ISA 600 Explained

What are the pros and cons of the latest update to the International Standard on Auditing?

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Presented in partnership with Grant Thornton

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The International Federation of Accountants has updated the International Standard on Auditing 600 (ISA 600), and the revised standard went into effect on December 15, 2023. What are the advantages and disadvantages of the revisions when it comes to group audits?

Firstly, a group audit refers to an audit of consolidated financial statements where the parent company and its subsidiaries are viewed as a single economic entity or “group.” It is often conducted by the parent company’s auditor, known as the group auditor, and encompasses the financial information of the parent company and its subsidiaries. As the group auditor will provide an opinion on the consolidated financial statements, it is essential that they are satisfied with the work completed by component auditors or local audit teams.

The group audit is necessary because businesses often operate through different legal entities and across different geographical locations. For an accurate view of the group’s financial situation, auditors must assess financial statements at both the parent and subsidiary levels and follow the standards established by the relevant auditing bodies.

International Standard on Auditing 600 (ISA 600) (Revised), Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors) deals with special considerations that apply to a group audit, including when component auditors are involved. The standard is effective for audits of group financial statements for periods beginning on or after December 15, 2023, and aligns with recently revised standards which emphasize the assessment of risk, including ISQM1 and ISA 220 (Revised) and ISA 315 (Revised 2019). There is increased emphasis on the responsibilities of auditors relating to professional skepticism, planning and performing a group audit, two-way communications between the group auditor and component auditors, and documentation.

The changes are intended to:

• Encourage proactive management of quality at the group engagement and the component levels
• Keep the standard fit for purpose in a wide range of circumstances and in a developing environment
• Reinforce the need for robust communication and interactions during the group audit
• Foster an appropriately independent, challenging, and skeptical mindset on the part of the auditor

ISA 600 (Revised) sets out the responsibilities of the group auditor for providing the audit opinion on the group financial statements, including components such as subsidiaries, associates, joint ventures, and non-controller entities.

Advantages

Viewed from the component auditor’s side, relying on a variety of useful information regarding management’s rationale from the group auditor can reduce the risk of material misstatement and detection risk when conducting audit components.

One significant change is the introduction of the risk-based approach as a framework for planning and performing a group audit engagement. This means more focus on identifying and assessing the risks of material misstatement and performing further audit procedures in response to the assessed risks. The group auditor develops initial expectations and, based on these, may involve component auditors in risk assessment procedures, as these individuals may have direct knowledge and experience with the entities or business units that could be helpful in understanding the activities and related risks.

According to the standard, the group engagement partner may take responsibility for directing and supervising component auditors in different ways, such as:

• Discussing identified and assessed risks, issues, findings, and conclusions
• Participating in the closing or other key meetings between the component auditors and component management

The discussion between the group auditors and component auditors provides the opportunity to understand how and where the entity’s financial statements may be susceptible to material misstatement due to fraud. This is done by considering external and internal factors affecting the group that may create an incentive or pressure for group management, component management, or others to commit fraud. The discussion between group engagement partners and other key management team members also provides a chance to identify risks of material misstatement relevant to components where there may be impediments to the exercise of professional skepticism. In other words, the involvement of the group auditor enhances the effectiveness of component auditors.

ISA 600 (Revised) strengthens and clarifies the importance of two-way communications between the group auditor and component auditors as well as various aspects of the group auditor’s interaction with component auditors. However, there are many types of restrictions that may exist, such as on access to people and information (e.g., component management, those charged with governance of component, component auditors) as well as audit documentation.

Viewed from the group auditor’s side, the revised standard provides guidance on ways to overcome restrictions. The group auditor may be able to visit the location of the component auditor or meet with the component auditor to review their audit documentation. They may also be able to review the relevant audit documentation remotely when not prohibited by law or regulation and request that the component auditor prepare and provide a memorandum that addresses the relevant information.

Disadvantages

The application of ISA 600 (Revised) may also bring some downsides.

According to the requirements, the role of group auditor increases, as does the workload of component auditors. The group auditor may involve component auditors to provide information or perform audit work to fulfill the requirements of the standard.

Component auditors can be—and often are—involved in all phases of the group audit. The group auditor shall take responsibility for the nature, timing, and extent of further audit procedures to be performed, including determining the components at which to perform further audit procedures. This responsibility is demonstrated through meeting the requirements of the consolidation process and considerations when component auditors are involved.

Communication

ISA 600 (Revised) includes enhanced documentation requirements and application material to emphasize the link to the requirements of ISA 230 and other relevant ISAs. The required documentation includes:

• Basis for the group auditor’s determination of components

• Basis for the group auditor’s determination of the competence and capabilities of component auditors

• Documentation of the direction and supervision of component auditors and the review of the work

• Additional considerations when access to audit documentation is restricted

The strength and clarity of the importance of two-way communications between the group auditor and component auditors in the standard are likely to result in more work for the group engagement team. This is particularly true regarding the enhanced responsibilities in evaluating the component auditor’s communication and the adequacy of their work, the sufficiency and appropriateness of audit evidence obtained, and communicating with group management and those charged with governance of the group. References in the standard to the definition of “engagement team” includes the group auditor and component auditors.

As mentioned, the group auditor will involve component auditors and clarify the instructions for the risk-assessment procedures. However, in practice, there are some instructions from the group auditor that may not be suitable for component auditors, and this can lead to some aspects of the instructions not being effective.

These changes to the standard will take time to implement, comply with, and complete for both the group auditor component auditor sides.

Generally, both sides should make sure that they understand the new requirements and that audit methodologies are updated accordingly and in a timely manner. They should also reassess the models being used for considering component materiality and aggregation risk to determine whether they are still appropriate.

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For more information, please contact Grant Thornton Japan at info@jp.gt.com or visit www.grantthornton.jp/en

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Internal Controls, Sustainability, and IFRS

How two new sustainability standards impact reporting and disclosure, and what companies should consider to ensure they are compliant.

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Presented in partnership with Grant Thornton

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On June 26, 2023, the International Sustainability Standards Board (ISSB) unveiled its first-ever standards for sustainability disclosure. Designated International Financial Reporting Standards (IFRS) S1 and S2, they focus on general sustainability- and climate-related disclosures.

As demand grows from investors, regulators, customers, and other stakeholders for companies to disclose their sustainability practices and impact on the environment and society, these standards could help with the assessment of a company’s long-term sustainability, its ability to manage risks and opportunities, and to compare companies across industries.

IFRS S1, General Requirements for Disclosures of Sustainability-related Financial Information, requires companies to disclose financial information about their sustainability-related risks and opportunities that is useful to primary users of general-purpose financial reports in making decisions related to providing resources to the company. IFRS S2, Climate-related Disclosures, requires companies to disclose the same related to climate.

As this information could affect the company’s cash flow, access to financing, or cost of capital, the requirement for reporting and transparency might influence strategy, objectives, and decision-making processes.

With these new sustainability standards taking effect for annual reporting periods beginning on or after January 1, 2024, companies should reassess their systems of internal controls to comply with the disclosure requirements.

The table below shows internal controls that companies may need to consider.

