The Chief Sustainability Officer is a crucial position within any business, working at the very core of a company’s sustainability strategy. When Nissan decided to appoint its first CSO, CEO Carlos Ghosn personally chose SVP Hitoshi Kawaguchi for the job. We spoke to Kawaguchi about Nissan’s approach to CSR and CSV (Creating Shared Value) and the role each plays in working towards a society of sustainable mobility.
The Responsibilities of a CSO
Masahiko Kawamura: How do you view the position and role of a CSO within a global business?
Hitoshi Kawaguchi: After my appointment as CSO, I realized that not many Japanese companies have a CSO at all. U.S. and European firms have led in this area. You hardly ever hear the phrase “CSO” in Japan, so I think that part of my role is to raise awareness of what the position of CSO is.
MK: I understand that Nissan is promoting CSR and CSV along its entire value chain. Can you talk about Nissan’s basic thinking on these concepts?
HK: I’m concurrently an executive director of the Japan Automobile Manufacturers Association (JAMA), and “sustainability” has become a keyword within the organization. Governance and legal compliance can easily become critical issues in the auto industry in particular, and I think it’s incumbent upon us to be mindful of CSR while using the philosophy of CSV to create business value.
MK: Like resolving social issues through cars?
HK: Exactly. For a car company, resolving social issues is both a responsibility and a strategy. Nissan’s goals are to reduce CO2 emissions from vehicles on the road to zero as well as to bring deaths and serious injuries involving Nissan cars to virtually zero: “Zero emissions, zero fatalities.” As a car manufacturer, we have to grow our business in ways that will also help address social issues.
MK: How long ago was this way of thinking adopted?
HK: We started formalizing it around 2015, but ensuring that it penetrates and becomes the norm throughout the company and beyond is part of my job as CSO.
MK: So you have to communicate not just externally but also internally. That seems important. How greatly are these values shared by the executive team?
HK: There’s still work to be done as far as sharing these values internally goes, I think. As a company, we want to increase our market share and make a profit on a global basis. But when a company’s management tries to move forward too quickly, we could be inviting problems that might trip us up later.
In the next fiscal year we’ll begin work on our new mid-term business plan, which should include new opportunities for raising awareness about sustainability. I hope to promote new thinking, not just among the management team, but also among our employees and suppliers.
Cooperation and Competition in the Auto Industry
MK: It’s the auto industry that will take the lead on mobility in society through efforts to eliminate auto emissions, apply AI, promote car-sharing, and so on. It seems to me that sustainability has become a key strategy for market survival.
HK: Cars have made our daily lives a lot more convenient—this much is true. On the other hand, their effect on the global environment has also been considerable. We need to protect the environment while retaining the pleasure and ease that cars bring to our lives.
Nissan estimates that by 2050, CO2 emissions for new cars will need to be reduced by 90% from year 2000 levels. This means that we must change our business model itself, not only making gasoline and diesel engines more efficient, but also introducing next-generation cars, such as electric vehicles, and looking ahead to a century from now.
MK: And that’s where the competition will be focused going forward?
HK: The competition has just begun. We’re focused on expanding sales of EVs and looking ahead to the introduction of fuel-cell electric vehicles. The Paris Agreement sets the goal of keeping average temperature increases worldwide under two degrees Celsius, and the transportation sector is said to contribute 14% of greenhouse gases. We must move toward the future now, if we’re going to meet this goal.
MK: Because if the Earth as a whole isn’t sustainable, then there will be no business at all.
The Social Dividend of Autonomous Driving
HK: The “zero fatalities” strategy aims to realize a society free of traffic accidents. It’s said that nine out of ten traffic accidents are due to human error, so we think that support through technology is needed. The new Serena released in August this year can use autonomous driving technology on single-lane highways. Just including this kind of cutting-edge technology in a mass-produced vehicle is meaningful.
In 2018, Nissan will introduce autonomous driving technology for multi-lane highways that can even change lines. In 2020, we expect cars to be able to offer driving support even on regular roads. We know that cars slow down when going uphill on highways, which can lead to spontaneous traffic jams, but once autonomous driving technology becomes the norm, we can expect that kind of congestion to be resolved.
Consider another issue: In regional Japan, most people get around by car, but an increasing number of older residents don’t own a car and suffer from limited mobility as a result. Autonomous driving might offer a solution to this problem, too. In other words, fewer traffic accidents won’t be the only benefit autonomous driving brings society.; it will also reduce urban traffic congestion and help older regional residents become more active. This is why I see autonomous driving as linked to the resolution of social problems and the building of a more dynamic society.
The government has made it clear that they want this available as a demonstration during the 2020 Tokyo Olympic and Paralympic Games. People come to these Games from all over the world, and we want to show them how superb Japanese technology is by letting them experience autonomous driving.
Responding to the Global Supply Chain
MK: Automobile manufacturing has, I think, the most multi-layered supply chain of any industry. If socioeconomic conditions or the concepts surrounding cars change, the supply chain must change, as well. The rights of workers and related issues must also be considered as part of sustainability. What are your thoughts on the effects on the supply chain?
