1st

ESG Presentation～ To Create a Sustainable Society ～November 30, 2018
J. Front Retailing Co., Ltd.
YAMAMOTO Ryoichi
Director, President and Representative Executive Officer
Create and Bring to Life “New Happiness.”0Create and Bring to Life “New Happiness.”

Origin of the Group
Sustainable management

1717 Founded as a kimono fabric dealer

300+ years

1611 Founded as a kimono fabric andfancy goods wholesaler

Management integration

400+ years

September 2007

Put the “Mission Statement” at the core of management
and integrated all management activities

1Implementation of the Mission Statement

Create and Bring to Life “New Happiness.”

Service before Profit
Service before Profit － This phrase is from a passage from “Of Honor and Disgrace” written by
Xunzi, a Chinese thinker in the Zhanguo period, “Those who give priority to service over profit willprosper.” The most important thing is to approach things with sincerity and good faith. “Do not sell
any products that are of no benefit to customers.” “Do not rank customers.” “Honesty and lovingkindness come first.” “An unfaithful person is useless regardless of how gifted he/she may be.”Thus Daimaru has told its employees to keep a humble attitude to serve customers. At
Matsuzakaya, the spirit of “Abjure all evil and practice all good” has been valued. They can bemodernized as “Customer-first principle” and “Contribution to society.” Thinking of stakeholders
thoroughly and acting accordingly will lead to business growth. We believe “Creating Shared Value(CSV)” to solve social issues through business activities is nothing less than practicing the Group’s
corporate credo simply and honestly.

“Customer-first principle” “Contribution to society”
in modern language
Consistent with CSV incorporating ESG issues

2Create and Bring to Life “New Happiness.”

History of Crisis and Innovation
The Rebellion of Oshio Heihachiro
The “Rebellion of Oshio Heihachiro” broke out in 1837 andthe warehouses of almost all wealthy merchants wereburnt down. Oshio told his followers not to attack Daimaru
because they are a philanthropic merchant and Daimaru
escaped burning.

Financial crisis at the end of Meiji period
Daimaru’s business performance gradually worsened affectedby disorder at the end of the Edo period, the Meiji Restorationand economic crisis.
In 1907, Daimaru sold assets and cleared huge debts. They
overcame financial crisis by innovating and modernizing theorganization and operations.

Japanese traditional puppet show bunraku “Osaka Hanjoki,”featuring the story of the Oshio Rebellion

Conversion to department store operators
Matsuzakaya and Daimaru established stock companies in1910 and 1920, respectively.
They displayed products including clothing, accessories
and cosmetics instead of bringing products from astockroom at customer’s request, which is a traditional wayof selling called zauri that dates back to the Edo period.

Shifted from zauri to display to become a department store(Matsuzakaya Ueno store)

Continuing to “respond to changes”
by basing management activities on the Mission Statement

3Facing a Great “Turning Point”
Depopulation, aging,
globalization, etc.

Create and Bring to Life “New Happiness.”

Evolution of digitaltechnology

Discontinuous
growthSales

50-year-old business model
does not apply
Growth curve
over the past
50 years

Limit ofextension of
the statusquo

Growth curve
over the next
50 yearsPresent
Timeline
4Changing the Management Framework,
Changing the Company

Create and Bring to Life “New Happiness.”

Realization of governance reform

Deepening “constructive dialogue”
to enhance corporate value
over the medium to long term
5Create and Bring to Life “New Happiness.”

Environment Surrounding the Department Store Sector
Last year national department store sales decreased to 60% of their peak in 1991
¥10 tn
¥9 tn
¥8 tn
¥7 tn

1991
¥9,700 bn*National department store sales (Japan Department Stores Association)

2017¥5,953.2 bn

¥6 tn
¥5 tn
¥4 tn
¥3 tn
¥2 tn
¥1 tn
¥0 tn

Conventional business model hit the wall

6

Create and Bring to Life “New Happiness.”

Points to Address Sustainability
１. Building strong governance system to
implement the Mission Statement and realize
the Vision
２. Picking out materiality issues based on thechanges of the times and formulating a specificaction plan with clear goals
３. Dialogue with capital markets through active
information disclosure
7

Reform of the Board of Directors

Create and Bring to Life “New Happiness.”

