Japan’s leading companies have developed innovative sustainability programmes

 

Japan’s leading companies have developed innovative sustainability programmesJapanese CSR initiatives are moving beyond step-by-step incremental improvements towards large-scale, visionary strategies.

Luke Poliszcuk, an Australian corporate responsibility consultant and chief executive of eQualC Sustainability Communications, says: “Japan is the world leader in both energy and resource efficiency, and also in the number of companies operating environmental management systems and issuing corporate responsibility reports.”

However, Poliszcuk says that, compared with leading western businesses, Japanese companies are less strategic: “They are less clear in terms of social and governance matters and activities are not integrated in core businesses.” Corporate responsibility is still mainly carried out as “a form of philanthropy, such as planting trees”.

Clear vision

Japanese companies are traditionally good at incremental improvements, but have been cautious about issuing bold, long-term visions and targets. This is partly due to a culture of modesty and a tendency to take very seriously the risk of not being able to achieve targets – sometimes too seriously.

There are some companies, however, that, while knowing their limits, are trying to move beyond these restrictions by adopting a “backcasting” approach. This means the companies identify what they want their future to be and then, working backwards from this, establish a strategy to get there.

In late 2009, Alterna magazine identified 12 publicly traded companies in Japan that are setting long-term visions and targets based on the backcasting approach.

Ricoh, electronics and office equipment maker, is a pioneer in this, stating long-term environmental vision and goals in 2005, which aim to reduce its environmental footprint, including carbon emissions and natural resources use, to 12.5% by 2050.

In 2008, Seiko Epson, another electronics company, set a target of reducing CO2 emissions to 10% by 2050 (compared with 2006).

Setsu Mori, publisher of Alterna, says: “In terms of a sector, electronics manufacturers and, particularly, assemblers seem to stand out. There must be elements in their value chain that they have been able to improve drastically.”

Frequently, internal opposition to such moves is strong, but there seem to be business benefits from sending a clear message about where these companies are headed.

There have been attempts to shed light on the real substance and quality of corporate responsibility practices in Japan.

In February, the Japan Foundation released a study – An Investigation of Companies with World-leading CSR Practices – which attempted to delve into the “real” substance of corporate responsibility practices. Its eventual ranking threw up some surprises.

The survey analysed the quality of the programmes for 103 top companies with good disclosure practice. The framework is based on the traditional Ohmi merchant philosophy of “sanpo yoshi” – good for the buyer, good for the seller and good for the community.

Public interest

For each of these three “stakeholders” – buyer, seller and community – 16 factors were evaluated on a scale of one to five. The study also surveyed members of the general public with an interest in corporate responsibility on how important they believed each element to be, and used the score as a “weighting”. Thus, the ranking reflects the levels of disclosure and activities, as well as public interest.

The highly ranked companies – such as Sekisui House (housing), Denso (cars) and Sapporo Beer (drinks) – were found to share some common traits. Hideto Kawakita, chief executive of the International Institute for Human Organisation and the Earth, says: “What differentiates the leaders from the others is that CSR is recognised and integrated at each level of the organisation into daily practices. In addition, progress is being made with firm commitments and actions from the bottom up.”

Satoshi Kida, manager of the corporate responsibility platform Canpan, an initiative of the Japan Foundation to support the non-profit sector, says: “For these companies, it is not that there is a super-manager who runs the programme, rather it is the whole organisation that is pushing the agenda forward, including through both top-down and bottom-up approaches.”

He accepts that this strategy may not look as “fancy and inspiring” as those of leading companies in the west, but there are companies with solid programmes that are deserving of praise.

The survey also clarified the difference in levels at which each corporate responsibility issue is dealt with among leading companies. Most companies are active and making progress in CO2 reductions, development of environmental management systems, moving towards zero emissions and making charitable donations. Progress levels differ in disabled employment matters, health and safety issues, employee support and improving the work-life balance (paid leave, child-raising and elderly care). Still widely unaddressed are the employment of foreigners, fair trade, forced labour and unpaid overtime.

Expanding the green market

If companies want to move beyond philanthropy and integrate corporate responsibility into their core businesses, one of the key areas is branding and marketing.

Following Toyota’s successful branding of the Prius, a number of companies have tried to establish branding through their flagship products. One example is the Kounetsuhi Zero (zero-cost lighting and heating) made by home builder Sekisui Heim. In just a few years, new orders for zero-cost lighting and heating and homes equipped with high-grade insulation, high density walls and solar panels grew by 20%. New orders for homes equipped with solar panels grew by 50% alone. Corporate responsibility consultant Peter Pedersen says this is one of the best examples in the world of good practice for a large housing company.

