool also to integrate into the internal as well as external audit, introducing those IT tools so the audit process will be more productive than ever. We are making constant efforts for the productivity of the audit.
And another unique activity by Hitachi, as of April 1st this year, for each sector in five industrial sectors, the audit system was established, so the internal auditor for each of the five sectors and the accounting auditors for each of the five industrial sectors, we have launched the tripartite audit and reinforced the tripartite audit system. Therefore, the global network of the auditing are to be reinforced involving the five sectors. Audit will be determined. Quality of the audit will be determined by the talent. The current talent and the future talent should be reinforced. The pipeline should be rich enough. Therefore, the audit training and brainstorm sessions are continuously conducted to enrich the talent who should provide the audit services today and future. Social innovation is powering good. This is the slogan for the 2021 Mid-Term Management Plan.
During 2018 mid-term plan, during the previous midterm plan, Hitachi has gained a strong momentum. Having said that, as we look at the current situation as it is, Hitachi, 50% is focused upon the Japanese market. Revenue comes from Japanese market, 50%. So the globalization in true sense of the word is going to happen from now into the future. 2021 midterm management goal, social innovation, and we would like to achieve the position as a global leader in social innovation business. That is a clear declaration. And in terms of governance to achieve the global leader, the management challenges, I would like to name a few. This has already been shared amongst the organization, and this has been also referred to some other presentations, so there is no surprising what I am going to share.
The diverse talent who can be actively achieve results on the global arena, they should be recruited and trained and retained. In order to achieve success in social innovation, digital innovation service should be deployed centering around Lumada, and the global deployment cannot be done by Hitachi alone. Therefore, Lumada economic ecosystem should involve the partnerships. Thirdly, continuous efforts should be made to achieve One Hitachi for us to achieve the global success and maximize the synergy. Continuous review and improvement of business portfolio. As I speak today, in the earlier presentation at the beginning, as a major trend, digitalization and globalization are named as the major trend of the business from now on to the future. However, looking into the future, in the era of VUCA, as was mentioned earlier, the era of volatility, uncertainty, there are opportunities and risks existing at the same time.
Hitachi has the consistency because we have the we would like to contribute to society through the innovation, innovative technology. This is a consistency of the principles. Three values, environment, social, and economy, should be enhanced at the same time. Those three sets of values are to be achieved
External directors, such as yourself, will continuously assist the executive officers and provide oversight. To seriously, earnestly provide the oversight as well as support to the executive officers. That concludes my presentation. Thank you very much. Now we'd love to entertain questions.
Please raise your hand if you have any questions. The gentleman in the middle of the room.
`Thank you. Citigroup, my name is Ezawa. I have two questions. Number one, the group companies managing and governing the group companies. For consolidating listed companies, how do you manage them? In your explanation of the governance system, are the listed subsidiaries, are there governance which is working and some parts which is not working concerning listed subsidiaries? And the main subject is 2020 mid-term plan. Much of the growth is coming from merger and acquisition.
So much of your growth will be coming from merger and acquisition. This is what I understand. From the perspective of governance, if growth is coming from M&A, it is highly uncertain and also management will be more challenging. Why did you come up with this expectation of growth coming from M&A?
Regarding the listed subsidiaries, the governance on the listed subsidiaries, as you may be familiar, I've never worked for a Japanese company. In my background, I've never worked in listed subsidiaries. It was either 100% or minority. After I joined Hitachi's board, in the history of Hitachi, so the companies which were brought about from one group, and with more than 50% capital, which falls under Hitachi, Ltd. We respect the fact that they are listed subsidiaries, and they are consolidated. From the consolidated perspective, guidelines and instructions are applied.
We work very closely with the auditing committees of the listed subsidiaries. We share these guidelines. We help each other where we can. For example, if there are issues in the subsidiaries, after that, we receive explanations and reporting from the subsidiaries. We work together as a group. About mergers and acquisition. I don't see M&A as the main source of growth. For example, if you have time, please visit our R&D center, the Sogyo Kyōsō-no-Mori , that is the new R&D center. You will feel the greatness of Hitachi's technological prowess. As a balance from management, looking at the timeline, while really cherishing the DNA of innovation, at the same time, what is missing from the roadmap must be supplemented by mergers and acquisition. I think this is a very healthy way of thinking.