Reform based on third-party organization’s evaluation of
the effectiveness of the Board of Directors

Focused on strategic agenda and activated discussions
Matters to bereported【Reduced】

Strategy-related
agenda【Strengthened】

Clarified the criteria for submitting agenda items(Reviewed qualitative/quantitative criteria)
Transferred/shrank the matters to be executed byindividual operating companies
Increased “discussions on the direction ofmanagement and strategies” including the Vision,
the Medium-term Business Plans, financestrategy, M&A and corporate governanceDiscussion time at the Board meetings increased
from

20%

to

60%

8

Create and Bring to Life “New Happiness.”

Expanded Opportunities to Use Insights of Outside Directors

With various efforts
discussion time at the Board
meetings increased

Governance agenda that
requires in-depth discussionneed to be discussed
separately

Created the “Governance Committee”
Discussing governance issues freely and vigorously

Outside Director

President

Chairperson

9Appointment/Dismissal to Secure Transparency/Objectivity

Create and Bring to Life “New Happiness.”

Appointment/dismissal by the “Nomination Committee” throughinternal assessment ＋ third-party assessment to secure objectivity＜People to be assessed＞
Directors / Executive Officers including top management of
JFR / major operating companies

Not only the process of appointment but also judgment about
appointment/dismissal is delegated to the Committee

10Create and Bring to Life “New Happiness.”Strengthening of Managerial Talent and Succession Plan

Succession plan for President is
the most important “strategic decision-making”
Emergency plan assuming unforeseen circumstances＋
Succession plan looking ahead five and ten years

Assessment ofmanagerial
talent(third party)

Internal
assessment,
progress/resultsof strategy-------

Desirable
qualities
required ofmanagerial
talent-------------

Chairperson

11Create and Bring to Life “New Happiness.”

Review of Officer Remuneration System＜Basic policy on officer remuneration＞

Remuneration
composition
Basic：Bonus：ＰＳ
１ ： ０.６ ：０.６

Shareholding

Incentive

Continuous
shareholding
for 3 years

Short term: bonus
Mid to long term: Stock*Incentives are not provided to Non-executive Directors (Inside/Outside).

【Introduction of stock-based remuneration system】

Executive Officers of the Company
and major operating companies

Non-executive Directors

System linked toconsolidated
performanceachievement rate

Predetermined
number of shares areissuedSteadily implementing and promoting the Medium-term Planby sharing interests with shareholders

12Create and Bring to Life “New Happiness.”

Performance Share〔Details of performance share〕

The Company’s shares are issued linked to the consolidated performance achievement rate,
etc. provided in the Medium-term Business Plan for the Group’s sustainable growth and the
medium- to long-term growth of corporate value.

Key Performance Indicator (KPI)

Short
term

Mid tolongterm

Mid to longterm PS

Profitability
Efficiency(1)

Consolidated
operating profit○○¥5.6 bn(2)

Basic earnings
per share○○¥141.47(3) FCFー○Actual value＞0(4) ROE

ー

○

8% or
more

Method of use

Evaluation based on theachievement rate of targets(absolute value)
Evaluations are weighted as 50%
for each indicator

If targets are not achieved, theamount of stock-based
remuneration is reduced by 50%(reduced by 25% if one target is
not achieved)

Note: Short-term targets are the initial forecasts for the relevant fiscal year as announced
13
in the Consolidated Financial Results each April (IFRS basis).

Deepening Dialogue through Governance Reform

Create and Bring to Life “New Happiness.”

Realization of governance reform
Strengthening the oversight function of management

Improving transparency/objectivity of management

Reducing investor risk
Reducing capital cost

Promoting dialogue with investors
from a medium- to long-term perspective
14

Actual Dialogues in FY2017

Create and Bring to Life “New Happiness.”

Presentations /small meetings
Interviews withinvestors based in

Japan
Interviews withinvestors based

overseas

About 300
during the year

*Top management had
about 100 in-person dialogues

Dialogue opportunities involving ESG issues increased
15

ESG Investment Trend Is Accelerating

Create and Bring to Life “New Happiness.”

More than 2,000 institutional investors signed the UN
Principles for Responsible Investment (PRI) with total assets
of $80 tn under management
The world’s largest pension fund GPIF signed the PRI in
2015, adopts three ESG indices since 2017, and adopts
environmental carbon efficient indices since 2018
Divestment trends are spreading worldwide

16

ESG as Risk

Create and Bring to Life “New Happiness.”

Medium- to long-term risk that seems to affect thesustainability and viability of companies
E(Environment)

S(Society)G(Governance)

Company’s risk “management capabilities” are called into question“Dialogue” through active information disclosure is essential
17Formulation of Sustainability Policy

Create and Bring to Life “New Happiness.”

