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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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rights, and (4) contributions to the local community. The questionnaires also asked how the company should address these issues. In 2010, 40.8% of respondents chose “promoting businesses that help solve social issues,” but in 2012 that figure rose to 54.8%—more than half. This finding suggests that more employees have come to understand the importance of integrating efforts to address social issues with the company’s main business operations. As a result, the number of projects like the pre-organic cotton program has increased.

A Special Issue on CSR

Even with such a corporate culture, creating a system to support bottom-up CSR activities is not easy. Itochu publishes a monthly, bilingual in-house newsletter for its employees worldwide, and the September issue each year carries a special feature on CSR.

The cover of the September 2013 issue shows a map of the world with illustrations of the various CSR projects Itochu is undertaking. The title of the feature is “Itochu’s CSR Vision,” and the articles in the magazine describe the various CSR initiatives being implemented at the grass-roots level. Anyone can see at a glance Figure 2: Itochu’s CSR Vision Cover of Itochu’s 2013 CSR Report with a map of the company’s global CSR initiatives.

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how the company’s employees are working to address various social issues around the globe The September 2013 issue of the newsletter starts with a message from Itochu President Masahiro Okafuji, which begins, “Itochu’s basic approach to CSR activities is to contribute to achieving a sustainable society through our business activities. I strongly urge all of you to take this opportunity to think about the relationship between our business operations and society.” The message continues: “When I was just starting out, in the early years, I once proposed a solution to the problem of a wholesaler customer who strongly needed to get rid of some inventory. Itochu didn’t bear any responsibility to that customer in terms of business once Itochu had sold them the goods, which had then become inventory, but still I couldn’t abandon a customer in need. So I made a tremendous effort to think through the problem. My subsequent proposal was successful and the customer was very happy that Itochu had continued to make such efforts even after the business transaction. As a result, the customer was able to build a relationship of trust with us. This is just one episode from my business activities, but I think it well illustrates how this approach to solving a customer’s problems also holds true for how we should think about CSR activities.

“At first glance, CSR sounds a little difficult, but I think it becomes a bit easier to understand if we see that in the same way we work to solve any problems that our customers might have when we are doing business, we must also work to solve any problems that we find right in front of us.

“We must clearly grasp Itochu’s impact on human rights and the environment as we pursue our business activities, and ascertain whether we are indirectly contributing to infringements of human rights or cases of environmental pollution occurring in our supply chain. And, we must take steps to check any such occurrences with international standards. It is by no means an easy matter to create a sustainable business based on a framework of values shared by the Company and society. We can take no short cuts; rather, we must adopt a respectful attitude to society, listening to what it is telling us, and using every ounce of our wisdom.” This message conveys two things in an easy to understand way: that the relationship between a company and society is its very raison d’être and indispensable to its growth; and that if a company cannot deal effectively with social issues, its value as a company will suffer.

Sharing Schemes and Ideas Also in the issue is a roundtable discussion among the leaders of various projects

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in which social issues are addressed as part of Itochu’s core business. The participants include those in charge of the pre-organic cotton program from the Textile Company, the lithium ion battery project from the Energy and Chemicals Company, and the Indonesia geothermal power generation project from the Machinery Company. The first topic they discuss is the difficulty of balancing social contributions and profitability. They indicate that the process of seeking out social issues at the grass-roots level, then using the company’s strengths to turn them into new businesses, can lead to achieving that balance. They also address the question of what is social contribution.

“We may think we’re doing something good for society, but we always have to be on our guard against becoming smug or complacent,” one of the participants said. “There may also be times when we feel we’re contradicting ourselves. In that sense, the opinions and assessments of outside experts can help set us in the direction where we really want to go.” The purpose of the roundtable is not just to introduce the content of the company’s CSR projects but also to share the thinking that went into their organization.

In an article titled “Exploring Business and Human Rights,” the relationship between social issues and business is explained in an easy-to-understand way from the perspective not just of launching new ventures but also of managing and averting risks. It covers basic questions about human rights and why they must be considered, as well as issues more specific to a multinational trading company. It introduces recent developments around the world, including codes of conduct, and concrete examples of issues that might actually occur on the job, thus encouraging employees to think about how they would handle a human rights situation.

The article is linked to an online confirmation test (and the questionnaire survey mentioned above), thus spurring employees to take action, not just to read. The test is issued in Japanese, English, and Chinese and was completed by 96.5% of employees.

CSR Action Plans of Each Division Company

Although Itochu’s CSR promotion system requires various departments to run a plan-do-check-act (PDCA) cycle, it does not go so far as to expect quantification.

In that sense, the system is characterized by a level of autonomy (Figure 3).

Itochu asks all its division companies (Textile, Machinery, Metals and Minerals, Energy and Chemicals, Food, and ICT, General Products & Realty) in Japan and abroad to produce a CSR action plan. The various departments within each

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Figure 3: Itochu’s CSR Promotion System Source: Itochu website.

company identify their CSR and social issues, after which an annual plan is drafted.

The plan is used to analyze each year’s achievement and to make a self-assessment, and a new plan for the following year is then drawn up based on these conclusions.

