November 2015

14

EconomyCSR White Paper

The Unchanging
Face of Japanese
Employment

ESG Investing as an
Antidote to Myopic
Management

International
Affairs
Benefits of Closer
Japan-NATO
Cooperation

Voices from theSylff Community
Oil and the City:
Hope, Expectation,
and Development in
Ghana

Japanese CSR in theAge of Responsible
Global Investing
Businesses Driving
Positive Social Change
Kirin Group, Dentsu Inc., Takeda
Pharmaceutical, Itochu Corp.,
Sompo Japan Nipponkoa

Japan Perspectives
Japan Perspectives is an English-language journal published by the Tokyo Foundation containing articles from the Foundation’s website. In addition to translationsof the public policy research recommendations made by the Foundation, Japan
Perspectives offers timely insights into and analyses of Japanese politics, economy,society, and culture written specifically for overseas readers.
The Tokyo Foundation is an independent, not-for-profit think tank that brings
together the minds and skills of outstanding human resources through policy research and global leadership development projects to offer fresh perspectives thatlead to positive social change.
Visit the Foundation’s website at: www.tokyofoundation.org/en

All rights reserved. These articles, either in full or as an excerpt, may not be reprinted,
copied, or retranslated without the express permission of the Tokyo Foundation.
Citations must specify the source. The opinions expressed in the articles are those of therespective authors and do not necessary represent the views of the Tokyo Foundation.
Publisher: Masahiro Akiyama (President)
Editor-in-Chief: Akiko Imai (Executive Director)
Senior Editor: Nozomu Kawamoto (Public Communications)
Associate Editors: Kaoru Matsushita (Public Communications)Junko Suzuki (Public Communications)
Mikiko Fujiwara (Public Communications)
Production Manager: Asako Uemura (Public Communications)
The Nippon Foundation Bldg, 3rd Floor, 1-2-2 Akasaka, Minato-ku, Tokyo 107-0052, Japan
Tel: +81-3-6229-5504 (Public Communications) Fax: +81-3-6229-5508
E-mail: info@tkfd.or.jp URL: www.tokyofoundation.org/en©2015 The Tokyo Foundation

Recent Articles from the Tokyo Foundation Website
No. 14, November 2015

Contents
CSR White Paper
A Branding Strategy for Creating Shared Value: Kirin Group ............................. 3
The Tokyo Foundation
Incorporating Diversity as a Core Business Value: Dentsu Inc. ......................... 14
The Tokyo Foundation
ESG Investing as an Antidote to Myopic Management ..................................... 25
Mariko Kawaguchi
Japanese CSR in the Age of Responsible Global Investing ................................ 35
Hiroshi Komori
Creating and Sustaining Corporate Value through Global Dialogue:
Takeda Pharmaceutical .................................................................................... 41
The Tokyo Foundation
A Bottom-Up Approach to CSR: Itochu Corporation ....................................... 52
The Tokyo Foundation
The Evolution of CSR Communication in Japan: From Reporting to
Dialogue and Engagement ................................................................................ 65
Hideto DeDe Kawakita
Identifying Materiality through Stakeholder Engagement:
Sompo Japan Nipponkoa ................................................................................. 75
The Tokyo Foundation

EconomyThe Unchanging Face of Japanese Employment ............................................... 87
Ryo Kambayashi

International Affairs
Benefits of Closer Japan-NATO Cooperation ................................................. 100
The Tokyo Foundation
Japan’s Difficult Choices in Navigating Its Ties with Russia ........................... 105
Masahiro Akiyama
The Politics behind Russia’s Support for Syria ................................................ 107
Paul J. Saunders

Views on China
The AIIB and Japan’s Development Assistance ............................................... 110
Hiroyuki Kato

Voices from the Sylff Community
Oil and the City: Hope, Expectation, and Development in Ghana .................. 115
ThienVinh Nguyen
A Remembrance of Books Lost: Bengali Chapbooks at the British Library .... 121
Aritra Chakraborti
The Urban Art of Hip Hop among Young Immigrants in Palermo, Italy ........ 126
Martina Riina

CSR White Paper
September 16, 2015

A Branding Strategy for Creating Shared Value
Kirin GroupThe Tokyo Foundation

Achieving Growth in a Mature Market
The Japanese beverage market is extremely competitive. Not only is the overallmarket shrinking due to the low birthrate and aging population but young people
are also drinking less alcohol. Happoshu and other beer-like drinks have become
popular with the public, and price competition is getting fiercer. The retailing structure is also changing, with a shift from old-fashioned neighborhood liquor stores
to large-scale chains. A similar situation is faced by the soft drinks sector, where agradual fall in prices is continuing.
While this might be welcomed by consumers, it is a tough situation for companies. For those competing in this mature market, achieving sustainable growth ismore important than ever. When we look at the global food and beverage industry,
we see that companies like Nestle and Unilever have been proactive in placing CSR
at the center of their corporate strategy.
The Kirin Group’s regional headquarters for Japan, Kirin Company, Ltd.,benchmarked the practices of those industry leaders and outlined what it should
do (Figure 1). The first answer was “operational restructuring”. The second was amove to “brand-centered management.”
Kirin has resolved to shift from conventional CSR (corporate social responsibility) to CSV (creating shared value) with the aim of creating synergies between
its social initiatives and business operations. The concept of CSV has been expounded by Harvard University professor Michael Porter based on the idea thatcreating value shared by both society and businesses is integral to the competitive
strategies of those companies.
Consumers do not usually think about the global impact of everyday products.
For example, it might be difficult for them to picture how the manufacturing process of a product affects the ecosystem of a distant part of the world.
But this could change if companies had greater awareness of how their business
operations are connected to social issues and informed customers of their efforts
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Figure 1. Operations of the Kirin Group

Source: Kirin Group.

to address them. The result would be a fuller understanding of those issues, which
could lead to stronger affinity with the company.
Kirin strives to create social value through six themes: (1) protecting humanrights and working conditions and (2) prevention of corruption, which are compliance issues; (3) food safety and security and (4) protecting the environment, which
relate to sustainability; and (5) strengthening bonds between people and societyand (6) well-being, which are themes that Kirin is characteristically well-positioned
to address.
CSV Division
So how exactly does Kirin go about realizing a brand strategy that creates social
value? Kirin has realigned and consolidated its domestic drinks business (Figure 2).
First, it merged its separate R&D departments for beer (and other alcoholic
drinks), nonalcoholic drinks, and wine into the Research & Development Planning
Department.
It also set up a CSV Division to look after brand strategy, as well as to advancethe integration of the company’s initiatives to address social issues and its main
business operations.
The CSV Division consists of the CSV Management Department, Strategic
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Figure 2. Kirin’s Corporate Structure (as of January 2013)

Branding Department, and Corporate Communications Department, and its mission is to advance “brand-centered management,” employing a long-term perspective based on unified management of CSV and product brand strategy.
Typically, CSR departments that deal with social issues work and think according to a longer timescale than other departments and can find itself at odds withthe rest of the company. But at Kirin, because the department is also responsible
for brand strategy—which, too, employs a longer timescale—the company has
created an environment where CSR initiatives are not forced to conform to theshort-term pace of other business operations. Even when differences in perception
arise, they can be harmonized over a longer span of time.
Because it is also responsible for branding, the CSV Division has the resources
and the authority to undertake those activities. And by drawing on its corporate
communications functions, it is capable of supporting new marketing approaches.
Needless to say, the division is responsible for promoting the integration of thecompany’s social initiatives and business operations. By linking these various functions it can deepen understanding of CSV and facilitate its implementation. It has
been given a solid position within the company’s human resources structure, indicating the strong commitment the company is making to pursuing CSV.
There are few companies with a similar philosophy of creating shared value for7

CSR White Paper
society and business or that place the department responsible for such creation at
the core of its business strategy and corporate structure. In most cases, CSR departments are positioned within such administrative divisions as general affairs or
public relations. It is rare for them to be incorporated into management planningor for them to share strategies with core business operations.
Companies will increasingly need to integrate their social initiatives and business operations to secure a respected place in society, and the failure to do so will
expose them social “landmines” that could seriously damage the company’s reputation or public image. The restructuring of Kirin’s business is one organizational
response to achieving that integration.
A Framework for Integration
Kirin’s innovations are not just organizational; they are found throughout the company’s operations and in the work performed by individual employees.
When many companies plan to launch a new project or make an investment,
they usually base their decisions on internal documents that summarize the meaning of the project for the company and include such information as market potential, the company’s strengths, and the amount to be invested and likely returns.
When the decision is about ways to innovate or improve business practices, thedocument may contains facts about required technologies and cost advantage so
as to facilitate decision-making by management and further discussions by thedepartments concerned. The document becomes a guide for action and may bedescribed as the project’s DNA. It can also serve as a catalyst for further innovation, so companies devote considerable energy to creating the most useful documents they can.
Kirin believes that creating social value will enhance its brand strength, promote human resources development, and ultimately boost its competitiveness.
This requires striking a balance between its social initiatives and business operations. To check whether this balance has been achieved, Kirin has created a common a yardstick to measure the success of both activities, which is used throughout
the company (Figure 3). When a CSV project is heavily focused on solvingsocial issues without relevance to business operations, it will be little more thanconventional corporate philanthropy. If, on the other hand, it is slanted toward
profit (which both management and employees are inherently pursuing), the company will find itself trapped within the constraints of a competitive businessenvironment.
Kirin likely decided on this approach because of Japan’s highly competitive8

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Figure 3. Kirin’s Integration Strategy

Source: Based on interviews conducted by the Tokyo Foundation.

beverages market. In this environment, many new products have very short lifespans, quickly falling by the wayside as victims of price competition.
This may also be regarded as the roots of Kirin’s CSV, as it needed to manufacture products with shared value for both society and business under what is called
the Kirin integration strategy.
Learning from Past Successes
A philosophy is often not enough to significantly boost competitiveness. Kirin thus
took a renewed look at its past successes and discovered a common point among
them: they all combined social initiatives and business operations. Examples ofsuch success were shared among the managers and staff.
The Great Tokyo Earthquake of September 1923, for example, damaged Kirin’s
Yokohama factory, forcing it to boost production at its newly built factory in Sendai. While it succeeded in increasing output, it faced a problem in shipment. At thetime, bottled beer was packed in wooden crates, and the bottles would strikeagainst each other and often break during transport.
So that the bottles would not break, the Sendai factory asked local farmers to
produce bundles of rice straw as cushioning material. From the company’s perspective, they were able to reduce the number of damaged bottles, while from thefarmers’ viewpoint, they were able to earn twice as much money as from their usualrope-making side work during the off-season, meaning that they did not need toleave their farms to find work in the cities. Kirin regards this project as the start ofits CSV initiatives—a project that created value both for the local community andthe company itself.
9CSR White Paper
Figure 4. Support Enabled by Volvic’s “Drink 1, Give 10” Campaign

Source: Kirin’s website

Another example is a project initiated by Volvic, a mineral water company thatis now part of the Kirin Group. The project’s name is “Drink 1, Give 10.” Eachtime a customer buys a liter of bottled water, the company donates funds toUNICEF to enable the provision of 10 liters of drinking water to residents in Mali
(Figure 4).
UNICEF’s Mali office has a project to dig wells and maintain them for the first
10 years of use. The program has provided 3.98 million liters of clean water from70 new wells, repaired 169 hand pumps, and installed 14 solar-powered watersupply systems (as of September 2013). The under-5 mortality rate in Mali is quite
high, partly due to infectious diseases. The clean and safe water from this project
can help prevent infection and can allow children—who no longer need to walklong distances to fetch water—to go to school.
This program has led to a significant increase in Volvic’s sales. Customers wereattracted by the opportunity to support the lives of people in a far-off country
simply through their purchase of mineral water.
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Helping Prevent Drunken Driving
A third example is the launch of Kirin Free, a nonalcoholic, beer-like beverage. This
product was born from the company’s desire to eradicate drunken driving. Japan’sliquor tax law classifies drinks containing less than 1% alcohol as “nonalcoholic.”
But you would still be guilty of drunken driving if you operate a car after drinking
such a beverage. Kirin Free is a drink with 0.0% alcohol. The company promotes
Kirin Free for people who need to drive home from parties, golf trips, and barbeques.
As part of its marketing for the product, Kirin chose to support the “Designated Driver” campaign, under which one member of a group at a restaurant or
bar is chosen as the driver. The designated driver does not consume alcohol, andthe others (including shop employees) also make sure that he or she does not drink.
The driver is responsible for driving everyone back home safely.
While the immediate motive for creating this product was to address a social
issue, Kirin Free caught on with consumers other than those interested in preventing drunken driving. It was embraced by a much broader segment of society, leading to the creation of a new, nonalcoholic drinks market.
Upstream Innovations
Kirin’s successes in creating new markets also include initiatives upstream in thevalue chain, including in the procurement of raw materials. Mercian, a member ofthe Kirin Group that makes wine, established the Mariko Vineyard in Ueda, Nagano Prefecture, in 2003 and launched its own grape cultivation with an eye toimproving the quality of domestic wine and boosting consumption.
While the land was suitable for grape cultivation, it had lain idle for years. With
the help of local volunteers, Mercian built a farm and began growing grapes. Seven
years later, in 2010, Mercian sold its first vintage wine. It was immediately praisedfor its high quality, winning a gold medal at a domestic wine competition. This
project enabled Mercian to not only expand the market for domestically produced
wine but to also enhance the value of its brand.
Other value chain improvements include the development of lighter bottles thatlessen the impact on the environmental and make them easier to handle for consumers. The weight of its large-size beer bottle was reduced by 21%, making it thelightest in Japan. It also developed the country’s lightest 330 ml single-use bottle
for carbonated drinks.
As for cans, Kirin led the industry in reducing the diameter of the lid and using
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thinner material for the sides. It also introduced a can that does not require a cleaning process during its manufacture. By reducing the diameter and thinning thesides, Kirin achieved a 29% reduction in weight, cutting down on its use of aluminum. The total amount of raw material saved between 1994 and 2012 was approximately 270,000 tons, leading to the reduction 2.25 million tons in in carbon dioxide emissions.
In addition, Kirin introduced light, thin, and easily crushable PET bottles forsome of its products, and it was the first in the industry to use cardboard cartonsfor canned drinks that have a triangular section trimmed from their corners.
These projects save the company money, reduce the amount of materials used,and save shipment costs. They, too, are examples of efforts to integrate the solutionof social issues and its business operations.
Kirin realized from reviewing past successes that CSR and CSV are not new
developments but initiatives that it has been implementing for years.
Sustainable Tea Farming in Sri Lanka
Kirin’s integration strategy was launched only in 2013, but by having employees at
all levels revisit the success stories from the past, Kirin was able to make a flying
start. One recent example involves improvements to its value chain.
Kirin uses large volumes of black tea. About 60% of such tea imported into
Japan is produced in Sri Lanka, and about a fourth of that total is used for a Kirin
product: Afternoon Tea.
Bearing this in mind, Kirin examined the sustainability of the tea farms in Sri
Lanka and found that, due to financial difficulties, many farms in the country wereunable to obtain certification in farming methods that protect the ecosystem.
To help interested farmers receive certification from the Rainforest Alliance, aninternational sustainable farming certification system, Kirin decided to provide thefunds necessary for certification training. In 2013, the project’s first year, assistance
was provided for 15 farms. In a related project Kirin is supporting the educationof children brought up on these tea farms by donating textbooks.
From a short-term perspective, such a project will lead to higher costs; but alonger-term view will reveal that such efforts help to ensure a stable and sustainable supply of high quality tea. Since this contributes to meeting customers’ demands for safety and reassurance, there is a strong business argument for suchinvestment.
Some consumers, concerned about chemical residues in tea leaves, are showing
greater interest in where the tea is produced. This is a trend that may suddenly
12CSR White Paper
accelerate, so the company must be prepared for such risks. In that sense, Kirin’s
decision to support sustainable tea farming in Sri Lankan was a wise and timely
one from the standpoint of both meeting consumer expectations and ensuringbusiness continuity.

Kirin suffered considerable damage from the Great East Japan Earthquake ofMarch 11, 2011. Tsunami waves as high as seven meters struck Kirin Brewery’s
Sendai Plant, located next to the city’s port, toppling several large tanks. The
grounds were strewn with wreckage carried by the waves, including employee cars,
parts of prefabricated buildings, and equipment from the plant.
At a press conference in Sendai on April 7, 2011, the company pledged to rebuild the plant; on September 26, 200 days after the disaster, the plant returned tooperation, and it made its first shipment
since the quake on November 2. A herculean effort was needed for these achievements, and it was no doubt propelled bymemories of the role the Sendai Plant
played following the 1923 earthquake,the strong links that have since been
formed with the local community, andthe conviction that resuming operations
was the best way to help the disaster hit
Kirin’s Sendai factory following the March 2011
area recover.
earthquake.
In thinking of what else it could do tosupport the reconstruction effort, Kirin
launched a project aimed at creating shared value with the local community, donating part of the proceeds from the sale of certain products to support the recovery.
Six billion yen was raised over three years for the Kirin Kizuna Project, which
the Kirin Group set up in July 2011 to strengthen kizuna (community ties) in disaster hit areas in three ways: by restoring the local food culture and food industry;
bringing smiles to children’s faces; and improving the mental and physical wellnessof local residents.
Kirin’s strengths were particularly evident in its support for the local food culture and food industry. Since Kirin provides products that enrich the experiences
and lives of consumers, the company’s main focus is generally considered to be on
food. Healthy agriculture and fisheries are essential to getting food to the dining
13© Kirin Co.

Recovery and Reconstruction Support

CSR White Paper
table, though, and so are healthy secondary, food-processing industries and tertiary,
service industries.
Kirin thus conceptualized its support according to the principle of a “senary
industry” involving the vertical integration of the primary, secondary, and tertiary
sectors to achieve greater value. To provide agricultural training in Tohoku, forexample, it set up two projects: an agricultural leaders’ network in Tohoku and an
agricultural producer’s curriculum in Tokyo. And in 2013 the company launched
the second stage of its support based on the theme of “support from production totable.” Kirin simultaneously extended its assistance for brand development for
agricultural and fisheries products and the expansion of sales channels towards thecreation of a senary industry.

© Kirin Co.

Pears from Fukushima
One new product that was born of the company’s reconstruction assistance is Kirin
Hyoketsu Wanashi, a shochu cocktail that uses pears from Fukushima, the sale ofwhich fell dramatically due to ungrounded radiation fears. Hyoketsu is a top-selling brand of canned shochu cocktails. A limited number of Wanashi products madeusing pears grown in Fukushima in 2013 went on sale in November, and, needlessto say, part of the proceeds from each can sold went to support the recovery of
Tohoku’s farming and fishing industries.
This initiative enabled Kirin to reach a new group of customers and to workwith the media, local governments, and civic groups in new ways. The product also
gave great encouragement to Fukushima’s farmers. One local paper reported that the project encouraged
farmers, their friends, and relatives tobuy more Kirin products. This, too, isa good example of CSV and Kirin’s
integration strategy.
In one sense, Kirin’s CSV efforts
have only just begun in earnest, but inA flier for Kirin Hyoketsu Wanashi.
another they are part of a rich historyof shared value creation. Its integration strategy is not just a natural outgrowth of its past, however, for Kirin has madegreat effort to redefine its links with society.
Such efforts also underpin Kirin’s development of innovative new products.
Finding solutions for a single need may be easy, but meeting both social and busi14

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ness needs is far more difficult. Such needs often appear incompatible from a shortterm perspective.
But the attempt to balance conflicting needs is precisely what leads to innovation. It may have been the highly competitive business environment in which Kirin
operates that has enabled it to learn this important lesson. (Researched by Zentaro
Kamei, Tokyo Foundation)

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September 9, 2015

Incorporating Diversity as a Core Business Value
Dentsu Inc.
The Tokyo FoundationT

he focus of Dentsu’s CSR activities is on human rights. As Japan’s biggest
advertising agency, it has developed great sensitivity to and amassed a
wealth of experience regarding human rights issues while helping clientcompanies formulate and disseminate their message to consumers.
In general, the scope of most corporate human rights initiatives is limited toproviding training and workshops for employees or setting up systems to answer
employee queries. Dentsu goes much further, addressing a broad array of issues inmany different ways. One example is its longstanding sponsorship of two humanrights contests: the first calls on employees to submit human rights slogans, forwhich there were 9,866 entries in 2013; the second is for the design of humanrights posters, which has evolved into a collaborative project with several art universities.
Promoting Cross-Sector Information Sharing
Dentsu also has what it calls Labs where employees from different departments cancome together to work on projects that are not directly related to their daily responsibilities.
By the nature of its work, the company has ready access to the latest technologies and know-how, but such information tends to accumulate in disparate workplaces, such as departments that deal with client firms and the media, as well as
sections for production and design and those in the solutions and managementbusiness. It was with the aim of pooling such expertise that Labs were created on
the initiative of individual employees to promote the interdepartmental andcross-sector flow of information.
Labs are flexibly organized so members can engage in projects that are notdirectly related to their work. They are regarded as being part of the company’s
normal operations, though, so as long as they have the understanding of theirbosses and colleagues, employees can devote themselves to their Lab projects
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Dentsu Human Rights Slogans and Posters(Fiscal 2012)

Eliminating discriminatory,
hate-inspired remarks on the Internet
Slogan: When is a “Send” button
like an “Attack” button?
Meaning: Encourage people tothink twice before making condemning online comments.

