Ecological stewardship in Japanese firms

CES

REDUCING

THE

FOCUS

ENVIRONMENTAL

FOOTPRINT

Ecological Stewardship in Japanese Firms BY JACOB PARK

T

he global climate change conference held late last year in Kyoto, Japan, brought thou-

Magazine, five of the six largest corporations in the world in terms of revenue are Japanese: Mitsubishi,

sands of government

Mitsui,

delegates,

representa-

tives of environmental NGOs, and journalists to the Land of The Rising Sun. Along with its primary’ focus of climate change, the conference also

established a worldwide forum for scrutinizing the global environmental affairs role of the Japanese private sector. Although it is the second largest economy

and home

nationals,

there

environmental

to many of the largest multi-

has been

limited

management

analysis

practices

companies.’

The

information

avrailable on environmental

of Japanese impact

contrast

firms

of their

and

business

between the

possible

operations

of the

of Japanese the

even a second-tier Nichimen

practices can be seen

mental tant

role

Japanese)

JACOB PARK is a Washington, D.C.-based analyst who specializes in corporate environmental management issues and in the business and policy dimensions of environmental problems in Asia-Pacific. Between 1993-l 997, Mr. Park worked as a policy analyst in the Global Environmental Affairs Office of Japan’s Ministry of International Trade and Industry (MITI), and as an environmental and urban development specialist for the Tokyo-based United Nations University’s Institute of Advanced Studies.

CORPORATE ENVIRONMENTAL STRATEGY

Marubeni

company

revenue

stream

like than

multinational

management

of the impor-

enterprises

need

(particularly affairs, there

industry,

and corporate

three

of cnvi-

and strategies

firms. In order to understand

to be addressed.

structures

practices

not find environ-

company.

play in global environmental

of Japanese ----------------------------

a larger

trading

is a critical need for a greater understanding ronmental

by Fortune

has

Japanese

report issued by a Japanese

Japanese

ranking

and

Because of the growing awareness

tions.

to a recent

Corp.,

monitoring group reported that it could one example of a satisfactory corporate

vividly in the ranking of the world’s largest corporaAccording

Sumitomo

Switzerland’s Nestle and U.K.‘s Unilcver.2 Yet, as late as 1992, a leading Japan-based cnvironmcntal

limited

ecological

Itochu,

Corp. They are bigger than the largest petroleum companies (Royal Dutch Shell and Exxon), while

of

the greening

important

questions

First, are the management governance

in Japan differ-

ent than those of North America and Europe and do these “differences” affect the style of environmental management practices of the companies in these different response domestic

regions? Second, what has been the of Japanese industry to the emergence of and global environmental problems?

33

V5N3

JACOBPARK

Third,

how are Japanese

mental

strategy

companies

to create

using environ-

“value” in their business

operations?

Southeast

Asia. The

company’s

business

evaluate

environmental activities

if it is involved

impacts

of a

are more difficult

in many different

to

industrial

sectors, a problem which many sogo shosha cite as ---________-----~~__-----~-~~~~~~~-~--------~~~~~~-~~~___~-~~~~~~_____~______~________ the main factor behind their relatively weak envi-

While Japan’s GDP grew 1.7 times from 1973 to 1987, its annual energy consumption level essentially remained flat, which means that the overall rate of energy consumption declined by more than forty percent.

ronmental

Management Challenge While the Japanese private

firms. Although leum

dramatically America ferences

different

than its counterpart

in North

and Europe, there are a number of key difthat have important implications for envi-

ronmental

management.

porate governance Europe

First, compared

structure

(with the possible

individual

shareholders

in the Japanese

exception

system

and

of Germany),

do not play a prominent of corporate

While this means that Japanese business are not consumed

to the cor-

in North America

role

governance. executives

with the pressures generated

from

(Nippon

the world’s largest.

than 1,000 Japanese

are globally competitive.6 oriented,

industry

companies

sectors

between

1989-1997),

industrial

While there are a number of companies in the U.S., Canada, and Europe which are not competitive in the global marketplace,

tionship

than firms in North America

The lack of shareholder

activism,

based

Coalition

companies

are not required

interests.’ Second, Japanese

the dominance

economy.