Internal Control Areas	Points to Consider
Data collection, verification, and management	· Accuracy and reliability of sustainability data for reporting · Manage the increased volume of sustainability data
Risk assessment and management	· Controls and processes to identify, assess, and manage risks and opportunities · Consistency with its strategic decisions and operations
Technology infrastructure	· Invest in new technology and IT controls
Training and awareness	· Invest in employee training and awareness programs · Policies and procedures to evaluate competencies
Governance	· Establish authority and responsibility
Integration with financial reporting	· Communication and monitoring from management and those charged with governance · Facilitate external audit
Stakeholder engagement	· Inclusion of processes for engaging with stakeholders

Data Collection, Verification, and Management

The IFRS standards and reporting promote transparency and accountability regarding sustainability- and climate-related risks and opportunities. By requiring the collection and validation of data, a company can ensure accuracy and reliability for reporting.

Doing so will require robust internal controls similar to those used in financial reporting, and internal controls may need to be updated to manage the storage, access, and protection of a larger volume of data. As sustainability reporting is often required by regulatory bodies or industry standards, integrating sustainability metrics into internal controls helps ensure compliance and reduces the risk of penalties and legal issues.

Risk Assessment and Management

As sustainability reporting involves identifying, assessing, prioritizing, and monitoring risks and opportunities related to sustainability and climate, internal controls must include processes to effectively assess, manage, and mitigate risks. It is also key to ensure that those charged with governance have considered trade-offs associated with the risks and opportunities.

Sustainability reporting also highlights long-term sustainability goals and opportunities. Therefore, aligning internal controls with these goals can ensure that strategic decisions and operations are consistent with sustainability objectives.

Technology Infrastructure

Companies may need to invest in new technology and IT controls to manage sustainability data, especially if they are transitioning to digital reporting platforms. Information systems should be able to capture internal and external sources of data related to sustainability and climate risks and opportunities.

Training and Awareness

Companies may need to invest in employee training and awareness programs to ensure that all personnel understand the sustainability goals and the importance of reporting, and can carry out their internal control responsibilities. Companies may need to monitor the contributions of employees to these objectives. Processes may include policies to determine whether appropriate skills and competencies are available or will be developed to oversee strategies designed to respond to risks and opportunities related to sustainability and climate.

Governance

Sustainability reporting may necessitate changes in corporate governance to ensure that sustainability considerations are integrated into strategy and decision-making processes. Internal controls should reflect shifts in governance by having a governance body (which may include a board, committee, or equivalent) or individuals responsible for oversight of risks and opportunities related to sustainability and climate. Companies should also consider updating policies and procedures to reflect the responsibilities of those charged with governance and management.

Integration with Financial Reporting

Aligning the processes for sustainability and financial reporting requires careful coordination and internal controls to ensure that both are accurate and consistent. Policies and processes should consider how, and how often, those charged with governance and management are informed about sustainability- and climate-related risks and opportunities and decisions on significant transactions. Companies may also need to establish controls and policies to facilitate external audits of their sustainability disclosures to ensure that the data, processes, metrics, and targets adhere to reporting standards.

Stakeholder Engagement

Internal controls may need adjusting to address the broader set of stakeholders associated with sustainability reporting compared with traditional financial reporting. Sustainability reporting can lead to increased stakeholder scrutiny and engagement, and effective internal controls can help manage these interactions and ensure that stakeholder concerns are addressed, and the company’s reputation maintained. Communication methods should take into considering the timing, audience, and nature of the engagement.

As the ISSB is currently developing these sustainability standards, we expect that additional standards might be promulgated to address the needs of the stakeholders. Regular reviews and updates of internal controls, policies, and procedures are necessary to adapt to changing sustainability reporting standards and evolving practices.

Companies focusing on sustainability could drive innovations and efficiencies in their processes that lead to cost reductions. Internal controls can monitor and optimize these changes to ensure that they are implemented effectively and align with the company’s strategies, objectives, and decision-making processes.

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For more information, please contact Grant Thornton Japan at info@jp.gt.com or visit www.grantthornton.jp/en

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Renewable Ambitions

Japan aims to mix up power, but are the targets achievable?

Japan has detailed ambitious plans for the wider deployment of renewable energy sources throughout the economy, with the government in October 2021 announcing the Sixth Strategic Energy Plan and setting a target of between 36 and 38 percent of the nation’s power coming from renewables in 2030.

That would be about double the 2019 level and significantly above the previous 2030 goal of up to 24 percent.

Japan’s target renewables mix would include up to:

• 16 percent from solar
• 11 percent from hydropower
• 5 percent from wind
• 5 percent from biomass
• 1 percent from geothermal

The contribution from nuclear energy was left unchanged, at between 20 and 22 percent. This will require a minimum of 30 reactors to be operational.

The targets tie in with the Clean Energy Strategy, unveiled by the government in May 2022, announcing an ambitious 46-percent reduction in greenhouse gas emissions in fiscal 2030 and carbon neutrality by 2050.

And, given the impact of instability involving Russia and in the Middle East, the two traditional primary sources of energy for Japan, combined with the yen at 10-year lows against other leading currencies, it would be in Japan’s best interest to dramatically reduce its reliance on imported energy.

Yet energy experts caution that Tokyo is unlikely to reach those targets as progress in the development of renewables has slowed, with fewer large-scale solar projects, delays in offshore wind generation, and local resistance hampering the acceleration of other technologies, such as onshore wind and geothermal power.

“Private capital markets are ready to invest in Japan, and both multinational and Japanese firms have developed technology and human resource pools to hit targets,” points out Andrew Statter, a partner at the Titan Consulting Group and head of its GreenTech division.

“However, policies and subsidies are unclear, and there are conflicts between ministries that are causing questions for investors while potentially profitable asset types, such as large-scale agrisolar, are not yet eligible for project financing,” he told The ACCJ Journal. “All of which puts a huge pause on the potential accelerated development that industry is ready to deliver.”

Japan needs to go beyond the “what” in its policies and clarify the “when,” “where,” and “how” to encourage investment, Statter said.

Favorable Winds

Turning to specific energy resources, Statter said offshore wind is critical as Japan has geographical and physical limitations on the volume of onshore renewables that can be developed. “With vast ocean resources, offshore wind is the ideal renewable technology which is proven and scalable to give Japan a shot at hitting renewable energy targets,” he said. “Key here is the need to accelerate floating offshore wind, as Japan’s waters become very deep quite close to shore.”

Statter also sees a secondary benefit to Japan’s expansion of floating technology. The country could become a technology exporter on a regional scale as Asia–Pacific markets embrace the technology.

Akira Amano, country manager of Invenergy Wind Development Japan GK, agrees on the importance of offshore wind to the nation’s overall energy goals, pointing out that “Japan has the right resources to become a global leader in renewable energy, especially offshore wind.”

He also concurs that significant challenges need to be navigated for the renewables sector to thrive.

“In order to accelerate progress and meet our nation’s goals, there will need to be long-term regulatory certainty, increased transmission capacity to deliver energy to customers, and long-term planning to address challenges like cost uncertainty.

Amano also noted that, with strong leadership, Japan can accelerate the build-out of clean energy and meet its energy goals in a timely manner.

Rocky Foundation

If the authorities are serious about making the most of offshore wind, Amano said, a number of regulations need to be revised, not least the unbundling of generation, transmission, and distribution at existing electricity utility companies to get rid of unfair competition. The sector also needs the authorities to increase the price for renewable energy certificates, he added.

Hideyuki Ohnishi, regional general manager for GE Renewable Energy in North Asia, agrees that Japan needs to make the most of its exclusive economic zone—one of the world’s largest—for offshore wind.

“The wind conditions, the speed and quality of the wind, is much better when you go to the seaside,” said Ohnishi. “In the mountains, there is turbulence and such, and average wind [speed] is not as strong. So, it is important for us to go to the places where we have better wind.”

Yet there are challenges, particularly in laying the foundations for turbines.

