Daiwa House Industry : Chapter 2 Our Long-Term Vision and the 7th Medium-Term Management Plan [1.9MB］

Our Long-Term Vision and the 7th Medium-Term Management Plan

	Roadmap to the centennial anniversary of our founding	16
1
	Environmental awareness (opportunities and risks)
2
	and materiality	17
	Materialities and the 7th Medium-Term
3
	Management Plan	18		Chapter
	Processes for specifying materialities	19		2
4
	Results of past medium-term management plans
5
	and progress of the 7th Medium-Term
	Management Plan	20

Daiwa House Group Integrated Report 2023 15

Message from the CEO	Long-Term Vision	The Story of the Group's
and the 7th Plan	Value Creation

Message from the CFO

Developing

our Businesses

Environmental Vision

Strengthening

our Bases

Governance

Financial Results,

Corporate Information

Chapter 2 Our Long-Term Vision and the 7th Medium-Term Management Plan

1 Roadmap to the Centennial Anniversary of Our Founding -Roadto 2055

With our founder's spirit as a starting point, we have achieved sustainable growth by always looking to what lies ahead and believing in Our Hopes for the Future. We will work to implement the 7th Medium-Term Management Plan with an awareness of materiality over the medium- to long-term, and aim to realize Our Hopes for the Future by expanding the areas where the three actions overlap.

				The centennial of our founding
1955	2022	2026	2030	2055

			Developing our businesses
	"Doing things
	because they		The 6th Plan		The 7th Plan
	will be of service
	to society"				Complete a sustainable
					growth model
The Starting Point:	"Our Hopes	"Hopes at the time	Carbon	neutrality strategy
for the Future	of founding"	(Endless Green Program 2026)
the founder's	enable both individ-	Industrialization
spirit	ual and company	of construction		Human capital strategy
	growth"
	"Developing
	people through				Enhance governance
	business"

Strengthening our bases

	Materialities		Creating
			value premised
The 8th Plan	Globalization		on regeneration
	Local community
	regeneration		Toward the society
			we aspire to in 2055:
Both the challenge of net zero	Circular economy		Our Hopes for the Future
and corporate revenue	and carbon neutrality		A world
Enhancing the value of	Digital transformation		where we live together
	in harmony embracing
human capital through individual
and organizational growth			the Joys of Life
	DE&I	Digitalization	Realizing diverse
		for real-world	lifestyles true to
	Governance	innovation	people's selves

KPIs for FY2026 Developing our businesses (Financial information)

KPIs for FY2026 Strengthening our bases (Non-financialinformation)

Net sales	¥ 5.5 trillion	ROE	13% or higher
Operating income*1	¥	500billion	Dividend	35% or higher
	payout ratio
				and dividend per share of ¥130 or more
Net income		340billion	Debt-equity	Around 0.6times
attributable to	¥
ratio
owners of the parent

Carbon neutrality strategy

Zero CO2 emissions

in community development

Scope 3 Category 11

Zero CO2 emissions in business activities

Scopes 1 and 2

Zero CO2 emissions

in supply chains

Scope 3 Category 1

Reduce GHG emissions by 54%*2

by making all buildings ZEH/ZEB and installing solar power generation equipment on them

Reduce GHG emissions by 55%*2

by promoting energy efficiency, renewable energy and electrification

90% or higher in principal suppliers' setting rates of GHG reduction targets in SBT level

Human capital strategy

Job satisfaction
Pride in work
Sense of growth	All at 70%
Securing diverse human capital*3
Ratio of females in management	8%
Ratio of new female career hires	.................	30%
Ratio of males taking childcare leave	80%

*1 Exclusive of amortization of actuarial differences of retirement benefits *2 vs FY2015 *3 Target for April 1, 2027

Daiwa House Group Integrated Report 2023 16

Message from the CEO	Long-Term Vision	The Story of the Group's
and the 7th Plan	Value Creation

Message from the CFO

Developing

our Businesses

Environmental Vision

Strengthening

our Bases

Governance

Financial Results,

Corporate Information

2 Environmental Awareness (Opportunities and Risks) and Materiality

In every corner of the world, a major transformation in the structure of industry is taking place in order to discover solutions to social issues confronting the globe. At Daiwa House Group, we recognize the opportunities and risks that will arrive with the megatrends of around 2030, and to realize Our Hopes for the Future, we have formulated the materiality (priority issues) for which we should endeavor.