Roughly

of sogo shosha translated

in the

as “trading

companies,” there are no comparable business institutions like the sogo shosha in North America and Europe. Sogo shosha, like Mitsui, Mitsubishi, and Sumitomo are household names in Japan (much like General Electric, Microsoft, and General Motors in the U.S.) and are involved in diverse markets, ranging from textiles to electronic commerce.’ Their corporate subsidiaries build oil pipelines in Central Asia, invest in real estate in Latin America, and develop consumer distribution networks in

is

and Europe.

the complicated

of the sogo shosha, weak enviand the relatively lax financial

requirements

Responsible

the key difference

that Japanese firms (at least those operating mainly in Japan) have a much different stakeholder rela-

disclosure

of Environmentally

of

sectors have seen their profits

oriented

Economies (CERES), which lobby the interests of ecologically-minded shareholders and commercial

the profits

and more domestical-

decline rapidly (e.g. 60 percent decrease for the steel industry between 1989-1997).’

ment

Boston-

have seen their

increase for the telecommunica-

in less competitive

ly-insulated

out of more only a handful

sharply in the past ten years (e.g.

structure NGOs,

like the

insulated

While the pretax profits of

high-tech

increase

Similarly,

drug companies

corporate ronmental

groups,

domestically

only two Japanese companies Oil Corp. and Mitsubishi Oil) are ranked

rigid quarterly earnings requirements and community activism, it also means the absence of environbusiness

by

export powers surround-

companies,

among

tion

policies.

is characterized

there are more than seventy petro-

eighty four percent

sector may not be

economy

ed by a sea of uncompetitive,

revenue Japan’s Green

and disclosure

a select group of high-tech

export Understanding

reporting

Third, the Japanese

mean

that

most Japanese

to, and often do not feel

compelled to, release eco-efficiency information like the rate of recycling and energy intensity of production and services. Globally competitive firms like Sony, NEC, and Toyota do not fall into this trap of environmentally operate

weak stakeholder

ties because

they

all over the world and have a very different

relationship NGOs.

with governments,

communities,

and

While North American and European firms are subject to a diverse array of pressures from both within (e.g. environmentally minded shareholders and managers) and outside the company (e.g. regulatory measures like the U.S.‘s toxic release inventory as well as pressure from environmental NGOs) to release

relevant

environmentally

related

informa-

L___

34

CORPORATEENVIRONMENTALSTRATEGY

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REDUCINGTHEENVIRONMENTALFOOTPRINT

tion, many uncompetitive, panies are not bound

insulated

Japanese

com-

by the same set of stakeholder

ratio of pollution centage

prevention

investments

of total capital expenditures

three

sures” for environmental

Japan’s GDP grell- 1.7 times from 1973 to 1987, its

ment

agencies

explains

and

the community-at-large.

why the North

subsidiaries

of many

more

environmentally

those

adopted

from govem-

American

Japanese

This

and European

firms often

“aggressive”

bv the company’s

pursue

policies

than

worldwide

head-

annual

encrg):

remained energy

consumption

flat, which means consumption

Environmental The response nity

Response to

of the Japanese

management

to environmental

through

three

problems

distinct

stages,

commu-

has so far gone the

first of which

Japanese Japanese

business

problems

pollution

environmental

corporate

fort\

environ-

like climate

aivarencss until

the

cxecutlves

in green business Council

pollu-

b\ more than

of

change

of the ozone layer. The transition

industr!

