Advancing Sustainability Practices in Japan

By Lauren Compere, Managing Director

In July, Lauren Compere, Director of Shareowner Engagement, met with 6 of our portfolio companies in Tokyo including Hoya, Kao, Orix, NTT, Shiseido, and NTT DoCoMo.  Lauren also attended The ICGN’s Annual Conference, “Re-focusing Corporate Governance for Sustainable Value Creation,” was part of an investor delegation organized by the Asian Corporate Governance Association (ACGA) with regulators, and co-convened with ACGA its second Investor Dialogue: Japan – TCFD, Low Carbon & Energy Transition.

Over the past 3 years our engagement has shifted from developing ESG awareness and policies to establishing ESG metrics and assessing the impact of companies’ policies on people and planet—especially linked to the goals of the Paris Agreement and the Sustainable Development Goals.  Through our engagement work, we serve as mentors, helping companies to improve sustainability disclosure, advance policies and practices, recognize emerging risks, and connect with resources to further develop ESG strategies. Our aim as investors is to create a relationship of trust with companies, where we can ask the difficult questions, share best practice, and sustain ESG Momentum.


Company Meetings

Advancing Sustainability in Japan: Boston Common met with the following companies to improve their ESG performance:

Panasonic – Sustainability Governance & Supply Chain Management: Panasonic has achieved its goal of completing 100% water risk assessments in 240 offices and factories, and identifies water risk exposure. Panasonic identifies cobalt suppliers involved in conflict areas and commits to replace those with human rights violations.

NTT & NTT DoCoMo – Eco-Efficiency & Supply Chain Oversight: NTT has joined the EP100 and committed to double its energy productivity by 2025, and is the first company to participate in both the EP100 and EV100 initiatives. NTT DoCoMo has committed to Eco-Efficiency goals as well. Both have advanced supply chain oversight, specifically NTT on conflict minerals and NTT DoCoMo on “Green Procurement.”

Shiseido – Environmental Risk & Supply Chain Management: Shiseido committed to achieving 100% Roundtable on Sustainable Palm Oil (RSPO)-certified materials by 2020. Shiseido is focused on developing biodegradable and refillable cosmetic containers within its product lines and has an ambitious gender diversity goal (40% by 2020) for senior leadership.

Hoya & ORIX – Sustainability Governance: Hoya and Orix both established ESG Committees and developed a more strategic approach to managing and reporting on their sustainability oversight. We encouraged both companies to use external resources to support and provide guidance for them as they improve their governance of sustainability.

Kao – Environmental Risk Management & Chemical Safety: Kao has committed to make all packaging 100% recyclable and developed “Green Innovation” and “Eco-Technological Solutions” programs to enhance its due diligence process for the mitigation of chemical risk. Kao Corporation has collaborated with China’s Ministry of Environmental Protection to inform its approach to water-saving initiative implementation.

Overall, in our company meetings we saw intentional focus on the Governance of Sustainability, in the areas of:

  • Addressing the marine plastics crisis
  • Adopting robust implementation of the Taskforce on Climate-related Financial Disclosure (TCFD) and SDGs
  • Advancing responsible sourcing practices, especially palm oil
  • Improving environmental performance, especially related to climate risk and producer responsibility
  • Approaching sustainable practices holistically in supply chains, especially regarding human rights

Still many concerns remain: the advancement of women in management across sectors, conditions related to overwork, and the continued gap in core governance practices relative to global peers.

We addressed Board diversity and governance, CSR/ESG management, Eco-Efficiency, and advancement of women with all companies, and we prioritized responsible sourcing, chemical safety, and human rights due diligence with manufacturers and Information Communication Technology (ICT) companies.  We raised plastic waste as a new issue with Kao, Panasonic, and Shiseido, encouraging them to consider joining the New Plastics Economy Global Commitment and engage their packaging suppliers.  While we were not able to meet with Panasonic in person, we had a substantive dialogue by phone with senior representatives in June to address a number of issues including, cobalt and commodity sourcing and plastic waste.  Panasonic is one of only 45 companies in Japan to adopt Science-based targets to reduce its GHG emissions.  In our meetings in July, we used bespoke agendas geared towards each company’s materials ESG risks and opportunities with a key focus on following up on previous recommendations.

In our meetings with advanced players Kao and Shiseido, we learned they have taken further steps in advancing their sustainability practices by implementing new ESG governance structures in the past 12 months, including adoption of TCFD and are both at the scenario analysis stage.  We met with Hoya, NTT, and NTT DoCoMo for the first time. The companies are at very different stages in their ESG/sustainability practices.  NTT DoCoMo’s priorities are very much driven by the parent company, NTT, while Hoya is at the beginning stages of their ESG/Sustainability journey and just established a new ESG Committee which met for the first time in August.  Ahead of this meeting, we suggested that Hoya conduct a landscaping exercise with internal and external resources to help prioritize key sustainability issues including ESG research providers, CDP, and other public benchmarks such as Know the Chain.

Orix was at a similar stage, and they were investing in capacity with a new Head of Sustainability and preparing their first Sustainability report to be released this fall. Orix has responded to our “Banking on a Low Carbon” survey for the last 3 years, which was a key focus for our meeting.  We suggested they review the metrics to help inform the type of climate disclosure we would like to see including adopting the TCFD framework.

Climate Risk and Opportunity

On the climate side, we saw more companies publicly endorsing targets and frameworks such as TCFD – a marked difference from early 2018 when corporate awareness of TCFD was nascent at best – Science-based Targets (45) and renewable energy (RE100) (19) commitments.  New networks like the Japan Climate Initiative (JCI) have been established as a counter to the more conservative Keidanren to address the climate crisis.  We have also seen a marked shift in the lack of willingness to expand the use of coal In Japan with many proposed coal-fired power plants coming off the books and banks adopting restrictions on financing for new coal-fired power plants. One key recent announcement is that the Financial Service Agency will partner with 2 Degrees Investing Initiative to conduct an impact evaluation of climate-related risks to Japan’s financial stability – a move that the Bank of England and the California Insurance Commissioner have already taken. 

