September 30, 2004


Sustainable Management Forum of Japan

Keywords: Newsletter 

JFS Newsletter No.25 (September 2004)
"Unique NGOs in Japan" Article Series No.6

Environmental Management Rating that Benefits Citizens

Background: Establishment of the Sustainable Management Forum of Japan

"If the current global warming trend continues, global bankruptcy will occur in 2065 when losses due to climate change-engendered natural disasters supercede total world wealth production." This warning was uttered by an expert participating in a meeting of the international Intergovernmental Panel on Climate Change (IPCC).

"Between Iceland and Greenland in the Atlantic Ocean, there is a deep sea 'waterfall' which acts as a global engine for ocean currents. The height of the waterfall used to be 3000 meters from the surface to the depths of the sea, but its height has now decreased to only several hundred meters due to the melting of the Greenland icecap. If this engine were to stop entirely, the Gulf Stream that warms the Atlantic coast of Canada and the U.S. would also halt, rapidly bringing about a serious, worldwide shortage of grain," says Mr. Kazutomi Miwa, president of the non-profit Sustainable Management Forum of Japan.

He continues, "Nature has been damaged more seriously than we thought. We are barely holding out against an imminent global crisis. Once the environment is completely disrupted, it will never return to its present status. We don't have much time left. We have to determine a direction to take by no later than 2030."

Prompted by this sense of impending crisis, the Sustainable Management Forum of Japan was launched in October 2000 to clarify specific strategies and processes for developing a sustainable society.

Currently the Forum consists of 300 individual members and 49 corporate/organizational members, including a variety of experts recruited from the media, thinktanks, industry, government, academia, and society at large. Businesses and individuals work together to develop a recycling-based society through environmental protection and efficient resource use, conducting systematic studies of practical methodologies, and disseminating relevant information.

"The world is a mess, plagued not only by global environmental problems but also by terrorist attacks, regional conflicts, independence movements, and economic and ethical problems. I want to change this destructive society into a more trusting one," says Mita. He summarizes his approach to directing the Forum as follows. "Corporations and empowered citizens are the ones who can reconstruct society. Since democracy has still not properly taken root in Japan, non-profit organizations and local citizens' groups need to become more active and develop a stronger voice in society. To encourage this, the Forum would like to provide a theoretical backbone for citizens, and provide them with ready access to ideas."

Environmental Management Rating for Individuals Originated in Japan

One of the most successful activities of the Forum over the past four years has been sustainable management rating of Japanese companies. Since its inception, the Forum has considered rating as an effective catalyst for changing corporate behavior and set up a rating program as part of its original mandate. The Sustainable Management Rating Institute (SMRI) was founded in November 2001 in order to focus on the rating program.

Many rating institutes around the world have "environment" and "sustainability" in their titles, but most of them provide information exclusively to investors. SMRI has distanced itself from rating for investors, and aims to implement an objective rating system that serves the public interest by approaching it from the standpoint of consumers and citizens. Through rating, it aims to promote sustainable management in companies and other organizations, and to provide a wider range of stakeholders with a common standard for evaluation.

One characteristic of the SMRI rating system is the so-called Mita Model, which shows rating results in the form of a "Rating Tree" chart. Mita developed this model himself and likes to think of it as a unique world-class model originated in Japan. With a "Rating Tree," chart results can be seen at a glance and easily compared with those of other companies, and are also useful for time series analysis. After a trial rating of some 20 companies in 2001, SMRI discussed their results with rating institutes based in the Americas and Europe, attracting both attention and praise.

SMRI started rating companies full-time in the fall of 2002. It rated 86 companies in 2002, and 75 in 2003, and is continuing to rate companies during 2004. SMRI does not automatically publish companies' rankings; instead, it draws up a "Green Top Runners" list of those companies that agree to release their results, and posts their Rating Trees on the SMRI website.

The 2003 Model Rating Tree is composed of three large branches representing management, environment and society. The management branch has five smaller branches representing philosophy, corporate governance, etc. Similarly, the environment branch has nine smaller branches such as resource recycling and waste reduction, eco-design, etc. The society branch has seven smaller branches including harmony with the community and consideration for consumers. Each smaller branch has three leaves representing strategy, systems and performance. Each leaf is colored green, yellow or red, or blank (indicating a fallen leaf), according to the score (0-3) in answer to three yes-no questions relating to the area in question.

For example, the three questions for the strategy leaf on the management philosophy branch ask whether or not the management is seriously committed to:
1. Working on environmental management
2. Complying with environmental regulations
3. Establishing corporate ethics

This logical tree model serves as an effective management tool by reflecting the strengths and weaknesses of a company's environmental management. While maintaining its basic framework of three big branches and three leaves, rating items (small branches) are modified every year according to social needs.

Sustainability Dialogue Changes a Company

Also characteristic of the SMRI rating system are three principles it has maintained since the outset: (1) rating that benefits citizens, (2) pursuing sustainability dialogue, and (3) interviewing with top management.

SMRI's costs are underwritten by the Environment Ministry and the Ministry of Education, Culture, Sports, Science and Technology as well as by the companies it rates. About 90 rating council members work on a volunteer basis, and the rating process is completely open. Data is available to anyone who adheres to its conditions of use.

Strong leadership by top management will be necessary in order to achieve a sustainable society, and this explains why the SMRI focuses on "environmental management rating" rather than just "environmental rating."
The SMRI rating system is based on dialogue between rating council members and corporate counterparts, and between Mita and top management personnel. These dialogues are effective not only in the context of rating, but also for reforming corporate behavior.

Many corporations in Japan are setting up Corporate Social Responsibility (CSR) Departments to carry out risk management and compliance. The interviews Mita holds with about 100 company presidents annually have convinced him that CSR demands a management philosophy and that a defensive approach will not help in accomplishing CSR tasks. He also points out that achieving and maintaining transparency are the highest goals for risk management and compliance, and that change will not occur in a corporation unless its top management understands this.

In future, SMRI plans to apply its rating system to medium to small-sized corporations and to develop rating methods for local municipalities. It is working as a catalyst in the process of building a sustainable society by providing both the opportunity and the tools for communication among citizens and corporations.

(Staff Writer Eriko Saijo)