“We have to install big wind turbines in the sea, where the depth differs,” he explained. “Wave and seabed conditions have an impact. The geosurface is very important. Rocks and related conditions impact our design, and it’s not easy in terms of technology.”

Equally, the investment required to get the blades turning is significant, and projects must be considered in the long term.

The Japanese government is also pushing for 60 percent of the components in offshore wind farms to be manufactured locally.

General Electric started working with Toshiba in 2021, initially focusing on the nacelle at the top of the tower that houses all the critical components of the turbine. Construction of the nacelle is now largely done by local labor and with components utilizing the local supply chain, all of which will have a long-term benefit for the community, Ohnishi added.

Lofty Aims

While the government’s 2030 targets can be achieved as battery storage and grid technology improve, in tandem with innovations in the use of the grid, the 2050 targets are “a real moonshot,” Ohnishi admitted. “The 2050 goal is very, very challenging, but a majority of us have agreed to aim for it,” he said.

The Japanese government has also been a vocal advocate of hydrogen as an effectively limitless source of energy in the future, although questions are being asked as to whether this is the most appropriate path.

“Generally speaking, I think the industry and international impression is that Japan’s hyper focus on hydrogen to solve all problems has been outsized and unrealistic,” said Ken Haig, vice-chair of the ACCJ Energy Committee. “It is also too future-focused, relying on technologies that will not become commercially viable or scalable until well after 2030.”

Haig noted a comment made by former ACCJ President Glen Fukushima in a recent Kyodo News opinion piece: “Japan’s support for innovation in green hydrogen, perovskite technology, and offshore wind is the right move,” said Fukushima, “But METI should take a ‘yes, and’ approach by also immediately boosting funds to deploy existing clean energy technologies like solar and wind power—technologies that have already proven successful for Japan.”

Whatever the source, the renewables sector agrees that Japan’s need for home-grown energy is only going to intensify. The Sixth Strategic Energy Plan is billed as a rethink of regulations that have thus far inhibited development; for developers, the elimination of red tape cannot come soon enough.

Investing in Biotech

From plastics that melt in the sea to cultured foie gras, Japan is pushing innovative technologies forward with government support

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Presented in partnership with the Ministry of Economy, Trade and Industry

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In terms of taste, IntegriCulture’s prototype cultured foie gras has been praised by culinary experts as having a good balance of richness and sweetness.

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A decade on from Dr. Shinya Yamanaka’s win of a Nobel Prize for his research into induced pluripotent stem cells, or iPS cells, Japan is lagging in bringing biotechnology to a market forecast to grow to up to $4 trillion by 2040.

To help capture this huge opportunity, Japan’s Ministry of Economy, Trade and Industry (METI) revealed plans last fall for an $8 billion (¥1 trillion) fund to support biomanufacturing. The field encompasses technologies that leverage genetic technology to maximize the ability of microorganisms to produce substances.

Hirokazu Shimoda, director of METI’s Bio-Industry Division, explained why the country plans to go big on bio.

“It is only a matter of time before the global manufacturing industry is replaced by bioprocesses,” he said. “That’s why we are making medium- to long-term investments on the scale of about ¥1 trillion to build a system for companies in the biotechnology and drug discovery markets to develop and manufacture in Japan, then earn money in the global marketplace.”

As well as driving economic growth, biomanufacturing is also expected to be key in solving global issues such as marine pollution, global warming, and food shortages. Some top players in Japan’s biomanufacturing field are already making a difference in those areas.

Green Planet

In 2011, Kaneka Corporation achieved the world’s first commercial production of plastic that degrades in the ocean. The Osaka-based company plans to quadruple the production capacity of its biodegradable biopolymer called Green Planet to 20,000 tons in January 2024.

Kaneka began developing Green Planet in the early 1990s, when global environmental problems such as global warming began to emerge. The project was launched due to the strong desire of researchers to provide environmentally friendly products that don’t depend on fossil fuels.

Green Planet has qualified for the BiomassPla Identification and Labelling system, awarded to materials composed of biomass. It has also received the OK Biodegradable MARINE certification, issued by TÜV Austria Belgium NV/SA for materials that biodegrade in seawater.

Osaka-based Kaneka Corporation plans to quadruple the production capacity of its biodegradable biopolymer called Green Planet to 20,000 tons in January 2024.

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Currently, Green Planet is used in straws, plastic shopping bags, cutlery, food containers and agricultural supplies. Seedling pots made with the material can be left to biodegrade after being buried in the soil. Kaneka is studying the material’s effects on natural cycles, including changes to bacteria in the soil.

“The focus of our research is to expand the range of physical applications for which Green Planet can be used,” explains Dr. Shunsuke Sato, a researcher at Kaneka’s Agri-Bio & Supplement Research Laboratories. According to the company’s own estimates, the combined annual production volume of plastic alternatives in Japan, the United States, and Europe currently is about 25 million tons. The market for Green Planet as a substitute for traditional plastic is expected to expand as regulations tighten and awareness grows.

Looking to capture this demand, Kaneka is focusing on carbon dioxide (CO2) as a new raw material for mass production of Green Planet. The goal is to recycle CO2 using microorganisms thereby creating a new process of manufacturing that can address both environmental problems and economic development. Sato explains: “We have the technology to do this in the lab. For mass production, we need to develop a culture process that efficiently converts gas components, such as CO2 and H2 [Dihydrogen], into Green Planet.”

Redefining Meat

Culturing has deep roots. For hundreds of years, humans have used and improved upon it to make wine, cheese, and more. In recent years, new culturing techniques have unlocked the process for making lab-grown cultured meat, redefining what we believed to be possible.

One pioneer of this movement is IntegriCulture Inc. As competition in the development of cultured meat heats up globally, this Japanese startup is the world’s first to succeed in producing cultured foie gras. Dr. Yuki Hanyu, IntegriCulture’s CEO, began research in 2014 on the CulNet System, a unique cell culture technology for manufacturing cultured meat. In 2019, he completed a prototype of cultured foie gras using duck liver cells.

The expansion of the worldwide market for cultured meat provides a tailwind for development. According to market forecasts by US consultancy A.T. Kearney, cultured meat will make up 35 percent of the meat market by 2040. Hanyu believes that the spread of cultured meat will depend on price, taste, and consumers’ belief in its safety.

In terms of taste, IntegriCulture’s prototype cultured foie gras has been praised by culinary experts as having a good balance of richness and sweetness. The first commercial sales are planned for 2024 in Singapore, a market with a precedent. In 2020, Singapore approved the sale of cultured chicken developed by a US company. Domestically, IntegriCulture is aiming to begin sales in 2025, but Japan’s screening standards for areas such as safety have not yet been decided.

Kaneka researcher Shunsuke Sato

IntegriCulture CEO Yuki Hanyu

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The potential advantages that come with cultured meat are enormous. IntegriCulture’s CulNet System makes it possible to produce cultured meat at about one ten-thousandth the cost of conventional culture methods. With conventional methods of cultivation, ingredients contained in the blood, such as the serum necessary for cell culture, are expensive and seen as an obstacle to commercialization. However, with CulNet System, IntegriCulture has succeeded in maintaining the appropriate nutritional content without using expensive ingredients. It can also culture cells from various animals including fish.

IntegriCulture plans to sell the CulNet System to food manufacturers and other organizations, and to work together with them to develop technologies that will enable mass production.