From the governance point of view, however, under the current accounting principles and looking at the stock situation, the goodwill comes up in the balance sheet and equity. The percentage of goodwill on equity, if that increases, the post-merger integration will be critical, including talent and technology. The company needs to perform post-merger intelligence quickly and properly to maximize synergy. The auditing committee's theme towards the next year is, as global strategy deepens, we need to enhance global risk management, including mergers and acquisitions into consideration. Thank you very much.
Any other questions?
Thank you. Mitsubishi UFJ Morgan Stanley Securities, I'm Miyamoto. On the market, Hitachi, Ltd. share prices. It is undervalued, maybe, or is there any chances that the price would appreciate not so much? Because of a conglomerate discount, this is the reputation. What is the discussion prevailing at the board of directors meeting at the level of share price of Hitachi?
I completely agree with you. The share price is not expensive, not attractive. This is low, but the board of directors do not have the influence directly upon the share price. As we focus on conglomerate discount, there are three missions or challenges of management for us to pursue. One Hitachi maximize the synergy on global market. We need to continuously review the business portfolio in the global market. Easy to understand example, easy to understand strategy, easy to understand straightforward outcome, then the stakeholders will understand what company Hitachi is. The stakeholders will readily understand. Having said that, Hitachi, Ltd., the current company, as of today, is it easy to understand? That is a good question because it is difficult to answer. Is Hitachi an easy-to-understand company?
But chronologically, as we look back, compared to the time that I joined this organization, however, some of the business has been reorganized in a logical manner. As an organization, Hitachi, Ltd., Hitachi Group has become well organized. We are going through the transition of looking at the content of the business and reorganizing the structure. Some of the detailed discussion at the board of directors meeting, we cannot share with you, of course. However, in terms of direction of the discussion, to make the organization high performance and easy to understand. We are discussing strategy, how to achieve that, and we are strongly committed to achieve this goal. Each year after year, management strategy is announced from Hitachi. So p lease stay tuned to the management strategies into the future. Any other questions?
Thank you for the presentation. Hakuta from [Jigyo Koso]. You mentioned three upcoming challenges, and the first was talent. In the previous HR session, HR related matters was explained. From the standpoint of external directors, you are also engaged in nurturing Future 50. What do you expect out of Hitachi's talent in the future? What do you think Hitachi needs to do in order to really foster global leaders?
As I mentioned, back in KPMG, I was heading the senior leadership program. This area, this past two or three years, Hitachi's talent development actions, I think, is very close to global best practice, what Hitachi, has been doing for the past couple of years. When I first joined the Hitachi board back in 2014, when I received the explanation, I could not see what Hitachi was trying to do.
They now have technology as a foundation, information is shared, so this talent has been visualized. Also, what type of talent is needed, this vision has also been created. This initiative has just started, but Hitachi is working very hard on building this system. I think you can really stay tuned. On the other hand, Hitachi has more than 100-year history. My previous employer was also a very old company. These companies with history have traditions. So the top management is now changing, really destroying the previous tradition, and they have a very strong resolve to really transform. And the Future 50, chosen by the Human Capital Group or maybe Higashihara-san, when I talk to these Future 50 members, there is lots of diversity, and they are very capable.
Hitachi also clarified the three values, and they have very high awareness about these three values and a strong will to contribute to society. What is important is to assign them to positions where they can really exert their capability and their resolve. I was already a director at 40, and I was vice president at 46. I even think these Future 50 people are even more capable than myself. Looking back, I always received stretch assignments, and that's how I grew. And Hitachi might be too nice in this area. It is important to give them very stretchy assignments. And by doing so, they will be able to develop a very interesting talent. Thank you.
One last question if there is any, because we are running out of time. One last question, if there is any. Is that all?