Dentsu Human Rights
Art Project Poster (Fiscal 2012)

Increasing awareness of people
with disabilities
Slogan: Who are you excluding
when you say, “Anyone can do it”?
Meaning: Help people realizethat just because they can dosomething easily does not meanthat “everyone” can.

during working hours. Labs can apply for and secure their own operating budgets,and their activities are independent of any department within the company.
The Labs are generally organized to address various social issues. They not only
help find solutions to those issues but also serve to maintain and increase the morale of employees who have an interest in such activities. By working with outside
specialists, the Labs help the company to acquire new expertise. And they also
bring benefits to Dentsu’s main business as an advertising company, fulfilling afunction as an incubator of new ideas and approaches and contributing to its marketing operations.
A similar, well-known example of using working hours to address social issues
is Google’s 20 percent time program, which is an outgrowth of 3M’s 15 percent
time (one result of which was the Post-It Note.) At Google, employees are allowed
to spend 20% of their work time—or one day per five-day workweek—engaging
in research or a project of their own choosing. Some choose to apply themselves toaddressing social issues, and the program is credited with having greatly broadened
the range of services that Google provides.
In Dentsu’s case, participation in the Labs is optional, and there is no pre17

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scribed amount of time one can devote to such activities. The Labs are not focusedon the pursuit of personal interests, moreover, but on tapping employees’ enthusiasm for work that contributes to society’s well-being.
Designing a New Universal Font
The largest Lab, with some 100 participants, is the Dentsu Diversity Lab (DDL),
which has its roots in a request from a client. A consumer goods company wasconcerned about the small typeface used in its manuals and other documents andhoped to make them easier to read, especially for older customers and those withreading disabilities.
Japan’s Universal Communication Design Association points out that when apage of text contains more than a certain number of characters it becomes hard to
read. A page crammed with too many letters may therefore be regarded as deliberately having been made difficult to read. This has now become common knowledge, so if companies want to act responsibly toward their customers, they must
not issue such documents. This is an issue that affects all of society, not just individual companies or customers.
Dentsu gathered a team of specialists with various skills to find a solution tothis client’s problem, which could also lend itself to addressing a concern for society as a whole. In June 2011, the company launched its development of Minna no
Minna no Moji

Minna no Moji is a universal design font developed by Dentsu, UCDA, and Iwata Corp.
Source: Dentsu website.

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Moji (Typeface for Everyone), a universal design font that can be easily read byelderly people and those with visual impairments. The team included Dentsu designers and client managers, as well universal communication experts at UCDA;
members of Tokyo Denki University to conduct consumer surveys; and font specialists at Iwata Corp.
The first thing they considered was why some texts are hard to read. The threemajor reasons they cited were (1) visual issues on the reader’s side, including age-related impairments or cataracts and fatigue; (2) poor reading environment, such as
low lighting or reduced contrast; and (3) loss of clarity when enlarged or shrunk
during photocopying, such as text becoming too faint or thick and loss of space
between the letters. The team prepared various fonts to deal with these issues,staging a large number of experiments with trial subjects to determine which letters, words, and passages were the easiest to read. They examined exactly thequalities that make text more readable, and the result was a high legibility fontcalled Minna no Moji.
Today, the font is used in a variety of corporate documents, such as operating
manuals and contracts for financial products.
Meeting “Everyone’s” Communication Needs
The Mina no Moji project enabled Dentsu to provide a practical solution to a realsocial problem. The company also gained insights into the efforts required to createa society in which diversity is fully acknowledged and respected.
Employees involved in the project wondered whether there are not many othercommunication issues waiting to be solved through similar initiatives and expressed a wish to continue working to meet such needs. The result was the establishment of an expanded, companywide team that today has become Dentsu Diversity Lab.
DDL began addressing the needs of people with hearing impediments. While
hearing aids are used by many people in the United States and Europe in their sixties, these devices are often not worn in Japan until people reach their seventies,
when their hearing has already become quite poor. Many people who could benefit from wearing hearing aids do not use them, the result being that some cannot
hear what they want to hear, and the people to whom they are talking cannot fully
convey what they wish to communicate.
This is thus a social issue. At the same time, it is also a business issue, not justfor manufacturers of hearing devices but also for communication specialists, whose
message may not be reaching their audiences as effectively as they had assumed.
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From the perspective of the advertising industry, there may be a sizable number ofpeople unable to understand the information aired during a 15-second TV commercial. Recognizing and respecting diversity is a popular CSR theme, but it is alsomuch more; there is a need to accurately ascertain who people with special communication needs are and how large a share they make up in society.
The answers DDL came up with are shown in Figure 1. These are the people inJapan who might require special attention in meeting their communication needs.
Visual and hearing disabilities can impede reading and the ability to converse, as
can physical disabilities. For sexual minorities (lesbian, gay, bisexual, and transgender), misunderstanding and prejudice can become a barrier to communication.
DDL discovered that 16.9 million people, or 13% of the Japanese population, fall
into one or more of these categories. Elderly people may also be classified as having
special needs as they develop various physical impairments and grow frail. If people 65 and older are included in the total, the targets of diversity initiatives would
account for some 36% of the population.
The figure does not include children, those with minor impairments, or thoseafflicted by chronic illness, so there may be a much larger pool of people with special communication needs in Japan.
DDL believes that creating a society that respects diversity means considering
the needs of these groups. Inasmuch as this group comprises at least 36% of the
population, DDL refers to them as minna (everyone).
If one in three people in Japan belongs to this group, then they are already all
around us, among friends and family; in fact, we may be among the “special” ones
ourselves. So the problems that affect minna really do concern “everyone” in sociFigure 1. “Everyone” (People with Special Communication Needs) Includes . . .
(1,000 people)

Note: Results are estimates, as some individuals may fall into more than one category.
Source: Dentsu Diversity Lab.

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ety. Rather than seeing differences in terms of better or worse, respecting diversity
should mean construing divergent needs as expressions of individuality and regarding their problems as our own. This is the approach embraced by DDL: to identify
social issues—starting with communication—and find solutions to them.
“Diversity Thinking”
As the word suggests, diversity means thinking about people with divergent needs,
including among those who share the same disability. This is why DDL began its
activities by engaging in “diversity thinking.”
Diversity thinking lies at the heart of all initiatives directed at addressing people’s special needs. Without a full understanding of what diversity really is, there islittle point in measures that, on the surface, appears to address this issues, whether
in how we work or how we operate a business. They will simply be ego-gratifying
exercises that do nothing to solve real issues affecting “everyone.”For example, consider a situation that takes place in a suburban restaurant, thesort of place where one would go to eat something special: the price may be a bit
high, but it has a good reputation—a trendy restaurant for which you would wantto dress up a little.
Now imagine that a family of four arrives, including a person in a wheelchair.
You greet the group as the head waiter and, taking note of the wheelchair, suggest
a table for four by the window, which gets plenty of sun and should be perfect for
the family. You turn to instruct the waiting staff to remove the chair next to thewindow to make room for the wheelchair. Thanks to your quick thinking, thefamily of four has a very pleasant dining experience.
Now this, at first glance, appears to be a perfect example of respect for diversity, but is it really? You have gone out of your way to accommodate someone witha physical disability so that the entire family can have an enjoyable meal. But thismay not be what the person in the wheelchair actually wanted.
Some wheelchair users might prefer to sit in the same chairs as other diners.
The table might be too high, making it difficult to eat while seated in a wheelchair.
Or they might prefer not to draw attention to themselves. You have done what you
can to provide the best service possible. What could you have done differently?
For one thing, you could have asked what their preferences were. After explaining that there is a nice table by the window, you could have asked the wheelchairuser if they would like to use the same chairs as everyone else or sit in their wheelchair at the table.
A failure to ask is not likely to earn any rebukes; after all, you were merely
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Figure 2. Keywords in Creating a Future for “Everyone”

Source: Dentsu Diversity Lab.

trying to be helpful. But the irony is that many of the things we unthinkingly do,assuming that they would be appreciated, may not necessarily be what is desired.
So, what can we do for people with disabilities? The answer is to talk to themand ask what they really want. This might sound obvious, but in practice it is rarely
done, for most of us simply do—and keep doing—what we think is best based on
past experience.
Diversity thinking can thus lead to changes in our basic attitudes toward how
we work or run a business. The restaurant in the above example may have gainedsome very enthusiastic and loyal new customers if it had simply confirmed thewishes of a person with a disability (Figure 2).
Another manifestation of diversity thinking at DDL is Minna no Kaigi (Conferences for “Everyone”), organized in conjunction with the Accessible Design
Foundation of Japan to encourage the application of this thinking toward Dentsu’s
customers, products, and solutions.
Steps and other height differentials, for example, are a hindrance for wheelchair users; accessibility would be greatly enhanced if there were no steps at all.
But for the visually impaired who rely on white canes to get around, physical obstacles provide much needed guidance. While steps cause problems for some, they
are essential for others. At first glance, a compromise may appear impossible. But
during a Minna no Kaigi conference, people with different disabilities can sit down
together to learn about each other’s needs and wishes and suggest ways to meetmany different requirements (Figure 3).
The LGBT Survey and “Diversity Marketing”
When Dentsu Diversity Lab was launched, a hundred employees expressed an in22

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Figure 3. Issues Addressed by Minna no Kaigi

An illustration created by the Accessible Design Foundation of Japan for Minna no Kaigi (Conferences for “Everyone”) describing the broad-ranging and often conflicting needs of people with different disabilities andspecial communication needs.

terest in taking part, many of whom considered themselves to be among the groupof “everyone” requiring some special attention as a result of having a disability,
non-Japanese nationality, or for other reasons. They no doubt believed that DDL
would offer them a chance to do something for society and to put their own personal perspectives and experiences to use, as well as to reexamine their role in thecompany.
DDL was subdivided into four working groups focusing on disabilities (physical, mental, emotional, etc.), gender (gender equality, LGBT, etc.), multiculturalissues (nationality, culture, ethnicity, religion, etc.), and generational issues (seniorcitizens, children, intergenerational disparities). While specific approaches varied
according to the theme addressed, the core value driving all groups was diversity
thinking.
But for some topics a shortage of material made even this first step difficult,one of them being LGBT (lesbian, gay, bisexual, and transgender)—an umbrellaterm for sexual minorities (Figure 4).
The considerable media exposure enjoyed by onee gay celebrities in Japan suggest that Japanese society is open to LGBT people, but in fact a majority do notdisclose their sexual orientation due to fear of discrimination and prejudice. Russia
recently passed a law that could encourage discrimination against gay people, leading to several Western heads of state boycotting the opening ceremony of the Winter Olympic Games in Sochi. There is a now a civil rights movement centered on
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Figure 4. Varieties of Sexual Minorities

Finding oneself on the gender map means examining one’s physiological gender identity,
psychological gender identity, and sexual orientation.
Source: Dentsu Diversity Lab.

the United States and Europe to secure human rights for LGBTs, and in 2011 theUnited Nations Human Rights Council adopted a resolution protecting their human rights. The LGBT market is estimated to be around ¥77 trillion in the UnitedStates and ¥7 trillion in Britain.
Since many people conceal their sexual orientation due to fear of discrimination, the actual number LGBT people in Japan cannot be easily ascertained. With
the help of specialists, DDL thus conducted fact-finding research of various LGBT
groups.
In February 2012 the Dentsu Innovation Institute conducted an Internet surveyof 70,000 people to gain an idea of the number of LGBT people in Japan and to
shed light on their preferences, attitudes, and behavior.
The survey revealed that of the 70,000 respondents, 5.2% fell into one of theLGBT categories—that is, 1 in 20 people. Around 10%, moreover, said that they
personally knew of an LGBT person. These findings showed Dentsu that the LGBT
issue cannot be ignored, either from its perspective as an employer or in terms of
the potential LGBT market.
Dentsu has revised its stance and has become more supportive, adding a clauseto the Dentsu Group Code of Conduct to end all discriminatory practices toward
LGBT people and making changes to work styles and office layouts. It has also
produced an easy-to-read pamphlet with frequently asked questions and answers
to eliminate discrimination and prejudice.
These efforts have not just helped protect the human rights of Dentsu employees but also led to requests to organize human rights workshops from client companies. Dentsu is also looking to tap the sizable the LGBT market, encouraging
companies to include same-sex couples as targets of their family-oriented products
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CSR White Paperand services. Dentsu is thus promoting diversity not just as part of CSR but also
because it sees market and business potential there.
Working with Outside Experts
Dentsu treats “everyone” else with special communication needs in the same way
Many companies already offer various solutions for people with visual and hearing
disabilities—quite unlike the situation faced by LGBTs, whose very presence hadlargely been invisible. Yet, those solutions have not always met their needs. The
DDL disability team thus chose to apply diversity thinking and seek the cooperation of outside companies with expertise in these areas.
One example is Uni-Voice. People with visual disabilities are either unable toread text or have great difficulty doing
so. This might not be a problem when
they want to access the news or read
notifications from the local government office, since they can either ask
someone to read it out loud or obtain
the information through braille.
But there are other times when the
text includes private information, A document containing a Uni-Voice barcode and thedevice used to read it.
such as bank balances or pension
statements. Sharing such information
may make both the reader and listener uncomfortable and could even lead to unwanted worries and doubts about not being told the truth or being deceived.
Uni-Voice is a technology developed by JAVIS (Japan Association for the Visually-impaired Information Support) that can turn text into an audio message withthe use of a smartphone or cellphone. It converts up to 800 characters of text intoa two-dimensional barcode, which can then be “read” aloud by a phone by using
the phone’s camera. DDL chose to work with JAVIS to expand the use of this technology to meet specific social needs.
For people with visual impairments, Uni-Voice offers a way of accessing written information that they would prefer to keep private. This system was first used
for pension statements and is now being extended to tax payment slips and bankbalance statements. Its use is also being promoted in pharmacies to ensure that
information about medication and medical expenses are conveyed accurately.
An added feature is a translation function, which enables users to have theinformation contained in the scanned barcode read out in English, Chinese, or
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Korean. Such a function may be quite useful for tourists during the 2020 Tokyo
Olympics and Paralympics, as well as for confirming one’s bank balance and obtaining pharmaceutical information.
Integration with Main Business Operations
The mission of DDL is to draw on Dentsu’s communication expertise to promote
diversity in the workplace and in society, eliminating prejudice, shedding light on“everyone’s” various needs, and making diversity a fact of life. The biggest challenge it faces may be to synergistically integrate DDL’s initiatives and Dentsu’s
main business operations. From the company’s perspective, there must be tangible
results to match the money it spends.
DDL members express a wish to more fully integrate its activities with thecompany’s operations, precisely because the work it does has value for society.
Dentsu is a communications specialist, so diversity is a field that could easily leadto new business opportunities.
Some DDL participants may be satisfied doing pro bono work in their field ofexpertise, contributing something to society without seeking anything in return.
But it is often by integrating such activities with business operations that the solutions offered can be made to conform to the exacting, professional standards society demands. A serious business approach can abet the development of truly effective solutions.
Dentsu is fully aware of the merits of integration and endorses DDL’s activities
and employee participation precisely for this reason. It sees DDL as not only contributing to the solution of social issues but also enriching its own value chain. The
ideas, frameworks, and solutions developed through DDL are actively being applied in Dentsu’s business operations, helping the company to enhance diversity-oriented R&D and marketing at the top of the value chain. (Researched by
Zentaro Kamei, Tokyo Foundation)

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September 8, 2015

ESG Investing as an Antidote to Myopic
Management
Mariko Kawaguchi

Investors can play a major role in promoting CSR by encouraging businesses to deepen theircommitment to addressing social issues and restoring a long-term perspective to financial
markets. Enabling socially responsible investment, says CSR expert Mariko Kawaguchi, requires the disclosure of a company’s environmental, social, and governance performanceand policies, in addition to financial data.
*

*

*

T

o the extent that corporate social responsibility consists of efforts by individual companies to contribute to the resolution of social problems
through their own business activities, investors have an important role toplay as corporate stakeholders in promoting CSR. By using their own perspectives
to assess corporate value on the basis of CSR criteria, investors can not only encourage businesses to deepen their commitment to CSR but also help restore along-term perspective to financial markets that have become all too preoccupied
with short-term results. In the following, I discuss the importance of a long-term
approach and the role of environmental, social, and governance investment criteria
in fostering long-term thinking, drawing on the results of the Tokyo Foundation’s
CSR survey.
Long-Term Versus Short-Term Management
The global financial crisis precipitated by the 2008 Wall Street meltdown led toharsh scrutiny of the “greed is good” brand of finance capitalism. In fact, some of
the major market players, recognizing the pitfalls of short-term profit seeking, have

Mariko Kawaguchi   Managing Director and Senior Analyst, ESG Research Department,
Daiwa Institute of Research.
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joined in the effort to reconsider the way these markets function. One focus ofthese reforms is to mitigate the emphasis on short-term results.
Many players have come to recognize the negative impact of short-term corporate valuation on financial markets—particularly the way quarterly financial reports affect corporate investment and stock prices. This priority on quarterly results encourages corporate executives to target their resources toward efforts tomaximize sales growth during each three-month period, instead of research anddevelopment or other long-term strategic investment.
Take the case of a business that relies on timber resources. From the standpointof quarterly earnings, it might be advantageous to boost the business’s shortterm cost-competitiveness by importing cheap Southeast Asian lumber harvested
through clearcutting, instead of pursuing the costlier option of sustainably managing its own forest. From a long-term perspective, however, such procurement practices not only destroy forest ecosystems and promote desertification but also impact the company’s future access to raw materials. In the case of agribusinesses,a short-term orientation is likely to discourage organic farming, which generally
results in lower yields, and incentivize the large-scale application of agrichemicals to boost short-term yields, even at the cost of depleted soil and poor
harvests farther down the road (not to mention the costs of the agrichemicals
themselves).
One need not look far to find companies that have sustained serious damage
as a result of myopic cost cutting. In the fall of 2013, Japan was rocked by a seriesof revelations regarding false labeling by top-tier hotels and restaurants. Theseestablishments became the objects of stinging criticism after admitting to the useof cheap substitutes for more expensive ingredients like lobster. In April 2013,
more than 1,100 garment workers died after a factory collapsed in Bangladesh, amajor supplier of cheaply made apparel to companies around the world. This led
to local demonstrations and major public campaigns by nongovernmental organizations directed against foreign businesses, which were ultimately forced to implement major changes in their supplier agreements to substantially upgrade working
and living conditions for garment workers.
When businesses focus narrowly on near-term profits, they not only miss opportunities to maximize long-term gains but can even jeopardize their own survival
through unethical or unsustainable practices, such as mislabeling, complicity inchild labor or poor labor conditions, and indiscriminate sourcing of timber andother resources. Good quarterly performance can mask such practices, their impact
on society, and their risk for long-term performance. Even while keeping an eye on
short-term fluctuations in earnings, investors need to avoid being distracted by
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Figure 1. Short-Term Business Forecasts and Long-Term Trends

Source: Daiwa Institute of Research.

such “noise” and judge companies by their long-term business strategies if theywant sustained performance.
Quarterly financial results can also fluctuate widely in response to temporary
developments, including stages in the product cycle, the presence or absence of ahit product, shifting customer preferences, exchange rate fluctuations, weather conditions, and tax payments. In order to determine a company’s true trajectory, investors must look beyond such passing events and scrutinize the long-term trend.
Figure 1 is a schematic representation of the relationship between long-term andshort-term trends.
The curve traces actual short-term performance. The slope of the curve at theend of each quarter (Q1, Q2, etc.) shifts dramatically from quarter to quarter,
meaning that forecasts based on quarterly business performance would also fluctuate widely. But the long-term trend, represented by line A, is actually quite consistent. We should be using this trend line to make long-term assessments of business performance.
Long-Term Evaluation and ESG Investment
However, the figures companies are required to release are those corresponding to
Q1, Q2, Q3, and so forth. What do investors need in order to see the big picture,
represented by line A? In addition to financial data, they need information about a29

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company’s environmental (E), social (S), and governance (G) performance andpolicies.
The rise of socially responsible investing (SRI), also known as ethical investing,dates back to the 1960s in North America and to the 1990s in Europe. It emerged
and took hold as a niche strategy oriented to religious organizations, labor unions,and other asset owners anxious to avoid investing in businesses that violated theirreligious or ethical principles (corporations involved in alcohol or tobacco were aprime example).
Then around 2006, a different style of SRI began to gain ground. Commonly
known as ESG investing, it is aimed at achieving better long-term performance andcompliance with fiduciary duties by taking into account factors pertaining to thethree basic elements of CSR: environmental responsibility, social responsibility, andgood governance. This approach was codified in the Principles for Responsible
Investment adopted in 2006. The PRI were drawn up under the leadership of major
American and European pension funds, such as Calpers and Hermes, with thesupport of the UNEP (United National Environment Program) Finance Initiative
and the UN Global Compact. They have gained widespread support from those
involved in long-term asset management—including public pension funds—fromthe standpoint of promoting socially responsible investment geared toward compliance with fiduciary duties, better performance, and the resolution of social issues. As of the end of July 2015, a total of 1,357 institutions (including asset
owners like pension funds, investment managers, and financial service partners)
had signed on to the PRI and were pursuing ESG investing based on those principles.
What is the overall scale, then, of ESG-conscious investing? According to the
Global Sustainable Investment Review, published by the Global Sustainable Investment Alliance, the SRI market in all the regions covered by the report totaled $21.4
Table 1. Global Sustainable Investment by Region

Source: Global Sustainable Investment Alliance, 2014 Global Sustainable Investment Review,
http://gsiareview2014.gsi-alliance.org/

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trillion in 2014, about 30.2% of the total. By region, Europe (63.7%), the UnitedStates (30.8%), and Canada (4.4%) accounted for nearly 99% of this investment.
Of the remaining 1%, Oceania accounted for 0.8% and Asian countries for 0.2%of the global total (Table 1).1 It is noteworthy that the European and the US SRI
market expanded by 55% and 76%, respectively, between 2012 and 2014.
The Significance of ESG Criteria
What are the factors driving the growth in ESG-conscious investment outside ofJapan? As we have seen, one is the demand by investors for a more accurate andmultifaceted evaluation of corporate value and performance. A second factor is thedesire to contribute to the resolution of problems like environmental degradationand poverty through socially responsible investing. And a third factor is the growing recognition that ESG criteria provide a valuable tool for assessing corporate
value over the long term.
How, then, do ESG criteria correlate with the assessment of corporate value?
The first point to keep in mind is that most key ESG goals, including environment-friendly business operations and sound human resources development, require long-term investment. For example, the administration of Prime Minister
Shinzo Abe has placed great emphasis on more active participation by women in
the workforce, but substantially increasing the percentage of executive posts occupied by women is a multiyear undertaking under the best of circumstances and insome settings may take a generation to accomplish. After all, women must be
trained to function in executive posts, and in Japan, where executives generally riseup from the company ranks, such training must occur predominantly within eachcompany. Similarly, environmental measures like afforestation and tree planting,clean-water programs, and other initiatives can take years or decades to show results. Large-scale investment in energy-saving equipment and processes generally
pay off in cost savings as well as reduced CO2 emissions, but they offer no financial
benefits over the short term.
Using a sports analogy, quarterly performance can be likened to running a
100-meter dash, while CSR corresponds to an athlete’s overall physical condition
as gauged by such fundamentals as weight, height, pulse, blood pressure, muscle
tone and strength, and the health of the heart, the liver, and other internal organs.
Of course, one needs more than strong muscles, heart, and bones to run like Usain
Bolt. An athlete who suffers from a chronic ailment like heart disease or high blood1

http://www.gsi-alliance.org/resources/
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pressure carries a high risk of collapsing. Maintaining good performance over thelong term requires careful management of one’s total health and fitness. CSR is thehealth and fitness a company needs to run a good race, not only once or twice but
repeatedly over time, with ESG corresponding to the specific components of that
health, such as the muscles, bones, heart, and blood pressure.
At a December 2013 investment seminar organized by MSCI Japan—publisherof financial indexes for global investors—Executive Director Seiichiro Uchi explained the importance of ESG factors as follows:•E SG factors examine a company’s adaptability and durability in the face of
future changes in the game’s very premises. Traditional financial analyses
sometimes took these factors into account, but the analyst’s focus was always
on a company’s competitiveness and attractiveness at a certain moment intime.
• Child labor, worker exploitation, and other abusive labor practices are amajor problem in many emerging markets. Yet traditional financial analysis
offers no means of evaluating a company in terms of the role such practices
play in its cost-cutting strategy. Without ESG expertise, it is impossible tojudge whether a company should get high marks for cost cutting or low
marks for human rights issues.
• Why is ESG important? Because there is a need to scrutinize corporate practices for their potential impact on society.2
Figure 2 illustrates the relationship between ESG and financial figures. Using
capital from investors and lenders, each corporation hires personnel (S), builds
offices and plants in compliance with local rules and regulations (E, S), and uses
energy and resources (E) under a unified management policy (G) for the purposeof providing goods and services at a profit (F).
Financial results (F) that investors watch closely are thus the outcome of ESG
contributions. Yet until fairly recently, it was impossible to obtain data regarding
each of these contributing factors, and in the absence of information to judge theirimpact on financial results, companies were evaluated on the basis of financial dataalone. However, as companies began to incorporate CSR policies and programs
into their management strategies and publishing CSR reports, more information
became available from the companies themselves. Armed with this data, PRI sigSeiichiro Uchi, “ESG toshi no nami” (The Wave of ESG Investing), summary of presentation to MSCI pension seminar, Tokyo, December 6, 2013.