“Leveraging our core strength of engineering technology, we want our system to find its proper place in the world,” said Hanyu, who first got involved in so-called cellular farming because he wanted to make the cultured meat he read about as a child in science fiction novels. To this day, he continues to strategize about what he can make with biotechnology, taking inspiration from his beloved world of science fiction.

Companies such as Kaneka and IntegriCulture are just the tip of the iceberg in terms of Japanese biotechnology’s true potential. “Japan is good at the zero-to-one stage of research and development, but is often less adept at scaling up as an industry on the global level,” explains Kaneka’s Sato. That’s exactly what METI aims to change, helping these pioneers and other like them with the funding they need to mass produce and commercialize their innovative biotechnologies.

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CO2 Punch!

On the road and in the air, companies are charting a more sustainable future for transportation and travel

Electric propulsion enables small, zero-emissions aircraft that have the potential to bring sustainable flight closer to home.

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Those old enough to remember road trips in the days before handheld video games, televisions mounted in headrests, and smartphones will recall the myriad ways in which we entertained ourselves as the miles went by. Some games involved punching each other when a (gas-powered) Volkswagen Beetle was spotted. Others required finding out-of-state license plates. And then there were those about numbers.

Today’s numbers from the road are a bit less fun. Globally, 14 percent of greenhouse gas emissions originate from the transportation sector—and that jumps to 27 percent in the United States. Cars aren’t the only culprits. The aviation industry is also concerned about its share of carbon dioxide (CO2) going into the atmosphere. On our way to a sustainable, carbon-neutral future, bypassing such pollution is a must.

The ACCJ Journal spoke with companies in the automotive and aerospace sectors to take the pulse of transportation and find out where future journeys might take us.

Hit the Road

Everywhere you turn, there’s a car. And most are still burning gasoline. But as climate change becomes a more urgent problem, the tide is turning. The compound annual growth rate of the electric vehicle (EV) market is now at 24.8 percent, and sales are projected to reach $980 billion dollars by 2028, up from $185 billion in 2021.

The move by California to ban the sale of new gas-powered cars and light trucks by 2035 is sure to accelerate that change, at least locally.

While it might feel as if electric cars are a rather new invention, they’ve been around for a long time. The first was Scottish inventor Robert Anderson’s motorized carriage around 1832, more than 50 years before German engineer Karl Benz rolled out the first gas-powered car.

So, what’s old is new again as EVs drive their way to the head of the pack and cut greenhouse gas emissions in the process.

Tesla may be the first brand that comes to mind when asked to name an EV, but there are many options on the road today, ranging from the very affordable Nissan Leaf to GMC’s powerful-but-expensive Hummer EV pickup. Chevy has even announced an all-electric Corvette. What would Florence Jean “Flo” Castleberry have to say about that? These are all changing the way we think about automobiles.

“Similar to the way the smartphone turbocharged the use of the internet, pushed it to become fully mobile, and instigated many new services—and industries—EVs are digitally transforming the transportation industry as a conduit for new mobility technologies that go beyond simply using an electric power source,” explained Karma Automotive LLC’s Chris Sachno, who will speak about electrifying mobility at an event hosted by the American Chamber of Commerce in Japan Information, Communications, and Technology Committee on October 6.

The senior vice president for e‑mobility, cloud services, and innovation said this is summarized by the CASE model of automotive technology megatrends. An acronym for connected services, autonomous vehicles, shared mobility, and electrification technologies, CASE is providing a superior user experience with groundbreaking technologies, Sachno explained. “There are economic benefits, as well, such as lower total cost of ownership and reduced emissions, which encourage economic activity within communities,” he added.

The Karma GS-6 54 Edition

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Karma has developed a commercial solution called Powered by Karma which enables existing internal combustion engine (ICE) vehicles to be converted to electric powertrains.

“This dramatically reduces the complexity of the drivetrain by 90 percent, from more than 1,000 components to fewer than 100,” Sachno said. “Installing an electric powertrain into an existing commercial vehicle also extends the life of the vehicle’s other parts, such as the body, chassis, brakes, and interior. This reduces the emissions created during the production of a new vehicle, or from scrapping or recycling the old vehicle.”

The Powered by Karma electrification solution, which utilizes the company’s OEM experience and automotive grade technology in providing top-quality engineering, design, electrification, and contract manufacturing, delivers a total cost of ownership reduction of up to 48 percent.

“We believe this provides a unique proposition for the commercial vehicle space by offering electrification solutions for existing vehicles, rather than relying on the replacement of existing ICE vehicles. Substitution will take considerable time, especially given the long lifetime of commercial vehicles,” Sachno said.

The Irvine, California-based EV startup also designs and manufactures its own vehicles. The Revero GT is powered by dual electric motors that offer extended range and embody Karma’s goal of offering leading technology with a luxury experience. And last year, Karma introduced the 536-horsepower GS-6, which Sachno said “looks amazing, is incredibly fun to drive, and is packed full of cutting-edge technology.”

While building such vehicles, Karma is dedicated to sustainability and, in 2021, joined The Climate Pledge, which was co-founded in 2019 by Global Optimism, and ACCJ corporate sustaining member Amazon. As a signatory, Karma has committed to become net-zero by 2040.

“This commitment encompasses our production facility, supply chain partners, and product lineup, which includes vehicles powered both by hybrid and pure electric powertrains and propulsion systems,” Sachno explained. “Karma continues to align with partners that share the same philosophy on protecting the environment and investing in research and development projects that have a positive effect on the planet. We look forward to collaborating with other Climate Pledge signatories on research and development of green technologies in the automotive space to advance and attain the goal of becoming net carbon neutral.”

Take Flight

The ground can only get you so far. Air travel is essential to life in the 21st century. In our tightly knit, global community, the movement of people and goods is key to a healthy economy, quality of life, and support of those in need following disasters and during humanitarian crises.

The coronavirus pandemic may have curtailed travel, but the statistics from 2019, the last year before the appearance of Covid-19, demonstrate the importance of air travel. In that year, according to the Geneva-based Air Transport Action Group, 4.5 billion people flew, $7 trillion in goods were exchanged, and the aviation industry supported 87.7 million jobs.

The environmental impact of aerospace will again increase, what with global travel now recovering as border restrictions and testing requirements are lifted. Japan, one of the only countries still limiting the number of tourists it allows in, announced on September 23 that it will fully reopen on October 11.

In 2019, the airline industry generated 900 million tons of carbon emissions, accounting for 12 percent of transportation-related emissions and 2.6 percent of all emissions globally.

Two companies with which The ACCJ Journal spoke explained the steps they are taking to reduce their carbon footprint.

Boeing, also an ACCJ corporate sustaining member, designs and manufactures some of the most widely used passenger planes. It put additional emphasis on sustainability in 2020 by naming a chief sustainability officer, reviewing the composition of its board-level subcommittee, and explicitly incorporating sustainable aerospace into the company’s values and strategic objectives.

There are four pillars to Boeing’s sustainability activities:

• People
• Products and services
• Operations
• Communities

“Today, all our stakeholders are increasingly concerned about sustainability and, specifically, the environmental impact of aerospace,” said Will Shaffer, president of Boeing Japan and an ACCJ governor. “We recognize climate change-driven risks and the need to decarbonize aerospace for sustained long-term growth, as well as stakeholder trust and preference.”

Everything for Zero

Boeing’s vision for future flight is embodied in the company’s Everything for Zero initiative, which comprises four strategies to get to zero-climate-impact aviation:

• Fleet renewal: replacing older models with more efficient ones
• Operational efficiency: leveraging data, digital tools, and modifications to reduce emissions
• Renewable energy transition: utilizing sustainable aviation fuel (SAF), renewable electricity, and green hydrogen
• Advanced technologies: intersecting fuel sources with advanced-technology flying machines

Also, part of the initiative is verified offsets—midterm, market-based solutions for matters which cannot yet be sufficiently addressed.

