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Machinery & Industrial Equipment

Hitachi polishes ESG reputation with corporate-wide oversight

Scandal-hit industrial group appoints audit heads to prevent misconduct

Hitachi is moving to bolster governance after the faulty testing scandal at Hitachi Chemical.

TOKYO -- Hitachi has tightened oversight of five core businesses including industrial machinery, seeking to improve its poor reputation for governance after quality testing scandal at one of its units.

The industrial group said Tuesday that it has appointed executives charged with auditing at the five businesses from fiscal 2019. The aim is for business units in each division to share information with the parent's auditing section to prevent any transgressions. 

Hitachi explained its approach to environment, social responsibility and governance -- a set of factors collectively referred to as ESG -- at its first such briefing. 

Hitachi, whose global network of about 800 affiliates makes unified governance difficult, ranked below many peers in a recent ESG evaluation by American financial market indexing company MSCI. The Japanese company received the fourth-highest of seven ranks, a BBB -- with particularly low marks on labor management and procurement risk -- while companies like Siemens and U.S. professional services company Accenture earned top-tier AAA scores.

Last year, faulty testing, including tampering with data, involving a number of products was uncovered at listed unit Hitachi Chemical. Other publicly traded Hitachi affiliates are also struggling on the earnings front, with one analyst pointing out the governance challenge Hitachi faces.

On the environmental front, Hitachi aims by fiscal 2021 to cut carbon dioxide emissions throughout its value chain by over 20% compared with levels in fiscal 2010.

Hurdles remain, however. This January, Hitachi froze a nuclear power plant project in the U.K. Asked about the nuclear energy business Tuesday, Vice President and Executive Officer Osamu Naito said Hitachi "must consider nuclear," citing climate change and the need to provide a stable energy supply as factors, but offered no more detail on how the business is positioned within the group.

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