May 31, 2004



Keywords: Newsletter 

JFS Newsletter No.21 (May 2004)

Starting in the mid 1990s, an increasing number of Japanese companies began developing environmental management systems aimed at ISO14001 certification. By the late 1990s, the term "kankyo keiei" (meaning "environmental management" in Japanese) began to come increasingly into use, and companies began to prepare environmental reports to disclose their environmental management efforts.

About 600 companies in Japan now publish environmental reports. If separate, site-based reports from branches and factories are counted, this number exceeds 1,000, indicating the country's outstanding performance in this area.

The environment is the source of all sustainability. The environment is what sustains our lives on Earth, not just in the present generation but for the next and all subsequent generations. Such thinking has given rise to, and continues to support the concept of building sustainable societies.

In recent years a rapid shift has been occurring, from "environmental management and environmental reports" to "sustainable management and sustainability reports."

Japanese companies represent a remarkably high percentage - 40 out of about 200 (20 percent) - of companies world wide that have published sustainability reports in accordance with the Global Reporting Initiative (GRI). A sustainability report involves what is called the triple bottom line essential for sustainability, i.e. the society, the economy, and the environment, and turns the spotlight on previously neglected information about non-financial matters.

Such company evaluations now consider not only sales and profits, but also whether the company has a positive attitude toward stakeholders and takes responsibility for society as a whole rather than just the market; hence the emergence of the concept of corporate social responsibility (CSR).

CSR is a new and broad-ranging concept, and its definition varies depending on the region, and its history and development.

For example, in Europe, where a wide variety of countries and nations occupy a limited area, CSR has been used to strategically focus on issues of diversity, employment, and labor relations. On the other hand, in the United States, CSR has been viewed from the standpoint of corporate governance and market valuation, partly because accounting frauds at Enron, WorldCom and other companies led to the enactment of the Sarbanes-Oxley Act, which aims to reform corporate abuses.

What about CSR in Japan? In the aftermath of a series of corporate scandals in recent years, CSR in this country can be characterized by an emphasis on legal compliance and corporate ethics.

The Japan Business Federation (called "Nippon Keidanren" in Japanese) revised its Charter of Corporate Behavior in 2002, partly in order to regain public trust in the wake of numerous scandals caused by some of its member companies.

"Corporate Social Responsibility (CSR) in Japan: Current Status and Future Challenges," a CSR survey report released in 2003 by another major Japanese business group, the Japan Association of Corporate Executives ("Keizai Doyukai" in Japanese) defines CSR as an active approach through which more competitive businesses and better societies can be built as a mechanism for synergistic development is created between companies and the society.

Japanese companies have been establishing CSR sections one after another. For example, Ricoh, a Japanese company well known for its excellent environmental management program, drew up its own CSR Charter, the first original charter created by a Japanese company.
It consists of 11 items divided into the following four chapters: integrity in corporate activities, harmony with the environment, respect for people, and harmony with society. The company also established a CSR Division on January 1, 2003.

The CSR movement is supported by socially responsible investing (SRI), a type of investment which actively supports companies that exercise social responsibility. In Japan, several SRI "Eco-funds" were launched in 1999.

As of the end of 2003, the net asset value of all of Japan's 16 SRI funds totaled about 80-90 billion yen (about U.S. $770-870 million). This amounts to only 0.3% of the total assets of investment funds in Japan. Even including the operating assets of institutional investors, these funds' net asset value remains at the less-than -100 billion yen (about U.S. $960 million) level. This is incredibly small compared to the much larger SRI markets in Europe and the U.S.

According to a survey by the Japan Research Institute on CSR management trends at Japanese companies, Japanese firms still lag behind in the area of information disclosure on social responsibility as compared with information disclosure on environmental issues. (Japanese only)

However, a survey by Japan's Environment Ministry that compared corporate SRI in Japan, the US and the UK noted that 85% of Japanese investors are interested in SRI. Their top three concerns are: how products will effect the consumer's health and safety, handling of environmental issues, and consumer protection. SRI has been gaining attention among an increasing number of investors. (Japanese only)

Some investors relying on their own perspectives and criteria have begun to invest, though the amounts may be small. For instance, Morningstar has its own Japanese SRI index and provides a set of SRI research software and database.

Growing public interest in CSR and the recruitment of new investors will push more Japanese companies to work more seriously on CSR.

Yotaro Kobayashi, chairman of Fuji Zerox and a representative of the Japan Association of Corporate Executives, has said that CSR is basically equivalent to Japan's traditional system of business ethics (Nikkei Ecology magazine, June 2004).

The number of symposiums, seminars and lectures on CSR have increased remarkably in Japan in recent years. Phrases such as "the first CSR year" and "the CSR boom" are also being used.

CSR is not particularly a new concept. Rather, it's about returning to the fundamental premises that private companies contribute to society through their activities. We'll be keeping you updated on the future development of Japan's CSR movement in our newsletters.

(Hiroyuki Tada)