“Boeing has invested more than $60 billion over the past 10 years to improve sustainable product lifecycle, including innovative technologies such as the digital thread, carbon composite materials, and advanced high-bypass-ratio engine designs,” explained Shaffer. “Other aerodynamic improvements include a natural laminar flow that reduces drag to improve environmental efficiency.”

These efforts have led to planes which provide significant efficiency gains. Each generation reduces fuel use and emissions 15–25 percent, as demonstrated by the Boeing 777-9, which has 25-percent lower CO2 emissions compared with previous planes. The 777-9 is slated to enter service in 2025.

Airlines flying Boeing planes are taking advantage of these new technologies as they move along their routes to net-zero.

“Many customers have accelerated the retirement of older airplanes during the pandemic to optimize their fleets with the latest, most-efficient models,” Shaffer said. “Our latest Commercial Market Outlook forecasts that 49 percent of the 41,170 planes needed will be fleet replacements. Boeing will continue to invest in efficiencies that reduce fuel use and carbon emissions.”

Given that those airplanes will use current propulsion technology and be flying for the next 20–30 years, SAF will play a big part in realizing the aviation industry’s ambitious goal of zero carbon by 2050. Boeing and the world’s airlines recognize the importance of increasing SAF production and promoting its use. In fact, this year Boeing procured 2 million gallons of SAF for its own operations at its factories in the United States. And in Japan, it recently joined ACT for SKY, a voluntary organization of companies from the airline, engineering, and biofuel industries, among others, that works to commercialize, promote and expand the use of Japan-produced SAF.

Sustainable Flight Challenge

Fellow ACCJ corporate sustaining member Delta Air Lines, Inc. is one Boeing customer that is assisting with the development of new technologies and solutions.

In April, Delta’s most fuel-efficient plane at the time, the Boeing 737-900ER, made a flight powered by a fuel blend that included 400 gallons of SAF. It was part of the Sustainable Flight Challenge hosted by the SkyTeam Alliance, a group of 18 airlines that operates more than 10,000 daily flights over 1,062 destinations in 170-plus countries. The flight was part of Delta’s ongoing efforts to reduce its carbon footprint—a goal to which the airline is devoting significant resources.

Delta now has even more fuel-efficient planes in its updated fleet, including the Airbus A350-900 and the A330-900 neo.

Airbus A350-900

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“In 2022 alone, we are expecting to have reduced fuel consumption by more than 10 million gallons through operations and fleet modifications, including reducing aircraft weight, modifying landing approaches, and optimizing flight speed,” according to Victor Osumi, managing director and president of the Atlanta-headquartered airline’s operations in Japan.

“We’re also funding top minds to accelerate new innovations through our pension fund’s co-investment with the TPG Rise Climate Fund.” This fund opened in early 2021 and closed its inaugural fundraising in April of this year, having brought in $7.3 billion. The primary climate investing strategy of global alternative asset manager TPG, it focuses on five climate sub-sectors:

• Clean energy
• Enabling solutions
• Decarbonized transport
• Greening industrials
• Agriculture and natural solutions

To support the exchange of knowledge and generate investment opportunities, TPG formed the Rise Climate Coalition. Some 28 companies, including Boeing, are part of the alliance, and Delta announced its involvement in March. Delta Vice President of Sustainability Amelia DeLuca said in the announcement that “investing in TPG Rise Climate is the next step … as we work to decarbonize our operations while supporting promising solutions for the future.” All these efforts are important parts of how Delta is pushing the industry forward.

“As we reshape the fundamentals of aviation, we are dedicated intently across these areas to making immediate progress and to investing wisely in disruptive solutions,” explained Osumi, who is also an ACCJ governor. “A portfolio of short-, medium-, and long-term actions across the industry are essential to achieving net-zero aviation.”

Start Me Up

Electricity could be one solution. Might it serve as a power source for aircraft, as it now widely does for cars? Osumi said that, as of now, electric-powered aircraft appear to be an option for smaller, shorter-haul flights. “But as investments and innovations continue, that could evolve,” he added. “We believe that there are many paths that could help accelerate us to a more sustainable future.

Renewable electricity is part of Boeing’s Everything for Zero initiative. The company and its joint venture partner Wisk Aero LLC announced on September 20 a roadmap for the deployment of an electric vertical take-off and landing (eVTOL) solution for urban commuters.

“Boeing and Wisk are developing a two-passenger eVTOL air taxi, which has flown more than 1,500 successful test flights since 2017,” explained Shaffer. “Wisk’s sixth-generation eVTOL aircraft will represent a first-ever candidate for the certification of autonomous, all-electric, passenger-carrying aircraft in the United States.”

And in January, GE Aviation announced the selection of Boeing to support the flight tests of its hybrid electric propulsion system—a big step forward in exploring ways to reduce carbon emissions.

Boeing has been exploring and developing concepts for advanced aircraft that can meet specific energy-efficiency, environmental, and operational goals.

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Hydrogen High

Given the success of transitioning cars to electricity, it’s no surprise that the same ideas are being applied to aircraft. But what about the universe’s most abundant chemical substance? Could hydrogen one day be used to zip air passengers around the globe?

Osumi said that hydrogen is one of the options being explored by Delta for next-generation aviation. The company has partnered with Airbus to study hydrogen-powered aircraft as well as the ecosystem required at airports and beyond as a way to reduce aviation emissions exponentially.

Boeing is also innovating with hydrogen. Shaffer noted that they’ve been developing hydrogen and fuel cell applications on board aircraft for more than 15 years, carrying out six hydrogen technology demonstrations with crewed and uncrewed aircraft using hydrogen fuel cells and hydrogen combustion engines.

“We benefit from green hydrogen for any version of the future,” he said. “Green hydrogen is used to produce SAF and it has the potential to be used in future propulsion systems, when the technology is ready.”

A new Japan Research and Technology Center, focused on sustainability, that opened in August is just one of the investments Boeing is making to find sustainable solutions in Japan. As part of this, Boeing and its Japanese partners will pursue research into zero climate impact aviation under an agreement with the Ministry of Economy, Trade and Industry. In addition, it also announced a partnership with Mitsubishi Heavy Industries in July that will involve the study of hydrogen as well as other sustainable technologies.

New Heights

Osumi said he and Delta look forward to fostering collaboration with the industry, academia, and startups to accelerate the sustainable future of flight. “We’re optimistic about early-stage companies pushing the boundaries with futurist thinking on aircraft, propulsion, and more.

“And we’ve proven that the infrastructure exists to make sustainable aviation fuel, or SAF, accessible to every major airport on the East Coast by leveraging our partnership with Colonial Pipeline.” This company operates the largest pipeline system for refined oil products in the United States.

With the evolution of next-generation technologies, he expects to see new designs for planes and a completely transformed client perception. “Even now, on Delta planes, the customer experience is beginning to look more sustainable, with refreshed onboard product offerings such as artisan-made amenity kits, recycled bedding, reusable and biodegradable service ware, and premium canned wine.” Together, these products will reduce onboard single-use plastic consumption by approximately 4.9 million pounds per year—roughly the weight of 1,500 standard-sized cars—and significantly increase Delta’s support of minority- and women-run businesses.

Boeing aims for much the same.

