Climate change, depletion of resources and energy, and marine plastic problems have become universal issues in recent decades. With a first-hand sense of these crises, last year TAKEEI CORPORATION and REVER Holdings merged to form TRE HOLDINGS CORPORATION; a new company that hopes to help solve the problems that impede global sustainability. We spoke with Matsuoka Naoto, Chairman and CEO, and Abe Mitsuo, President and COO, to discover more about how the newly formed merger is embarking on a strategy to promote carbon neutrality by taking on the challenge of developing new technologies.
Japan is an island nation with a very limited landmass, as such landfill methods of waste disposal are not favored here. Instead, we see waste to energy systems in place, with 80% of municipal waste being recycled using this method. This thermal recycling method is often criticized because only a quarter of all plastics that are processed via this method are actually repurposed into new items. Can you give us your assessment of Japan’s waste management strategy and where you see areas for improvement?
You are correct that Japan is an island country, but when we look at the background to this process, the real issue is that initially waste disposal was done unlawfully. That was the starting point and after that was publicized, restrictions were put in place that, over time, have become much stricter and thermal recycling was essentially a way to resolve this issue. Through process and research, incineration with thermal recycling became the clear and natural way to resolve it. However, a global trend of carbon-neutral has emerged since, with an emphasis on removing CO2 emissions. As a byproduct, thermal recycling itself has become a cause for concern, whereas before it was a reasonable solution. From my perspective, it really can’t be helped and is very embedded in waste disposal processes currently.
Japan is famous worldwide for having a super-ageing society. More than a third of people are expected to be over the age of 65 by the year 2035. At the same time, we see a declining birth rate too and there is expected to be less than 100 million people in Japan in years to come. How are these demographic changes affecting your business? What opportunities or challenges do they present to your company?
Yes, as you said, Japan is facing an aging society and we have a declining birth rate, thus our population is also in decline. I do think that this is impacting not only our industry but in fact all industries across Japan. I can safely say though that Japan as a whole is trying to get out of this conventional mass production, mass consumption and mass disposal kind of economy. We are trying to make a transition from a linear economy to what can be considered a circular economy. From our business perspective, as the population goes down, so does consumption and therefore waste inherently. There will obviously be an impact, but it is not the main focus for us. Our focus is on this transition from a linear to a circular economy. That is what is really important to us right now. I think there is much room for the recycling business to respond and contribute to the ongoing change, which in essence should be our social responsibility.
In October 2021 Takeei and Rever Holdings merged businesses. Previously Takeei specialized in construction waste treatment and recycling, and Rever Holdings specialized in metal recycling. Why did you choose this new corporate structure between the two companies and what are the synergies you have been able to create a year after on from the merger?
First of all, there is the issue of municipal approval. What this means is that when two companies merge, they need to get new approval as a merged company. There is the perception that two companies might disappear or cease to exist. We decided that it might be better to have a holding company, with both companies continuing to exist beneath that. This structure allowed us to go ahead with faster decision making and the most efficient management structure. Regarding the synergy, I feel our biggest synergy is that we were doing things in different fields. Therefore, we can utilize the positives of each other's companies. Right now, we are trying to do something very new with these two companies in an attempt to multiply our strengths together. I really feel that in 3-5 years' time we will see some real impact from the merger.
Through the press release you stated that the goal was not the merger and acquisition itself, but the goal was actually to create a comprehensive environmental enterprise that can engage in this circular economy. You also stated that in the past, Japan’s waste management industry was characterized by a lot of small-to-medium-sized enterprises (SMEs), a lot of which have succession issues. Your company was looking to rebuil and expand through M&As. Can you tell us what type of companies are you seeking in the future as you look to expand your business further?
Our industry actually has a lot of strict procedures to get approvals from municipalities. It can create issues when mergers happen, as one company’s approval has to be removed. Based on that premise we created this TRE Holdings structure which is like a platform for both businesses. It allows both companies to exist and continue to leverage each other’s strengths, without eliminating one. I can’t go into details on companies that we are looking into, but I will say that if there are any companies that can supplement our strengths, then we would look forward to perhaps bringing them into this holding platform we have created. In regard to the number of SMEs you mentioned, it's again all due to the strict approval system here in Japan. You can no longer have just a simple merger between two companies anymore, it's just not efficient. I do know that in the US there is a huge company that takes care of waste management, but it is highly unlikely that we will see this sort of integration occur in Japan.
I would like to touch on what Mr. Abe said earlier about the two companies' fields being related yet not identical. This is quite true, Rever dealing a lot with metals whereas Takeei Corporation brought its biomass energy expertise. Whilst researching, we found it very interesting that not only do you produce biomass generation, but you also have your own distribution system. My question is that now that you are a holding company, how will it help you to create this circular economy within the company?