Electronics manufacturer Panasonic promotes its “eco ideas” strategy, releasing a series of home appliances equipped with an Eco-Navi feature that improves the already high environmental performance of its products with the use of sensor technology. Panasonic is also developing an almost-zero carbon emission house model, where energy is conserved, created and stored for the company in-house. “It is a major marketing initiative worldwide,” Pedersen says.

Cause-related marketing (CRM) is rapidly gaining popularity as a way to promote products in association with certain social and environmental causes. As part of a twice-yearly campaign, Asahi Beer donates 1 yen (about $0.01) per bottle or can of Asahi Super Dry beer sold to environmental and/or cultural preservation projects across Japan. In each of the last two campaigns, the donations amounted to about $7m.

Another example is toilet paper manufacturer Oji Nepia’s “1,000 toilets” project. The campaign works to raise awareness of the water and sanitary situation in the developing world. A portion of toilet paper sales are donated to Unicef to help build 1,000 healthy toilets for children in East Timor. Local experts say these campaigns have struck a good balance between marketing and activism.

Sustainable SMEs

Despite projects such as these, Setsu Mori of Alterna says there is still a way to go before Japan gets close to being a sustainable economy.

As part of a recent research project, he evaluated companies on three criteria. First the founder/top management’s passion; second, the hard decisions the company has made above and beyond other companies, and whether they are based on a deeply rooted philosophy; and third, whether the company has a clear, written stated mission for sustainability.

What he found was an emerging group of sustainable small and medium sized companies – with annual turnover of between several million and several hundred million US dollars. An example of the sort of company he uncovered was Taneya, a traditional confectionery store with roots in the Ohmi merchant tradition, and others engaged in sustainable dairy farming or organic farming. No big corporations made the list.

Mori says: “Large companies are making an effort, but the bottom line is they are entrenched in historical business models. It is difficult to evaluate the overall CSR of a large company – it is more meaningful to evaluate them on a project by project basis.”

As more sustainable SMEs emerge, how they interact with and push forward large companies’ corporate responsibility initiatives is worth watching.

Governance and social issues, especially issues such as human rights in the global supply chain, remain areas of weakness for Japanese companies. Progress is also required in terms of board diversity.

An accountant, who is an expert in sustainable management, points out: “Compared to the west there is a tendency to naively think that human nature is good. Strong governance means discipline and better management, which is ultimately good for society. But there is a lack of understanding as to the value of governance.”

There is certainly room for improvement both in terms of form and substance, in the further development of corporate responsibility in Japan, so that companies, large or small, can make a real impact and move towards sustainability.

Backcasting targets

• Sompo Japan Insurance – reduce CO2 by more than 56% (2002 to 2050). 
• Fuji Xerox (office, printing and imaging equipment) – reduce CO2 by 30% (2005 to 2020).
• East Japan Railway Company – reduce CO2 from train business by 50% (1990 to 2050).
• Toshiba (electronics) – reduce CO2by 10% (2012 to 2025).
• Lion (toiletries) – reduce CO2 by 67% (1990 to 2020).
• Konica Minolta (cameras, office and imaging equipment) – reduce CO2 by 80% (2005 to 2050).
• Nissan (cars) – mid- to long-term plan in discussion based on 70% reduction of CO2 emissions from its cars (2000 to 2050).
• Shimizu Corporation (construction) – reduce CO2 by 30% (1990 to 2020).
• Mitsubishi Electric Corporation (electronics) – reduce CO2 by 30% (by 2021).Case study: Denso

  Denso Corporation is a global car components manufacturer, with revenue of about $30bn and 120,000 employees worldwide.

  It was 271st on the Fortune 500 list of the world’s biggest companies in 2009, and is repeatedly recognised in domestic and international sustainable stock indexes, including Dow Jones Sustainability Index (for the past nine years) and the Ethibel Sustainability Index.

  The company claims that it is one of the biggest investors in R&D in its sector “to help drive expected advancements in automobiles as a safe and environment-friendly means of transportation (mobility)”. Denso’s R&D expenditure is constantly kept at about ¥300bn ($3bn), about 8-10% of net sales.

  It is developing technologies to enhance fuel efficiency in gasoline and diesel engines, power devices that accommodate higher power capacitance in cars, starters for idling stop systems and air conditioning systems with outstanding energy-saving properties.

  In addition to being the leader in developing new inverters for hybrid cars, in 2008, it began investigating whether it is feasible to develop biofuels using algae found in hot springs, among other places, as the raw feedstock. In 2009, it developed a plant-derived resin radiator tank in collaboration with DuPont. The tank was included in cars sold around the world from spring 2009.