(from the late 1960s to the mid-1970s) can bc described as a national awakening to an industrial crisis A series of highly-publicized

essential11

\vas the growing awareness

to global environmental

business

While

that the overall rate of

The third phase of Japanese

and the depletion

Problems in Japan

level

declined

global environmental Evolving Corporate

percent.

percent.” mental

quarters.

to a high of twenty

from

tics and thus, do not have the same types of “presimprovement

percent

as a per-

increased

groups

198Os, \\hcn

started to get involved

like the LVorld Business

for Sustainable

in International

did not occur in

late

Dcvclopment,

Standards managcmcnt

participate

Organization’s schemes,

(IX>)

and kvork 111

tion cases in the early 197Os, including the famous hilinamata Disease, lcad to an unprecedented scs-

partnerships with green conser\:ation groups. By the time the Keidanrcn (Japan Fcdcration of Economic

sion of the Japanese Parliament

Organizations), a leading Japanese business ing group similar to the Business Koundtable

(so-called “Pollution

IXct”) that lead to the adoption

of the most strin-

gent air, water, and noise pollution

standards

world. In addition

the national

tem

to consolidating

of environmental

supervision

administration

of a new Environment

environmental oblige each

in the

under

199 1 (proclaiming tribute

and

The economic impact of stringent anti-pollution standards fell heaviest on the energy and pollutionintensive industries like steel, industrial machinery, among Japancsc since these

This

industry

industries

raised

a lot of concern

leaders and policy makers

formed

the bedrock

of the

Japancsc industrial boom in the 1950s and 1960s. IIowc\scr, thcrc w~as broad consensus at this time that only a massive mobilization technologies

and investments

itv bvould save Japanese pcndencc

and

that

“corporations

realization

charter must

in con-

of an cnvironmcntalh

Particularly for companies operating in consumer-oriented markets like electronics and retailing, environmental considerations have become an important marketing factor that can distinguish one’s products and services from a competitor $3.

of energy efficient

in resource productiv-

companies

on oil imports

to the

cnvironmcntal

Agency, national

internal pollution prevention quality control system.’

and petrochemicals.

its global

the

legislation was enacted in 1970 to manufacturing site to maintain an

“appropriate” environmental

U.S., released

sys-

lobbvin the

from an overdc-

increase

industrial

sound

society”),

largest Japanese

nearly

eight\,

companics

percent

of the

had a separate

1tO

dcpart-

competitiveness.’ Although the overall level of capital expenditures dropped sharply as result of the economic recession stemming from the 1973 oil

ment to handle cnvironmcntal affairs or wcrc planning to do so in the next two vears.” Although the factors behind greater environmental awareness varies from company to cornpan\

shock, Japanese companies continued high business priority on energy-efficient

as well as between industries, one can detect three different, but overlapping and underlying reasons

to place a technolo-

gies. Between the late 1960s and the mid-1970s, CORPORATEENVIRONMENTALSTRATEGY

the

for the increasing

awareness of global environmcntaI 35

V5N3

JACOBPARK

issues. First, the growing linkage between reputation

and green management

Royal Dutch

Shell learned

Greenpeace ered

important utation

environmental component

Particularly

and retailing,

have become can distinguish

demand

for energy conservation

an rep-

for companies

factor

ecological

modern

environmental

than

and services from a

competitor’s.‘2

on

by the

measures

related

of an been

need

but

of

for a

system is, on

to boost

crisis

the firm’s

in order to stay competi-

marketplace.

eco-efficiency gradual,

need

less by an “external”

capacity

tive in the global

awareness

The

management

driven

for

production

brought

problems.

from an “internal”

eco-efficiency

that

was

to the two oil crises and the growing domestic

the other hand,

like elec-

considerations

marketing

one’s products

in the

1970s

envi-

The demand

and energy efficient

form

markets

an important

an anti-pollution

system.

in the

corporate

environmental

management

system

to shed the image of

in consumer-oriented

The third reason is the need for a modern ronmental

have discov-

once it is firmly established

of consumers.

operating tronics

of a company’s

Just as

Spar and

considerations

and that it is difficult

an “eco-terrorist” minds

in the Brent

cases, Japanese companies

that

corporate

practices.

