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«14 CSR White Paper Economy ESG Investing as an e Unchanging Face of Japanese Antidote to Myopic Employment Management International A airs Japanese ...»

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The company also implements a CSR survey for group companies and suppliers, both direct and indirect, working in high-risk countries, selected trade products, and high-volume businesses. The CSR action guidelines are shared with these companies and the concepts are explained, and the partner companies are encouraged to put them into practice. The survey is not conducted by Itochu’s CSR department but by the departments that deal directly with suppliers, members of which visit the suppliers to conduct interviews and distribute the questionnaires.

In addition to the 10 standard items covering human rights, labor, and the environment, there are extra check items tailored to each division company’s specific businesses so that the survey results better reflect actual conditions. For example, forest conservation items were added for the surveys conducted by the Forest Products & General Merchandise Division (lumber, pulp, and paper); food product safety items for the Food Company; and intellectual property protection items for the Textiles Company.

The survey is conducted annually, and in 2012 it covered 430 companies. By repeating this process, not only does Itochu communicate its CSR stance to suppli

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ers but at the same time its own employees gain a better understanding of social issues from the perspective of risk management.

The CSR Dimension of M&As During the prolonged period of the yen’s appreciation, with the dollar dropping to

76.25 yen in March 2013, many Japanese companies stepped up their foreign investments. This included capital investment by overseas subsidiaries and acquisitions of foreign firms. Itochu was no exception, and, as part of this process, much attention was given to risk management relating to social issues.

M&As are undertaken for a variety of reasons: to acquire market share, expand business opportunities; establish new sales, manufacturing, or development bases; or secure human resources. It can enable a company to take the next step forward. It is also a means of shortening the time needed to achieve growth, namely, by grafting new operations onto an existing organization. But at the same time, acquiring a new company means taking on new risks that were previously unthinkable. Differences in corporate culture that are difficult to harmonize are one often-mentioned risk, but there are also others that are linked to various social issues.

Before an agreement is reached on a merger or acquisition, investors usually arrange for a valuation of the company to be bought, a process known as due diligence. Traditionally, this is undertaken by financial specialists, such as accountants, and legal specialists, such as lawyers, to assess whether the company’s assets have been fairly assessed, to ensure that the company’s accounts have not been falsified, and to confirm that the company is not embroiled in a legal dispute.

There have recently been efforts to undertake new types assessments to guard against risks not covered by the traditional process and which is encouraged by CSR departments. It is due diligence that covers areas such as the environment and human rights.

As explained above, more attention is now being paid to risks linked to social issues. A company targeted for an acquisition may possess excellent technologies, but it could also have hidden issues: for example, it may lack environmental protection policies in the production of raw materials, it may have ignored the rights of indigenous people, its factory effluent could be flowing into local rivers, and its parts suppliers may be turning a blind eye to the use of child labor.

If such a business is acquired before such issues are discovered, the purchasing company is unlikely to receive a proper return on its investment; it may also be held responsible for activities that occurred before the purchase. For such reasons, due

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diligence is now increasingly also conducted by specialists in human rights and environmental issues.

At Itochu, the CSR department works closely with the operation divisions that often do not have a full knowledge of social issues—appointing outside experts where necessary—so that the pursuit of profit does not come at the expense of corporate responsibility.

There are two dimensions to Itochu’s efforts to integrate social initiatives into the company’s main business. The first is the close attention the company pays to conditions on the ground—making firsthand observations to identify people’s real needs—both in its CSR initiatives and its business operations. Developing human resources well versed in this philosophy, it believes, will become a source of its corporate strength. At the same time, Itochu actively pools its expertise to implement locally focused programs of risk management as it continues to globalize its operations, well aware that social issues themselves have the potential to become risks for the company.

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July 13, 2015 The Evolution of CSR Communication in Japan From Reporting to Dialogue and Engagement Hideto DeDe Kawakita CSR and social communication expert Hideto DeDe Kawakita surveys the development of Japanese companies’ CSR communication efforts over the last two decades and offers a prognosis for the future, when companies will need to engage more actively with civil society in deliberating, deciding, and acting on social issues.

* * * T he International Institute for Human, Organization, and the Earth (IIHOE), of which I am the chief executive officer, is a nonprofit organization dedicated to the “democratic and balanced development of all the lives on the Earth.” Since its inception in 1994, IIHOE has pursued a variety of projects and programs designed to support nonprofits, social enterprises, and other organizations in their efforts to address social issues. Not long after our establishment, we began responding to requests from private businesses with a special commitment to corporate social responsibility (CSR) and a need for independent feedback from the nonprofit sector.

In the following, I would like to use this experience as a platform from which to survey the development of CSR communication and stakeholder engagement by Japanese corporations over the last two decades and offer my vision of the next stage in this evolutionary process.

The Rise of Sustainability Reporting The 1992 United Nations Conference on Environment and Development (UNCED), Hideto DeDe Kawakita CEO, International Institute for Human, Organization and the Earth (IIHOE).

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or Earth Summit, held shortly after the collapse of the Soviet Union and the end of the Cold War, brought about a paradigm shift as international society awakened to the need for participation by private businesses and civil society in the resolution of issues formerly considered the exclusive domain of government negotiations.