  Denso is known for its active stakeholder engagement, firmly rooted in the “Denso Spirit”, which is characterised by “foresight, credibility and collaboration”.

  In the 2009 financial year, the company recorded its first operating loss since it began disclosing consolidated financial results. But Nobuaki Kato, president and chief executive, says: “To enhance and promote CSR management amid a severe economic climate, it is necessary to further deepen ties with stakeholders and expand the scope of cooperation.”

  Denso has been developing stakeholder dialogue since 2003, including with the general public. In 2007, the company held a two-day meeting covering topics such as the environment, employees and community, with students, business partners, civil society organisations, business people and government. Denso has also held a dialogue session with NGOs in Europe and plans to hold more around the world.

  With a view to promoting corporate responsibility throughout its global supply chain, Denso has incorporated new social responsibility provisions into a new basic contract. These address issues such as compliance, protection of human rights, environmental conservation and occupational safety. By March 2008, Denso had concluded that contract with all suppliers (about 1,400 companies) and now works with them closely to improve this based on “self-diagnosis”.

  Denso has a number of interesting engagement programmes. The Denso Youth for Earth Action is a global youth education programme that fosters the development of talented people, helping them develop into future business leaders. Also, the Decopon programme allows employees to earn “points” by engaging in environmental actions, including reducing waste, decreasing carbon emissions, car sharing and buying fair trade or organic foods. Employees can redeem the points for personal as well as community/social purposes. Currently more than 10,000 employees participate in the programme.

  “Denso’s culture of encouraging and supporting employee-led ideas and initiatives seems to be pushing the company forward,” says Satoshi Kida of the Japan Foundation.

  Case study: Panasonic

  Panasonic Corporation is a global electronic products manufacturer with sales of ¥7.7tn ($80bn) in 2009, and over 380,000 employees worldwide. Among its product lines are plasma TVs, digital cameras, LED lighting, and lithium-ion batteries.

  The company is included on the Dow Jones Sustainability Index and FTSE4Good, and was featured in Global 100’s “most sustainable corporations in the world” in 2009.

  The goals of the Panasonic GP3 plan – global progress, global profit, global Panasonic – in 2010 are to achieve sales of ¥10tn ($100bn) and to eliminate 300,000 tonnes of CO2 emissions compared with fiscal 2007. In fact, the company’s CO2 emissions in 2009 of 3.47m tonnes, meant that the CO2 reduction target was achieved one year ahead of schedule.

  Along with the recent acquisition of Sanyo, Panasonic is driving its “eco ideas” strategy.

  “We are accelerating efforts in environmental management to reduce the environmental impact in all our business activities,” says Panasonic president Fumio Ohtsubo. He highlights the development of “energy-saving technologies” as “creating smaller, lighter and better eco products actually improves product competitiveness”.

  In April 2009, Panasonic opened an eco ideas house in Tokyo, a showroom designed to propose a lifestyle with virtually zero CO2 emissions in an entire house by “saving, creating and storing energy”.

  The proposal is to have a 65% reduction in energy use (compared with 1990 levels) from the use of low-energy home appliances and equipment. In three to five years, Panasonic says, CO2 emissions can be virtually zero through the use of the optimal combination of fuel cells, solar power generators and accumulator batteries to provide the minimum necessary energy.

  In 2008, Panasonic had already developed and begun shipping ahead of other companies a household fuel cell system called Ene Farm that boasts high power-generating efficiency and durability.

  The Eco-Navi system, including special sensors and control technology, has been introduced into several product lines including refrigerators and washing machines. This means that Panasonic’s products are, the company says, more advanced than conventional energy-efficient home appliances.

  Other initiatives to watch for from Panasonic include the launch of a global environmental communication portal ecoideasnet (eco-ideas.net) as part of the company’s commitment to promote the power of ideas and to accelerate a shift to greener lifestyles.

  Toyota – diversity challenge

  Japanese car giant Toyota’s recent product recalls have been big news everywhere. One of the implications for corporate responsibility seems to be in governance and diversity.

  The slow response from the company to a growing reputation crisis in the US and elsewhere has been much criticised. Observers in Japan have suggested that a lack of diversity among the company’s directors hampered their ability to deal with the local and global communication challenges.

  Boardroom homogeneity has been a long-term issue for companies in Japan, which tend to be dominated by ageing, male, native Japanese employees. In a globalised world, this lack of representation means poor communication, untimely responses, and missed market opportunities. And, increasingly, it just doesn’t go down well with most people.