HK: As you say, the auto industry has a large manufacturing base. From the viewpoint of sustainability, expectations are high for the whole supply chain. As part of our responsibility as a carmaker, we developed in 2011 a set of practical Renault-Nissan CSR Guidelines for suppliers, and we are encouraging CSR management among our suppliers.
In 2015, we revised the guidelines in response to recent trends. Each of our suppliers has begun taking measures to improve workplace standards and promote workers’ rights. The steady expansion of the framework is quite palpable.
Japanese automakers do 70% of their manufacturing overseas. Of the 30% done in Japan, half is for export and half for the local market. If, as anticipated, manufacturing in developing countries expands, production in Japan will contract. Since the paradigm shift in 2005, demand in developing countries has outstripped demand in developed countries. That’s irreversible—there will probably be no return to the way things were.
What this means is local production for local consumption, with manufacturing taking place overseas and parts being procured locally. Under the previous sustainability framework, our group was fully self-contained, but now we believe that we can achieve greater sustainability by pursuing diversification globally rather than just within Japan or the group, and that includes our entire supply chain.
A Truly Global Company with Japanese DNA
MK: Automobile manufacturing has a major impact on society and the economy. In business, Quality, Cost and Delivery — or QCD — is a given, but that won’t be enough going forward; we’ll also have to consider ESG — the Environment, Society and Governance. You could say that right now we’re at a major turning point.
HK: That dynamism is what makes things interesting. But because the industry’s effect on employment and other economic factors is so large, joint private-public initiatives are being advanced in each country. In Japan, there’s fierce competition within the private sector. This is healthy and can help us grow, but today we need cooperation as well.
MK: Tell us about Nissan’s CSR Materiality.
HK: For us, “zero emissions” represents the “E” in ESG, and “S” is promoted through “zero fatalities” and also diversity. Nissan joined forces with Renault in 1999, but before that we were a Japanese company in the traditional mold. In Japan, each company would traditionally hire a vast crop of new graduates each year, who would then work for that company, rising through the ranks based on seniority until they retired. This was just how things were done. Nissan currently has around 22,500 employees in Japan, and roughly a quarter of those joined the company partway through their careers, rather than being hired straight out of school. This is one way in which our workforce is diversifying.
We’re also taking strategic action to expand the participation of women. Among our group companies in Japan, the proportion of management positions held by women is over 9%, and in 2017 we expect it to reach 10%. Compared to businesses overseas, this may still be low, but it’s relatively high for a Japanese company. In addition to numeric targets, we need to create workplace environments that embrace diversity. Even if we ensure that progressive policies are in place, if there are fixed ideas about marriage and childbirth, such as “a woman’s place is in the home,” it will be difficult for women to advance and contribute.
MK: Diversity really comes down to being open to different values.
HK: Viewpoints of workers from different countries and cultures are also necessary. Within Nissan we talk about our key 100 positions globally. In the past, most of these were held by Japanese people. Today, only around half are. You could say that it’s only natural for a business as globalized as ours to employ so many foreign nationals, but I believe we’re still in the minority among Japanese businesses on this.
Responding to global needs requires that we broaden our thinking and recognize values that may be different from those in Japan. Our concept is “a global company retaining its Japanese DNA.” We aim to be the first Japanese company that is truly global.
MK: This means honoring the company’s heritage while implementing a sustainable, global business model. There are many stories about Japanese companies attempting to expand globally and failing because they were unwilling to adapt to different sets of values.
HK: In our case, the circumstances facing the company more or less forced change upon us. And as a natural result, we came to take on the form that many more Japanese businesses will need to in a globalized market.
MK: Let’s move on to Nissan’s governance. What can you tell us about that?
HK: What’s unique about Nissan is the large number of foreign nationals in the company. As I said before, there are limits to what a monoculture can achieve, so we think it’s important to promote diversity and differing viewpoints in management.
MK: In other words, when different ways of thinking enter the business, what matters is how you unify these ideas into a transparent decision-making process and convey it to employees.
Responding to Water Risk
MK: Recent trends in international affairs and industry have made response to water risk a pressing concern. How is Nissan approaching this issue?
HK: Regarding water, we set goals in the six-year environmental action plan called Nissan Green Program 2016, which we’ve been implementing since 2011. These involve managing and working to reduce water use at all global manufacturing sites. I believe that this sort of approach will remain very important.
Sustainability as Gentleness
HK: In Raymond Chandler’s detective novels, private eye Philip Marlowe says, “If I wasn’t hard, I wouldn’t be alive. If I couldn’t sometimes be gentle, I wouldn’t deserve to be alive.” Rather than focusing only on immediate results, like short-term profit or market share, it’s necessary sometimes to ask yourself, does society really need this business? Since becoming CSO, the thought has stuck with me that perhaps long-term sustainability depends on strength in the truest sense—which is to say, gentleness.
MK: In other words, the “greed is good” capitalism of the past simply isn’t sustainable. I think that’s a good note on which to end this interview.
This post first appeared on Sustainable Brands Japan on October 13, 2016.