“Our common goal is to have zero impact on our planet while maintaining and growing the societal benefits of air transportation,” concluded Shaffer. “To ensure the benefits of aerospace remain available for generations to come, we have work to do. We’ve made great strides since the beginning of the jet age, but our greatest accomplishments are yet to come. We believe the future of flight will take ‘everything for zero.’”

Japan’s Energy Alignment Goals

Charting a route to greater energy independence and net-zero

It has been 11 years since the Great East Japan Earthquake and Tsunami triggered a nuclear disaster in Fukushima that would change the country’s energy landscape. Today, another energy shock is upon us, with the cost of imported energy commodities driving electricity prices to their highest level in a generation.

Japan’s electrical system was strained nearly to breaking point this summer, and the outlook for winter energy supplies remains unclear. At the same time, the crisis presents opportunities to reevaluate priorities, redirect investments, and focus on decreasing Japan’s exposure to international energy markets while also driving decarbonization.

Additional opportunities are arising as Japanese businesses—on a global and domestic level—are chasing aggressive carbon-reduction goals that will necessitate a massive increase in installed renewable energy capacity in the country.

For several decades, Japan has executed a successful strategy of importing its energy via long-term contracts and relationships. Meanwhile, renewable electricity supply has expanded greatly under the feed-in-tariff and feed-in-premium systems, known as FIT and FIP. But current circumstances pose a challenge that necessitates a new approach.

We are in a very difficult position due to these and other factors, with the global energy marketplace never having been as competitive as it is now and the security of energy suppliers in question.

Aggressive Carbon Reduction Goals

Japan’s carbon reduction goals have been described by observers as bold and ambitious, and marked by three key milestones.

The first is Japan’s commitment, under the United Nations Framework Convention on Climate Change, to reduce greenhouse gas (GHG) emissions by 26 percent from 2013 levels by 2030.

The second is to promote the development of innovative technologies by 2050. They would enable Japan to contribute to the global reduction of accumulated atmospheric CO2 to a level the Japanese government has dubbed Beyond-Zero.

The third and most ambitious milestone, unveiled by former Prime Minister Yoshihide Suga in 2020, is for Japan to achieve net-zero GHG emissions by 2050. This would set the nation on a course to becoming carbon neutral in just 30 years.

But with the first milestone just 92 months way, action is needed now.

Demand for Change

Today, Japan-based corporations and international companies, including many members of the American Chamber of Commerce in Japan (ACCJ), are leading the market towards decarbonization.

This can be seen from the sheer number of companies taking part in key corporate environmental initiatives. And, while nuclear energy is likely to play a role in a low-carbon future, many Japanese companies have already committed to increasing their consumption of renewable energy.

Japan represents one of the top three participating countries in each of the following global efforts:

• CDP (formerly the Carbon Disclosure Project): a reporting framework for carbon emissions
• RE100: a push by companies to use 100 percent renewable electricity in their operations
• The Science Based Targets initiative: a pathway for companies committing to specific carbon reduction targets
• The Task Force for Climate Related Financial Disclosure: a framework for divulging climate-related risks

There is also the Japan Climate Leaders’ Partnership, in which 217 companies, including World Kinect Energy Services, participate.

Time to Align

To meet the goals of these organizations, participants require direct access to renewable electricity supplies. This can be achieved by a variety of pathways, including the tracking and tracing of environmental attributes.

Unfortunately, in Japan, the main system for tracking, auditing, and trading environmental attributes—called non-fossil fuel certificates (NFC)—is one of the most complex procedures in the world. Simplifying the system and bringing it more in line with international standards, such as the International Renewable Energy Certificate system, could help companies in Japan report their progress on reducing carbon emissions with greater confidence.

“Simplifying the system and bringing it more in line with international standards, such as the International Renewable Energy Certificate system, could help companies in Japan report their progress on reducing carbon emissions with greater confidence.”

Another key tool for reducing electricity-related carbon emissions is the renewable corporate power purchase agreement (CPPA). This enables a corporate end user of electricity and a developer to reach a long-term agreement on renewable energy for one or more projects.

CPPAs are considered a high-quality pathway to reducing carbon emissions and can help to drive private capital into the energy system. The ACCJ Energy Committee has been working closely with stakeholders to identify and reduce barriers to CPPAs.

Japan needs to improve its policy allowing renewable energy to connect to the grid as well as expedite the approval process for new projects which will provide short-term benefits.

For longer-term benefits, physical grid improvements will need to continue in an expedited and transparent manner, while including flexibility to integrate new technologies and grid-level storage.

Benefits for All

Whether supporting our clients with a CPPA or supplying energy attribute certificates, increased investment in renewable energy resources benefits not only the end user, but also the nation on its road to net-zero.

We recognize that the Government of Japan is making an effort to address these issues, but it needs to move faster to ensure that the nation remains at the forefront of evolving international standards.

In addition, Japan must consider and support to the fullest an array of technologies—including wind and geothermal—to meet future demand.

We want to see Japan be successful, and we invite ACCJ members to become more involved in the Energy Committee to help support the expansion of renewable energy opportunities in Japan.

The S in Sustainability

How human rights due diligence is expanding the dialogue on social impact

Environmental, social, and corporate governance (ESG) has become another fixed feature of a company’s operating landscape. As such, it requires increasingly specific rules and requirements regarding ethical accountability, transparency, and disclosure, together with tough questions about where and how companies are generating revenue.

So far, the ESG agenda has primarily focused on the E, as companies tackle climate change, largely by reducing emissions and carbon footprints. However, the spotlight is also moving to the S, which includes the social impact of our value chains.

This task is more challenging compared with that of the E, in the sense that we are now being asked to take responsibility for practices and issues over which we may have little control, and for which we cannot offer sufficient transparency.

Increased Governmental Oversight

Meanwhile, social impact regulations are developing swiftly. The drive for human rights due diligence (HRDD) has gained pace since the United Nations issued its Guiding Principles on Business and Human Rights (UNGPs) in 2011. Known as the Ruggie framework, because it was developed under the leadership of then-Assistant Secretary-General for Strategic Planning John Ruggie, the UNGPs are based on three pillars:

• Protect
• Respect
• Remedy

Let’s look at these in more detail.

Duty to Protect against Human Rights Abuses
Government action, in the form of new legislation and regulation, is prompting companies to take human rights more seriously. Based on the UNGPs, national action plans (NAPs) have been developed by many countries. These include the United States and Japan, which published its NAP in October 2020.

In Europe, measures are moving toward enforcing human rights culpability. Germany’s Supply Chain Due Diligence Act will come into effect in January 2023 and require companies to conduct due diligence for human rights and related environmental risks throughout their supply chains. It also will require measures to prevent and mitigate human rights abuses, as well as the establishment of grievance and reporting processes.

In June this year, the US Customs and Border Protection law enforcement agency implemented provisions of the Uyghur Forced Labor Prevention Act, which prohibit imports into the United States of products related to forced labor in Xinjiang. And recently, the US Securities and Exchange Commission issued two regulatory drafts for publicly held corporations and investment funds, requiring mandatory disclosure of ESG aspects of their business operations.

“An organization’s policy is not sufficient should human rights issues be alleged or identified. Operational frameworks which activate these policies and make them meaningful and effective are necessary.”

In July, the Japan–US Economic Policy Consultative Committee Meeting pledged to coordinate efforts to foster an environment in which companies uphold human rights and, in September, Japan’s Ministry of Economy, Trade and Industry (METI) issued its HRDD guidelines, which include expectations regarding due diligence processes, remediation, and stakeholder engagement.

