Corporate Social Responsibility and Socially Responsible Investment
Words such as corporate social responsibility (CSR) and socially responsible investment (SRI) have been appearing with frequency in newspapers and other media of late. Companies are also showing an increased interest, as told by such headlines as "Major Supermarket Chain Appoints Executive to Promote CSR" and "Major Trust Bank Places SRI-Type Pension Investment in Trust." What kind of background do these phrases come from?
The number of stories containing the words CSR and SRI in the Asahi, Yomiuri, Mainichi, and the four Nikkei newspapers (including the Nikkei Financial Daily, the Nikkei Business Daily and the Nikkei Marketing Journal).
The differing approaches taken in the United States and Europe to CSR and SRI
First, I would like to begin by looking at the definitions of the phrases CSR and SRI. Although these may be somewhat vague, CSR can be defined as "the success of a company's business gained not only through the observance of laws and regulations but also through an approach that strikes a balance among economic, environmental and social issues in ways that benefit citizens, the community and society as a whole," while SRI is "the supplying of funds to firms that fulfill such social responsibilities1 through such means as stock investments and extension of loans."
Written using the Roman alphabet, these concepts of course both have their origin in Western countries. However, the way CSR and SRI developed greatly differs between the United States and Europe. The difference lies in the extent of government involvement in the development process. While CSR developed in the U.S. with the leverage of socially responsible stock investments by the private sector, in Europe CSR and SRI were promoted in line with policy courses plotted by governments.
In the U.S., grassroots social groups such as nonprofit organizations are taking the initiative and becoming active in monitoring corporate activity and making firms socially responsible. These moves are being boosted by capital flows through, for example, stock investments made after selecting companies that are socially responsible. Meanwhile, in Europe, the presence of civic social organizations is even greater than in the U.S. However, the issue of CSR is also being promoted on the policy front, with a report on CSR promotion being drawn up at an EU level. The importance of CSR and SRI was also stressed at the Group of Eight summit last June in Evian, France, but many people point out that such moves are the antithesis of the American style of corporate management that places priority on shareholders.
Japan's tardiness compared to Western countries is conspicuous
Turning to Japan, we see that both the private and public sectors are lagging behind the U.S. and Europe on this issue2. One clear example of this in the private sector is the paltry sum invested in stock that can be called SRI. Compared to the ¥230 trillion in the U.S. and even the ¥47 trillion in Europe, in Japan only a scant ¥90 billion has been placed in stock investment funds that use SRI and environment as benchmarks when selecting issues.
As for the public sector, we do see measures being taken to address the issue of standardization. Japan has sent experts to the ongoing debate over how to incorporate CSR into international standards at the International Standardization Organization (ISO). In addition, the Japan Business Federation (Nippon Keidanren) began discussions in October last year on creating domestic standards based on CSR with the cooperation of the Ministry of Economy, Trade and Industry. This is also seen as a move that aims to secure a voice at the ISO talks. In addition, there are various attempts to measure the corporate performance of socially responsible firms through, among other methods, international comparisons of the degree of interest in SRI among individual investors. However, in other areas, for example handling CSR in a way that transcends divisions among government ministries and agencies (Britain has a minister in charge of CSR, while France has a minister for sustainable development) or the establishment of information disclosure rules regarding the social and environmental effects of corporate activity and the investments of pension funds that evaluate this (Britain and Germany have revised their pension laws, while France has required that listed firms draw up and publicize reports on the social and environmental effects of their activities), the measures being taken by the public sector in Japan still lag far behind those in Europe.
What problems does Japan face?
Perhaps Japan lags behind Western countries because its sense of urgency in tackling CSR issues is not yet that great. The management at many Japanese companies only take notice of CSR because it is becoming important overseas or because everyone else is showing an interest, and not necessarily because of any pressure that unless CSR is embraced the company's survival would be at risk3. Some experts say that despite the current mass media trend of frequently picking up on CSR and SRI issues, it is only a passing fad.
Moreover, from what I hear of discussions within the government, there is hesitation regarding issues related to CSR and SRI. Over the past several years, Japanese companies have been cutting costs and refraining from making fresh investments as much as possible so as to boost their poor profitability. Given this situation, there is skepticism over whether low profitability can be condoned for the time being for the sake of fulfilling social responsibility.
Looking into what lies behind this, we come to the problem of how great a role the private sector can take over from the public sector, amid wavering of the public's trust in the government. For example, can civic society in Japan shoulder the role of monitoring corporations as the NPOs do in the U.S. and Europe, and would companies fulfill their social responsibilities as a result? In other words, it can also be said that because of the lack of such monitoring pressure, Japanese firms do not have a sense of urgency for fulfilling their social responsibilities. The situation is also made conspicuous by the fact that labor unions, which were once effective pressure groups against corporations, are now debilitated.
Will there never be any civic monitoring of businesses in Japan? And is it unreasonable to demand companies, which pursue profit, to also be socially responsible?
About the "Study Group on Corporate Social Responsibility and New Financial Flows"
To study these and other issues, in April 2003 we set up the "Study Group on Corporate Social Responsibility and New Financial Flows" (Japanese only) and have held discussions using as themes the opinions and experiences of people in universities, think tanks, financial institutions, NPOs and the public sector. What lies at the base of this group's awareness is, "Is it possible to make sense of social responsibility an opening through which assets held by individuals, which are currently concentrated in the public sector in such forms as government bond holdings, can be smoothly supplied to the private sector as risk money?" It was during the discussions of this study group that I belatedly discovered the existence of entities that were attempting to properly evaluate the activities of companies and even the government.
We heard from someone who works from nine till five as a local civil servant, and after that assumes the position of director of a so-called citizens' bank. This organization is registered under the Moneylender Control Law, raises funds from members and carries out such activities as extending bridge loans to NPOs. None of its loans have become irrecoverable since its establishment in 1994, which is something that can only be realized if its assessment of the business operations of its borrowers is accurate. I also learned, through hearings conducted side by side with the study group sessions, about a case in which pursuit of profit and community contribution were compatible with each other. This example was that of an Ibaraki Prefecture-based firm which makes use of its existing drugstore chain network to offer such services as bathing and nursing care for the elderly. It has effectively constructed a business model that can make nursing care a profitable enterprise, even in regions that are not densely populated like the Tokyo metropolitan area.
Of course, it is easy to dismiss these examples as having been made possible thanks to the existence of extraordinary people. However, it is worth noting that both of these businesses were recently established and that in the case of the latter the introduction of the nursing care insurance system, which was aimed at utilizing the power of the private sector, served as a springboard. This shows that it is very well possible for the private sector to raise its position as a monitor and stakeholder of companies and the public sector, depending on policy ideas.
Our study group drew up a memorandum of points for discussion [PDF:36KB] (in Japanese) in which we recognized the significance of CSR and SRI, and gave the direction that policies should take to promote this. While there may be differences in the degree to which the items on this policy menu can be realized, I would like to see this paper utilized in future discussions, including those among policymakers.
- Entities involved in solving social problems (NPOs and community-operated businesses), and not just private firms, are often considered to be organizations that can receive this sort of funding.
- Of course, Japan's private sector is still advanced in CSR and SRI issues compared to other Asian nations.
- As an exception, in light of the recent string of corporate scandals, some firms are moved by the fear that their survival depends on observance of laws and regulations. However, legal compliance is just one aspect of CSR.
January 20, 2004
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