Japanese corporations became aware of the international community’s rising expectations regarding their role in addressing these problems and of growing public concerns about environmental degradation, and they responded with a concerted effort to communicate their environmental commitment through ads stressing their earth friendly products or describing their nature conservation campaigns, recycling programs, and other environmental initiatives.

Two subsequent developments with a major impact on CSR communication in Japan were the publication of an international standard for environmental management systems (ISO 14001) and the release of the first Sustainability Reporting Guidelines by the organization that was later to become the Global Reporting Initiative.

Conformance with international standards for environmental management began to assume the character of a requirement for manufacturing companies that relied on exports to the European Union. Starting with such manufacturers, the push for ISO 14001 certification gained momentum through the supply chain, encompassing suppliers of materials and parts as well as logistics firms and distributors.

Many of these Japanese businesses took to heart the public communication provision (4.4.3) of ISO 14001 and spearheaded the publication of annual reports disclosing environmental performance data and experimented with opportunities for dialogue with nongovernmental organizations (NGOs).

At around the same time, a consensus was emerging that more disclosure would not lead to greater trust as long as companies were free to pick and choose the data that reflected most favorably on them. Talks between NGOs and businesses led to the birth of the Global Reporting Initiative, a movement to standardize the content and indicators of corporate social responsibility. The publication of the GRI Sustainability Reporting Guidelines had a major impact on Japan’s more progressive companies, hastening the implementation of environmental management systems to facilitate monitoring and disclosure of environmental performance in conformance with international standards.

Generally speaking, however, environmental reporting by Japanese companies in the 1990s took the form of a rather self-serving monologue. In an effort to appear responsive to growing global concerns about the environment, Japanese businesses instituted environmental management systems and used them to collect

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data that they published once a year in a printed and bound environmental report.

Two major factors were responsible for the subsequent shift away from annual reports: the spread of the Internet and the costs associated with print publications.

As more people gained access to the Internet, computer-savvy netizens began to seek up-to-date information from corporate websites and other online sources, instead of waiting for the mail carrier to deliver copies of annual environmental reports. At the same time, executives and others began to question the purpose and cost effectiveness of such publications.

For whom were these labor- and cost-intensive booklets intended? Those who cared enough about social and environmental issues to read the reports were demanding ever more comprehensive, detailed, and up-to-date information. At the same time, it was hard to see how such reporting translated into higher sales or built brand credibility. Corporate officers in charge of environmental management and public communications were facing tough questions regarding the purpose and efficacy of their activities.

The Key Role of Independent Opinions

A few progressive companies responded to this challenge by soliciting independent opinions as a means of fostering credibility and improving their CSR programs, even while recognizing that such efforts were unlikely to have a direct impact on sales. In 2001, Yasuda Fire & Marine Insurance Company (now Sompo Japan Nipponkoa) asked me to write an opinion for publication in the company’s latest environmental report. Since then, I have written 117 opinions for 28 companies (Table 1).

More than 200 Japanese companies currently include independent opinions in their environmental and CSR reports. Unfortunately, the vast majority of these comments speak only to the content of the report, which is sent to the evaluator Table 1. Number of Independent Opinions Provided by the Author (28 Companies as of February 2014) Companies for which IIHOE provided independent opinions in 2013 were (in alphabetical order): Alpine, Brother Industries, Casio Computer, Denso, Hitachi Solutions, Kyowa Hakko Kirin, Sekisui House, SG Holdings, Sompo Japan Nipponkoa Holdings (formerly Yasuda Fire & Marine Insurance, Sompo Japan, NKSJ Holdings), and Yokohama Rubber.

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shortly before publication. By rights, an independent opinion should be more than a book report. Companies that are serious about continuous improvement need to hear the opinions of objective outside sources—that is, parties that have no other business relationship with the company—regarding specific areas in need of correction or long-term improvement, and use that information to monitor and rate concrete progress within the company under the PDCA (plan, do, check, act) management cycle.

With this in mind, IIHOE has adopted a policy of securing the client’s agreement on the following points before undertaking to write an independent opinion (http://blog.canpan.info/iihoe/archive/34, Japanese only).

1. The client shall impose no restrictions on the evaluator whatsoever with regard to the scope, content, or wording of his/her opinion or with regard to the scope of his/her pre-evaluation interviews.

2. The client shall impose no restrictions on whom the evaluator may interview for evaluation purposes.

3. The client shall respond promptly to the evaluator’s requests for pre-evaluation interviews and tours or inspections.

4. The client must report on its subsequent progress in each area identified as “needing improvement” in the final opinion, either through its website or in its annual report for the next fiscal year.

Interviews are a must, as the foregoing suggests. An opinion can only be written after face-to-face meetings with the company’s top environmental and CSR managers, as well as officers in charge of legal affairs, health and safety, information security, and business continuity planning. In fact, a typical opinion involves close to a dozen interviews, combined where possible with tours of production or sales sites. Those soliciting an independent opinion from IIHOE must be prepared to set aside at least one or two days for interviews and additional time to respond to follow-up questions. I have only the highest regard for those companies that have demonstrated their commitment to continuous improvement by requesting our services year after year.

When I first began writing these outside opinions, much of my criticism focused on the need to adopt management systems to ensure ongoing, companywide progress toward quantitative environmental goals and health and safety targets. In recent years, we have spent the bulk of our time with officers in charge of human resources and procurement. Generally speaking, these are the two divisions that have lagged behind in terms of internationalization, adoption of visual manage


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