With People, with Local Communities,
with Environment
to Realize New Happiness in Sustainable Society and Life

Made it clear that we will create value for stakeholders andcontribute to creating a sustainable society
by resolving social issues through business activities

18

Identification of Materiality Issues

Create and Bring to Life “New Happiness.”＜Standpoints for selecting materiality issues＞
1）The issues we can tackle using our core businesses2）The environmental/social issues that are meaningful for us to address,
from which we can produce results

Picked out 25 candidate issues
Conducted a questionnaire survey of 4,250 stakeholders
Referred to major guidelines including the GRI Standards, ISO 26000 and SDGs
Developed a materiality map after discussions at the Management Meetings, etc.
within the Company

Formally determined materiality priorities at the Board meeting
19

Materiality Map

Create and Bring to Life “New Happiness.”＜J. Front Retailing Materiality Map＞
Very highContribution to a low-carbon societyManagement of the entire
supply chain
Promotion of diversity

Realization ofwork-life balance

Impact on stakeholders

Coexistence with local
communities

High
High

Impact on the Group

Very high20

５ Materiality Issues and SDGｓ

Create and Bring to Life “New Happiness.”＜5 priority materiality issues to be addressed by the Group＞

SDGｓ (Sustainable Development Goals)
Global goals for the period from 2016 to2030, which are included in the “2030
Agenda for Sustainable Development”
adopted at the United Nations summit in
September 2015. They contain 17 goals
with 169 targets including “climate
action,” “good health and well-being,”“gender equality” and “decent work andeconomic growth” and pledge to leave noone behind.

21

Ｅnvironment

22

Create and Bring to Life “New Happiness.”

Contribution to a Low-carbon Society
・Increasing global awareness of climate change
・Action on global warming cannot be overlooked
as a member of society
Contribution to a low-carbon society is an urgent and thegreatest issue and we will address it as a matter of top priority

Changing
business model

Reviewingbusiness portfolio

Responding tostakeholders

Developing a business model to resolve environmental issues
and achieve sustainable corporate growth at the same time23

Create and Bring to Life “New Happiness.”

Contribution to a Low-carbon Society

Target for 2050
Reducing CO2 emissions to achieve
zero CO2 emissions in 2050 (scopes 1 and 2)
Reducing CO2 emissions by 40% in 2030
(scopes 1 and 2)*Comparison to FY201724

Create and Bring to Life “New Happiness.”

Contribution to a Low-carbon Society
Scopes 1 and 2 the Group emissions reduction target (comparison to FY2017)

FY2030 40% reduction

FY2050
Zero emissions (100% reduction)

・Scope 3 emissions reduction target will be considered during the current fiscal year.
・We will apply for Science Based Targets (SBT) certification during the current fiscal year.
About 200,000 t-CO2
Base year emissions: 100

40% reduction 100%
About 120,000 t-CO2

reduction
0 t-CO2*SBT:
Developed by Science Based Targets initiative (a joint initiative by WWF, CDP, the UN Global Compact and WRI).
GHG emissions reduction targets consistent with the level of decarbonization required by science to limit global
warming to less than 2℃
25

Create and Bring to Life “New Happiness.”

Contribution to a Low-carbon Society
The status quo of J. Front Retailing and relation to climate change• The Group’s GHG gas emissions are about 13% of
department store sector*

Electricity
Gas

Electricity:
about 90%

• The Group’s businesses have a great impact on theemissions of supply chains through procurement,
logistics, etc.
• Action on climate change directly leads to businessrisk reduction and cost reduction in the future.

Other＜The Group breakdown of GHG gas emission sources＞
Emissions in 2017: about 200,000t
Other: Local cooling and heating (Umeda/Sapporo/Nagoya),use of heavy oil (Sapporo) and gasoline (company cars)

Contribution to a low-carbon society (action on climate change) is
an important task for the management of the Group*Source: Department store sector action plan for a low-carbon society, 2017, Japan Department Stores Association

26

Create and Bring to Life “New Happiness.”

Contribution to a Low-carbon Society
The Group’s supply chain
Emitting about 200,000 t-CO2
Procurementof rawmaterials

Productionof products

Transportation

Upstream supply chain (scope 3)

Examples ofactions
already taken
・Centralized pickup
・Shifting delivery
vehicles to natural
gas vehicles

Sales/services
in stores

Movement
andtransportationof customers

The Group

Downstream supply chain (scope 3)(scopes 1 and 2)

1st step
Setting reduction targets and actions ofstores/offices (scopes 1 and 2)

2nd step (future)

Use ofproducts

Disposaland recycleof products

Examples ofactions
already taken
・Ecoff recycle
・Smart wrapping

Grasping supply chain emissions (scope 3)
Setting reduction targets / action plans

27Create and Bring to Life “New Happiness.”