2

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Figure 2. Relationship Between ESG and Financial Results

Source: Daiwa Institute of Research.

natories have been able to identify the ways in which ESG factors affect profit andrisk, and investors have become increasingly interested in the correlation between
ESG and long-term performance.
ESG and Long-Term Strategy
This trend has received a recent boost from the 2013 publication of the International Integrated Reporting Framework, compiled by the International Integrated
Reporting Council, or IIRC. The framework defines integrated reporting as “aprocess . . . that results in a periodic integrated report by an organization about
value creation over time and related communications regarding aspects of value
creation” and defines an integrated report as “a concise communication about how
an organization’s strategy, governance, performance, and prospects, in the context
of its external environment, lead to the creation of value in the short, medium, andlong term.”3
The International IR Framework identifies six forms of capital that contributeto the creation of value: financial capital, manufactured capital, intellectual capital,
human capital, social and relationship capital, and natural capital. Students ofeconomics and business who have been inculcated with the notion that there arethree categories of capital may find it difficult to adjust to the idea of expanding
the definition to include ESG factors, represented by the last three items. Classical3

http://www.theiirc.org/
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economics treated water and air as free goods and did not recognize society or thecommunity as capital. But given the growing global water shortage and the air
pollution crisis affecting many parts of China, it is increasingly clear that cleanwater and air are finite assets that come at a price. The notion of human capital isperhaps less foreign, since classical economics classifies labor as an asset, and theidea of human resources as the core of a business’s nonfinancial value has becomecommonplace in recent years. By focusing on these “six capitals,” the International
IR Framework helps clarify the connection between ESG and the process of value
creation in order to facilitate decisions regarding sustainable investment using ESG
criteria.
For fiscal 2014, more than 100 companies intend to prepare integrated reports,
according to the IIRC. As a result of such initiatives, more and more companies canbe expected to disclose key elements of their long-term business strategy, and suchnonfinancial data can be expected to play an increasingly prominent role in investment decisions. Whether this trend bears fruit in Japan will depend on how welleach company is able to integrate CSR into its strategy for long-term value creation.
Insights from the Tokyo Foundation Survey
What insights can the Tokyo Foundation’s Survey on Corporate Social Responsibility provide when ESG is regarded as part of a company’s long-term businessstrategy?
The survey asked businesses about their initiatives for nine social issues and thebenefits of those efforts to the company. The responses overall indicate that mostcompanies place low priority on areas in which CSR efforts are thought (by the
CSR officer) to be of little benefit to the company or on areas with no clear connection to the company’s core business.
Topping the list in terms of CSR initiatives and perceived benefits were domestic and overseas programs aimed at environmental sustainability, followed by domestic efforts to raise the status of women. The emphasis on these two areas is notdifficult to understand. Fifteen years ago, when the Kyoto Protocol was adopted,
environmental efforts were still regarded as an aspect of social philanthropy. Nowadays they occupy a more central place in business strategy, functioning not only
to reduce a business’s environmental burden and to cut costs but, in many cases, tospur the development of new goods and services for the global market.
The focus on women’s empowerment can be explained by such factors as thecurrent administration’s goal of boosting women’s participation in the labor force,
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the large gap between the status of women in Japan and in the rest of the industrialized world, and the growing realization among many businesses that henceforth
women must be part of any sustainable strategy for securing and developing human resources.
By contrast, only 31 of the companies surveyed reported that they were engaged in efforts aimed at fighting poverty and hunger in Japan, while 175 indicatedthat they were not. Those supporting programs to fight poverty and hunger overseas, on the other hand, numbered 74. This gap may reflect a view that poverty isa serious problem only in other countries, not in Japan. Or it may stem from asense that the company has little to gain from domestic anti-poverty initiatives orthat domestic poverty has little bearing on the company’s businesses. In any case,given the growing problem of the working poor in Japan and rising concerns overschoolchildren unable to pay the fee for their school lunch program, one cannot
but feel that this is an area in need of greater attention.
Corporate initiatives to fight childhood poverty are likewise primarily undertaken overseas. On the other hand, initiatives pertaining to community involvement and the preservation of local culture were more prevalent in Japan, with 154
companies indicating that they had domestic programs in place but only 70 reporting such activities overseas. Among those respondents that claimed to be actively
considering a community initiative of some sort, 129 said that the focus of the
proposed initiative was domestic, and only 58 were considering such a program
overseas. Perhaps this discrepancy stems from a relative lack of familiarity withand understanding of local customs in foreign countries.
In terms of how CSR activities benefit the companies that engage in them, most
respondents emphasized the contribution to employee education, securing of qualified human resources, and corporate image. Very few reported a positive impact
on business earnings from any CSR initiatives save those pertaining to the environment in Japan or overseas. In short, the economic impact of CSR policies on Japanese corporations thus far has been limited mainly to enhancement of overall corporate health, as discussed above, through improvements in human resource
development and brand value that lead to value creation over the long term. The
challenge facing Japanese CSR officers now is to convert such basic improvements
into concrete performance.
Generally speaking, Japanese corporations seem eager to pursue mainstream
themes that are easy for their CSR officers to grasp and that are already widely
embraced by Japanese society. Issues that are serious but have a lower social profile
are much less likely to receive attention from Japanese companies, even thoughprograms targeting such issues might be of greater potential value to society. Even
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if the officers in charge of CSR recognize such an issue’s importance, they need the
support of the people around them in order to mobilize the organization’s resources. And gaining that support is difficult unless the problem has escalated to alevel where it can no longer be ignored.
Japanese society today faces a number of emerging issues, including child laborand other human-rights abuses, that have thus far received little attention yet poseserious long-term risks if not confronted and addressed. Inhumane treatment ofanimals is another emerging issue; in late January 2014, a convenience store chain
suspended sales of a box lunch containing foie gras (a decision that drew lively
debate on the Internet) following accusations of cruelty to animals.4 The latterdevelopment highlights the need for greater awareness on the part of Japanese CSR
officers of new horizons in corporate ethics—especially in the West, where rights
issues increasingly apply to animals as well as human beings—and the need forcompanies to map out a clear policy in response to new issues and changing values.
The results of the Survey on Corporate Social Responsibility lead one to theunsurprising conclusion that Japanese companies are working fairly hard on the“easy” initiatives—that is, those that already enjoy a high level of public awarenessand corporate support—but that they are less actively engaged in other areas. Instead of merely following the leader and ignoring low-profile issues on the grounds
that no one else is tackling them, CSR departments need to focus on problems thatare still relatively small in scale. Once a problem has spread and escalated into amajor social issue, no one needs the CSR department to explain its importance.
I believe that one of the most critical jobs of a CSR officer is identifying andfollowing emerging issues and their potential impact on the company. Henceforth
an increasingly important aspect of CSR management will be identifying risks inpreviously overlooked areas of corporate responsibility. The companies that succeed in doing so will have the best chance of boosting and creating new value overthe long term.

4

http://www.family.co.jp/company/news_releases/2014/140124_01.pdf

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October 26, 2015

Japanese CSR in the Age of Responsible
Global Investing
Hiroshi KomoriRecent years have witnessed important milestones in the global trend toward sustainable investment. In May 2013 the Global Reporting Initiative
released the G4 Sustainability Reporting Guidelines at the Global Conference on Sustainability and Transparency in Amsterdam. And in December that year,
following a period of public comment, the International Integrated Reporting
Council published the final draft of its International IR Framework. In the following, I would like to discuss the challenges facing Japanese companies amid thesedevelopments, as seen from the perspective of the foreign institutional investors
with whom I have worked for more than a decade. Note that the opinions expressed here are my own and do not reflect those of any organization or institution.
Institutional Investors and CSR Reporting
Institutional investors consist broadly of two types: asset owners, such as pension
funds and foundations, which provide the funds to be invested; and asset managers,
to whom the asset owners delegate the management of their funds.
Of the foreign institutional investors who invest in Japanese equities, only avery small portion actually read the individual corporate social responsibility reports published by Japanese corporations. One reason for this is limited resources.
Investment firms with global portfolios hold shares in a huge number of companies: between 1,000 and 2,000 in the case of midsized asset managers, and 5,000
or more in the case of the big management firms. These days most of the larger
asset management firms have departments dedicated to ESG (environmental, social,and governance) risk assessment, but even so, reviewing the CSR report of eachand every listed company is physically impossible.

Hiroshi Komori   Associate General Manager, Stock Transfer Agency Business Advisory
Department, Sumitomo Mitsui Trust Bank, Ltd.
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Who, then, is reading them? The most important readers of CSR reports are
ESG rating agencies. These are organizations that analyze and rate the ESG performance of stock-issuing companies on behalf of institutional investors, mostly on thebasis of data from the companies’ environmental, social, and governance information in CSR reports, along with answers to questionnaires and, occasionally, interviews and observation. These agencies may bring their own special research methods to bear, and virtually all global investors depend on them for ESG information.
In these ratings, Japanese companies as a whole fall somewhere between the
middle and bottom of the global rankings, and there has been no appreciablechange in this position over the years. In the environmental component, Japanese
corporations rank near the top. However, in the social component they rank in the
middle or lower, and when it comes to corporate governance, they are near thebottom. These results are consistently seen among all the reports compiled by theseagencies.
New Trends in Institutional Investing
Such is the situation today. How has CSR as an investment criterion evolved overthe past decade? Until about five years ago, no foreign institutional investor hardly
made any mention of CSR to me. To some degree this reflects my personal concerns, which until then were focused squarely on corporate governance. A more
fundamental reason, though, is that until fairly recently, investors—even those involved in medium- and long-term asset management—were preoccupied withshort-term returns. The only exceptions were a few specialized SRI (socially responsible investment) funds. But all this began to change after the 2007–2008
global financial crisis.
Investors, particularly asset owners, were among those hardest hit by the crisis.
In its aftermath, there was much soul searching regarding the obsession with shortterm gains, particularly on the part of pension funds charged with managing assets
over a period of decades. The result was a new consensus that investment management should entail not only the pursuit of high returns—a basic premise of institutional investing—but also medium- to long-term investments guided by lasting
corporate value so as to minimize the risk of investment losses. From this consensus
arose the concept of ESG.
How, then, does ESG differ from CSR? I have explained the difference as follows. “CSR encompasses the basic corporate activities and policies that help ensurea business’s medium- and long-term survival by considering the welfare of all stakeholders, while ESG refers to activities and policies oriented to institutional inves38

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tors who are seeking steady and reliable growth in corporate value.” In otherwords, ESG is not something distinct from CSR. Rather, ESG ratings and reports
highlight the so-called “material issues” of CSR—aspects of CSR that are especiallymeaningful in terms of disclosure to institutional investors and extended two-way
communication because they are relevant to corporate value. ESG in no way diminishes the importance of CSR in corporate management. What it does is to meet
institutional investors’ need for concrete data on factors pertaining to long-term
corporate value that are not adequately covered by the typical CSR report.
New Challenges for Japanese Corporations
In this context, what are the major challenges facing Japanese stock-issuing corporations today with respect to institutional investors?
The reporting trends embodied in the G4
Sustainable Reporting Guidelines and the International IR Framework emerged in
response to the new emphasis on longer-term value among institutional investors.
While retaining the original structure of the GRI’s sustainability reporting framework, with its focus on multiple stakeholders, the G4 Guidelines introduce the element of corporate value into the equation via the concept of “materiality.”
Integrated reporting likewise attempts to address the demand by institutional
investors for information needed to assess long-term corporate value—information
effectively conveyed by neither the traditional annual report, the typical CSR report, nor the two combined.
From the standpoint of institutional investors (and rating services), the annual
report and the CSR report will retain their utility as information sources to be included in the database. But integrated reporting is something new, drawing on bothfinancial and nonfinancial information to succinctly communicate “the full range
of factors that materially affect the ability of an organization to create value overtime.” The challenge in adopting integrated reporting is to avoid the temptation
simply to combine the annual report and the CSR report into one massive publication, increasing the quantity of information yet communicating less of material
relevance .

SHIFT TO INTEGRATED REPORTING

As I have noted, Japan’s overall
ESG ratings, based primarily on individual companies’ CSR reports, are consistently at or below average for advanced industrial countries. In fact, Japan is indanger of being overtaken by emerging economies like Brazil and South Africa. The

PROBLEMS WITH CURRENT CSR REPORTING

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Japanese CSR officers and others who have spent hours preparing voluminous CSR
reports for their companies may well wonder why their efforts are not rewarded
by better ratings. Most of the rating agencies use Japanese researchers to compile
and analyze data on Japanese companies, but my discussions with these experts
reveal the following problems.
First, from the standpoint of foreign institutional investors, Japanese equities
are usually part of a global or Asian portfolio and have been for some time. Thismeans that they are evaluated by global standards, with no allowances for circumstances that are special to Japan. Moreover, the basis for comparison is not otherJapanese corporations but all corporations in the global portfolio.
Second, when rating stocks by global standards, the corporation is never given
the benefit of the doubt. If a CSR policy or initiative is not spelled out in the report,then the raters assume that the company is not doing it.
Third, many research and rating agencies send companies follow-up questionnaires to verify items not specified in the CSR report. In the case of Japanese companies, researchers find that the same items must be verified year after year, and the
responses they receive are often inadequate.
Fourth, when it comes to corporate governance systems, Japanese companies
almost invariably lag behind their Western counterparts in such social responsibility measures as supply chain management, human rights, labor practices, and diversity.
As for the public-relations effectiveness of Japanese CSR reports, the comments
I have heard highlight the same basic issues uncovered by the Tokyo Foundation’s
CSR Survey. The very act of publishing a report appears to have become an end in
itself, with the result that the content varies minimally from year to year. One
senses little attention to such essentials of purpose-driven marketing as who will
be reading the reports and what the readers are looking for, and which companies
in what countries provide the basis for comparison and what sorts of reports they
have published. There are too few specifics pertaining to the identification andresolution of problems and shortcomings.
These are generalizations, of course, and exceptions to the rule do exist. A few
Japanese companies earn high overall ESG ratings. Unfortunately, when the country as a whole ranks low in the ratings, there is little motivation for investors toseek out those exceptions.
Learning from Institutional Investors
Japanese corporations, for their part, often find it hard to believe that ESG consid40

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erations figure prominently into the decisions of fund managers and analysts. Thisis understandable. The main thing asset managers look at when they make an investment decision is the stock’s target price, and this is based on an analysis of thefinancial data. To the best of my knowledge, this basic practice has not changed
even after the financial crisis. This may explain why the CSR departments of Japanese corporations remain segregated from the investor relations and general affairs departments, and why ESG is rarely a topic at IR meetings. Judging from myrecent discussions with corporate officers overseas, this is true to some extent at
American and European companies as well. Enterprises that have recognized theimportance of ESG—including those in Japan—meanwhile, also understand theneed for good communication among company divisions.
It must also be stressed that foreign institutional investors are diverse in theirorientation. They include long-term investors as well as hedge-fund managers andhigh-frequency traders oriented to short-term profits. In Japan there is an underlying assumption that long-term investment is good and short-term investment isbad. But there is nothing inherently good or bad about market transactions. Every
institutional investor represents a certain range of clients who provide the assets to
be invested, and it is this range that creates market depth and determines shareprices.
That said, it is undeniable that the new focus on integrated reporting and ESG
is being driven by investors and asset owners—the latter in particular—with amedium- to long-term investment time frame. The asset owners who were burned
so badly by the Lehman meltdown want to know how well a stock will hold up
over the long run.
This means that when it comes to two-way communication regarding ESG issues, companies need to place top priority on the opinions of asset owners. Within
the asset management sector, they should be dialoguing with ESG officers whoanalyze risk using nonfinancial data and exercise voting rights, not the portfolio
managers, who use financial data to monitor the performance of stocks that havealready been purchased. Through such ESG-oriented dialogue, Japanese companies
can play a more active role in cultivating the kind of medium- and long-term institutional investors best suited to their business.
Integrated Reporting and Japanese Business
Finally, I would like to comment on the significance of ESG and integrated reporting for Japanese companies. Ten years ago, my own interests were more narrowly
focused on corporate governance. What caused me to broaden that focus to CSR
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and ESG was the shifting approach of foreign institutional investors in the wakeof the financial crisis. As I contemplated the role and significance of nonfinancial
investment criteria for Japanese businesses, I realized that the basic principles of
CSR coincide substantially with the founding philosophies and corporate codes ofmost major Japanese corporations.
The similarity testifies to the long-term thinking of the business leaders who
built modern Japanese industry. Virtually every entrepreneur back then wanted tobuild a business capable of making money while contributing to society over thelong run—a business that rewarded long-term investors and proved its enduring
worth to all stakeholders. Unfortunately, many Japanese business leaders began tolose sight of the big picture after the collapse of the 1980s asset bubble. As theystruggled to cope with intensifying global competition, domestic deflation and its
attendant price wars, the high value of the yen, and the demographic crisis, not tomention various natural disasters, many became too preoccupied with day-to-day
survival to think about the next 5, 10, or 20 years. Japanese companies themselves
fell into the trap of short-term thinking.
Now Japanese industry is regaining its confidence as earnings and stock prices
respond to the economic policies of Prime Minister Shinzo Abe. I believe it is timefor each management team to recommit to the principles on which the company
was founded and enter into serious discussions on ways to enhance long-term corporate value and ensure the health of the business for generations to come.
Integrated reporting is merely a framework for such discussion. The material
issues to be reported are decided by each corporation. At this point, institutional
investors have no rigid ideas about what an integrated report should look like. The
content of any given integrated report will depend on the company’s definition ofvalue, its business strategy, and its ongoing dialogue with institutional investors.
(Researched by Zentaro Kamei, Tokyo Foundation)

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July 30, 2015

Creating and Sustaining Corporate Value
through Global Dialogue
Takeda Pharmaceutical
The Tokyo FoundationAs clearly demonstrated by the rich pool of global human resources who
hold key positions at Takeda Pharmaceutical—including the president andchief executive officer—the company is striving to globalize its operations
and become a world-ranking pharmaceutical company. This is also closely linked
to the efforts Takeda is making to place its CSR activities at the core of its corporate management.
The 2010 Patent Cliff