The development

management the growing

strategy

popularity

has of the

IS0 14000 series has in many ways served as an ____________________-~~~~~-_______________-.-____~____~~~_______~~~~-____~_~~-~-_____~~important catalyst for environmental manage-

The Japanese business community has historically responded to energy and environmental management challenges in an ad-hoc fashion and without an underlying strategy to guide its business operations.

ment awareness in Japan. Japanese business interest in the IS0 14000 series may be described as the 1990s version of the oil shock (although have far less impact since it has mobilized munity

around

it will

on the country’s economy) the Japanese business com-

a single,

tangible

environmental

management issue. Many Japanese companies made the mistake of not taking the emergence of the IS0 9000 quality

management

and they are determined mistake again.

series seriously

not to make

the same

The second reason is the growing market for environmental

products

and services. With

tional market for environmental be $300-$400

billion

Japanese companies potentially

the interna-

services estimated

a year, a large

number

to of

are exploring or have entered this

lucrative

market

heavy market demand

in recent

years.” The

for clean technologies

can be

seen in the scramble among solar technology

firms to

Creating Value Through Strategy The Japanese cally responded agement out

an underlying

operations.”

double output within the next couple of years to meet

anti-pollution

demand

Japan’s

Agency

for photovoltaics

from India,

and other emerging

economies.

of Natural

Resources

and

Energy

reported that solar energy use in Japan is expected to increase 1,000 times to 4.6 gigawatts by the year 2010, while the U.S. market for environmental technologies and services is estimated to be larger than established industries such as plastics and pharmaceuticals.“’ Underscoring

the growing market importance

of envi-

replaced

in an ad-hoc strategy

For a select,

the growing

community

has histori-

to energy and environmental

challenges

Japanese

Mexico, Indonesia,

business

Environmental

companies,

fashion

to guide

regulatory

by an integrated

its business

but growing

however, ad-hoc pressures

man-

and withnumber

of

responses

to

have

environmental

been

manage-

ment strategy. NEC-Promoting

an Organizational

System for Green Innovation There is nothing mysterious about ronmental described

NEC’s envi-

management strategy, which can be simply as establishing, monitoring, and

ronmental products and services, Japan’s Ministry of International Trade and Industry has already targeted the environmental protection market as one of its

achieving long-term environmental objectives.16 The first phase of NEC’s environmental strategy was to establish an environmental management unit

strategic industries

at each operational

for the 2 1st century.

facility to monitor

and improve

___________________________________________________~-----~_______________________________~~~______~--~______-----___ CORPORATEENVIRONMENTALSTRATEGY 36

r

V5N3

REDUCINGTHEENVIRONMENTALFOOTPRINT

environmental

management

other Japanese

companies

capabilities.

ronmental

planning.

annual

Starting

in the early

of action through

pany’s environmental

poration

strategy

in the world, with worldwide

sales of $45 billion

drove NEC’s envi-

on a series of Eco Action

statement

??

at this time, energy effi-

ciency and resource productivity &EC embarked

Sony is arguably the most famous Japanese cor-

Like many

199Os,

*Sony

Plans, an

has established

as zero disposal, recycling,

on an annual

basis, the Eco Action

ing, product

Plan is divided

into

objectives,

ment, and IS0

cnergv/resource

including

savings, waste reduction,

in Japan

(along

with

IIitachi,

Although firms

Matsushita,

and Sony) with $35 billion

in world-

wide sales. .NEC established an Eco Action Plan 21, with cco-efficiency objectives in such areas as energy and waste intensity,

recycling,

green

procurc-

ment, and others. An important

feature of NEC’s Eco Action

is that it is a “living document”

Plan

since it is continu-

ously updated and revised according to a changing set of ecological and business circumstances. In addition to adhering to a broad set of ecological principles, NEC established technological and management benchmarks from which to evaluate the company’s

overall environmental

instance,

according

to

report, NEC reduced waste landfilled

its

the quantity

by eighty percent,

1997 target of fifty percent, centage

performance.

1997

of plastic

recycling

For

environmental of its industrial compared

and increased

to the the per-

to forty one percent,

compared to the 1997 target of thirty-two percent.” E:nvironmental management, in the case of NEC, is a multi-faceted mance-based

strategy

Like other original

with emphasis

on perfor-

green objcctivcs.