Contribution to a Low-carbon Society
Initiative for “zero CO2 emissions in stores” mainly by introducing renewable energy*1
to power stores
CO2 emissions in stores account for about 90%
of scope 1 and 2 emissions

The Group breakdown of GHG gas emissions

Store:
about
90%

Store

・StoreDaimaru
Matsuzakaya
Department Stores
Parco, etc.

OfficeCO2 emissions from electricity use account for
about 90% of CO2 emissions in stores(The remaining about 10% is emissions from gas use)

Major actions

Transportation (the Group)

・Office・Transportation (the Group)
Head office
Company cars
building
Gaisho cars, etc.
Offices ofassociatedcompanies, etc.

(1) Shift to low-carbon electricity andelectricity derived from renewable energy(2) Continuing thorough energy saving(3) Shift to green supplies and paperless
operations(4) Green Power Certificates and purchaseof J-Credits

・100% renewable energy in major stores
・Zero CO2 emissions from stores*1 Energy such as sunlight, sun heat, water power, wind power, biomass and geothermal heat can be renewedin a relatively short time after use and will not be depleted.

28

Management of the Entire Supply Chain

Create and Bring to Life “New Happiness.”

Reduction
Production
RecycleSharing

RecycleDeveloping
a new businessmodel

Consumption

Sharing

Ecoff

Disposal

Reuse

Reductionof foodwaste

29Create and Bring to Life “New Happiness.”

Management of the Entire Supply Chain

Target for 2050
We will address the environmental issues andsocial issues seriously and meet responsibilities
to upstream supply chain with suppliers by
resolving these issues. At the same time, we will
provide safe and secure products to customers
and work with customers to realize a recycling
society.
30

Create and Bring to Life “New Happiness.”

Management of the Entire Supply Chain
Targets to be achieved in 2030
Scope 3 CO2 emissions reduction target

2030 40% reduction

Target of awareness of supply chain policy

2030 100%31

Create and Bring to Life “New Happiness.”

Management of the Entire Supply Chain
Actions
With suppliers・Formulating a supply chain policy and making it known
・Finding green suppliers

Actions to realize an environment-friendly society
・Scope 3 CO2 emissions reduction
・Shift to green supplies, paperless operations and tacklingplastic issues

Actions to realize a recycling society
・Expansion of Ecoff initiative
32

Create and Bring to Life “New Happiness.”

Management of the Entire Supply Chain
This year department store shopping bags were produced using
FSC® (Forest Stewardship Council®)-certified paper

33

Create and Bring to Life “New Happiness.”

Management of the Entire Supply Chain
Daimaru Matsuzakaya
Department Stores
Recycling purchase business “Ecoff”

Customers visit the store

Shoes

Clothing

Bags

Bedding

Segregation

Total number ofcollected articles:
1,000,000 pieces

Polyester

CottonPelletization

Recyclingas energy

Other materials Unreusable items

Recycling as
Recycling
car interior materials / as energy
industrial basic materials

Reusable items

Reuse overseas

34

Create and Bring to Life “New Happiness.”

Coexistence with Local Communities

Target for 2050
Local communities, governments and retailers
cooperate in urban development using theassets of the area, which is what we are good at,
and at the same time, resolving environmental
issues to realize sustainable and advanced
urban development

35

Create and Bring to Life “New Happiness.”

Coexistence with Local Communities
Actions
Promotion of urban development

・New store planning of new Daimaru Shinsaibashi store andnew Shibuya Parco, which will open in 2019
・Development by renovating local historic facilities

Expansion of local production for local consumption
・Expansion of local production for local consumption using ournationwide store network
・Expansion of the lineup of the products unique to Japan

Development of reconstruction assistancemeasures as social responsibility
36

Create and Bring to Life “New Happiness.”

Coexistence with Local Communities

We will create “new main building of Daimaru Shinsaibashi store” and “new Shibuya
Parco,” which will open in fall 2019, by adding materiality initiatives including actions
on environmental issues
Contribution
to a lowcarbon
society

Daimaru Shinsaibashi store“Hybrid commercial
facility”
Supply chain
management

Shibuya Parco“Next-generationcommercial space”

Diversity

Coexistencewith local
communities

Worklifebalance37Create and Bring to Life “New Happiness.”