Corporate social responsibility is generally considered to have two main functions:the first is to enhance corporate value through positive contributions to society andthe second is to protect it from various risks that could damage its reputation. The
terms Takeda uses for these dual functions are “creating” and “sustaining” corporate value. All employees, from senior executives to the rank and file, are thus called
upon to apply their own insights to the company’s CSR activities. This is the sourceof Takeda’s ability to smoothly integrate CSR into its corporate management andoperations.
Takeda may be Japan’s largest pharmaceutical company, but globally it is only
the sixteenth largest (in 2013), and the value of its pharmaceutical sales is one-thirdof market-leader Pfizer. A wave of international M&As swept through the pharmaceutical industry in the 1990s, resulting in the formation of giant, multinational
companies. Since the 2000s, a different type of restructuring has emerged, withsmaller companies specializing in the research and development of new drugs beingbought up by larger manufacturers.
One reason that pharmaceutical companies expanded their operations was theconsiderable resources and time required to support the development of new drugs.
The success rate of new drugs is quite low, so companies must run many research
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projects concurrently to hedge against the risk of failure. Human resources andmoney are needed to collect data and investigate the relationship to existing patents. Performing basic experiments and clinical trials also take great time.
A problem faced by many pharmaceutical companies at the time was something known as the “patent cliff.” Patents on many best-selling drugs were due toexpire around 2010, at which point companies would be unable to sustain theirsales and profits.
Once these patents expired, cheaper generic drugs would enter the market. Thismay be a welcome development from the patients’ perspective, since they would be
able to purchase drugs with proven effectiveness and well-known side effects atlower prices. It would also be a boon for public health insurance schemes facing
severe fiscal constraints and expanding demand for medical services. But for thepharmaceutical sector, a market dominated by generic drugs would make it difficult to secure the funds for the development of new drugs, hindering research andslowing advances in medicinal technology.
This was the impetus for the flurry of corporate acquisitions focusing on specialized, research-orientated companies, as the giant pharmaceuticals sought new
platforms for the development of new drugs.
Takeda was no exception. Its patents on drugs that accounted for ¥100 billion
in annual sales, including proton-pump inhibitor Takepron, were due to expire
around 2010. To minimize this impact, the company needed to quickly bring new
products to market. In 2008 Takeda purchased Millennium Pharmaceuticals forapproximately ¥900 billion, and in 2011 it acquired Nycomed International Management for ¥11 trillion (prices and exchange rates at the time of merger).
Avoiding Pitfalls
The effort to globalize its operations and emerge as a leading player had the unanticipated consequence of bringing Takeda face to face with a new challenge: onethat was closely linked to the industry’s relationship with society.
In March 2001, a group of 39 European and North American pharmaceuticalcompanies took the South African government to court to protest a new law allowing the import and manufacture of generic copies of patented HIV/AIDS drugs. The
companies argued that if the South African legislation went unchallenged, the international patent and intellectual property system would be undermined.
The government, along with international NGOs, countered that there werelarge numbers of people with HIV/AIDS in Africa and that neither individuals nor
governments had the financial resources to cover the cost of treatment. They
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stressed that the drugs were expensive because of the patent licenses and that without them it would be possible to save many lives.
In April 2011 the 39 companies dropped their suit, partly to prevent a deterioration in their image. By then, though, the damage had been done; public opinion
not just in South Africa but all over the world turned against Big Pharma, which
was seen as putting business and profits ahead of human lives.
As noted above, the development of new drugs requires a huge investment, andvery few new drugs actually make it to market. If a company is unable to sell theirproducts at appropriate prices, the business will become unsustainable, and thedevelopment of the next generation of drugs will come to a halt. To that extent, thepharmaceutical companies had a right to protest.
But the legal action taken by the European and American firms sparked anoutrage. The number of people with HIV is still rising, although the pace has moderated somewhat, and the disease has yet to be brought under control. The shareof HIV patients is particularly high in sub-Saharan Africa, with infection rates increasing in extremely poor areas—where 7 in 10 people live on less than $2 a day.
If we consider that the mission of pharmaceutical companies is to contribute to thehealth of people around the world through the provision of medical drugs, can westill say that they were justified in launching their lawsuit?
This experience prompted many pharmaceutical companies to rethink their ties
with and their mission in society as they realized that a weak relationship could
become a risk affecting the company’s entire operations.
Having joined the ranks of the industry’s top global companies, Takeda, too,
took this lesson to heart. Both management and labor came to the understandingthat CSR activities to “sustain” corporate value meant maintaining a vigilant,
risk-management watch over social issues.
Identifying Common Social Concerns
Takeda’s corporate mission is to “strive towards better health for people worldwide
through leading innovation in medicine”—a goal that in itself lies at the heart ofcorporate social responsibility. The company seeks to improve business operations
with a full awareness of how its entire value chain affects its various stakeholders
and works to create a sustainable society as a good corporate citizen.
How, then, is it going about integrating its business pursuits with efforts toresolve social issues? Takeda’s approach is quite unique.
It identifies material issues common to global companies through participation
in UN Global Compact LEAD conferences and annual Business for Social Respon45

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Figure 1. Three-Step Process for Identifying Material Issues* IFPMA = International Federation of Pharmaceutical Manufacturers and Associations

sibility (BSR) conferences, as well as by actively engaging in discussions with international organizations and NGOs (Section 1, Figure 1).
It also identifies material issues specific to the global pharmaceutical industry
by participating in conferences of the International Federation of Pharmaceutical
Manufacturers and Associations (IFPMA) and the BSR Healthcare Working Groupand conducting discussions with the Global Fund to Fight AIDS, Tuberculosis, andMalaria and other healthcare NGOs (Section 2, Figure 1). This gives the company
a fuller understanding of global trends by learning about the issues other companies are facing and—through participation in such trendsetting projects as those of
the International Integrated Reporting Council (IIRC)—allows it to lead the discussion between pharmaceutical companies and other industries.
These two initiatives help Takeda to identify those social issues that it is in thebest position to address in the light of its management strategies and within theconfines of its management resources.
The conclusions Takeda reached through this process were that it can best
address two material issues. The first is comprehensive “access to healthcare” forpeople around the world through both its business operations and corporate citizenship activities. The second is “value chain management,” under which it advances CSR initiatives at each stage of the value chain within the core ISO 26000
framework.
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Figure 2. International Conferences Attended by Takeda (June 2012 to June
2013)

Source: Takeda Pharmaceutical 2013 annual report.

The former covers corporate citizenship activities aimed at “creating” corporate value, while the latter seeks to fully integrate CSR into business operations
with a view to “sustaining” corporate value.
Sompo Japan’s CSR focuses on dialogue with stakeholders and Itochu’s on an
employee-based bottom-up approach. Takeda’s CSR, meanwhile, involves ongoing
discussions with other global companies, including pharmaceutical firms, and theircivil-sector partners to examine the role the company should play in society, therelationship it should seek to build with society, and ways to more fully integrate
its business operations with initiatives that help meet society’s needs. This is thepath that is enabling Takeda to both bolster its corporate vision and strengthen risk
management.
Traveling around the world to take part in various international forums may
seem like a luxury (Figure 2). But this is probably the most efficient and effective
way for Takeda to create and sustain its corporate value. As the fallout from thelawsuit in South Africa shows, a company risks severe damage to its business if it
fails to build a strong relationship with society. Given the broad array of issues to47

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address, there is no telling what, when, and where problems may arise. Since there
is a limit to what one company can do to keep abreast of various social developments,
the most rational course of action is to maintain dialogue with other pharmaceutical companies and international NGO that are keeping an eye on such changes.
Sharing Case Studies
In identifying material issues, Takeda pays particularly close attention to risks andcrises that other companies have faced in dealing with society. The South Africa
court case is just one example of the risks that pharmaceutical companies constantly face. Because they are engaged at the leading edge of bioethics, companies
may even become the source of new social controversies.
With environmental protection rules growing tougher, moreover, new issues
may come to the fore. Drugs taken by patients may find their way into rivers andseas, disrupting the food chain and posing a danger to people and other living organisms. No longer is it enough for a company to focus its attention on simply providing effective drugs to help patients recover from illness and improve their health.
There are many pitfalls for globally active companies. Those that have operated
only in Japan may not fully appreciate the different values peoples in other countries have. “Sustaining” corporate value is a task requiring both managers and staff
to look at issues from the viewpoint of people on the ground.
The CSR department at Takeda thus actively collects and internally shares casestudies of risks and crises faced by other relevant companies around the world:those affecting global companies in general, those impacting the chemical and foodindustries, and those pertaining particularly to global pharmaceutical companies(Figure 3).
This information enables management and individual departments to assess
risks more accurately. The steady sharing of information has led Takeda employees
Figure 3. Case Studies Shared by Takeda’s CSR Department

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Figure 4. CSR Guidelines for Reference

Source: Takeda Pharmaceutical 2013 annual report.

at all levels to give greater thought to the company’s relationship with society intheir daily activities.
Embracing International CSR Guidelines
Takeda has thus been quite successful in integrating its business operations withefforts to address social issues. It has also made effective use of international CSR
guidelines.
Its initiatives are quite transparent to the public (Figure 4): Its basic principles
are informed by the Global Compact; analysis and implementation are guided by
ISO 26000; disclosures are made in accordance with the Global Reporting Initiative; and accountable dialogue is advanced based on the AA1000 guidelines ofBritain’s AccountAbility.
Some companies may prefer to use their own standards. But internationalguidelines like the Global Compact and ISO 26000 offer the benefit of expertise49

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accumulated through dialogue with stakeholders around the world. Takeda makes
active use of these public resources—something made possible by the thoroughunderstanding of these guidelines by its CSR officers.
Addressing Social Issues through the Value Chain
Takeda skillfully utilizes the guidelines to identify and address various social issues
through the value chain. Gaining a grasp of a full range of social issues on one’s
own can be a daunting task, so the company refers to the seven “core subjects” ofISO 26000 in analyzing its social responsibilities to both help create and sustain
corporate value (Figure 5).
One core subject is human rights. Takeda highlights possible issues along thevalue chain, from research and development (including clinical trials) to procurement, production, distribution, and sales and marketing, so that each department
has a full awareness of what to keep in mind.
For example, the research department conducts its activities in line with a setof policies and rules aimed at respecting dignity and human rights. Specifically, a
Research Ethics Investigation Committee has been set up to deliberate on issues
like the use of such human-derived specimens as blood, tissue, and cells.
Figure 5: Addressing Core Subjects in the Value Chain

Source: Takeda Pharmaceutical 2013 annual report.

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To address issues in procurement, production, and distribution, meanwhile, thecompany established a Global Purchasing Policy and Guidelines for Socially Responsible Purchasing calling for the rights of all people to be respected and theelimination of discriminatory or unfair practices based on nationality, race, ethnicity, creed, religion, gender, age, disability, disease, or social status. In addition to
rooting out discrimination in its own operations, Takeda shares these principles
with its suppliers and encourages their implementation.
The important thing is to think ahead in identifying relevant issues and considering what action to take. Most companies surveyed or interviewed by the Tokyo
Foundation for the white paper had few initiatives regarding human rights otherthan organizing conventional workshops for employees.
Only when these issues are fully incorporated into the value chain, as Takeda
has done, though, will they be perceived as being part of a company’s routine business operations.
Vaccines to Fight Communicable Diseases
In its efforts to create corporate value, Takeda prioritizes two CSR material issues:“access to healthcare” and “value chain management.” The latter has been described above, so the former will be discussed here.
Access to healthcare refers to the broad range of initiatives aimed at enhancing
the availability of healthcare services for people around the world. Part of this effort involves addressing unmet medical needs—situations where medical services
are locally unavailable or where effective treatment does not yet exist. This canmean dealing with situations in developing countries where economic conditions
prevent people from receiving existing vaccines or treatment and also cases in richer
countries where preventative medicine or treatment has not yet been developed.
Many people around the world still die from communicable diseases for which
vaccines already exist. Takeda thus aims to become a top vaccine manufacturer by
2020 by enhancing its R&D, approval, and sales efforts in key markets for vaccinesconsidered to be public-health priorities.
In addition to investing in its own research efforts, Takeda has moved to acquire companies with promising pipeline drugs. In October 2012 Takeda purchased
LigoCyte Pharmaceuticals, a company working on a vaccine for the norovirus. The
biotechnology company specialized in the development of new vaccines using theirproprietary virus-like particle technology. Norovirus is the primary cause of gastroenteritis and food poisoning in developed countries, making 21 million people
ill each year; in developing nations it causes 200,000 deaths a year.
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In May 2013 Takeda also purchased Inviragen, a company developing vaccines
for dengue fever and hand, foot, and month disease. A mosquito-borne disease,dengue fever is a serious ailment in developing countries for which no effective
treatment currently exists—despite the fact that 400 million people are infectedeach year, with around 100 million developing symptoms. The World Health Organization identifies dengue fever as one of four diseases urgently requiring a vaccine.
Taking these social needs into account, Takeda is allocating ample resources tothe development of pipeline vaccines, including through mergers and acquisitions.
By carefully considering its relationship with society Takeda has been able to more
sharply define its corporate mission and enhance the value of its main business
operations. This, too, is CSR that creates corporate value.
Disaster Relief and Takeda-ism
Some may unfavorably liken Takeda’s recent acquisitions to the activities of aninvestment bank. But a closer look reveals that they are attempts to both create andsustain corporate value through a vigilant focus on the company’s corporate mission, risk management, and its relationship with society.
Informing the decisions of both managers and staff is a long-standing corporate
philosophy known as Takeda-ism that pervades the company’s operations (Figure 6).
At the heart of Takeda-ism is integrity—that is, fairness, honesty, and perseverance. Around these core values are such principles as diversity, teamwork, commitFigure 6. Takeda-ism and Values

Source: Takeda Pharmaceutical 2013 annual report.

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ment, transparency, innovation, and passion, which are upheld in one’s daily activities. Takeda employees are thus called upon to strive toward integrity in all aspectsof their work. Integrity means compliance with the highest ethical standards and abasic stance of fairness and honesty. It also requires a spirit of perseverance focusedon constant improvement.
This philosophy of integrity was evident following the Great East Japan Earthquake of March 2011. Takeda cooperated with the recovery efforts of the Japan NPO
Center in two ways: providing grants to nonprofits and other groups directly engaged
in reconstruction and implementing projects either independently or with partners.
Takeda’s assistance for NPOs was aimed at supporting the day-to-day lives ofsurvivors—particularly vulnerable members of society like children, the elderly,
people with disabilities, disaster orphans, those who lost family and relatives, andpeople in financial difficulties—so they may live with dignity. These efforts were
aimed at rebuilding people’s lives by improving health and welfare conditions andalso at rebuilding livelihoods by offering places to live and work. Estimating thatthe recovery would take about a decade, Takeda is maintaining these support programs through 2020.
The five projects implemented by Takeda and with partners—all with an emphasis on cultivating human resources—demonstrate the company’s philosophy
even more clearly. It has (1) established the Japan Civil Network for information
sharing among disaster relief groups; (2) analyzed the progress and trends in private relief efforts with the Japan NPO Research Association; (3) worked withgroups in three disaster-hit prefectures engaged in supporting disabled people andproviding related services; (4) supported people who lost family members with
Lifelink, a suicide-prevention NPO; and (5) promoted information sharing on reconstruction assistance measures and issued proposals on ways to improve thosemeasures with the Coalition for Legislation to Support Citizens’ Organizations (C’s).
All five projects have close links to networks for the reconstruction of disaster-hit areas. They seek to assess civil-sector assistance to date and offer a prognosis for the future in an attempt to build a foundation for smoother communication
among the various groups—a foundation focused not on systems or infrastructure
but on people on the ground.
This person-centered approach is typical of the company’s reconstruction assistance and its CSR initiatives as a whole. Creating and sustaining corporate value
is really all about people. Many companies ponder what they should achievethrough CSR and how it should be integrated into their business operations. Takeda’s
efforts provide one answer to such queries. (Researched by Zentaro Kamei, Tokyo
Foundation)
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July 30, 2015

A Bottom-Up Approach to CSR
Itochu Corporation
The Tokyo FoundationO

ne of Itochu Corp.’s notable CSR initiatives is the Pre Organic Cotton
Program, which helps cotton farmers in India transition to organic cultivation methods. Cotton grown under this program is used to add value
to products that are marketed to consumers and to help stabilize the incomes of
farmers further upstream in the supply chain.
Genetically modified seeds began being used in cotton cultivation in India in
the 1960s in tandem with the increased prevalence of agrochemicals and chemicalfertilizers. This has led to serious environmental degradation and a deteriorationin farmers’ health and livelihoods. Cotton farms account for only 5% of the world’s
total farmland, but growers in India account for 25% of the insecticides used globally. The cost of seeds and agrochemicals were a heavy financial burden for them,and the repeated use of chemicals was degrading the soil.
It All Began with a Pop Concert
Itochu first learned of the plight facing Indian cotton farmers through its involvement in a concert by a popular Japanese pop rock group. One of the musicians
requested that organic cotton be used for the T-shirts and other merchandise soldat the concert. A member of Itochu’s staff in charge of procuring cotton fabric flew
to India to meet that request.
There, he learned of the health and environmental damage caused by highly
toxic agrochemicals, which ravage the skin when touched with bare hands or feetand cause respiratory and visceral disorders when inhaled. They also kill the microorganisms in the soil, making it barren and gradually leading to smaller crop
yields. Agrochemicals in the soil also seep into the groundwater, causing incalculable health damage to people and livestock that drink water from the well. Agrochemicals are costly, and the more they are used, the poorer the soil quality andlower the yields become, forcing farmers to buy yet more chemicals. Trapped in thisvicious circle, they become so poor that they can no longer borrow money from54

CSR White Paperbanks. They are forced to turn to usurious money lenders and are driven further
into poverty and—in some cases—to suicide.
If they could stop using agrochemicals and make the switch to organic farming,
they would be able to escape this vicious circle, resulting in both health and economic benefits. But they faced a major obstacle.
Three years were required before harvests could be certified as being organic.
During that time, crop yields would decrease from insect damage and lack of nutrients in the soil. Farmers were unable to use GM seeds, moreover, and were forced
to purchase non-modified seeds. Because they could not charge a higher price until
certification, their income would drop by 20% to 30% for several years. Most
farmers were reluctant to take such risks to transition to a type of farming in which
they had no experience.
The Itochu employee had an idea. Could not a support program be instituted
with the understanding of clothing makers and consumers who were aware of thebenefits of organic cultivation to cover the three-year period until farmers can gain
certification?
The cotton produced during the transition period would be labeled “pre-organic cotton,” and necessary support would be provided to farmers who chose to
make the switch. They would be given the non-GM seeds that they needed to becertified as organic, receive instruction from experts, and gain advice from accreditation inspectors. To compensate for reduced yields, the harvests would be purchased at a higher price than the market rate. Such support during the transition
period would enable farmers to gain accreditation and embark on full-scale organic
farming.

Figure 1: Pre-Organic Cotton Program

Source: Itochu website.

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The Program’s Impact
Since the launch of the program in 2008, 3,848 farming households have taken
part, and 1,179 have successfully received organic certification. In 2013, over 1,500
tons of pre-organic cotton were sold to over 40 companies and were used in related
products that rang up sales of ¥500 million. The 2014 harvest is thought to havereached 2,500 tons, with the expanding pre-organic-cotton market being driven byclothing makers and natural cosmetics manufacturers. The market will likely further expand to Europe and the United States, with targets of 5,000 tons and ¥2.3
billion in sales in 2015, and 10,000 tons and ¥5 billion in 2017.
The program began from a single musician’s comment and evolved as Itochu
staff traveled to India, saw the situation firsthand, learned of the plight of local
farmers, and decided that something should be done about it. The program thus
exemplifies how an attempt to protect the environment and human rights led to
the resolution of a grave social issue and embodies the two characteristics of Itochu’s CSR: its grass-roots, bottom-up focus and its links to core business operations.
The Great East Japan Earthquake
The grass-roots nature of Itochu’s CSR was also evident in its reconstruction support after the Great East Japan Earthquake. The projects the company implemented
were not on a very large scale, considering Itochu’s size, and appeared quite isolated and without much focus. Yet there was a common thread running through allof them—the fact that they were all initiated by individual employees.
The staff from Itochu who volunteered in disaster-hit areas spent time getting
to know the local people, after which they were able to talk freely about their
deepest concerns. Itochu’s reconstruction assistance began from the things that
employees had directly seen and heard. Their trading company background meantthat they were experienced in launching new ventures from the ground up andknew how to move organizations to make things happen. Many of their conversations they had with local residents may have seemed inconsequential, but these
discussions produced significant results, growing into various support projects andeven new businesses opportunities.
Why Bottom Up?
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outside experts to guide its initiatives, but Itochu seeks answers from its own employees.
This focus on employees is closely linked to the nature of the work trading
companies do. Each business area has its own business model, with some seeking
profit through investments and loans, some through imports and exports, somethrough logistics services, some through retail sales, and others through licensing
fees for trademarks and intellectual property. Because so many different businessmodels exist, understanding what trading companies do can be difficult. A personon the street would probably be unable to give a clear answer to a question onwhat a trading company should do to address social issues. This is why Itochu has
its employees do the thinking.
Pre-Modern Roots of Itochu’s CSR
Itochu was founded in 1858, when Chubei Itoh began selling linen in Nagasaki.
He took the sanpo yoshi philosophy of the Omi (now Shiga Prefecture) merchantsof his birthplace and made it the foundation of his company. Sanpo yoshi (“threeway good”) teaches that the secret of success is to do business in a way that is goodfor the buyer, good for the seller, and good for society. Itoh’s favorite motto was:“Trading is a compassionate business. It is noble when it accords with the spirit of
Buddha by profiting those who sell and those who buy and supplying the needs ofsociety.” At first glance, it can be difficult to see how “trading is a compassionate
business.” But as “supplying the needs of society” suggests, Itoh believed that the
raison d’être for a company was to respond to society’s requests.
Based on this founding philosophy, in 1992 Itochu chose “Committed to the
Global Good” as its corporate philosophy. Itochu’s then approximately 10,000
employees around the world participated in discussions over the course of a year
to select this philosophy.
When the company conducted an employee survey in 2013 to help decide its
CSR policy, it was surprised to receive replies from 6,505 of the 6,738 individuals
to whom the questionnaires were sent—an astonishing response rate of 96.5%.
Itochu employees in Japan had a 99.5% response rate (4,818 out of 4,844), while
overseas workers had a 89.1% rate (1,687 out of 1,894).
In identifying which social issues to address, the company consulted with outside experts. While these discussions were conducted by the president and senior
managers, their contents were shared openly with all employees.
This process resulted in the identification of four material issues: (1) climatechange, (2) sustainable use of resources, (3) respect and consideration for human57

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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 figurerose to 54.8%—more than half. This finding suggests that more employees havecome 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 aroundthe 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 andthe customer was very happy that Itochu had continued to make such efforts evenafter 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 easierto 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 asustainable business based on a framework of values shared by the Company andsociety. We can take no short cuts; rather, we must adopt a respectful attitude tosociety, 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, itsvalue 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 ofwhat 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 participantssaid. “There may also be times when we feel we’re contradicting ourselves. In thatsense, 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 relationshipbetween social issues and business is explained in an easy-to-understand way fromthe 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, andconcrete 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 aplan-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 Japanand abroad to produce a CSR action plan. The various departments within each60

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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, suchas 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 conflictminerals, 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 theactivities 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 theminerals 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, inaerosol cans, solder, tin plating, kitchen goods, and integrated circuits. Tungsten isused 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 Congois 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–FrankAct 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 humanrights 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 the62CSR White Paper
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 therights 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, citedin 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 thisexample. 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 advanceand 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 and63

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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 aresuitable for growing ingredients that are easy to process into food and setting up ascheme so that those agricultural products can be sold at a higher price. The aimof the project is to raise the living standards of farmers in Mozambique and toprovide 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 fairtrade, and prevent corruption—as well as to disseminate information about theseissues.
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 thesecompanies 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 ofwhich visit the suppliers to conduct interviews and distribute the questionnaires.
In addition to the 10 standard items covering human rights, labor, and theenvironment, 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 productsafety 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 suppli64

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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 to76.25 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, muchattention 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 usuallyarrange 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 beenfalsified, 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 andhuman 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 andenvironmental 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 toconditions on the ground—making firsthand observations to identify people’s realneeds—both in its CSR initiatives and its business operations. Developing humanresources 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 becomerisks for the company.