Corporate responsibility to protect human rights
Companies are being compelled to demonstrate a commitment to protecting human rights. An organization’s policy is not sufficient should human rights issues be alleged or identified. Operational frameworks which activate these policies and make them meaningful and effective are necessary, and identification of adverse impact on human rights requires that companies remedy such a situation.

Even if not involved directly, a company is still expected to act on the information and, ultimately, to consider whether to continue business with the party in question should no remedy be found.

Right of victims to access effective remedies
Similar to the structure of whistleblowing and ethics hotlines, there are likely to be mechanisms to enable claims from all tiers of supply against companies at the top of the chain.

This would inevitably require changes to the relationships companies have with suppliers, and implementation of specific onboarding policies, due diligence protocols, and corporate social responsibility measures. Monitoring and audit rights would need to be carefully built into contracts, as well as working and reporting processes.

So, for companies, HRDD can be summarized as:

• Assessment of actual and potential human rights issues and risk
• Mitigation and remedial action for such issues and risk
• Corporate commitment to, and responsibility for, human rights throughout the value chain
• A set of mechanisms for reporting and communicating human rights breaches, as well as for monitoring and contributing to human rights

Given the complexity of our value chains, when looking at the S in ESG, it is helpful to consider social impact in a similar way to how we scope emissions when addressing the E.

The METI HRDD guidelines also outline a similar categorization:

• Scope 1: Adverse human rights impact caused directly by our business activities
• Scope 2: Adverse human rights impact to which our business activities contribute
• Scope 3: Adverse human rights impact related to activities or entities with which we have a business relationship, and that are linked to our operations, products, or services

Increased Scrutiny

As legislation and public statements on ESG commitment have evolved, well-funded non-governmental and non-profit organizations have begun monitoring human rights issues ranging from wages, working hours, and conditions to child labor. These organizations are rightfully passionate about the causes to which they seek to give a voice.

Awareness of social concerns is rising among investors, shareholders, employees, and consumers, as are calls for related assurances. Perhaps most meaningfully, the influence of HRDD can hold negligent companies accountable through legal and civil liabilities.

Realizing Opportunities

All this brings new and sizeable burdens, including understanding risk exposure and expectations, as well as determining to what we must commit and how far we need to go. Companies must also determine how to put into operation and implement necessary actions, while considering reputation, profitability, growth, cost efficiency, as well as investor, employee, and consumer confidence.

Negative exposure can quickly damage profit-ability and status, as well as reputation with investors, customers, suppliers, workers, business partners, and other stakeholders on which we depend for business.

However, we will not make much headway in creating a more sustainable global economy if sustainability is viewed as being about risk mitigation, reporting duties, compliance, and regulatory burdens. The key to progress is not to lose sight of the overall objectives.

We must commit to change and realize the opportunities to pursue and maximize growth. We must seek competitive advantage rather than view this as a constraint to fulfill obligations. A significant dimension to consider is the company’s power to attract young talent and increase employee engagement. The business opportunities are many.

They can be realized through brand differentiation and innovation in supply management and manufacturing processes, product and service life cycles, new forms of cost efficiency, emerging channels for market access and diversification, novel applications of technology, and by building a more diverse workforce.

Hannah Perry contributed to this article. Perry works in the Corporate Communications Department at AIG Japan Holdings K.K. and is vice-chair of the ACCJ Sustainability Committee.

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Deepening Africa–Japan Business Ties

Investment in people, innovation, and sustainable energy to play a key role at the TICAD 8 conference

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Presented in partnership with the Ministry of Economy, Trade and Industry

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Dots for’s Carlos Oba (third from left) and Emmanuel Agossou (far left) in a village close to Zagnanado, Benin.

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On August 27 and 28, the Republic of Tunisia will host an international conference dedicated to deepening the economic ties between Japan and the 54 nations that make up the continent of Africa. Japan has taken the lead in the Tokyo International Conference on African Development, otherwise known as TICAD, since 1993, when TICAD 1 was held in Tokyo. Meetings take place every three years, and the Tunisian gathering—TICAD 8—is only the second to be held in Africa.

While the number of Japanese companies active in Africa has doubled over the past decade to more than 900, Japan continues to lag the European Union, the United States, China, and India. The Ministry of Economy Trade and Industry (METI) is focused on encouraging Japanese businesses to support sustainable growth in Africa through projects that address vital social needs, leverage digital transformation, provide technical skills training, and boost renewable power generation.

TICAD 8 comes as foreign direct investment in Africa more than doubled between 2020 and 2021 to about $83 billion, according to a report by the United Nations Conference on Trade and Development. This underscores the vital and timely role of Japan–Africa relations ahead of the upcoming gathering of African leaders, development partners, and international and regional organizations, along with representatives of the private sector.

As former METI Minister Koichi Hagiuda told attendees of a TICAD 8 preview event, “Japan sees three key catalysts for partnership opportunities with Africa.” He went on to highlight how compelling demographics mean one in four people will be African by 2050 and noted that a digital revolution is driving a thriving startup scene. He added that, as Africans seek alternative ways to grow their economies, the opportunities for green growth projects will increase.

Digital Revolution

Carlos Oba is a good example of how Japanese expertise is helping fuel digital startups in Africa. He is co-founder of Dots for Inc., a tech startup launched in October 2021 with a mission to provide internet access to 200 million people living in rural areas of West Africa by 2030.

While it was a trip through Tanzania in East Africa that opened Oba’s eyes to how people living in rural areas are being left behind as the digitalization wave sweeps through larger towns and cities, Dots for’s initial projects have been in West Africa, beginning with Benin in December 2021 and Senegal the following year.

Emmanuel Agossou, the Dots for country manager in Benin, said the challenges are daunting. “Most of our clients are farmers, often with just primary-level education and small incomes from farms and fisheries—though we also have a few university students, graduates, and teachers,” he explained. “They live in villages where there is almost no electricity and no—or very weak—mobile network coverage and internet.”

That lack of universal online access is fueling a rapidly widening disparity between rural and urban areas of Africa, and Oba was prompted to action when he realized major digital players would be reluctant to invest based on low foreseeable profits.

Dots for was awarded just over $300,000 in seed money from two projects initiated by METI: AfDX and J-Partnership. The funding has enabled Oba and his co-founder, Sho Nakata, to develop d.CONNECT, a distributed wireless network communication infrastructure that brings the internet to African villages at extremely low cost. This is accomplished through Wi-Fi routers equipped with mesh network technology, which cuts out dead zones and can provide uninterrupted Wi-Fi.

Residents connected to the village wireless network can use their smartphones to access services and digital content stored on a server also installed in the village. Oba envisions a “smart village,” where users can use online platforms for distance learning, telemedicine, and crowd work. Not only is this meant to improve overall convenience, but the ability to access government and corporate digital services may also boost income and quality of life.

Residents of a village close to Zagnanado, trying out smartphones

“As the Dots for services expand, villagers will get strong internet connectivity and digital platforms to boost their business, education, and work opportunities,” Agossou said. “Young people may be able to work remotely from their village homes, without the need to trek to the big cities, where they would be forced to live apart from their families.”

The system is operated on a subscription basis, targeting users who can see the prospective advantages and are prepared to commit to making ongoing payments. According to Agossou, Dots for employs local agents in or near villages who promote the services either face-to-face with farmers or in village meetings that include young people and village heads. The emphasis is on explaining the advantages of the service to the community as well as to those looking to run businesses, he added.