Coexistence with Local Communities
Development of historic facilities through renovation■Shop development around the Daimaru Kobe store■Kyoto Machiya project38

Ｓociety39Create and Bring to Life “New Happiness.”

Human Resources Strategy
Increasing productivity / acquiring
excellent HRs

Realization of worklife balance

Promotion of diversity
management
Creation of
innovation

Increase in motivation

Use of technologies

40Create and Bring to Life “New Happiness.”

Promotion of Diversity Management

Target for 2050
We will create the environments and systems inwhich all people working for the Group can show
their originality to the fullest and perform wellregardless of nationality, religion, gender, LGFT
status, age and disability so that they can
engage with all customers equally and realize
their happiness.
41

Create and Bring to Life “New Happiness.”

Promotion of Diversity Management
Actions
Promotion of women’s empowerment
・Shortened working hours system for women coming back from child careand improvement of training and personal development during leave
・Women’s school and expansion of Mother Recruitment program
for the child-rearing generation

Promotion of elderly empowerment

・Development of job categories / duties for employees aged 60 andolder, optional working hours and lifting of the ban on second jobs
and side jobs

Employment of disabled people

・Improvement of the work environments of operating companies
in the Group・Development of new business by a special subsidiary42

Create and Bring to Life “New Happiness.”

Promotion of Diversity Management
JFR Create Co., Ltd. (special subsidiary in J. Front Retailing Group)

43

Create and Bring to Life “New Happiness.”

Promotion of Diversity Management
Target to be achieved in 2030
Proportion of women in management positions
2025 30%2030 50%, same as the employee composition
Mandatory retirement age

2030

70 years old

Employment of disabled people

2030

3.0%

44

Create and Bring to Life “New Happiness.”

Realization of Work-Life Balance

Target for 2050
Corporate culture and work options will be
provided so that individual employees canachieve work-life balance according to theirlife stages to make themselves and theirfamily happy.

45

Create and Bring to Life “New Happiness.”

Realization of Work-Life Balance
Actions
Expansion of work systems

・Homeworking, remote working (satellite offices), andminimization of transfer with or without family

Use of technologies

・Streamlining of operations and shift to high-value-added
operations using technologies including AI and RPA

Expansion of work systems and rules

・Introduction of paid child care leave, improvement and expansionof nursing care leave, and child care facilities in offices46

Create and Bring to Life “New Happiness.”

Realization of Work-Life Balance
Target to be achieved in 2030
Male employees taking child care leave

2030

100%

Turnover due to child/family care2025 0％47

Other ESG initiatives
・Creation of the Sustainability Committee
・Intention and preparation to address
ESG issues

48

Create and Bring to Life “New Happiness.”

Creation of the Sustainability Committee
2018 ESG Promotion Division was created2019 Sustainability Committee will be createdSustainability Committee
・Developing a policy and systems required to promotesustainability management
・Setting KGIs/KPIs
・Progress management of operating companies
・Report to the Board of Directors on a regular basis(twice a year)
49Create and Bring to Life “New Happiness.”

Intention and Preparation to Address ESG Issues
Signed the “UN Global Compact” (October 17, 2018)
Approved to participate in the “Japan Climate Initiative”(September 11, 2018)
Approved to participate in the “Women’s Empowerment Principles”(October 4, 2018)50

Create and Bring to Life “New Happiness.”

ESG Initiatives as Management Strategy
Changes in values of investors and other stakeholders drivechanges in the businesses and consciousness of companies
Tackling ESG issues is crucial forthe medium- to long-term growth of corporate value
Initiatives to resolve social issues through business activities
by incorporating ESG into management strategy

Foundation/responsibility as a “public entity of society”
51Create and Bring to Life “New Happiness.”

Promotion of Dialogue to Enhance Corporate Value
Agreed purpose of dialogue between investors and companies is
to “enhance corporate value”
Deepening dialogue through active information disclosure
Feeding back “what we found”
by enhancing management sensitivity
Policy/strategy
Progress/results
Feedback to
management

Dialogue/
information disclosure
Findings/
analysis of results

52Website
Integrated Report

http://www.j-front-retailing.com/english
http://www.j-front-retailing.com/english/ir/library/annual.php

New employees in FY2017

Forward-looking statements in this document represent our assumptions based on information currently available to us and inherently involve potential
risks, uncertainties and other factors. Therefore, actual results may differ materially from the results anticipated herein due to changes in various factors.