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July 13, 2015

The Evolution of CSR Communication inJapan
From Reporting to Dialogue and Engagement
Hideto DeDe Kawakita

CSR and social communication expert Hideto DeDe Kawakita surveys the development ofJapanese companies’ CSR communication efforts over the last two decades and offers aprognosis 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 andprograms designed to support nonprofits, social enterprises, and other organizations in their efforts to address social issues. Not long after our establishment, webegan responding to requests from private businesses with a special commitment
to corporate social responsibility (CSR) and a need for independent feedback fromthe 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 nextstage 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 andthe 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 resolutionof 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 publicconcerns about environmental degradation, and they responded with a concerted
effort to communicate their environmental commitment through ads stressing theirearth 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, thepush 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 datathat reflected most favorably on them. Talks between NGOs and businesses led tothe 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, Japanesebusinesses instituted environmental management systems and used them to collect68

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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 andcost effectiveness of such publications.
For whom were these labor- and cost-intensive booklets intended? Those whocared enough about social and environmental issues to read the reports were demanding ever more comprehensive, detailed, and up-to-date information. At thesame time, it was hard to see how such reporting translated into higher sales orbuilt brand credibility. Corporate officers in charge of environmental management
and public communications were facing tough questions regarding the purpose andefficacy 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 onsales. 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 intheir environmental and CSR reports. Unfortunately, the vast majority of thesecomments 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 alphabeticalorder): 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 thana book report. Companies that are serious about continuous improvement need tohear the opinions of objective outside sources—that is, parties that have no otherbusiness 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 withregard 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 tofollow-up questions. I have only the highest regard for those companies that havedemonstrated their commitment to continuous improvement by requesting ourservices year after year.
When I first began writing these outside opinions, much of my criticism focusedon 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 humanresources and procurement. Generally speaking, these are the two divisions thathave lagged behind in terms of internationalization, adoption of visual manage70

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ment tools (using quantitative measures and visual feedback to clarify challenges,
targets, and progress), and standardization of CSR policies among domestic andoverseas subsidiaries. Among the more progressive corporations, however, reporting by these divisions has gradually improved in respect to both quantity andquality.
By communicating our objective opinion regarding a company’s progress
toward its own environmental and CSR goals on the basis of existing conditions
and by identifying problem areas and suggesting future goals, we provide input
critical to the C and A (check, act) phases of the PDCA cycle, helping supply
a degree of discipline that is usually missing when all such evaluation is done internally.
Has Reporting Enhanced Public Trust?
The question remains: Have Japanese corporations succeeded in enhancing their
credibility toward the public with respect to CSR?
One of the key tasks of NGOs like IIHOE is to prevent complacency and correct the innate tendency toward slanted, self-congratulatory reporting. Unfortunately, the influence of NGOs on the business community is relatively limited inJapan. This is one reason IIHOE, in partnership with NTT Resonant (operator of
the environmental website Eco Goo and a member of NTT Group), has conducted
an annual public opinion survey to monitor attitudes regarding sustainability reporting and CSR priorities. This survey, the only one of its kind in the world today,
has expanded greatly in scope since it was first conducted in 2000. Initially limited
to about 2,000 Japanese respondents, the sample now encompasses 30,000–40,000
residents in Japan and about 500 each in Britain, China, Germany, and Malaysia.
In the following, I review some of the key points we have gleaned from 14 years of
research.
If we compare the results of the most recent (2013) survey with that carried out
10 years earlier (Table 2), we see a substantial decrease in the number of people
who have either read or seen a sustainability (environmental or CSR) report, from
36.7% to 27.7%. Meanwhile, the portion with no prior awareness of such reportsrose from 25.1% to a full 39.2%. Even making allowances for the 10-fold increasein sample size, these results are discouraging.
With regard to the content of companies’ sustainability reports, the percentageof respondents that deemed them either “quite trustworthy” or “fairly trustworthy”
dropped from 54.2% to 47.9%. Yet the ratio that judged them “somewhat untrustworthy” or “completely untrustworthy” also dropped, from 12.3% to 9.9%. By
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Table 2. Public Awareness of Environmental/CSR Reporting

Source: NTT Group, “Kankyo/shakai hokokusho dokusha anketo” (Survey on Public Awarenessof Environmental/CSR Reporting), 2003 and 2013.

contrast, those choosing the response “can’t say either way” rose from 33.0% to41.8%. These trends may reflect the increasing complexity and detail of reportingin compliance with the GRI and ISO 26000 (social responsibility) guidelines, rendering the content difficult for the average reader to understand.
The survey also asked respondents which facets of CSR they considered mostimportant for companies to report, choosing from the main GRI headings in the2003 survey and from the ISO 26000 headings in 2013. The results are tabulated
in Tables 3 and 4 below. In addition, in 2003 we were able to gather comparative
data on the priorities of the reporting corporations themselves with the help of theEnvironmental Report Network (now the Sustainability Communication Network), an organization of corporate officers involved in environmental and CSR
reporting (Table 3).
Since 2011, we have also been conducting the survey in selected countries overseas to gauge the perceived importance of CSR efforts under each of the ISO 26000
headings in Japan and overseas. Since then, a few noteworthy patterns haveemerged.
First, Japanese respondents have consistently stressed the importance of laborand consumer issues, while respondents in Britain and Germany seem more concerned with human rights. Within Japan, a growing perception gap has emerged72

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Table 3. CSR Priorities for Citizens and Companies, 2003

Note: Numbers indicate the order in which the items were listed in the questionnaire.
Source: NTT Group, “Kankyo/shakai hokokusho dokusha anketo,” 2003.

between the younger and older generations with regard to the relative importanceof various CSR topics. When asked to choose as many as three important CSR
topics from the ISO 26000 core subjects, respondents aged 50 and over were most
apt to choose the environment (selected by 62.9%), with labor practices coming insecond (54.7%). Among respondent under 30 years of age, the top response waslabor practices (66.5%), followed by the environment (48.5%).
Within Japanese companies, we see a similar gap between the attitudes of therank-and-file employees and members of management. The former attaches greater
importance to labor issues than the environment, while the latter tends to feel thatthe company has fulfilled its social responsibility with its environmental policies
and often has no plans for addressing such labor issues as diversity and equal opportunity over the medium or long term.
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Table 4. Perceived Importance of ISO 26000 CSR Topics(% responding “very important”)

Source: NTT Group, “Kankyo/shakai hokokusho dokusha anketo,” 2013.

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Figure 1. Perceived Importance of ISO 26000 Core Subjects by Country, 2013
(Choose Up to Three)

Source: NTT Group, “Kankyo/shakai hokokusho dokusha anketo,” 2013.

From Dialogue to Engagement
By illuminating perception gaps of this nature, our survey, we believe, has spurred
CSR officers to push for new CSR initiatives and helped them make their case to
executives and other corporate divisions. In this way, our survey is helping to raise
the consciousness of Japanese CSR officers, and thereby contributing to the evolution of CSR policies and programs in Japan.
Each year the results of the latest survey are presented at the NTT Group’s
Environmental/CSR Reporting Symposium, held in conjunction with the December
Eco-Products exhibition, Japan’s largest environmental trade fair (sponsored by theJapan Environmental Management Association for Industry and Nikkei Inc.). For
corporate employees involved in CSR, including personnel and procurement officers as well as CSR managers, the symposium has become one of the major eventsof the year. In addition to the survey results, each symposium features a panel
discussion on a current CSR theme, chosen for its special relevance to Japanesebusiness going forward.
A survey of the topics covered by the symposiums since 2000 (Table 5) underscores not only the evolution of CSR in Japan—including the shift from “monologue” to “dialogue” and the growth of efforts to stem climate change—but also75

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Table 5. Environmental/CSR Reporting Symposium Themes, 2000–2013

the maturation of our discourse on the subject, as we tackled such timely themes
as global credibility and organizational diversity.
In terms of production and sales, Japanese corporations are already active,
successful participants in the global economy. But their success over the next two
decades will likely hinge on whether they can align their values and governancestructures to international standards. The key here will be their willingness to engage with civil society in deliberating, deciding, and acting on social issues, insteadof simply thinking and acting on their own. At IIHOE, we hope to do what we canto encourage and support the kind of effective global engagement needed to maintain the prestige and popularity of Japanese brands around the world. (Researchedby Zentaro Kamei, Tokyo Foundation)

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June 29, 2015

Identifying Materiality through Stakeholder
Engagement
Sompo Japan Nipponkoa
The Tokyo Foundation

Sompo Japan Nipponkoa is a nonlife insurance company that volunteered its office work
expertise in support of areas affected by the March 2011 Tohoku earthquake and tsunami.
It is also unique in emphasizing dialogue with stakeholders to identify key issues for its
CSR initiatives. The following is from the section on “Businesses Driving Positive Social
Change” of the Tokyo Foundation’s CSR White Book 2014.
*

*

*

I

nsurance is a scheme by which subscribers pay fixed premiums to prepare for
future risks and unforeseen accidents, and it can be regarded a system of mutual assistance. Some insurance schemes are run by the government, including
those for healthcare, pensions, unemployment, and seafaring workers. But others,
such as life insurance and nonlife insurance, are generally the responsibility of theprivate sector.
The irony for insurance companies like Sompo Japan Nipponkoa and theiremployees is that it is during disasters, accidents, and other unwanted situations
for their subscribers that they become most useful in society. This is because insurance companies perform their most important function—making payments—when
subscribers are in the worst of situations.
This was especially true in the wake of the March 2011 Great East Japan
Earthquake, when more than 3,000 Sompo employees were mobilized to meet theneeds of those affected. The company had two key objectives: (1) to make insurance payments as quickly as possible and (2) to provide uninterrupted services,such as for new contracts. In the immediate aftermath of the disaster it sent support
staff to the affected areas, set up an emergency response headquarters, conductedassessments of the situation on the ground, and addressed customer inquiries. The
number of cases it handled was the largest in the company’s history.
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For victims of a disaster, the money they receive from their insurance company
is the first step toward rebuilding their lives. Seeing people doing their best to face
up to a difficult situation gave many Sompo employees a renewed appreciation of
the role and raison d’être of an insurance company.
Offering Expertise
The company’s exposure to the disaster zone prompted a reassessment of its workin other ways as well. Working as volunteers in the affected areas and collecting
donations were obviously quite helpful, but Sompo employees could make an evenbigger contribution by offering their professional expertise, honed in the course of
their daily work.
One such skill is the ability to process very technical paperwork, which is partof a nonlife insurer’s work of collecting premiums and making payments. Likebanking and life insurance, this involves handling customers’ valued assets, so
mistakes are not permitted. A huge volume of forms must be processed and accidents dealt with on a daily basis. A disaster on a scale of the Great East Japan
Earthquake requires sophisticated and precise workflow to assess the damage andmake payments. This might appear to be a matter of course for an insurance company, but predicting peak administrative volume and creating and continually improving the workflow for error-free operations requires great skill.
One example of how the company used its expertise was its administrative
support for CANNUS Tohoku, an NGO operating along the Miyagi coast near
Ishinomaki. CANNUS is a national organization headquartered in Fujisawa,
Kanagawa, that registers and dispatches volunteer visiting nurses to provide medical and nursing care in the local community.
CANNUS Tohoku was set up following the March 2011 earthquake and has
played a valuable role in providing a range of physical and mental healthcare
services for the elderly. With volunteer nurses focused on meeting the caring needsof residents in the community, though, the CANNUS office faced a backlog of
paperwork, resulting in failures to fully share information, especially when work
was handed over to new volunteers. With its resources overstretched, the NGO
was unable to keep systematic records of what the community lacked, hindering
efforts to petition the authorities for fresh supplies. Visiting nurses often experienced long delays before their travel expenses were reimbursed, and opportunities
to apply for grants came and went for lack of familiarity with the application
procedures.
CANNUS Tohoku was exactly the kind of organization that could use Sompo’s
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administrative expertise. After confirming this hunch, the insurance company dispatched 10 employees to work at the local office for three months.
The Sompo staff reorganized CANNUS Tohoku’s workflow. The employees
even provided training in such areas as creating a user database, identifying local
healthcare and welfare needs, using report forms and spreadsheet software, andapplying for grants so that local workers would be able to handle these tasks ontheir own once Sompo left.
Such assistance ensured the sustainability of CANNUS Tohoku’s operations
and enhanced the usefulness of its services to the local community. It also had theeffect of heightening Sompo employees’ awareness of their own skills as officeprofessionals—expertise that could be shared to assist the reconstruction of disaster-hit areas. Traveling to tsunami-affected areas to help clear debris, which many
volunteers from around the country did, was not only way to help; they realizedthat they could put the skills they had acquired on the job to make an important
contribution. They also gained a deeper understanding of the value of working asa group. These insights will no doubt have a great impact on their careers, as they
now have a fuller grasp of the significance of their jobs.
Attendance at the Rio Summit
The roots of Sompo’s CSR initiatives go back to the United Nations Conference on
Environment and Development (Earth Summit), held in Rio de Janeiro from June
3 to 14, 1992. While the summit’s Declaration on Environment and Development
called for “new levels of cooperation among States, key sectors of societies andpeople,” most participants from Japan were from the government. One of the few
representatives of Japan’s corporate community—and the only chief executive—
was Yasuo Goto, then president of Yasuda Fire & Marine Insurance (which later
became Sompo Japan Nipponkoa).
The Earth Summit was held just before the annual general shareholder meeting
season, so most business leaders chose not to attend. Goto, however, was very interested in the summit, believing that the environment and sustainability werecrucial issues for both society and business.
Yasuda Fire & Marine became well-known in Japan for its purchase of Van
Gogh’s Sunflowers, which was put on public display as a way of giving somethingback to society in a way other than through insurance payments. Later, the Nature
Conservancy, a US conservation group, visited the company to meet the executive
who had bought the painting, an encounter that deepened Goto’s interest in environmental issues. Believing firmly that virtue and strength are keys to success as a
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company, Goto attended the Earth Summit and oversaw the establishment of the
Global Environment Office at Yasuda to deal with sustainability issues.
Yasuda was not just a company with principled leadership but also the second
largest firm in the industry. In the early 1990s, the insurance sector was strictly
regulated, and differentiating oneself from one’s competitors in terms of products
and pricing was quite difficult. Yasuda’s focus on environmental issues, therefore,
was an attempt to offer something unique, no doubt based on the conviction that
customers would rather choose an insurer that valued the needs of society and its
future.
A Groupwide Effort
CSR initiatives are often launched by top management, and they tend to lose steam
following a leadership shuffle. This was not the case at Sompo, however, as these
activities were pursued under the principles of “full-participation, steady and continuous progress, and acting with initiative,” which are still adhered to today. In
1993, the year after the Earth Summit, the company began engaging with civilsociety by launching a volunteer group for employees called the Chikyu (Earth)Club and organizing public seminars on the environment.
While the company’s CSR initiatives began with a focus on the environment,
they later came to cover a full range of issues. They were undertaken on a groupwide basis with the participation of all employees, who discussed concrete CSR
case studies. Conducting such detailed and repeated discussions within and without the company became a matter of routine, a practice that continues to this day.
There is even a section concerning CSR initiatives in employee evaluation
forms, with staff and their managers being called upon to discuss this topic. The
intention is to get employees thinking about these issues, however, for the substanceof such discussions is not used in the actual evaluation.
Assessing Stakeholders’ Expectations
In integrating its CSR initiatives and business operations, Sompo focuses on what
it calls “five material issues.” The first is “providing safety and security” to society,which refers to innovative services that meet customers’ safety and security needs
by mitigating various risks. The second is “tackling global environmental issues,
including climate change.” In addition to dealing with climate risks on its own
through “adaptation and mitigation,” Sompo also partners with groups in othersectors to develop new solutions. The third is “providing sustainable and respon80

CSR White Paper
sible financial services” to address social issues. The company promotes responsible
investment incorporating ESG (environmental, social, and governance) criteria anddevelops financial and insurance products and services to help resolve various issues. The fourth is partnering with NGOs to help build a sustainable society
through “community involvement and development.” And the fifth is “developing
human resources and promoting diversity” to build a stronger organization. By
creating dynamic workplaces where diverse human resources can fully apply theirskills, Sompo is encouraging the development of employees who can make valuable
contributions to society through their work.
These five “material issues” may not be unique to Sompo, but what sets themapart is the process by which they were arrived. They were not unilaterally issued
by the CSR or corporate planning department nor by top management. They are
the result of a three-step process consisting of (1) conducting analysis and implementing a questionnaire survey based on the ISO 26000 guidelines for social responsibility; (2) holding dialogue with experts; and (3) identifying specific issues.
Figure 1. Analysis of Material Issues Based on ISO 26000

Source: NKSJ Holdings Corporate Responsibility Communication 2012.
Note: NKSJ Group refers to Sompo Japan Nipponkoa Holdings (since September 2014).

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During the first stage, social issues as outlined by ISO 26000 were mapped out,
and a questionnaire survey was conducted to assess what the public expected from
Sompo.
ISO 26000 was developed through discussions among a broad range of stakeholders in both developing and developed countries, including consumers, governments, private companies, organized labor, NGOs, and academic institutions. Unlike ISO 14001 for environmental management systems, ISO 26000 is not focusedon certifying compliance with a set of standards but offers guidelines for the integration of corporate resources to enable companies to efficiently fulfill their responsibilities to stakeholders.
Importance is given in ISO 26000 to how organizations think about and implement strategies to deal with key issues. For human rights, for example, companies need to examine whose human rights are at stake and what the problems are,then use the guidelines to identify the most significant human rights issues for theirrespective organizations.
Sompo used ISO 26000 to identify possible focuses for its CSR initiatives, after
which it conducted an online questionnaire (answered by 1,032 people) to discover
the areas where stakeholders had high expectations of the company. It also analyzed which areas had the greatest significance for their business operations. Figure
1 is a mapping of “stakeholder expectations” and “importance to the NKSJ (nowSompo Japan Nipponkoa) Group” along the vertical and horizontal axes, respectively.
Reaching Out to Civil Society
Once this was done, Sompo moved to stage two: dialogue with outside experts. Topexperts from the environmental and civic sectors were invited for discussions withnot just members of the company’s CSR department but also staff at all levels, fromsenior management to newly hired employees.
This process has enabled the company to develop human resources who are
fully aware of and are ready to meet the needs of society. The feedback received
from outside experts during the process of identifying material issues is included in
the company’s 2012 CSR report: NKSJ Holdings’ Corporate Responsibility Communication 2012. Examples include the following:
In Japan after the Great East Japan Earthquake, work to address global warming slowed down, but natural disasters, like the Thai floods, are likely to become more common from now on. So climate change will be a key issue for82

CSR White Paper
insurance companies. I’d like to see the NKSJ Group maintain its broad perspective and take progressive measures while looking one step—or even slightly
less than that—ahead. (Junko Edahiro, environmental journalist and chief executive, Japan for Sustainability)
Regarding the “provision of security and safety,” I think there are two basic
ways to deliver such value: (1) through existing services and (2) through newly
created services. Sompo’s Eco & Safety Drive, for example, is a well-establishedservice in Japan. But in developing countries, where traffic fatalities are likely
to become an increasingly serious concern, there will be a growing need forsuch preventive services. (Hideto Kawakita, CEO, International Institute for
Human, Organization, and the Earth)
Dialogue with outside experts has enabled Sompo to gain fresh insights into
the medium- to long-term, from both the personal and corporate points of view.
The broadening of understanding has extended not only temporally into the future
but also spatially to conditions in other countries.
The process has also led the company to reaffirm the importance of three concepts: (1) ongoing dialogue with a wide range of stakeholders; (2) identification ofbroader and deeper emerging issues; and (3) actively working with society to create
new value.
Looking Ahead
As for the third and last stage of identifying specific CSR issues, Sompo mapped
the results of the first two phases using, again, the two axes of stakeholder expectations and importance to the NKSJ Group, as shown in Figure 2. Some might
wonder if going through so much trouble to identify key issues is really necessary,as the same conclusions might have been reached just by reviewing the work thecompany performs every day.
The important point about this process, though, is not really the issues themselves; of greater significance is that it enables the company to communicate its
intentions to continue its dialogue with stakeholders in reassessing its business
operations. Such a stance is premised on the recognition that society’s biggest issues
and their solutions are constantly changing—sometimes in unexpected ways—and
involve a broad range of interdependent factors, such as the environment, public
policy, economic trends and conditions, corporate behavior and business models,
work styles, and household structures.
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Figure 2. Mapping of Material Issues

Source: NKSJ Holdings Corporate Responsibility Communication 2012.
Note: The issues were revised in 2014 and now consist of “Six Group CSR Material Issues.”(See: http://www.nksj-hd.com/en/csr/system/)