Sony-Enhancing Development

Green Organizational

geared toward complying

corporations,

objectives

were

with domestic

eco-product

devclop-

14001 certification.

corporate

the activities

Sony’s primarily

and inter-

are coordinated

environmental

department

and

in its worldwide

Sony’s REM system

headquarters

is spcarheadcd

environmental

tees (ECCs),

which arc responsible

and

monitoring

their

affairs in Tokyo,

by the compa-

conservation

own

by the

community

ny’s regional

commit-

for formulating

environmental

objec-

.__._.____.____.___._....-~-.-.-.-.-..-...-__._.___.___._._._.__..___._._....~----.---

Eco-efficiency benchmarks and objectives can be an important catalyst for environmental innovation because they add focus and direction to an environmental strategy. In order for eco-efficiency to become the driving force in the entire “value chain” of a company’s operations, clear benchmarks and objectives need to be crafted, articulated, and understood throughout the entire organization. ......_.__.____.___._._._._....__...___...___._.____._ tivcs.“’ The overall direction is guided by an annual

multi-national

environmental

green purchas-

and reco\‘-

ery and reuse of materials. ?? NEC is one of the five largest electronics Toshiba,

Management

on such cnvironmcn-

tal objectives

iced. Monitored

of

every year.

a Green

2000 Plan, with emphasis

which the com-

annual

the introduction

more than 7,000 new products

can be operational-

specific

and

of Sony’s REM system

conference,

bringing

er environmental

officers and other corporate

sentatives

the

Europe,

from

four

Asia, and North

regional America).

ECCs

togethreprc(Japan,

In addition

to

national environmental regulatory standards.‘” The shift in Sony’s environmental approach from a tech-

evaluating the progress of the company’s cnvironmental activities, the annual confcrcnce serves as a

nology-driven anti-pollution policy to strategy-driven environmental management came in the early 1990s with the establishment of the regional envi-

forum for exchanging information and developing a common cnvironmcntal management platform. A good example of how Sony’s cnvironmcntal

ronmental

management

management

(REM) system.

CORPORATEENVIRONMENTALSTRATEGY

strategy

is directed

by the regional 37

V5N3

JACOBPARK

environmental

committees

pany’s eco-product Sony’s

can be seen in the com-

design and development

European

environmental

sets the company’s

worldwide

development

committee

and

because

sumers

tend to be more “sensitive”

mental

reputation

of products European

European

and services. By let-

tee set the policy on eco-product allowing

its worldwide

continually

driven

environmental

upward

that

environmental

maintains

Sony is

strategy to be

the driving force in the entire “value chain”

of a company’s objectives

strategy.

operate

under

relationships

often

Multi-national

companies

often

types of regulatory

and as a result, develop

a series of different

strate-

by regulatory

difference

relationships,

and more by stakeholder

which can be seen as the framework (e.g. shareholder

environmental

tions)

environmental

force companies tices.

Because

dctcrmine impacts,

activism)

and

NGOs,

government

pressure

points

to adhere specific

which external regula-

encourage

or

ties appear

of internal

process,

must endorse

a decentralized coordinated

by corporate An

to

a process, which

environmental

strategy

but not necessarily

managed

aspect

6.

of Sony’s environmental

is that the direction

of its environmental

management system is coordinated essarily managed by, its worldwide

by, but not necheadquarters in

Tokyo. The company’s regional environmental committees in North America, Europe, and Asia set their environmental management and performance objectives.

In some situations,

38

is not imposed,

7.

8.

they even lead by

establishing environmental management platforms for worldwide business operations. Environmental leadership

5.

headquarters.

important

strategy

4.

and external

successfully addresses all of the company’s stakeholder entities. This can be accomplished by endorsing

2. 3.

to the best green prac-

stakeholder

the magnitude a company

through

but rather initiated

and

entire

and environmental

and and

organization.

performance

of environmental

to

intensity

eco-

objectives, of produc-

such an important management companies.

system *

Endnotes 1. For instance, the 1996 Greening of Industry Resource

regimes,

however, strategy may be less dictated

(c.g.

the

articulated,

education-training,

such as the energy and material

gics in response to these diverse regulatory pressures. In the case of environmental management,

internal

employee

clear benchmarks

crafted,

in NEC and in other Japanese

in stakeholder many

throughout

is why

foundation

drive

to be

to an environ-

for eco-efficiency

operations,

need

understood

In order

ing goods and services, constitute

Strategy of Japanese Firms

innovation

become

audits,

Key Lessons from the Environmental Differences

catalyst for environmental

can be

strategy.

headof

and objectives

mental

from corporate

standard

benchmarks

they add focus and direction

This

innovation.

with the best

because

office

the highest

committee

expertise.