Takeei had 31 subsidiaries and group companies, whereas Rever Holdings used to have 8. A number of group companies, all with their own special functions, unique characteristics, and in fact, their own regions too. This can create a big synergy. Let’s say a customer makes an inquiry, we can guide the said customer through a number of our subsidiaries in order to meet their requirements and target their specific needs. I think that is a huge strength or what we have in this structure. Let me give you an example. In Takeei, we might receive plastics and other items from interior materials such as wall papers or carpets. We will go ahead and collect that waste and turn it into valuable fuel for the power plants. In turn that can be utilized as power, a very valuable commodity.
Biomass is expected to be one of the most important renewables for humanity moving forward towards the future. It's a resource that is currently underutilized with unrealized potential. What growth do you foresee and how are you scaling this biomass energy business here in Japan?
Yes, as you said when you look at the landscape of Japan there are plenty of areas, such as forests where humans have not entered, trees have collapsed or have long since died.
We will be buying that as fuel, of course a by-product of this is cleaning mountains and forest areas too. This can also be a large contributing factor to a local economy by creating job opportunities. There will be jobs created for cleaning, and cutting down debris in these areas, ultimately providing valuable fuel in chip form. As you stated, Japan as a whole has a lot of untapped potential in this regard. Our work is beneficial to Japan, as not only will we be taking away dirty, dead, waste; but we will also be planting new trees in their place. This process contributes to the country's goals in decarbonization, so I honestly feel there are a lot of positive effects and effective steps towards preventing global warming. I would like to add that we do not use imported pellets and chips, and the main reason why we’re doing that is because our goal has always been to protect and regenerate the forests of Japan. Regarding power generation, we have a financial alliance with another company.
Currently we have six power generation plants in Japan, and through these we have been able to accumulate knowledge on power generation. From here onwards we would like to focus mainly on Southeast Asia. We would like to utilize our knowhow in power generation there. It’s also not only biomass power generation, but we also utilize solar power generation as well. I believe there are a number of countries in Southeast Asia which are lacking power. Therefore, by creating a presence there, we hope to contribute to the development of those countries.
Back in 2014 you founded HIDAKA SUZUTOKU (Thailand) CO., LTD, a joint venture in metal recycling. Could you tell us a little more about your international plans, if you are looking to conduct similar joint ventures and partnerships, or if you are looking to create your own organic growth?
When I talk about the background as to why we created a joint venture with Hidaka Yookoo in 2014 in Thailand, I really need to stress first that there are so many Japanese manufacturers in Thailand already, advancing the country forward, for example there are a lot of players from the automotive sector. Therefore, there is a lot of metal scrap, which we use in our joint venture. Basically, in Thailand, we have Japanese clients based in Thailand who are giving us their produced scrap, we are collecting that, doing interim treatment, and then feeding that into electric blast furnaces, so you could say that we are following Japanese companies in a way. It seems that currently Thailand is a major hub for Japanese companies, and as such when you think about the demands and needs of the supply side of things, you could say that we are the ones tending to the needs of suppliers. It could also be said that if we are able to find needs on the demand side too then, I think there is a lot of space to expand and grow there as well. An example is that in Vietnam we see a recent need for scrap, therefore it might be worth considering bringing in scrap from Japan and doing something completely different from what we are doing in Thailand.
Essentially right now we are centered around scrap in Thailand and using that to deliver to our clients. In fact, I heard that you interviewed Fuwa Metals Co. Ltd., and what we are doing in Thailand is on the opposite end to their business model. When we look at potential international partners in places such as Vietnam or Bangladesh, there’s still not so much scrap coming out of that, and that is a requirement for us right now.
You mentioned the holding structure of your firm is a means to keep on top of the legalities of waste management. As you know from first-hand experience, waste management can become very complex in terms of legalities. How does your service reduce such burdens on your clients?
There are a lot of strict laws and regulations and it is very complex. That being true means that it's actually very difficult for newcomers to enter this marketplace. We have seen some manufacturers attempt to tackle their own waste management, but a lot come up against a brick wall when faced with such strict regulations. Often this results in them having to throw their hands up and come to us, the professionals. From our perspective, we believe there is a big business chance here. In fact, starting in April 2022, there are some new laws and regulations being introduced regarding plastic waste. Previously, household plastic waste was dealt with by local municipalities, but new regulations present us with new opportunities to enter this field as well. We do have our own recycling technology in environmental response and decarbonization, so I think there are chances to broaden our business further.
Finally, I would like to know, what goals or objectives have you set for your tenure as president and COO, and what objectives would you like to have achieved during your tenure before moving onto another position?
Personally, I think that I would like for my company to become the center of the global change from the linear to a circular economy. I think that Mr. Matsuoka speaks for both of us about this goal and I would like to add to that. I think another focus we have lies in former prime minister Suga’s commitment to reduce CO2 emissions by 46% in 2030, compared to 2013 levels. I would like to think that TRE Holdings can become a leader in this commitment. I myself will be working very diligently with Mr. Matsuoka to tackle decarbonization, protect the environment and create a Japan that we will be proud to hand to the next generation, and even the generation after that.