The dialogue with stakeholders and experts enables both top management andthe rank and file to reflect on how flexibly they are dealing with such changes.
Applying the same approaches year after year will not be enough to address emerging issues or to meet society’s expectations. The forums for dialogue are thus an
indispensable part of keeping fresh and up-to-date.
Companies have a tendency to fall into a routine, and once a pattern is established, it can be difficult to change. Sompo’s foresight is in its understanding thatto actively engage with society it must always look a step—even half-a-step or 0.7
steps—ahead and continue its dialogue with its stakeholders.
Meeting Social Challenges
What does the company do to address the material issues it has identified? In thefield of “tackling global environmental issues, including climate change,” for example, it sees the issue not just in terms of risk management but also as an opportunity
for business creation and for growth through market leadership.
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The number of climate-related natural disasters has been on the rise since the1980s, and this has had a large economic impact on many places around the globe.
The probability of being adversely affected by a natural disaster is far higher in adeveloping country than in an industrially advanced member of the Organization
for Economic Cooperation and Development (19:1 versus 1,500:1), moreover,meaning that areas that already face tough economic conditions are hit hardest byenvironmental issues. The insurance industry, too, is affected by disasters, which
results in higher payments and premiums and can make the stable provision of
insurance more difficult.
On the other hand, the situation presents opportunities for the insurance industry to create and develop new markets through a process of “adaptation andmitigation.” Through adaptation, insurance can help to reduce the damage causedby climate change, lower the risks of renewable energy initiatives; and promote
innovative technologies to create a low-carbon society.
As for mitigation, Sompo is helping reduce greenhouse gas emissions by, forexample, encouraging the use of recycled parts in repairing cars after accidents;
reducing paper waste by promoting the shift to online contracts; introducing green
procurement; and promoting the company’s Eco & Safety Drive service. The company also encourages the implementation of these measures by local insurance
agents, auto repair firms, suppliers of raw materials, and other business partners
and is asking its customers to take similar measures. In these ways, each department can take concrete steps in “tackling global environmental issues” in accordance with their place along the value chain.
To foster the spread of renewable energy, Sompo has developed a new type ofpolicy to compensate for lost operating income when electricity sales from solar
power generation, for instance, declines due to fire or natural disaster. This productinsures against lost income and reduces the risks faced by power generating businesses, thereby supporting the spread of renewable electricity.
Helping Thai Farmers Hedge against Climate Change Risk
Another “adaptation” measure is the weather index insurance developed in 2010
to insure farmers in northeast Thailand against climate change risk. When rainfall,as measured by the Thai Meteorological Department, falls below a certain threshold, Sompo pays a fixed amount to farmers, helping to reduce the damage fromdrought.
Typically, local farmers borrow money before growing crops, sell their harvest
to get income, and use that money to pay off their loans. When there is a drought,
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Figure 3. Weather Index Insurance for Farmers in Northeast Thailand

though, their income drops, and they do not have enough to pay back their debt.
To hedge against such risks, banks are wont to raise interest rates, but this only
makes things more different for the farmers; uncertainty over harvest volume is aserious problem for farmers and banks alike.
A reasonably priced insurance product to cover the risks associated with climate change was thus of great value to the local community. With infrastructure
for accurate meteorological measurements already in place, weather index insurance was ready for launch. The product was offered as a package with a loan
agreement, with payments designed to cover the amount borrowed.
Sompo Japan developed a local risk finance mechanism and partnered with the
Bank for Agriculture and Agricultural Cooperatives of Thailand (BAAC) to offer
the product to local farmers (Figure 3).
In developing this product, the company tapped its expertise in risk evaluationand financial instruments-based risk finance. It also listened carefully to the viewsof local famers unfamiliar with insurance to design a simple and easy-to-understand product.
Sales of weather index insurance began in Khon Kaen Province in 2010 and
expanded to five provinces the following year and to nine in 2012. The insurance’s
benefits were soon recognized when farmers who had purchased the product wereable to avoid a loss of income despite a drought in some areas in 2012.
Visualizing and Quantifying CSR Targets
Sompo’s CSR initiatives are characterized not only by the time-consuming process
through which the material issues are identified but also for quantified targets thatare set for implementing each of the five issues, which in turn generate ideas for
future action through a PDCA (plan, do, check, act) cycle.
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Quantification and visualization are essential components of implementing kaizen improvements in the workplace, which many Japanese companies apply totheir manufacturing and sales processes. But quantification has largely remained
elusive in the field of CSR. Such efforts tend to be more advanced at
CSR-savvy foreign firms, with their
nonfinancial reports providing notjust qualitative descriptions but also
quantitative data so that readers—that is, stakeholders—can have a better idea of the impact and scale of the Hideto Kawakita, left, and Junko Edahiro offer theircomments on Sompo’s CSR initiatives.
initiatives.
Why has the effort at quantification been slow in Japan? Certainly it is not because Japanese companies do nothave such skills, for they are more than capable of keeping detailed track of their
manufacturing activities. The real reason might well be that most companies still
think that quantification is unnecessary in CSR.
Sompo, though, is an exception. Through dialogue with experts, it is setting up
key performance indicators for its CSR initiatives, as can be gleaned from the following comments published in NKSJ Holdings’ Corporate Responsibility Communication 2013:
In my view, KPIs represent future outcomes that are desirable and that shouldbe emphasized. The first key point for identifying your KPIs is to take a backcasting approach and define your ideal future. You don’t need to pay attention
to—or at least shouldn’t be bound by—whether this is something that can bemeasured or openly disclosed. The second key point is to continue to elaborate
the KPIs. You may not be able to get everything fully prepared at the beginningbecause you don’t know how to obtain the data. But this is fine. All you needto do is to make sure that the KPIs will continue to evolve. The third key point
is to run the PDCA cycle for the KPIs themselves. Rather than simply being
content with your current KPIs, you need to be both resilient and flexible
enough to make sure that they will continue to live up to the societal expectations of the day. KPIs are not goals but means. (Junko Edahiro, environmental
journalist and chief executive, Japan for Sustainability)
KPIs are milestones in a long-term roadmap and should be set in such a waythat they can be used as annual goals over a period of about five to seven years.
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Not all the annual results have to be publicly disclosed, but you should be sure
to check whether the management indicators set as goals have been followed
and to determine how close you were to achieving the goals and by when thegoals will be accomplished. KPIs should be set high and determined by considering what impact you want to have on society through your CSR management
policy. It is therefore important to set not just short-term goals but also mid- tolong-term goals from a sufficiently broad and deep perspective. (Hideto
Kawakita, CEO, International Institute for Human, Organization, and theEarth)
The company’s replies to these comments were as follows:
Setting our KPIs and visualizing our performance will become the engine thatdrives such evolution. It became very clear to me how important it is to ensurethat the KPIs are designed in such a way that they will lead to increased trustand dialogue with stakeholders.” (Takaya Isogai, senior managing executive
officer, Sompo Japan Nipponkoa)
Consideration about KPIs means profound thoughts on the NKSJ Group’s social responsibility. This makes it a starting point for the discussion on CSR
aimed at exploring how we can maximize our positive impact on society andwhat goals we should set to achieve this maximization. We will advance ourplan to realize the KPIs based on the advice of the two experts.” (Masao Seki,
senior advisor on CSR, Sompo Japan Nipponkoa)
Creating KPIs for CSR is not an easy task, but Sompo has given it priority, no
doubt considering it important in clarifying its relations to society, identifying what
it can do to address social issues, ascertaining its rightful role in society, and offering fresh insights into what a private business can offer to its stakeholders.

88Economy
July 16, 2015

The Unchanging Face of Japanese
Employment
Ryo Kambayashi

The employment practices for which Japanese business gained fame—and later notoriety—are
alive and well according to economist Ryo Kambayashi, who uses statistical analysis tochallenge some widespread assumptions about the Japanese labor market.
***

1. Introduction
Once hailed for their flexibility and economic rationality, the Japanese Employment System in the post–World War II era came under attack in the 1990s as acause of economic stagnation. Opinion leaders began publicly advocating an overhaul of the legal and social institutions supporting Japan’s labor market, and virtually every government or think-tank report dealing with labor and employment
gave lip service to the idea of labor market reform.
Two decades on, it is difficult to point to any clear signs of progress. In recent
years commentators have begun using the discouraging term “bedrock regulations”
in reference to labor laws and regulations that have resisted reform due to the political influence of vested interests. But this interpretation assumes the existence ofregulators and rules that are deliberately blocking change in the labor market. Instead, I would suggest that the Japanese labor market is not subject to any particular decision-making entity but an accumulated result of local agreements among
multiple stakeholders.
In this paper I highlight the persistence of certain self-sustaining Japanese employment practices, despite regulatory reforms, summarizing two recent studies
that I carried out in collaboration with a colleague. After providing an overview of

Ryo Kambayashi   Research Fellow, Tokyo Foundation; Associate Professor, Institute of
Economic Research, Hitotsubashi University.
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the labor market since the 1990s in section 2, I turn my attention in section 3 totrends in long-term employment, the mainstay of the Japanese Employment System, calling into question the widespread assumption that long-term employment
is in a steep decline in Japan.
But how can long-term employment be alive and well, given the off-cited risein Japanese companies’ use of “nonstandard” employees? In section 4, citing thedecline in the number of workers classified as “self-employed and others,” I explain
why the increase in nonstandard employment is not synonymous with a decline inlong-term employment. In section 5, I assess the persistence of another key featureof the Japanese Employment System, seniority-based wages. And in section 6, I
conclude with a discussion of the deeply rooted Japanese tradition of local collective agreements as a key factor underlying the persistence of such practices.
2. Overview of the Labor Market since the 1990s
Let us start by looking at basic trends in the Japanese labor market over the past
two decades or so, beginning with the unemployment rate. Figure 1 is based on
unemployment figures compiled by the Organization for Economic Cooperation
and Development, which are adjusted to enable a valid international comparison.
Figure 1. Unemployment Rate as a Percentage of the Civilian Labor Force byCountry, 1956–2010

Source: OECD statistics.

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To illuminate long-term trends, I have included figures going back to the 1950s.
The shaded section represents the period following the collapse of Japan’s asset
bubble in 1992.
As the graph indicates, Japan’s unemployment rate remained consistently low
until the collapse of the bubble economy in 1992. After that, we see a marked upward trajectory that continues until 2002. The situation improved thereafter until
the global recession precipitated by the 2007–8 financial crisis, at which point
unemployment surged once again.
Still, while Japan experienced a marked rise in joblessness over the past two
decades, it enjoyed both a lower rate of unemployment overall and far less dramatic fluctuation than the other major OECD countries. This suggests a disconnect
between the performance of the Japanese labor market in an international context
and the perception of that market within Japan.
This disconnect was particularly marked during the global recession. The graphbelow, also compiled from OECD figures, charts the shock caused by the financial
crisis in the major OECD countries (as changes in real gross domestic product) andthe reaction of the labor market to the crash (as changes in the unemployment rate).
In terms of GDP, the financial crisis and ensuing recession had a greater impact
Figure 2. Impact of the Global Recession on GDP and Unemployment in Selected OECD Countries (change from peak to trough)Note: Peaks and troughs were determined using real GDP series in levels.
Source: OECD, Main Economic Indicators Database.

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Economyon Japan than on Britain, France, Germany, Italy, or the United States. Yet the increase in unemployment was relatively small. In other words, while Japan experienced a bigger economic contraction than any of the other countries, the labormarket was somehow cushioned from direct impact. This kind of cushion calls tomind one of the well-known mechanisms of the Japanese Employment System, inwhich companies rely on adjustments in pay and working hours, rather than workforce cuts, to adapt to business slowdowns. It suggests that, even in the face of theworst recession in a hundred years, this aspect of the Japanese labor market remained fundamentally unchanged.
3. The State of Long-Term Employment
This survey of the Japanese labor market through the fundamental macroeconomic
lens of unemployment should be enough to call into question the widely held belief
that the market has changed fundamentally since the 1990s. But it is not the only
evidence contradicting that assumption. In 2012 Takao Kato and I published aworking paper analyzing trends in long-term employment among Japanese companies. Using data from the Japanese government’s Employment Status Survey and
Figure 3. Change in 10-Year Job Retention Rate for Employees with 5+ Years
Initial Tenure, Japan and United States%
90.0

1982–92 (81–91)

80.0

1987–97
1992–2002 (91–01)

70.0

1997–2007 (96–06)

60.0
50.0
40.0
30.0
20.0
10.0
0.0
Age 30–34
Japan

Age 30–34
United States

Age 36–39
Japan

Age 36–39
United States

Source: Kambayashi and Kato (2012), Figure 1.

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Age 40–44
Japan

Age 40–44
United States

Economy
Figure 4. Change in 10-Year Retention Rate for Employees with Less than 5Years’ Initial Tenure, Japan and United States%
50.0

1982–92 (81–91)

45.0

1987–97
1992–2002 (91–01)

40.0

1997–2007 (96–06)

35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Age 30–34
Japan

Age 30–34
United States

Age 35–39
Japan

Age 35–39
United States

Age 40–44
Japan

Age 40–44
United States%
50.0

1982–92 (81–91)

40.0

1987–97
1992–2002 (91–01)

30.0

1997–2007 (96–06)

20.0
10.0
0.0
Age 20–24
Japan

Age 20–24
United States

Age 25–29
Japan

Age 25–29
United States

Source: Kambayashi and Kato (2012), Figure 4 and Figure 7.

the US government’s Current Population Survey, we calculated the percentage ofworkers in various groups who remained with the same company for 10 years ormore in both countries and called into question the assumption that long-term
employment is declining in Japan.
Figure 3 charts the change in the 10-year job retention rate for core company
employees, defined as employees aged 30–44 with at least five years’ tenure at thestart of the observation period. We see that in Japan, more than 70% of employees
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aged 30–34 with five years’ tenure as of 1982 were working at the same company
10 years later, in 1992. In the United States, the corresponding figure was just over
50%. At a glance we can see that the 10-year retention rate is much higher in Japan
than the United States across the board, an indication of the value the Japaneseplace on long-term employment.
More surprisingly, the graph reveals that the trend away from long-term employment is considerably more pronounced in the United States than in Japan. In
fact, during this time, Japan has seen little change in the 10-year retention rate forthose employees traditionally regarded as the core of a company’s workforce.
Of course, there is more to long-term employment than core employees. Figure
4 tracks the changes in the 10-year retention rate among employees with less than
five years’ initial tenure, that is, mid-career hires and younger employees. The 10year job retention rate for mid-career hires has fallen continuously in Japan,
whereas the United States has registered little change overall. Likewise, the rate foryoung workers has fallen steadily Japan. (One should note, however, that the extremely low 10-year retention rate for US workers in their twenties—in the vicinityof 10%—raises questions of statistical reliability.)
Figure 5. Predicted Job Loss Rate and Tenure in Japan and United States,
1997 and 2007Japan
5–9 yrs

United States

10–14 yrs

15+ yrs

Predicted job loss rate (%)

Predicted job loss rate (%)

0.000

0.000

-0.005-0.005-0.010-0.010-0.015-0.015-0.020-0.020-0.025-0.025-0.030-0.030-0.035-0.035-0.040-0.040-0.045-0.045-0.050-0.050-0.0551997 (1996)

2007 (2006)

Source: Kambayashi and Kato (2012), Table 7.

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5–9 yrs-0.0551997 (1996)

10–14 yrs

15+ yrs2007 (2006)

Economy
The 10-year retention rate does not distinguish between demand-side and supply-side factors—that is, it lumps those who are dismissed or laid off with those
who leave of their own volition. Consequently, it is possible that increases in voluntary attrition in the United States could create the appearance of a decline inlong-term employment as a managerial practice. In Kambayashi and Kato (2012),
we approached the issue from an alternative angle, tracking and comparing thecorrelation between years of service and the risk of job loss. Our findings are
summed up in Figure 5.
In 1997, the probability of losing one’s job in Japan was 5 percentage points
lower among company veterans with 15 years or more of service than among
recent hires; in the United States, the difference was 3.5 percentage points. In
other words, veterans enjoyed substantially greater job stability in both Japanand the United States. In Japan, the picture remains essentially the same a decade
later, while in the United States the risk of losing one’s job has increased acrossthe board, although years of service provided somewhat greater protection.
Taken together with Figure 3, this analysis confirms that it is not Japan but theUnited States that has experienced a significant decline in long-term employment
security.
In short, our comparison revealed that, since the 1980s, job security amongcore employees has declined in the United States but not in Japan. The only groups
that could be experiencing greater job instability in Japan are mid-career hires andyounger employees.
4. Understanding the Rise in Nonregular Employment
The assertion that long-term employment has not, in fact, fallen out of favor among
Japanese companies may seem to fly in the face of conventional wisdom, given thewell-documented rise in “nonstandard” employment (hiseiki koyo). It is perhaps
natural to assume that the rise in nonstandard employment signifies a decline in
the practice of long-term employment. But if the conclusions presented in the previous section are correct, then that assumption must be wrong.
We took up this issue in another paper, published as a working paper in 2013.
We began by attempting to determine the forms of employment that are recognized
as nonstandard employment in the Japanese labor market. Nonstandard employment is defined in a number of ways, but the criterion one encounters most often
is whether or not the employee is hired under a fixed-term contract.
Under Japanese labor law, the distinction between fixed-term and indefinite(that is, permanent) employment is all-important. Likewise, the OECD, in calling95

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for an end to the disparity in regulations governing the dismissal of regular andnonregular employees, defines nonregular employees as those with fixed-term contracts and regular employees as those with indefinite contracts; in Europe there isreally no other definition of nonregular employment. In Japan, however, studies ofhuman resource management and labor relations have traditionally placed moreemphasis on workers’ job titles than on the distinction between fixed-term andindefinite contracts.
In our 2013 paper, we conducted a statistical analysis to determine whether theemployees’ titles or the term of the labor contract correlated more strongly withsuch key indicators of the Japanese Employment System as separation risk, wages,
and participation in company-sponsored training programs. We found that thedesignation was the decisive factor. In other words, employees with the same titles
were treated virtually the same with respect to the aforementioned indicators, regardless of whether they were working under indefinite or fixed-term contracts.
This finding highlights the limited power of statutory laws and regulations inJapan’s labor market. In Japan, textbook discussions as well as case law concerning
abusive dismissals and the legality of employee layoffs all focus first and foremoston whether the labor contract is fixed or indefinite. The employee’s designation
within the workplace is never mentioned. From a legal standpoint, therefore, theFigure 6. Composition of Labor Force by Type of Employment
100

Self-employed90

Nonregular
employees
on indefinite
contracts

80

Nonregular
employees
on fixed-term
contracts

70
60

Regularemployees
on fixed-term
contracts

50
40Regularemployees
on indefinite
contracts

30
20
10
0

1982

1987

1992

1997

Source: Kambayashi and Kato (2013), Figure 2.

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2002

2007

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term of the contract is all-important, and the workplace designation of the employee’s post or job classification is beside the point. Yet that designation—not the termof the contract—is crucial in determining whether an employee is considered partof the company’s core workforce and is therefore subject to the basic benefits andrequirements associated with the Japanese Employment System. This suggests thatmany Japanese employment practices have a life of their own, independent of statutory laws and regulations.
With these findings in mind, our study charted the change in the number ofnonstandard employees in Japan since the 1980s, dividing these employees into
four groups based on employee designation and whether they were on fixed-term
contracts or working under indefinite contracts.
Of particular note here is the steady growth in the segment representing defacto nonstandard employees, even though they are working under indefinite contracts. This group has grown by 10.2 percentage points in the past 25 years, anincrease consistent with the widespread perception regarding the increase in nonstandard employment. Yet the share occupied by standard employees (both on indefinite and fixed-term contracts) has declined by a mere 2.5 percentage points
during the same time. Most of the increase in de facto nonstandard employment isbalanced by a decrease in the share of the self-employed and others, which has
declined by 9.7 points.
While the share of nonstandard employees on fixed-term contracts has also
increased slightly (2.3 points), the overwhelming majority of nonstandard employees are now workers on indefinite employment contracts—that is, workers who are
not titled as standard by their employers but do not qualify as such under Japaneselabor law. Furthermore, the share of permanent nonstandard employees has increased fairly steadily since the early 1980s, suggesting that the overall increase in
nonstandard employment in Japan has little connection with the relaxation of labor regulations in the mid- and late 1990s.
In our study, we anticipated the objection that individual industries are unlikely
to mirror this neat inverse relationship between permanent nonstandard employees
and the self-employed. Figure 7 plots the increase in the share of permanent nonstandard employees against the decrease in the share of the self-employed in eachsector. The 45-degree blue line represents a linear correlation between the twovariables. Most of the industries fall fairly close to the 45-degree line, indicatingthat the rise in permanent nonstandard employment has been accompanied by acomparable decline in self-employment.
The industries that diverge significantly from the line—those in which standard
employment has declined significantly—are food manufacturing, communication,
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Figure 7. Change in Share of Nonstandard Permanent Employees andSelf-Employed/Family Business Workers, 1982–2002.

Source: Kambayashi and Kato (2013), Figure 5.

finance, and transportation, all sectors that have been the focus of major deregulation or privatization initiatives since the 1980s. For example, the 1980s saw theprivatization of government monopolies in the food industry (Japan Tobacco andSalt), communications (Nippon Telegraph and Telephone), and transportation(Japanese National Railways). While most regular employees were retained, it is
not surprising that their numbers should decline somewhat as a result of the privatization process. More noteworthy, perhaps, is the fact that such declines have
not occurred in the retail sector and service industries that were subject to costcompetition from the outset. This raises the interesting possibility that the basic
reason for the glut of regular employees lies not with the labor market per se butwith government regulation of the product market.
If, indeed, the decline in the number of workers in the self-employed sector
accounts for the increase in nonstandard employees, then that increase may have
hitherto unrecognized socioeconomic repercussions, as we point out in our 2013
paper. Labor conditions in the self-employed sector are known to be poor overall,
and workers tend to miss out on such benefits as paid vacations and employer-sponsored health insurance. A shift from the self-employed category into thenonstandard employee category could signal an improvement in working conditions and such benefits as health-insurance coverage.
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Figure 8. Change in Seniority Gap by Percentile, 1993–2010

Source: Ministry of Health, Labor, and Welfare, Basic Survey on Wage Structure.