Megatrends

Acceleration of globalization

Overseas population growth Lack of resources

Respect for the human rights

Impact on Daiwa House Group

Opportunities	Risks
Realizing the stable supply of quality housing to the world
Rising demand for industrialization in logistics, as well as in	Geopolitical risks, political and economic uncertainty
fisheries and agriculture	Increased procurement costs
Cost reductions through group purchasing
Development of products and services with consideration
to human rights	Cost increases associated with human rights risks
A company chosen by those in the supply chain and workers

Materiality and Measures

Develop community-based

Globalization businesses aimed at solving social issues overseas

Japan's shrinking population and	Expansion of investments into the revitalization of	Declining number of new housing starts
household numbers	community and social infrastructure
Waning interest of tenants to open new stores		Revitalizing local
Regional depopulation, declining local communities	Reinvigorating local communities, need for migration	Local community
Diminished labor productivity	communities:
Deterioration of social infrastructure		to rural areas
			regeneration	Businesses for solving
Inflation, and rising interest rates	Increased rental revenues from prime stock assets	Waning investment appetite		social issues in Japan
Decline in real estate prices
Shift to a carbon-free society	Rising demand for renewable energy, environmentally	Increased costs to comply with stricter legal regulations		Circular economy	Environmental management
Manifestation of climate change		conscious products
	Increased frequency and scale of meteorological disasters that		geared toward circularity
Shift to a circular economy	Rising demand for greater durability and	cause damage	and carbon neutrality	and regeneration
		energy-conscious products
		Pioneering new markets by utilizing digital technology	Obsolescence of existing business model		Maximize use of
Development of a digital society		Lack of highly skilled (IT, overseas)		Digital transformation
	Labor-saving and automation through digital technology		digital technologies
Shrinking workforce in Japan	Reconfirming the value of real experiences	human resources and difficulty in securing them		for lifestyle innovation
		Growing needs for increased sophistication of information security
Diversifying ways of working and lifestyles	Creating new markets that arise from diverse values				Foster organizational culture
Leveraging the talents of		Changing employment management practices		DE&I	that welcomes diverse
	Building motivation
				values and uses them
diverse human resources	Rising costs to strengthen information security
Strategic decision making through diverse perspectives
					in value creation
					Governance	Governance
					to create the future

Daiwa House Group Integrated Report 2023 17

Message from the CEO	Long-Term Vision	The Story of the Group's
and the 7th Plan	Value Creation

Message from the CFO

Developing

our Businesses

Environmental Vision

Strengthening

our Bases

Governance

Financial Results,

Corporate Information

3 Materialities and the 7th Medium-Term Management Plan

Taking materialities into account, under the 7th Medium-Term Management Plan, we uphold three management policies: Evolve revenue model, Optimize management efficiency, and Strengthen management base. These policies are the foundation upon which we tackle eight focal themes toward maximizing corporate value with a view to growth beyond the 8th Plan.

Materialities		The 7th Medium-Term Management Plan: Eight focal themes		Principal KGI and KPI (FY2026 targets)
	Investment (input)	Result (output or outcome)
					Delivering quality housing with stability
	1	Accelerate growth of			US: Supply of houses 10,000 units
			Enhance factory conversion rate
Globalization		community-based overseas business			China: Supply of condominiums 4,000 units
				Real estate development	Units under management 20 thousand-unit level
				investments	Response to social issues, expand business opportunities*
		Expand a circular value chain		¥2.2 trillion (five-year plan)
			Promotion of Livness Town Project		Expand sales for Livness business
	2
Local community	from the perspective of local			(Increase number of dialogues and		(renovation, brokering, purchase and resale)
regeneration		communities/customers			participants, reduce rate of unoccupied	Increase number of building purchases
				homes, maintain population)
				Strategic investments
				(Overseas, renewable energy,	Contribution to carbon neutrality (FY2030 targets)
Circular economy		Realize carbon neutrality by making	Carbon	M&A, etc.)	Reduction rate of GHG emissions across the entire value chain (vs FY2015) Down 40%
3
neutrality		Renewable energy adoption
and carbon neutrality	all buildings carbon-free
	strategy		Renewable energy generation equipment construction results (EPC) 5,000 MW
		Capital investment
				Renewable energy power plants development and operating results (IPP) 2,500 MW
				(Factories, offices,
		Strengthen cost competitiveness and	Strengthening	construction-sector DX, etc.)
Digital	4	(¥370 billion (five-year plan)	Evolve supply chain
	build a system for stable supply	the customer base		Group cost pool amount ¥1 trillion
transformation			Strengthening
5	Digital transformation		Cost reduction rate (10% reduction against soared costs ¥100 billion)
	the technology base
				Investments associated	Creating a workplace environment	Securing and utilizing human capital
DE&I					Diversity indicators
		Human capital	with human resource
6	Increase the value of our human capital	that employees find easy to work in
	strategy	development, educational		Retention rate of young employees
			Increased engagement
				facilities, etc.		Senior-related indicators
		Achieve growth of profits coexisting with		Curbing investment into	Maintain and enhance capital efficiency	Optimize funds procurement
Governance	7	capital efficiency through portfolio		businesses of concern	ROE of 13% or higher		Financial benchmark D/E ratio of around 0.6
		optimization		Sale of cross-shareholdings	Stable shareholder returns	Realize a highly effective Board of Directors
	8	Enhance governance		¥100 billion	(payout ratio of 35% or more)	and Audit & Supervisory Board
		Review of investment hurdle rates			Performance-based remuneration