Eco-efficiency

by the regional

(even if it does not originate quarters)

commit-

issues,

by the regional

environmental an important

con-

to the environ-

environment

managed

often

policy on eco-product

design

ting the company’s

policy.

9. 10

Guide and Bibliography (Washington, DC, Island Press) only has a couple of references to the environmental management practices of Japanese companies, while a review of the environmental management and strategy literature show a limited number of references to Japan. Fortune. 1996. “Global 500”. August 5. Deloitte Touche Tohmatsu International, IISD, and SustainAbility. 1993. Coming Clean: Corporate Environmental Reporting. (London: DTT International), p. 26. Only handful U.S. companies currently disclose sustainable development indicators such as energy intensity of manufacturing facilities on an aggregated basis. In our case, shareholder activism has not necessarily lead to dramatic improvement in corporate environmental reporting. For further information, refer to the summaries executive of IRRC’s Corporate Environmental Profiles Directories (1992-1997). The balance sheet of Japanese corporations, unlike U.S. companies, are not consolidated, so that it is difficult to figure out the profit (and the environmental impact) of a particular subsidiary. The Economist. 1997. “Say Hostile Takeover in Japanese.” July 1997. p. 65. WuDunn, Sheryl. 1997. “Japanese Economy Follows a Zigzag: Exporters Thrive as Other Sectors Sink.” New York Times. September 16, p. Dl. Industrial Pollution Control Association of Japan. 1993. Sectoral Overview of Industrial Pollution Control Efforts in Japan: History and Pollution Combating Technologies. (Tokyo: IPC Association of Japan). p. 5. ibid, 5-6. Details of Japanese anti-pollution investment efforts can be found in Watanabe, Chihiro. 1995. “The

CORPORATEENVIRONMENTALSTRATEGY

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REDUCINGTHEENVIRONMENTALFOOTPRINT

V5N3

Interaction Between Technology and Economv: for Constrained Economic National Strategies Environments: The Case of Japan 1955-1992”. IIASA Working Paper-95-16 (February) and Okuno, Kci. 1993. “Environmental Strategy and Management in Japanese Firms and Industries”. Unpublished Master’s Thesis Paper, MIT Sloan School of Management. 11. Information on Keidanren’s 1991 Global Environment Charter and its more recent 1996 update can be found in its website, http://wwwkeidanren.or.jp. 12. This is particularh the case in the consumer market in Europe and North America, but it is also becoming a factor in the Japanese domestic market. 13. The latest figures on the global environment industry can be found in OECD. 1996. The Global Environmental Goods and Services Industry. (Paris: OECD) and Environmental Business International Inc. 1995. The Global Environmental Market and U.S. Industry Competitiveness (San Diego, CA: EBI Inc.). Try to Reconcile 1-t. Park, Jacob. 1997. “Companies Environmental Protection Profit.” The Nikkei Weekly. July 14. p. 15. 15. For a detailed analysis of how specific Japanese industries arc responding to global environmental problems, refer to Ishizu, Takavoshi. 1993. “Japanese Corporate Responses to Global Environmental Issues”. Japan Development Bank Research Report No. 36 and National Institute of Science and Technology Policy (NIST). 199-t. Current State and Evaluation of IIow Firms IIavc Dealt With Global Environmental Issues. (Tokvo: Science and Technology Agency). management strategy can be 16 NEC’s environmental found in its annual Environmental Annual Report. Portions of the 1997 plan can be found in its websitc, http://wwwnec.co.jp. 17 NEC. 1997. Environmental Annual Report. pp. 3--t. Report. pp. 4-5. 18 Sony. 1997. Environmental 19 ibid

CORPORATEENVIRONMENTALSTRATEGY

39