5. Trends in Seniority-Based Pay
The findings of our 2012 and 2013 papers suggest that, at least where long-term
employment is concerned, the Japanese Employment System is alive and well, contrary to the popular perception. Can the same be said for the practice of linking
pay to seniority? I tracked the gap between the average compensation of employees
in their twenties and those in their fifties at the same workplaces using statistics
published by the Ministry of Health, Labor, and Welfare. The results were surprising.
I began by compiling establishment-by-establishment data regarding wages levels for haenuki employees (those who entered the company upon graduation froma four-year university and continued working up to the time of the survey). For
each workplace, I compared the average compensation for those in their twenties
with those in their fifties and calculated the disparity, or the “seniority gap.” A
larger seniority gap suggests a pay scale linked more tightly to seniority. I foundconsiderable discrepancy in the seniority gap from workplace to workplace, andthe distribution changed over time. In Figure 8, I track changes in the seniority gap
in the lower, middle, and upper ranges of that distribution.
In 2000, the baseline year, the median seniority gap was 2.44. In the same year,
the 75th percentile (midway between the median and the top of the range) was
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2.78, and the 25th percentile (midway between the median and the bottom) was
2.14. This indicates a considerable spread among companies in terms of the magnitude of their seniority gap. Now, however, let us look at the trend. During the
1990s, the seniority gap declined for all three quantiles, indicating a decline in the
average gap for all workplaces. After 2000, the gap continued to shrink among
workplaces that began with the smallest gaps. But among those with the largest
gaps, the trend of the 1990s reversed itself, and the gap began to grow again, suggesting a return to seniority-based pay. From about 2000 on, between one-fourthand one-half of Japanese companies reinforced the seniority curve in their pay
scale.
So despite the perception of a gradual collapse of seniority-linked compensation, the shrinking seniority gap may actually be the result of companies temporarily adjusting their pay scales to compensate for the rise in their mandatory retirement ages since the 1990s—while keeping a lid on total personnel costs. If this is
the case, then rumors of the death of a corporate culture that honors long-term
employment and seniority-based wages may be premature.
6. The Tradition of Autonomous Labor-Management Relations
The foregoing analysis of key Japanese labor practices suggests that their reputed
decline has been greatly exaggerated. Long-term employment, reliance on regular
employees, and seniority-based pay—all key features of the Japanese Employment
System—appear to be alive and well, at least in some parts of the Japanese labormarket.
Why are these practices so persistent? The two papers referred to above do notoffer a clear answer to this question, but my own studies and observations have led
me to a tentative explanation. The first hint was our discovery that the workplacedesignation of an employee is a more important determinant of the employee’s
treatment than the term of the employment contract. This highlights the importance of the distinction between “living law” and official or statutory law—a key
concept in legal sociology—within the labor market.
In the Japanese labor market, living law in the form of customary practices may
play a larger role in the formation of norms than statutory law. In fact, Japaneselabor law itself provides for numerous exemptions in the name of labor-management autonomy. Moreover, the wave of deregulation that began in the 1980s actually expanded the role of collective agreements at the company level. Regulations
governing work hours and overtime pay as well as those concerning employee
dismissals all stress the importance of reaching an understanding between manage100

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ment and labor through consultation. In fact, one could argue that Japanese society
lacks any effective mechanism of external control over management-labor relationsat individual companies.
The economic rationality of Japanese employment practices stems primarily
from the existence of an agreement between management and labor, and as long as
the two sides are in accord, there may be no compelling reason to abandon traditional practices. So any attempt to make a dent in the “bedrock regulations” governing the labor market must keep in mind the key role labor-management agreements play in shaping and maintaining this purported “bedrock.”
References
Kambayashi, Ryo and Takao Kato. “Trends in Long-term Employment and Job
Security in Japan and the United States: The Last Twenty-Five Years.” Center
on Japanese Economy and Business Working Paper Series 302 (2012), Columbia University.
Kambayashi, Ryo and Takao Kato. “Good Jobs, Bad Jobs, and the Great Recession:
Lessons from Japan’s Lost Decade.” PRIMCED Discussion Paper Series 41(2013).

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September 28, 2015

Benefits of Closer Japan-NATO Cooperation
The Tokyo Foundation

Deputy Secretary General Alexander Vershbow of the North Atlantic Treaty Organization
visited the Tokyo Foundation on September 14, 2015, to deliver a keynote address at a seminar on Japan-NATO relations, co-organized with the Ministry of Foreign Affairs. Prior tothis meeting with Japanese security experts and foreign officials from NATO member
states, he granted an interview with the Foundation.
***

TOKYO FOUNDATION Can you briefly describe the purpose of your visit to Japan?
ALEXANDER VERSHBOW I am here to continue our high-level dialogue with Japan.

Japan has been a good partner, very strong partner of NATO for many years. Actually, the first partner from outside of the Euro-Atlantic area and of course themost significant contributions have been in support of our efforts in Afghanistan,but there are many other things going on, and the relationship certainly goes beyond Afghanistan and I thought that this was an especially good time to come toTokyo to explore possible additional areas where we could deepen our cooperationand see where we can contribute to solving the very difficult security challenges
that the world faces today.
TF Can you elucidate on the areas in which you’re looking for stronger coopera-tion, especially in the light of the Individual Partnership and Cooperation Programthat was signed between Japan and NATO last year?
VERSHBOW That agreement defines a very extensive agenda of potential areas

where we could collaborate, including things that I know are of very high importance to Japan, including cyber defense, civil emergency planning, maritime security, seeing whether we can exchange some expertise and strategic communications
and public diplomacy, and of course counter-terrorism. These are the immediate
subjects that come to mind, but given all the different challenges that we face and102

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the shared interest that we have, there may be additional areas that could be identified.
Contributions to Peace and Security
TF How do you assess Japan’s security policy, particularly the efforts being madeby the [Shinzo] Abe administration to enact new and more flexible security legislation?
VERSHBOW From the NATO perspective, Japan has been a major contributor tointernational peace and security for a long time, and that has enabled us to work
together in Afghanistan and in dealing with other global crises, not only in theNATO context but also in the UN framework. But NATO has been following
with interest the work on the proactive
contribution to peace and the new legislation. While we don’t stick our noses
into the country’s internal affairs, we’re
hopeful that this can give additional impetus to NATO-Japan cooperation. As I
said before, with so many global challenges, this can be very beneficial to bothsides.
TF What would you consider to be someof those benefits?
VERSHBOW NATO offers a whole range

NATO Deputy Secretary General Alexander Vershof practical programs that can be benefibow delivering the keynote address at a Tokyo
cial to partners, and we can tailor that Foundation seminar on Japan-NATO relations.
cooperation to each country’s needs. For
some of the countries that are grapplingwith the threat of terrorism in their immediate neighborhoods, particularly in the
Middle East and North Africa, we’re stepping up our support in the area of defense
capacity building in counter-terrorism. But in the case of Japan, I think that there
are programs that offer ways for Japan to gain greater expertise in cyber-defense
and cyber-security and in dealing with natural disasters and other civil emergencies
where NATO has vast experience. There are exercises in which Japan is participat-

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ing, such as the one that starts later this month in Ukraine run by our Euro-Atlantic Disaster Response Center.
Of course there is a wide range of military-to-military activities that is open to
partners that can improve interoperability and professionalism among the armed
forces and lay the basis for potential operations, either in the NATO or UN framework. We have a very big menu. You don’t have to choose everything on the menu,
but I think there is a lot that can benefit Japan.
Refugee Crisis
TF What are humanitarian and security implications of the vast number of refugees
and migrants flowing into Europe from the Middle East?
VERSHBOW Clearly, this expanding flow of refugees is creating a very serious chal-lenge and causing some strains in Europe. It’s first of all a human tragedy. NATO
isn’t directly involved in the response to the migration crisis, but we’re trying tocontribute to addressing the root causes of this crisis.
One way we’re doing that is by stepping up defense capacity by providing
support to some of the countries along the Mediterranean that are dealing with thethreat of terrorism and the general instability that is giving momentum to this hugeflow of refugees. Members of NATO are contributing in one way or another todefeat the Islamic State in Iraq and Syria, which is the main cause of the refugees
and migrants reaching Europe.
I think it’s a team effort. NATO has a role to play more in dealing with thecauses than dealing with the actual resettlement of the refugees, but we all have towork together because this is the most formidable challenge of its kind since thepost-World War II period.
Playing by the Rulebook
TF What is the kind of cooperation you would like to see coming from Japan indealing with the situation in Ukraine?
VERSHBOW This is not an area of NATO’s responsibility, but the internationalsanctions against Russia have been one of the key forms of leverage that we as theinternational community have to try to press the Russians to change their behavior
and to pull back from their aggression against Ukraine. The fact that Japan hasaligned itself fully with the EU and US sanctions has been very important. This may
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not be well received in Moscow, but I think it’s a clear signal that countries thatbreak the rules have to pay a price, and I think Japan as a major power in Northeast Asia lends an extra weight to that message.
Obviously, we would like to see a political solution to the crisis, and I think
Japan, through the Group of Seven and in other ways, has joined the chorus of
those who say that the Minsk Agreements are the best way out. But there has to be
full compliance with Minsk, not just selective compliance. We have seen some
progress in the last few weeks. The violence has declined. Apparently, there havebeen some positive discussions among the leaders in the so-called Normandy format, but it remains to be seen—I remain to be convinced that Russia is looking fora way out that would restore respect for Ukraine’s sovereignty and territorial integrity.
TF What is your view of China’s assertive behavior, not just in the South China Sea

and East China Sea but also in waters closer to Europe?
VERSHBOW We’re not directly affected by the problems with which Japan andother East Asian states are faced with respect to China and its military activities in
disputed waters. But our member states, of course, share some of the concerns andwant to see a China that plays by the rules, that respects international law, andseeks to resolve disputes peacefully, rather than through the use of force or throughunilateral action. In that sense, we hope that China doesn’t follow the path of Russia in tearing up the rulebook that has governed European security for many decades.
But, we value our consultations with Japan and other East Asian partners to
get a better understanding of how they see the Chinese challenge. This will help us
better appreciate the nature of the problem, and perhaps we can draw some lessons
that may apply closer to our main area responsibility.
Weaponization of Information
TF Do you have any thoughts on the different narratives coming from Beijing andTokyo?
VERSHBOW I’m not totally familiar with the situation, but I do think propaganda

and manipulative narratives are a concern, as demonstrated by the problems we’veseen with respect to Russia, where the disinformation is quite pernicious. Someexperts have described this as the weaponization of information.
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I hope that the consultations that I am having here in Tokyo and those we hope
to continue having with Japan will be a useful way to compare our assessments of
the nature of the problem and the techniques that some of our competitors use
when it comes to strategic communications and disinformation so that we canperhaps better equip ourselves to counter them.
TF How seriously do your regard the threat of hybrid warfare?
VERSHBOW The events of last year surrounding Ukraine obviously have put into

sharp relief the problem of hybrid warfare. This is not entirely a new phenomenon;
we’ve seen this as far back as the Trojan horse. But the combination of covertmeans, disinformation, and subversion backed by conventional military power
proved to be a very challenging mix when it came to the illegal annexation of
Crimea. NATO is in the process of developing a comprehensive strategy to deal
with hybrid threats in the future.
At the same time, we’re confident that our deterrence against hybrid or any
other kinds of attacks against NATO members is quite effective, and the decisions
that we took a year ago at the Wales Summit to increase the readiness of our forces
and our ability to respond quickly to any emerging scenario make it unlikely thatsomething similar to Crimea could be carried out against any member state. But
nevertheless we need to be prepared. We need to fully understand the nature of thisthreat. We need to strengthen our intelligence, assessments, and speed with which
we share intelligence within the alliance. We have to speed up our decision-making,so if even when there is some ambiguity we can begin to take steps to address potential crises before it becomes too late.
We’ve learned some lessons in assessing what happened in Crimea, and we’remaking sure we’re prepared if anybody tries to do the same against us.

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June 11, 2015

Japan’s Difficult Choices in Navigating Its Ties
with Russia
Masahiro Akiyama

Despite the souring of Japan-Russia relations following the Ukrainian crisis, there are growing signs that Russian President Putin could visit Japan later this year, notes Tokyo Foundation President Masahiro Akiyama in an article originally published by the Valdai Discussion Club. Japan has an interest in economic cooperation with Russia, including in theenergy sector, which could make a contribution to the development of Russia’s Far East,
Eastern Siberia, and the Arctic Ocean.
*

*

*

S

ergey Naryshkin, chairman of the Russian State Duma, visited Japan lastmonth—this was his second visit to this country in a year.
The surprising aspect of this year’s visit was the high profile of the people
he met. He paid a courtesy call on Prime Minister Shinzo Abe and met with manyother political leaders during his stay, although the stated purpose of his visit was
to attend a Russian Cultural Festival in Tokyo.
The talks are believed to have produced an agreement to push forward theJapan-Russia relationship despite the current severe situation. So I think we aregoing to see President Vladimir Putin visiting Japan later this year.
Since Prime Minister Abe returned to office three years ago, he has met President Putin seven times. This is quite rare in the history of our two countries’ relationship. In fact, he met Putin twice even after the Ukrainian crisis. A sense of
mutual trust has grown up between them, and this could help resolve the difficult
issues between our two countries. As a related point, we should not forget thatformer Prime Minister Yoshiro Mori, who is Abe’s political patron, is also very
close to President Putin, as the two men share an enthusiasm for sports.
The Ukrainian crisis occurred at a bad time for Japan, which was just about toMasahiro Akiyama   President and Senior Fellow, Tokyo Foundation.
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kick off a new round of what appeared to be constructive negotiations with Russia
over the territorial issue with the ultimate goal of concluding a peace treaty. Japanis not taking an anti-Russian stance just because of US pressure; its decision isbased on a desire to maintain solidarity with major European and North Americancountries as a member of the G7. Still, Japan was reluctant to impose severe sanctions on Russia, and so they may not be effective as those imposed by other countries.
Resolving the Northern Territories dispute remains Japan’s top priority in restoring normal relations with Russia and in strengthening the bilateral political andeconomic relationship. Japan may need to be more flexible, as it seems impossible
to resolve the dispute as long as Japan insists on the return of all four islands as a
package. I believe a solution can be found on which both countries can agree if thetwo leaders draw on their strong mutual trust to push forward the negotiation
process.
Japan has a keen interest in economic cooperation with Russia, including in theenergy sector, which could make a positive contribution to the development of
Russia’s Far East, Eastern Siberia, and the Arctic Ocean. Some economic cooperation projects have been stalled due to the economic sanctions imposed after the
Ukraine crisis and the sharp drop in oil prices since last November. Still, we haveseen positive developments in the agriculture and medical sectors, even after thecrisis. I am confident that investment and business will recover gradually, as neither
the West nor Russia want the relationships to deteriorate any further, as long as atleast the ceasefire part of the Minsk-2 agreement holds. The United States, I am
sure, is not interested in starting a new Cold War.
Japan’s official attitude toward Russia has remained largely unchanged since
the crisis, although the country was forced to make a politically difficult choice
between its desire to promote Japan-Russia relations and to maintain solidarity
with the G7 by taking a tough stance against Russia.
The dialogue between the Tokyo Foundation and the Russian International
Affairs Council were held as scheduled last autumn, even when our bilateral relations soured following the Ukrainian crisis, and we publicly issued a joint statement to promote friendly ties. Communication and exchange at the unofficial level
are therefore continuing as before. This suggests that Track 2 dialogue may become
more important under the current political situation.

Reprinted with permission from the website of the Valdai Discussion Club.

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September 24, 2015

The Politics behind Russia’s Support for Syria
Paul J. Saunders

Russia’s heightened military support to Syria has raised questions about Moscow’s intentions and whether it will help or thwart efforts to fight the Islamic State. The consequences,notes Paul Saunders, will depend on whether or not Washington and Moscow can find amutually satisfactory way forward in the war-torn country.
*

*

*

R

ussia’s dramatic recent increases in military support to Syria have produced considerable uncertainty regarding Moscow’s intentions. Will Russian forces engage directly in combat against the so-called Islamic State?
Could Russia’s help allow the Syrian military to intensify attacks on “moderate”
opposition groups? Or could it lead to accidental confrontation between Russianand American military personnel? And what will Moscow do next?
Moscow faces very substantial constraints, though, that are likely to impose
important limits on its conduct. Russia’s actions will probably be much more consequential politically than militarily.
Mutually Reinforcing Objectives
President Vladimir Putin’s decision to send aircraft, armored vehicles, and naval
infantry to Syria—and, apparently, to build at least one new base there—is likely
the result of several mutually reinforcing objectives. Militarily, Russia seeks to
avoid a victory for the Islamic State that would allow the extremist group to consolidate control over Syria’s territory and, no less important, that would releaseover 2,000 experienced and dangerous Chechen fighters from combat for potential
return to Russia.
Unlike the United States and many of its allies in the region, Russia does not

Paul J. Saunders   Executive Director, Center for the National Interest (Washington, DC).
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see the moderate Syrian opposition as a viable force that could counterbalance andeventually defeat Islamic State fighters. Since no one else (including the UnitedStates) is willing to provide a major ground force, and air strikes alone cannot
defeat the Islamic State, Russian officials see Syrian President Bashar al-Assad’s
army as an essential partner.
Politically, Russia’s leaders have sent several messages simultaneously. To theUnited States and its allies, Moscow is arguing for a significant role in any international coalition against the Islamic State and in any political process to establish
peace. More narrowly, the moves looked calculated to force open military-to-military dialogue with Washington, suspended after Russia’s seizure of Crimea, inorder to avoid accidents or miscalculations.
This has already partially succeeded in producing a telephone conversation
between Secretary of Defense Ashton Carter and Defense Minister Sergey Shoigu.
What remains unknown is whether President Barack Obama will agree to meet Mr.
Putin during his visit to the UN General Assembly on September 28.
At the same time, Russia’s actions demonstrate to Bashar al-Assad and Syria’s
generals that Moscow is committed, at least to some degree, to preventing theirdefeat. This gives Syria’s leaders a greater stake in their relations with Moscow. It
could also help to reassure Mr. Assad and others of Russia’s intent in any international negotiations—something required to win the Syrian government’s support
for any deal.
Political Constraints
Still, despite its military deployments, Russia lacks the capability to deploy, or tosustain, a large enough number of its own troops to make a difference in Syria’s
bloody civil war. Russia’s “naval base” in Tartus, Syria, cannot accommodate large
ships and is primarily a repair and resupply facility.
Though Moscow recently negotiated naval access to Cyprus, this is not sufficient either—soldiers and supplies would still have to travel by ship or by air to
Syria. Supporting a meaningful force in Syria by air would be extremely expensive
and logistically quite demanding. Taking into account the number of portable surface-to-air missiles in Syria, it could also be quite risky for Russian cargo pilots.
Russia faces similar political constraints. Most important, Russian public opinion remains deeply scarred by the Soviet war in Afghanistan and Russia’s two wars
in Chechnya. Not unlike the American experiences in Vietnam and Iraq, thesebloody conflicts—a defeat in Afghanistan and at best inconclusive in Chechnya—
have produced a profound reluctance to fight in far-off lands. If Islamic State forces110International Affairs
were to capture and publicly execute one or more Russian soldiers, as they havealready done to others, President Putin could face an angry public with few credible policy responses.
The most important question following Russia’s sudden escalation in Syria iswhether it may advance—or set back—wider efforts to thwart the Islamic Stateand reestablish stability. The answer to this will depend heavily on whether or not
Washington and Moscow can find a mutually satisfactory way forward in Syria
that facilitates not only their cooperation but also a new international coalition.
So far, the biggest obstacle to such an understanding is the long-standing
US-Russian disagreement about President Assad. Washington views Assad’s behavior as a recruiting poster for the Islamic State, while Moscow considers his leadership necessary to preserving a unified Syrian state that can continue to fight the
ground war. And, of course, President Obama has insisted that Assad must agree
to step down as a pre-condition for talks. Moscow rejects this approach.
Some in Washington sound increasingly prepared to contain their distaste for
Mr. Assad—and, for that matter, for Mr. Putin—at least for a time. Neither decision
would be an easy one for the Obama administration, however, particularly as the2016 electoral campaign heats up. Look to the White House for the next move.

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Views on China
July 22, 2015

The AIIB and Japan’s Development Assistance
Hiroyuki Kato

Tokyo’s decision not to join the AIIB may have been made in deference to Washington’s
wishes, but given its distinguished record of assistance to developing countries, notes Hiroyuki Kato of Kobe University, Japan should pursue its own strategies for how it works
with the bank to promote infrastructure investment in developing countries.
*

*

*

A

fter considerable debate, the Japanese government chose not to become afounding member of the Asian Infrastructure Investment Bank. Opinions
differ, though, over the stance Japan should take in the future: Should
Japan continue to keep its distance from the AIIB, or should it join the China-ledbank as a regular member and exert influence from inside? Arguments pro and con
are likely to be advanced for some time.
The AIIB is a new multilateral development bank that China is establishingwith the aim of satisfying the huge demand for infrastructure investment in Asia—
demand that, as estimated by the Asian Development Bank, will reach $730 billion
through 2020. Fifty-seven countries signed up as founding members by the March
31, 2015, deadline, with China expected to provide a considerable share of thebank’s $100 billion initial subscribed capital. In addition to developing countries,
a number of developed countries, such as Britain and Germany, scrambled to join
at the last minute. What were they hoping to gain? What is China seeking toachieve from this initiative? And how should Japan respond? Below, I will approach these questions from the perspective of how Japan should provide assistance to developing countries.
A Variety of Agendas
The response of other states to the AIIB varies according to their aid recipient/

Hiroyuki Kato   Professor of Economics, Kobe University.
112Views on China
donor status and how close they feel to China and to the United States. For developing Asian countries with immense appetites for infrastructure investment, nothing could be more welcome than the arrival of the AIIB as a new lender alongside
the World Bank and the ADB. Competition between the new bank and the older
ones can mean more relaxed conditions for loans.
For such Group of Seven countries as Britain and Germany, the decision to join
the AIIB despite pressure from Washington to stay out can be attributed to a number of factors: For one thing, the amount of capital required from non-Asian members is modest. Membership is seen as offering improved access to the fast-growing
Asian economies for the participating countries’ businesses. And their governments
may be feeling strongly distrustful of the existing US-centered international financial order. For the United States, meanwhile, the establishment of the AIIB under
Chinese leadership looks like a major challenge. Washington did its best to keep
other countries from joining, but its efforts fell short. The decisions by other G7
countries and South Korea—which depends heavily on the United States—to seek
membership in the new institution highlighted the decline of America’s influence in
the international community. Some have even argued that it is a harbinger ofchange from a US-dominated world order to a multipolar structure.
The country that finds itself in the most awkward position vis-à-vis the AIIB isJapan. Our country achieved economic growth in the postwar era thanks to the
US-centered international financial order. This order has survived a number ofcrises over the decades—notably, the Nixon shock of 1971, the Asian currency
crisis of 1997, and the global financial crisis following the bankruptcy of Lehman
Brothers in 2008. Each time, Tokyo stood by Washington’s side. In geopoliticalterms and also in terms of its track record as a provider of development assistance,
Japan could naturally have taken a leading role in the AIIB. The biggest reason for
its decision not to become a founding member was its unchanging adherence to apolicy of staying in step with the United States. And even if Beijing had promised
Tokyo the number-two spot in the new bank, there would probably have beensome resistance to the idea of playing second fiddle to China.
China’s Emergence as an Aid Donor
The move to establish the AIIB sheds some light on China itself, a country that has
been sustaining rapid economic growth and is emerging as a superpower. The leaders in Beijing are aiming for more moderate economic expansion given the deceleration in the growth rate, expected to be around 7% this year. There has not yet
been a fundamental change in China’s structure of excess capital accumulation—a113

