I have been active in the sustainable business ecosystem since the late ‘90s. A lot has happened and evolved in inclusion of CSR (Corporate social responsibility) and Environmental, Social and Governance factors (ESG) since then. In 2015, the UN has published the SDG list, a longlist of Sustainable Development goals. Both companies and governments are requested to target on inclusion of as many SDGs as possible. Actually, it has become a necessity when operating in society: be transparent and publish which SDGs are included in one’s activities
17 Sustainable development goals(SDGs). (Source: UN SDG)
Internationally well-known is GRI, The Global Reporting Initiative, an international independent standards organization that helps businesses, governments and other organizations understand and communicate their impacts on issues such as climate change, human rights and corruption. Apart from that, The Financial Stability Board created the Task Force on Climate-related Financial Disclosures (TCFD) to improve and increase reporting of climate-related financial information.
Japan and ESG implementation regarding responsible investing
The Japanese Stewardship Code requests fund-managers to disclose the details of their voting considerations, as well as studying and disclosing the role of proxy advisors and investment consultants whose roles can be essential in delivering investment rationale and transparency.
Sustainability on the whole is at the heart of principles of stewardship responsibilities, and it is therefore perhaps one of the most explicit and unique Stewardship Codes globally.
Since February 2020, all funds governed by the Code are requested to take necessary action related to ESG aspects as they are perceived.
According to investment analysts, there is a sense of stress amongst the sustainability practitioners, teams and company management in Japan, as the EU taxonomy (and other regional variations), the recommendations by the TCFD, the constantly evolving world of data-management, and the enhanced attention for societal issues as a result of Covid-19 result in a growing sustainability vocabulary that is not quite known in Japan.
Current situation in SDGs in Japan
So, what’s the current status of the Japanese companies that would be the target for investment, lending and insurance underwriting both domestically and globally? Sadly, there are several statistics to show how far behind Japan is, especially when it comes to HR issues.
According to OECD data sources, Japan is last but one in both the percentage of women in management as well as women on boards, despite the relative improvements since the inception of the Corporate Governance Code. It is also in the bottom three when it comes to attractiveness for highly skilled migrant workers, and overseas university students.
When it comes to the environmental side, and in particular in relation to climate change, there is no shortage of commitments being made. Japan claims to have the highest number of non-financial companies directly supporting to the TCFD, the second largest commitment to adopt Science-Based Targets and the third largest to make commitments to moving to 100% renewable energy via the RE100 initiative: RE100 is a global initiative bringing together the world's most influential businesses committed to 100% renewable electricity.
Sense of urgency
Yet there is a sense of stress amongst the sustainability practitioners, teams and company management, as the EU taxonomy (and other regional variations), the TCFD recommendations, the constantly evolving world of data providers and standards, and the accelerated attention to social issues as a result of Covid-19 forms an ever-growing sustainability ‘alphabet soup’ - in an alphabet not native to the local tongue.
In an effort to alleviate this sense of stress and stimulate meaningful action, both public and private players have invested their time to create guidance documents including definitions, comparisons, context and case studies.
All documents mentioned below have an abundance of case studies – from Kao’s ESG materiality matrix, to NYK Holding’s carbon free vessel plans, which can be used as the basis of understanding where existing practice is, and where future discussion could be led.
JPX Practical Handbook for ESG Disclosure
National Action Plan Japan
And last but not least, the Japanese Ministry of Foreign Affairs released in October 2020 a national action plan regarding business and human rights. Its significance perhaps may lie in the fact that it has recognized the importance of SMEs (<300 employees for manufacturing, and <100 for wholesale) as they represent 70% of the labour force in Japan. The Japanese government plans to create a portal that includes information relevant for business and human rights.
As we all know, it takes considerable time and careful planning before major steps are made in Japanese society. But when a tipping point is reached, things can move at an exponential rate. Let’s hope that Japan will soon become a global top-ten player in implanting SDGs in Japanese society.
Tjeerd de Vries