* Final year of KPI/KGI: FY2025

Evolve revenue model						Complete
					a sustainable growth model
		Optimize		Strengthen management base
	managementefficiency

Daiwa House Group Integrated Report 2023 18

Message from the CEO	Long-Term Vision	The Story of the Group's
and the 7th Plan	Value Creation

Message from the CFO

Developing

our Businesses

Environmental Vision

Strengthening

our Bases

Governance

Financial Results,

Corporate Information

4 Processes for Specifying Materialities

In order to bolster the value creation process cycle, when we formulated Our Hopes for the Future, we identified materialities, or priority issues, in consideration of their degree of importance to our business (opportunities and risks) and their social significance and impact based on the needs and expectations of society, while also taking into account the opinions offered by experts.

We continued to consider KGI/KPI for materialities in fiscal 2022 in light of the level of action to be taken under the 7th Medium-Term Management Plan.

STEP	Understanding and organization of issues,
1	clarification of key issues

In light of changes in society (megatrends), members led by division heads discussed the elements necessary to realize Our Hopes for the future, and compared them with various international norms, trends in major evaluation organizations, and the policies of industry associations. Keeping in mind three actions to be taken to realize Our Hopes for the Future, we clarified a total of 112 issues as a result of having considered their relevance to business (opportunities and risks), as well as social significance and impact in light of society's demands and expectations. From these, we have consolidated and organized them into 18 key issues, targeting around 2030. These 18 key issues were separately confirmed with young employees and others who will bear responsibilities in the future. The final decision was confirmed at management meetings and other meetings led by senior management.

STEP
2	Confirmation of validity

All 112 issues clarified in STEP 1 were evaluated for validity, which also covered specific processes for materialities, through dialogue with external experts, including investors and sustainability management specialists. In addition, we have reinforced the issues by receiving opinions that take a long-term and global perspective considering the latest insights.

STEP
3	Specification of materialities

The Company categorized and organized the study's results, which were approved by the Board of Directors in May 2022 as materialities that the Group should prioritize.

STEP
4	Reflecting to the Basic Policy

KGI/KPI (P18) for materialities were formulated based on the basic policy of the 7th Medium-Term Management Plan, and the corresponding policy for each theme was decided and formulated at a Board of Directors meeting held in April 2023, taking into consideration the level of Company efforts. These indicators are also being used as targets for the 7th Medium-Term Management Plan to promote initiatives.

18 key issues

(1)	Carbon neutrality for individuals, communities, and people's lifestyles
(2)	The challenge of preventing any net loss to biodiversity
(3)	Sustainable use of resources and conservation of water resources through a circular economy

(4)	Providing fulfilling lifestyles that account for diverse ways to live
(5)	Creation of sustainable communities in light of transformation to the structure of industry
(6)	Overseas development of community-based methods for solving social issues
(7)	Strengthening global human capital

1. The pursuit of job satisfaction and wellbeing
2. Transformation into an organization where employees who have diverse characters can aim to achieve "Our Hopes for the Future"
3. Foster human capital that can stand on their own

(11)	Offer a new customer experience through a fusion of digital and real worlds
(12)	Endeavoring to create added value by evolving business processes
(13)	Building a data-connectedco-creation platform with business partners
(14)	Creation of an environment that supports employees to fulfill their potential

(15)	Establishment of a sustainability structure to realize Our Hopes for the Future in 2055
(16)	Review of investment approach to enhance long-term corporate value
(17)	Respect for human rights across the entire value chain
(18)	Nurturing the next generation of management talent

Note: Issues included in the key themes of the 7th Medium-Term Management Plan are marked with an asterisk ()

Materialities

Circular economy and

carbon neutrality

Environmental management

geared toward

circularity and regeneration

Globalization

Develop community-based

businesses aimed at

solving social issues overseas

Local community

regeneration

Revitalizing local communities:

Businesses for solving social issues in Japan

DE&I

Foster organizational culture that welcomes diverse values and uses them in value creation

Digital transformation

Maximize use of

digital technologies

for lifestyle innovation

Governance

Governance

to create the future

Daiwa House Group Integrated Report 2023 19