The service has been successful in helping men and women aged 23 to 45 find steady jobs, Agossou said. But the reality of life in an African village remains harsh, and he notes that payment challenges exist for villagers with small incomes as well as university students and new graduates who have yet to find employment. As a result, Dots for is testing a lower-fee business model to boost client interest.

Based on forecast population increases, and the rising desire to be connected, the need for the company’s offerings is likely to extend to other African nations.

“Dots for services have a huge potential market, and I can see the model expanding from Benin to many other French- and English-speaking African countries, such as Côte d’Ivoire, Ghana, and Nigeria, to name just a few,” Agossou noted.

Sharing Skills

Japan is also committed to providing high-quality technical training to 5,000 young Africans over the next three years.

In Kenya, METI is cooperating with the Kenyan Association of Manufacturers (KAM) to promote training for human capital in the Kenyan manufacturing industry. METI seeks not only to raise technical levels throughout the entire Kenyan manufacturing industry, but to enhance the Japanese presence in the former British colony.

In February, METI dispatched a specialist team to Kenya, which conducted a 10-day guidance program. A further eight-day program was directed by similar specialists in June.

In May, representatives of the Kenyan Ministry of Industrialization, Trade and Enterprise Development, together with KAM, were sent to Thailand, where they took part in third-party training conducted by Japanese experts.

Among KAM’s client companies is Nairobi-based Plast Packaging Industries Ltd., a family-run business involved in the manufacture of environmentally friendly plastic bottling, packaging, and printing products. The company participated in a technical guidance program during which Japanese experts installed sensors on factory equipment and instructed program participants on how to apply the gathered data.

“Japanese technology has helped us monitor our production capacity on a real-time basis,” said Group Chief Executive Officer Mary Ngechu.

The sensors were installed at the Plast Packaging production line without disrupting operations. As a result, production efficiency has improved. This should also have a knock-on impact on sales, she added.

Ngechu has been impressed with the devotion of the Japanese engineers. “The Japanese team are committed to ensuring any project they spearhead goes to completion and that the companies benefit,” she said. “They have offered immeasurable support to me and my family in our business, and we look forward to partnering with them in different areas.”

Mary Ngechu

A METI team visited Plast Packaging in May 2022.

Future Power

At the Second Japan–Africa Public-Private Economic Forum, held on May 3 in Nairobi, participating countries reaffirmed their commitment to green energy. Given the number of African states, and the different issues they face, there is no one-size-fits-all solution to green-energy requirements. METI’s stance is that the most realistic approach is for each nation to select the path that best suits its needs.

To solve the challenges of limited supply and higher costs for electricity, due to power generation through heavy fossil fuel use and power importation from neighboring countries, Toyota Tsusho Corporation has conducted studies financed by METI on the feasibility of solar power generation with battery storage in several countries, including Zambia, Angola, Eritrea, and Benin. One possible approach using this method is to store power generated during the day in batteries and discharge this energy at night.

Against the backdrop of a rapidly growing population, the Egyptian government is targeting the supply of 20 percent of electricity from renewable sources by 2022 via initiatives that include onshore wind power created with support from Japan.

Toyota Tsusho and its subsidiary, the renewable-energy company Eurus Energy Holdings Corporation, in partnership with France’s Engie and Egypt’s Orascom Construction PLC, have developed the 262.5-megawatt Ras Ghareb Wind Energy project. The wind farm is located on the west coast of Gulf of Suez, 260 kilometers southeast of Cairo. This project raised $320 million of limited recourse financing, of which the Japan Bank for International Cooperation (JBIC) provided $192 million as overseas investment loans. The remaining $128 million came from commercial lenders Sumitomo Mitsui Banking Corporation and Societe Generale as loans covered by Nippon Export and Investment Insurance (NEXI) Overseas Untied Loan Insurance.

The Ras Ghareb Wind Energy project is the first independent wind-power production project in the country. After reaching financial close in December 2017, it began commercial operation in October 2019—two months ahead of schedule. With 125 wind turbines, it continues to generate enough electricity to power 500,000 Egyptian households.

In December 2019, a €110 million project-financing loan agreement for the Taza onshore wind farm in Morocco—led by Parc Eolien de Taza, the shareholders of which are EDF Renewable and Mitsui & Co., Ltd.—was signed by JBIC, the Bank of Africa, Sumitomo Mitsui Banking Corporation, and MUFG Bank, Ltd. The funds provided by the latter two commercial banks were insured by the state-owned export credit agency NEXI. The electricity generated by the project will be bought by Office National de L’Électricité et de l’Eau Potable, Morocco’s public electricity and water company.

Wind power is beginning to play a key role in the energy mix of nations such as Egypt and Morocco.

Kenya has committed to the realization of a green, hydrogen-based society as it looks to reduce its reliance on fossil fuels and has established a working group led by the Ministry of Energy. A strategy and roadmap are currently being drawn up, and institutional design and development of pilot projects will follow.

Japan’s public and private sectors are expected to work together to lead the development of greener energy resources. For the 2022 fiscal year, Toyota Tsusho and METI have decided to implement a feasibility study on green-hydrogen value chain development in Kenya. This study aims to pursue the formation and commercialization of pilot projects which lead to a green economy. The goals of such projects include unlocking the potential of green hydrogen as a new energy source through various industries, such as freight and passenger transportation, port cargo handling, steelmaking, fertilizer manufacturing, and alternative fuel and electricity storage solutions.

Financial Foundation

Project finance is risky in some respects. The special-purpose vehicle set up to run the project has limited underlying capital, and repayment of loans is funded only from project proceeds, which can take years to come to fruition. Such long-term finance risk is higher in developing countries.

One way to mitigate risk is to have loans insured by organizations such as NEXI, which provides coverage for loans made by private-sector Japanese banks to overseas businesses in which Japanese companies participate. NEXI was founded in 1993 and, according to a NEXI International Relations Group spokesperson, a high-level African focus has been in place since TICAD 1, which was held the same year in Tokyo.

In December 2020, NEXI insured a $520 million loan made to the African Export-Import Bank (Afreximbank) by Mitsubishi UFJ Bank, Ltd. and Mitsubishi UFJ Trust and Banking Co., Ltd. as support for the Pandemic Trade Impact Mitigation Facility (PATIMFA) for African countries affected by the Covid-19 pandemic. Through the PATIMFA program, the money is being widely used to support medical care, hygiene, environmental, and educational projects in Africa.

The spokesperson also revealed that NEXI has decided to participate in a telecommunications project in Ethiopia—jointly conducted by Sumitomo Corporation and Vodafone Group Plc of the United Kingdom—which began in May. The project will be reinsured by the African Trade Insurance Organization (ATI) based on a memorandum of cooperation concluded in 2019 at TICAD 7 in Yokohama.

Leading up to TICAD 8, NEXI is planning to host joint webinars with Afreximbank and ATI as side events to introduce these projects in more depth, the spokesperson said.

Tunisia is in an optimal position to host TICAD 8 given its unique geographical advantage as the gateway to the continent, as well as being an important partner for Japan in the Middle East and Africa. The conference has won the broad support of the African states, and Japanese Prime Minister Fumio Kishida is scheduled to attend. Tunisian President Kais Saied will chair the conference—a role which he is scheduled to share with Macky Sall, president of the Republic of Senegal and chairperson of the African Union.

Backed by more stable funding sources for clean energy projects, high-level training facilities, and the rapid uptake of digital services across the continent, TICAD 8 is on its way to securing a firmer and more deeply founded relationship between Japan and Africa as we move toward 2050.

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