To advance global collaboration amongst investors, Boston Common co-convened with ACGA its second Investor Dialogue: Japan – TCFD, Low-Carbon & Energy Transition to discuss the adoption of Taskforce for Climate-related Financial Disclosures (TCFD), the low-carbon and energy transition, and changes in energy policy in Japan over the past 12 months. Speakers included Mika Ohbayashi of the Renewable Energy Institute (REI), Kae Takase of CDP Japan, and Chikako Matsumoto of EY Japan – all women leading the charge to support Japan’s private sector role in addressing climate change.  Since our trip in 2018, the Japan Climate Initiative was established – the largest organization of non-state actors including over 378 members to focus on the decarbonization of Japan. Its 276 company members represent 70% of Japanese companies with Science-based (SBT) approved targets and approximately 70% of RE 100 companies with commitments to source up to 100% of their energy from renewable sources. We specifically asked Kao, Panasonic, and Shiseido to consider joining the New Plastics Global Commitment and  engaging their packaging suppliers.

Corporate Governance

On the governance front, Lauren participated in The ICGN’s Annual Conference, “Re-focusing Corporate Governance for Sustainable Value Creation” and was part of an investor delegation organized by the Asian Corporate Governance Association (ACGA).  As part of the ACGA delegation, Lauren met with regulators and industry groups to discuss governance and sustainability policies and performance – where we have seen advancements and where more progress is needed to be in line with global peers. These meetings included the Tokyo Stock Exchange (TSE), Japan Corporate Governance Network (JCGN), the Financial Service Agency (FSA), and the Ministry of Economy, Trade and Industry (METI). In these meetings, Lauren continued to raise the need for robust support of climate action including adoption of TCFD and implementation guidance including climate scenarios, and the need to adopt innovative ways for regulators to address gender equality. 

There has been marked progress on the issue of board independence where according to ISS during the 2019 proxy season now 99 percent of Japanese boards have at least one outsider,  88 percent of boards have at least two outsiders, and 48 percent of boards have at least one-third of board members as outsiders.  There were a record number of shareholder-sponsored proposals (54) during the 2019 proxy season with investors using the AGM to raise concerns on governance practices. We are seeing more Japanese asset managers (100) disclose their proxy voting results but more need to share their rationales. 

While Japan has seen a lot of regulatory initiatives over the past 5 years related to corporate governance, sustainability disclosure, and stewardship activities, these soft law or voluntary initiatives now need to be backed by hard law for further progress to be achieved.  Some of the corporate governance challenges include:

  • Pervasive company cross-shareholdings, which undermine progress made by the Corporate Governance and Stewardship Codes
  • The executive decision-making role Japanese boards continue to play, rather than the strategic oversight body they should be, and
  • Ambiguity of the role company nomination and remuneration advisory committees have, given that they don’t have legal status under company law.

Gender Equality

Gender equality is still a major challenge for Japan with women only representing 4.1% (1750 female directors) of total board seats in Japan as of 2018, but this represents a 178% increase since 2012 (630 female directors).  According to ISS at least 38% of corporate boards have at least one woman on the board.  Women were only legislated equal rights in Japan in 1986, which means that it is only women in their 50s who have had the ability to achieve senior management positions, including at the board and director level.  Since 2016, under the Women Advancement Act, companies must assess the ratio of women employees including managers, the differences in years between men and women, and working hours.  They must create a plan to address these challenges, publish and report to the government, including specific progress against the plan. 

Boston Common has used this public disclosure to advance our expectations on gender equality with our portfolio companies since 2016.  One encouraging sign was the founding of a 30% Club in Japan in July, similar to organizations in Australia, UK, and the US to promote the advancement of women on boards.  On this trip, Lauren met with Chairman Tanaka of the Sasakawa Peace Foundation, an organization supporting gender equality not only in Japan but across Asia.  In a first ever report supported by the Foundation, Equileap analyzed 745 Asian companies in Japan, Hong Kong, and Singapore on where they stand on gender equality in the workplace—going well beyond board metrics to workplace practices that promote equal treatment and opportunities for men and women. 

Japanese companies lagged those in Singapore with an average score of 35% versus 42% but were above those in Hong Kong at 29%. All companies were well below the average of the global benchmark’s score of 53%.  In the top 100 best companies, ten companies were signatories of the UN Women’s Empowerment Principles – 8 of them Japanese.  Boston Common became a signatory to the Women’s Empowerment Principles in 2015.  Portfolio companies Kao (#16) and Shiseido (#6) performed well on a relative basis and were included in the top 20 of leading companies assessed on workplace equality.  One disappointing fact is that while Japan has one of the most generous paid leave programs for primary and secondary care (56 and 42 weeks) in the region, according to Equileap these benefits are vastly underused by male employees. 

As a global manager seeking to invest in sustainability leaders in Asia, we are encouraged to see more ESG momentum in Japan supported by company leadership, more robust governance regulation, and domestic asset owners and managers stepping up to adopt ESG integration and stewardship activities to support the critical role needed to thrive in a resource-constraint, low-carbon future.  Through our decade-long engagement program in Japan, we believe our efforts to improve company practices through our mentorship, to engage industry associations and regulators to promote good governance, and to collaborate with Japanese partners, including other asset managers, have helped create the transformative change needed to enable a more just and sustainable world.


The information in this article should not be considered a recommendation to buy or sell any security.

Back to News page