The plans drawn up by the division companies are published on Itochu’s website and in its CSR report with statements by each president regarding their medium- to long-term growth strategies. They are, in effect, pledges that must be met with action. Despite the diversity of operations typical of a major trading company, Itochu here, too, emphasizes a bottom-up approach.

Social Issues that Directly Affect Business Operations

By their very nature, trading companies work across national borders, and they face the risk of local issues directly affecting their business operations (Figure 4).

For example, they need to be mindful of child labor and other failures to respect human rights in developing countries that form part of the supply chain, such as during the procurement of raw material or the production process. Even if the trading company itself takes steps to ensure compliance with human rights standards, it will still be taken to task if its business partners are found to have violated those standards.

Many companies dealing with resources often confront the issue of conflict minerals, which are extracted in conflict zones and sold to perpetuate civil wars or conflicts resulting in grave violations of human rights, as well as to sustain the activities of armed groups and antigovernment organizations. In 2010 the Dodd– Frank Wall Street Reform and Consumer Protection Act was enacted in the United

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Figure 4: Trading Company’s Business Areas and Risks Source: Itochu documents.

States requiring US-listed companies using such minerals (tantalum, tin, gold, tungsten ores, etc.) from or near the Democratic Republic of Congo (formerly Zaire) to provide the US Securities and Exchange Commission with information on how the minerals were acquired. This is to ensure that the purchase and use of the relevant minerals do not become a source of income for armed groups and exacerbate human rights violations in conflict zones.

Tantalum is used in products such as cellphones, camera lenses, inkjet printers, personal computers, televisions, and jet engines. Tin is used as food containers, in aerosol cans, solder, tin plating, kitchen goods, and integrated circuits. Tungsten is used in light bulbs, X-ray tubes, integrated circuits, and heat sinks. All of these end products are a familiar part of our everyday lives.

The scale of human rights violations in the Democratic Republic of the Congo is severe. Despite being rich in natural resources, the country is afflicted by conflict, poverty, human rights violations, and the spread of infectious diseases. The problem of sexual violence towards women is especially appalling. The Dodd–Frank Act regulates companies that have direct or indirect dealings in conflict minerals, its purpose being to stop the growth of armed groups with a record of grave human rights violations. So, while legally it does not apply to Japanese companies that are not listed on the US stock exchange, it barely needs saying that—considering the

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law’s aims—Japanese companies are expected to abide by the spirit of the law.

The issue of how to implement a global response not just to conflict minerals but also to human rights abuses, environmental degradation, and other problems is extremely important. One human rights issue is the protection of indigenous people living in areas rich in natural resources. There are examples throughout history—essentially during the colonial era—of peoples who were dispossessed of their lands because they happened to have mineral deposits. In 2007 the UN General Assembly adopted the UN Declaration on the Rights of Indigenous Peoples.

While it is not legally binding, there is a social consensus on the need to protect the rights of indigenous peoples and preserve their culture. Companies are being called upon to respond responsibly to these initiatives.

Identifying Specific Human Rights Issues

One example of a potential human rights issue that might crop up on the job, cited

in the newsletter’s “Exploring Business and Human Rights” article, is as follows:

Company ABC launched a new resource development project with a partner firm and had obtained the approval of the local government. When the project actually began, though, a large number of local residents, including indigenous people who have long been living on the land, launched a protest. ABC requested the services of its security contractor to keep the protesters under control, and it set up a meeting with local leaders, who lodged the complaint that the project was begun without their knowledge or consent.

Readers are then asked to identify specific human rights issues at stake in this

example. The answers, as they apply to Itochu’s value chain, were as follows:

The first right that was infringed upon was the right to free, prior, and informed consent of local residents. Special consideration must also be made for indigenous people with unique histories and cultures. When launching a large-scale development project, ABC should have conducted dialogue with local residents in advance and obtained their consent. Furthermore, when the services of a security company are used, there is a need to draw up policies to ensure that the use of arms by security personnel do not lead to an infringement of the rights of protesters.

There may be many other issues to consider. But the important thing is to deal with each one individually, as they all require a separate response. There is no panacea for all human rights issues.

The last thing a company wants to do is to become a cause of poverty, famine, or environmental degradation in the regions where it does business. Not doing anything to address such problems could also threaten the sustainability and

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growth of its business. Trading companies that invest in the food or raw materials sector in developing countries may need to be patient before they reap any significant returns. This is why Itochu addresses social issues not just from a risk management perspective but also with the intention of helping improve local conditions.

The Food Company’s support for agriculture in Africa is one example. It partnered with a Japanese processed food manufacture with world-class R&D capacities to launch an agricultural development project for smallholder farmers in Mozambique. They are working in Japan and Mozambique to develop seeds that are suitable for growing ingredients that are easy to process into food and setting up a scheme so that those agricultural products can be sold at a higher price. The aim of the project is to raise the living standards of farmers in Mozambique and to provide a stable food procurement source for Japan.

Sharing CSR Action Guidelines with Suppliers

Itochu has established a set of CSR action guidelines to avert the various risks linked to social issues in Itochu’s supply chain. The guidelines are intended to promote respect for human rights, avoid child and forced labor, avoid workplace discrimination, prevent unfairly low wages, protect the environment and ecosystems, promote preemptive action to prevent environmental pollution, promote fair trade, and prevent corruption—as well as to disseminate information about these issues.

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