Views on China
chronic consumption shortage offset by excess investment (Marukawa and Kajitani 2015). Meanwhile, as a result of the export-promotion policies China has been
implementing for many years, it has been running large current account surpluses
with the United States, and these have caused global imbalances that adversely
affect the stability of the world economy. China’s foreign reserves have grown to$3.8 trillion, and if it hopes to keep the yuan-dollar exchange rate steady, it needs
to “recycle” more of this foreign currency. This means using it outside of China insuch forms as official development assistance and direct investment. Recycling thefunds in this way will also stimulate other countries’ economies, generating additional demand that can help absorb China’s excess production capacity.
Since around 2004, Beijing has been encouraging Chinese enterprises to invest
abroad. The volume of China’s outward direct investment is now on the same orderas that of industrially advanced countries like the United States and Japan, andwithin the next few years it is expected to exceed the volume of inward direct investment. In July 2014, the five BRICS countries (Brazil, Russia, India, China, andSouth Africa) agreed to establish their own development bank and foreign currency
reserve pool. The establishment of the AIIB may be seen as an extension of theseearlier moves.
China’s decision to create the new bank is evidence of its emergence as an aid
donor and its desire to put a stamp of its own on its development assistance. Whenviewed by Western value standards, China’s ODA program is problematic in a
number of respects, as typified by its resource diplomacy in Africa. At the sametime, however, China’s ODA has been offering opportunities for meeting needs thathave not been effectively addressed by the international aid community centeredon the OECD Development Assistance Committee and the World Bank (Shimo­mura and Ohashi 2013). Dambisa Moyo, an economist from Zambia, notes: “TheWest sent aid to Africa and ultimately did not care about the outcome. . . . China,
on the other hand, sends cash to Africa and demands returns. With returns, Africans
get jobs, get roads, get food, making more Africans better off” (Moyo 2009, 152).
Put Japan’s Experience to Work in the AIIB
When we consider the particulars of China’s ODA, we find much that is similar to
Japan’s aid program in the past. Japan joined DAC in 1961 and has a history ofover 50 years as a donor. Japan’s ODA has focused on developing industry throughhuman resources development, provision of technology, and infrastructure investment based on a long-term perspective.
Japan deserves high marks for the major contributions it has made to industrial
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Views on China
development in places throughout Asia, but given the fiscal constraints that ourcountry now faces, we need to shift from being a big donor to a “smart” donor,
making effective use of the limited budget available for aid. Japan need not imitate
Western countries’ prioritization of poverty relief and humanitarian assistance but
should pursue its own strategy, focusing on developing human resources, providing
technologies, investing in infrastructure, developing supporting industries, and extending financial support. It should aim for synergistic coordination between theofficial aid program and direct investment by the private sector (Kurosawa andOtsuka 2015).
Japan’s experience confirms the crucial importance of infrastructure investment
in development assistance. But it is wishful thinking for donors to believe that
simply building infrastructure will be enough to create the necessary environment
for investment by private companies and successfully achieve industrialization. As
suggested by the experience of countries like Thailand and Indonesia, where assistance from Japan promoted successful industrialization, infrastructure investment
must be conducted in tandem with assistance in other areas, such as human resources development, the provision of technology, the development of supporting
industries, and financial support; only with this sort of multifaceted approach canindustrialization be achieved.
It is not yet clear what sort of lender the AIIB will become. If, true to its name,it specializes in infrastructure investment, then Japan should tap its strengths tocooperate with it from the outside. And if Japan becomes a member, it should makegood use of the bank as a channel for the implementation of development strategies
based on its own experience. Whether it joins or cooperates from outside, Japan
should act with firm conviction, confident in the knowledge that drawing on its
store of experience can promote the success of the new bank.
References
Kurosawa, Suguru, and Keijiro Otsuka, eds. 2015. Kore kara no Nihon no kokusai
kyoryoku (Japan’s International Cooperation in the Future). Tokyo: Nippon
Hyoron Sha.
Marukawa, Tomoo, and Kai Kajitani. 2015. Cho taikoku Chugoku no yukue 4:
Keizai taikokuka no kishimi to inpakuto (The Future of Superpower China [4]:Tensions and Repercussions of China’s Emergence as a Major Economic
Power). Tokyo: University of Tokyo Press.
Moyo, Dambisa. 2009. Dead Aid: Why Aid Is Not Working and How There Is a
Better Way for Africa. New York: Farrar, Straus and Giroux.
115Views on China
Shimomura, Yasutami and Hideo Ohashi, eds., with the Japan Institute of International Affairs. 2013. Chugoku no taigai enjo (China’s Foreign Aid). Tokyo:
Nihon Keizai Hyouronsha.

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September 1, 2015

Oil and the City
Hope, Expectation, and Development in Ghana
ThienVinh Nguyen

How does “oil money” shape a city? ThienVinh Nguyen, a Sylff fellowship recipient at Columbia University now enrolled in a doctoral program at University College London, used
an SRA grant to observe how profits from oil are spent for the “development” of a port cityin Ghana. During her eight-month-long research in the city, she saw oil companies spend
enormous amounts on infrastructure development. Her report raises the question of who are
the real beneficiaries of such spending.
***Even without oil, we are doing so well . . . with oil as a shot in the arm, we’re going to
fly. . . . Oil is money, and we need money to do the schools, the roads, and the hospitals. If
you find oil, you manage it well, can you complain about that?
—–Ghanaian President John Kufuor, June 2007
Introduction
After a century of minor oil discoveries, in 2007 President John Kufuor announced
that Ghana had discovered commercial quantities of oil in the Jubilee Fields off thecoast of Sekondi-Takoradi. The International Monetary Fund estimates that oil andgas revenues from the Jubilee Fields alone could earn the Ghanaian government acumulative $20 billion between 2012 and 2030, a figure that certainly makes animpact in Ghana’s national budget (Gary, Manteaw, and Armstrong 2009).
The question on everyone’s mind was: Will this be a blessing or a curse? Indeed,oil has been regarded by some as a dark, evil, corrupting resource. My researchmoves beyond this stereotype to explore the nuances of how the emergence of an
ThienVinh Nguyen   Sylff Fellow, 2010, Columbia University. Is now a PhD candidate
at University College London. Conducted research on urban governance in SekondiTakoradi in 2013–15 with partial funding from an SRA grant.
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oil industry transforms a city. Sekondi-Takoradi continues to change, as do cities
all over the world, but the oil boom and the narratives around it enable new, ambitious, and fantastical development-driven visions for the city.
At the same time, we see an increasein citizens advocating for basic amenities
and provisions—water, sanitation, electricity, and education—which the city
has been slow to deliver in spite of thescale of oil-driven developments. Three
major development projects are being
promoted: the construction of a luxury
shopping mall, the renovation of urban
roads, and the expansion of Takoradi Many of Ghana’s offshore oil fields are located in
the Western Region, whose capital is Sekondi-TaPort.
koradi. Image courtesy of Hufstader/Oxfam America, 2008

Case Studies
There is a small mention of the need for a mall in the current draft of the city’s
development plan, and a South African developer has proposed the construction ofa mall valued at between $65 million and $90 million (Ampratwum-Mensah2015). Even though the local government and some residents support the project—seeing it as a sign of “modern progress”—others believe that there should also be
a focus on ensuring that local citizens have access to basic services and provisions.
Even with its supporters, however, the mall project has faced serious challenges.
For one thing, the developers had to seek the support of the mayor, local government officials, and the police force to relocate the auto mechanics who had been
“illegally” operating on the land. Some argue that these mechanics created a thriving local economy, while the developer and others say the mall will create new jobs
and new public spaces.
Another development focus has been on roads. Roads are particularly helpful
in getting political parties elected. With money from the oil boom, Sekondi-Takoradi has been improving its roads, especially those frequented by oil and gas
companies and foreigners. The Jubilee Partners—the consortium of oil companies
operating on the Jubilee Fields—also paid for the renovation of a roundabout theyuse frequently. A number of civil society organizations that I interviewed mentioned that while the paving of roads is welcome, the city is prioritizing development based on aesthetics that serves particular privileged groups, rather than meeting such community needs as water, sanitation, and electricity.
118Sekondi-Takoradi has historically been and continues to be an important port,
shaped by the shipments of resource minerals through the city. Currently, Ghana isinvesting heavily into the Takoradi Port Expansion Project, with the first and second phases of the project budgeted at well over US$300 million. Financing comesin the form of loans: €197 million from KBC Bank N.V. and about US$176 million
from the China Development Bank (“Takoradi Port Expansion: Breakwater Nears
Completion” 2014). A core feature of this expansion project is catering to the needsof oil and gas companies, including the creation of an oil storage area. This impressive expansion project will continue to shape the city, with new mineral wealthflowing in and out of the city.
Amidst heightened economic activity and growing possibilities, President Kufuor and other politicians—including US Presidents George W. Bush and Barack
Obama, who have both made visits to
Ghana—promote the idea of hopeand economic prosperity in the lightof the oil discoveries, juxtaposing thepromise in Ghana with narratives
about weak states and the resource
curse in Africa. These expectations areembedded in a context where Ghana
is seen as a potential exemplar African
state, capable of moving beyond the“tragedy” of resource mismanagement by continuing on its path as an Sekondi-Takoradi, like many other cities, is going
through change, where the new and old converge andinternational-investor-friendly, demo- where different visions of development affect everyday
cratic nation. Citizens recognize that life and the urban form of the city.
oil is a valuable commodity (despite
declining oil prices) and that perhaps it has the potential to transform the income
trajectory of all Ghanaians.
Over eight months in Ghana, I conducted interviews with civil society organizations, traditional authorities, Ghanaian government officials at various levels,
local businesses, and transnational companies, including oil-related companies
from Britain, the United States, France, and South Africa, among others. Although
China provided the Ghanaian government with a $3 billion loan to build natural
gas infrastructure (see: Mohan 2010), I learned through my interviews that mostof the money was spent outside of the city: in building a major ECOWAS (Economic Community of West African States) highway and constructing the infrastructure for a natural gas pipeline farther west on the coast. There were also
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Photo by ThienVinh Nguyen, 2015

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Photo by ThienVinh Nguyen, 2015

Voices from the Sylff Community
proposed Chinese-coordinated projects in the city, though, in the form of roadworks and improving the railway system.
In addition to interviews with these stakeholders, I also analyzed various strategic plans for the city over time, including plans financed by oil companies, 20
years’ worth of development plans drafted by the local government, and plansdeveloped by local nongovernmental organizations. Given all these emergent developments, which affect the structure and social landscape of the city, there has
been an increased focus on the creation of spatial development plans for the city.
I argue that the process of formulating these plans opens up new opportunities
for public engagement and forms of governance. The local government plans havecertainly become more ambitious andin-depth, requiring much bigger budgets, following the discovery of oil.
Indeed, the major oil company in thecity has a field representative in the
district assembly who attends theplanning meetings. These plans—
more so than in the past—serve as
strategic tools for garnering donor
support and private investment. InThe central market area of Takoradi, where old, colodeed, even those cynical of whether
nial-style buildings (on the left) are juxtaposed with thethese plans will ever be implemented
new Ecobank building on the right.
realize that the plans have mobilized abroad range of voices in shaping thefuture of the city. While implementation may be slow, they do affect the direction
and structure of the city.
With a population of 560,000 in a country of 24 million, Sekondi-Takoradi
consists of the twin cities of Sekondi and Takoradi and is the capital of the Western
Region (Wilde, Adams, and English 2013). This region is known for its rich resources—timber, bauxite, gold, and diamonds, and now, offshore oil and gas. Sekondi-Takoradi lies on the transport route to Kumasi and Accra—thriving cities
that are the capitals in their respective regions, with Accra serving also as thecapital of the country.
In this vein, this city, as is the case for all cities, is a site of territorialized economic development, given its dependency on natural resources and its role as amajor port for Ghana. It has been integrated into the global supply chain, whereinternational capital flows in and out of the city. Now, the Ghana central government insists that oil production will bring the city and country unprecedented120

Voices from the Sylff Community
wealth. Narratives about the potential for growth highlight how the city will be“one of the modern cities of the world,” with “skyscrapers, six-lane highways andmalls” (Walker 2011).
I asked all of my interviewees how the city has changed. Some commented on
how there has not been enough change and that money has not “trickled down”—
meaning that they would welcome further social and infrastructural development
and that the city is still very much lacking. There remain “slum areas,” with many
residents lacking access to water, sanitation, and electricity. With regard to electricity, despite having offshore oil and gas, Ghana is undergoing an energy crisis, where
the load shedding schedule is 24-hours off/24-hours on.
The city’s central Market Circle consists of an organized, though seemingly
chaotic, indoor and outdoor market areas, where one can find practically anything:from live animals and produce to cheap imported goods. This area, though, lacks
proper plumbing and trash collection—despite the fact that vendors here pay feesto the city for being there.
Others contend that the city has indeed changed, for better and for worse. With
more foreigners in the city, rents and food prices have gone up, and there is increased road congestion. There are large, newly built villas, hotels, and bank buildings in the city. While a public school teacher or taxi driver makes less than US$300
a month, monthly rents for a three-bedroom house in the wealthier neighborhoods
range from $2,000 to $5,000.
Given the myriad development issues facing Sekondi-Takoradi, the question is
not if change will take place but how, at what rate, and who will benefit from thisoil boom.
References
Ampratwum-Mensah, Akwasi. 2015. “EPA Holds Public Hearing on Proposed
Takoradi Mall.” Accessed May 30. http://graphic.com.gh/news/general-news/43877-epa-holds-public-hearing-on-proposed-takoradi-mall.html.
Gary, Ian, Steve Manteaw, and Clive Armstrong. 2009. “Ghana’s Big Test: Oil’s
Challenge to Democratic Development.” Oxfam America. Ghana Statistical
Service. 2014. “Gross Domestic Product 2014.”
Ghana Statistical Service. www.statsghana.gov.gh/docfiles/GDP/GDP_2014.pdf.
Hufstader, Chris. 2008. “The Coming Oil Boom in Ghana.” Oxfam America. October 1. http://www.oxfamamerica.org/explore/stories//the-coming-oil-boom-in-ghana/.
Mohan, Giles. 2010. China in Ghana: Easing the Shift from Aid Dependency to121

Voices from the Sylff Community
Oil Economy?(ARI). Real Instituto Elcano. http://biblioteca.ribei.org/1965/1/
ARI-149-2010-I.pdf.
“Takoradi Port Expansion: Breakwater Nears Completion.” 2014. May 16. http://
www.ghanaweb.com/GhanaHomePage/business/artikel.php?ID=309576.
Walker, Rob. 2011. “Oil Boom Changes Face of Ghana City.” BBC, March 8, sec.
Africa. http://www.bbc.co.uk/news/world-africa-12646359.
Wilde, Alberto, Ishmael Adams, and Brian English. 2013. “Fueling the Future of an
Oil City: A Tale of Sekondi-Takoradi in Ghana.” Global Communities. http://
www.globalcommunities.org/publications/2013-ghana-fueling-the-future-of-an-oil-city.pdf.

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August 6, 2015

A Remembrance of Books Lost
Bengali Chapbooks at the British Library
Aritra Chakraborti

The ResearchThis research is focused on the contested history of popular print culture in Bengal,
India. Printing technology arrived in Bengal in the late eighteenth century, and thefirst Bengali books printed with movable type were translation of Christian tracts
published under the aegis of the Baptist Missionaries of Serampore.
Although printing was at first controlled by the colonial authorities and thenative elite, this “foreign” technology was quickly embraced by local residents, anda thriving publishing industry took shape in the nascent metropolis of Calcutta(now Kolkata), which soon became the second most important city of the British
Empire.
The earliest printers were mostly humanists and scholars, but hack writers andpamphleteers soon entered the market with their cheap, entertaining books andcrudely written pamphlets. Their target readers were mostly the newly createdmiddle class and the semi-literate lower middle class.
By the mid-nineteenth century, the popular publishing industry became a headache for the colonial authorities and the native elite alike, who were offended by
the bawdy contents of the cheap-print. Soon, they adjudged that the local publishing industry had to be controlled in order to inculcate a sound reading habit
amongst Bengalis.1
The cheap publishing industry was first established around Battala in North
Calcutta. Although this industry later spread to other parts of the state, the name

Aritra Chakraborti   Sylff Fellow, 2012–15, Jadavpur University. Is currently a PhD student at the university’s Department of English. Received an SRA grant for doctoral researchin the field of book history in colonial Bengal.
James Long, Returns Relating to the Publications in the Bengali Language in I857 (Calcutta, 1859) pp. xxiv-xxv

1123

Voices from the Sylff Community“Battala” became synonymous with obscene anderotic printed material that soon became the targetof the censoring authorities. While the Battalapresses were persecuted in the nineteenth century
for spreading salacious and corrupting ideas, subsequent historians have pointed out that these books
represented the “native cultural elements” that thecolonial authorities marginalized as part of their efforts to exercise “bio-political” control over the native mind.2
In the subsequent historiography of popular
print culture in Bengal, Battala has been celebrated
as the quintessential locale of subversion and resistance. This has also contributed to the rather misleading notion that the cheap publishing industry
existed only to defy the elite print culture. While the The title of this chapbook is Bharatmatar Bastraharan (The Disrobing
pioneering work in this field done by such historians of Mother India). Written during theas Sukumar Sen, Nikhil Sarkar, Gautam Bhadra, Second World War, it describes how
the general populace suffered due toand Sumanta Bandyopadhyay has unearthed a trea- an acute shortage of clothing matesure trove of interesting material, it has, in turn, en- rial and other essential commodities
sured that the books that were not so subversive in during the years of conflict. The
cover shows a picture of “Mother Innature were buried underneath this “romance of dia” as a poor, yet beautiful woman
defiance.” And in time, these books mostly vanished who is wearing rags since she no longer has enough clothes to cover her
from the history of Bengali popular print culture.
body. This chapbook was written by
My research for the SRA period was focused prolific author Nagendranath Das,
primarily on unearthing such material—chapbooks whose works were frequently
and pamphlets on topical events that acted as the banned by the British government.
conduit of information for the semi-literate readers
who were not a part of the information network of the newspapers and periodicals
published by the educated elite. During my Sylff Research Abroad in Britain, I
endeavored to:•F ind chapbooks and pamphlets written on topical events• Analyze their language to see how they used traditional modes of cultural
Bernard S. Cohn, Colonialism and its Forms of Knowledge (New Jersey: Princeton University Press, 1996); Deana Heath, Purifying Empire: Obscenity and the Politics of Moral
Regulation in Britain, India and Australia (Cambridge: Cambridge University Press, 2010).

2

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expressions to entertain as well as inform and educate people about the modern world•U nderstand the role they played as the mass media in the nineteenth century
The SRA award allowed me to look for these books in the vast archives of
London’s British Library, which was the deposit library of the British Empire. It
boasts perhaps the largest collection of nineteenth-century books published within
the domains of the empire, and Bengali books were no exception. As a visiting researcher at King’s College London during this period, I also got the chance to speakwith scholars and researchers from other institutions, such as the Institute of English Studies and the School of Oriental and African Studies (SOAS) at the University of London and Oxford University.
The archival work was done at the Asian and African Studies Collection of the
British Library, which houses the complete collection of the India Office Library.
Conversations with Mr. Graham Shaw, the doyen of nineteenth century Bengali
print culture, gave me crucial directions on the use of the vast archive.
The books, on the other hand, presented unique stories, and I saw how
natural disasters, scandals, incidentsof legal or political importance, andother events were represented in the
popular print media. And examination of these books is important for The British Library in London.
various reasons. First, the notion thatthe sole function of the Battala presses was to resist the cultural elite suggests thatthe marginalized print cultures did not have an independent existence. This, though,was far from the case.
Second, these books show that the colonial public sphere was more complicated than it is generally regarded. Nineteenth century chapbooks and pamphlets
serve as important windows on the everyday life of colonial Bengal: a sociologicalexamination along these lines has long been pending.
Third, an examination of these documents reveals that the main purpose of
popular print culture was the same as that of elite print culture: dissemination of
information.
My research during the SRA period was not limited to the study of these books,
however. My other aim was to study the India Political Intelligence Department
and the Crown Representative’s Records in order to find out how the British Secret125

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Services tracked down seditious literature after the emergence of nationalist movements. Though most of the leading figures of the nationalist movements, bothpacifist and extremist, were educated elites, they adopted the chapbook and pamphlet formats for the dissemination of their ideas. Due to the near invisibility andthe ephemeral nature of these slender volumes, chapbooks and pamphlets became
major carriers of subversive ideas during the period between 1905 and 1947.
The hack writers, in turn, appropriated nationalistic themes to increase thesales of their books, since books written on such themes were very popular. While
doing my research in India, I had amassed a vast digital collection of nationalistic
pamphlets and chapbooks printed between the 1930s and 1940s, and I needed toconsult the India Office Records at the British Library to access many other similar
pamphlets (especially those published between 1905 and 1930) and to examine therecords of the Secret Services to understand how the authorities tracked down andpersecuted the authors, book sellers, and at times even the readers of these items.
While the colonial authorities exercised stringent censorship to ensure that
seditious ideas were not circulated, pamphlets and chapbooks written on nationalistic ideas spread rapidly through private vendors and dedicated revolutionaries,
who also doubled as publishers. For this section, my research questions were:•H ow were the seditious pamphlets and chapbooks produced and circulated?
• How did the censoring machinery of the colonial government function tocontrol the dissemination of such ephemeral items?
•H ow did the hack writers appropriate nationalistic ideas in their chapbooks
and pamphlets?
• Apart from the criticism of the colonial regime, did the writers comment onother aspects of the social condition? If so, how?
The Burden of the Archive
My research was enriched by everything that I studied during this period: chapbooks and pamphlets, legal records, court proceedings, and reports of the Secret
Service agents who intercepted letters, followed booksellers, and sent spies to trackdown the people who distributed seditious materials during one of the most volatile periods in the history of the region.
While studying the pamphlets and chapbooks that described the partition riots
and famine,3 I got a chance to read the disturbing memoirs of the English soldiers
3

The British left India in 1947, marking the successful culmination of half-a-century long126

Voices from the Sylff Community
who were stationed in Calcutta at that time. The intense nature of the documentsthat I studied often left me greatly distressed, though this was also part of the thrillthat is often associated with archival research of this nature. These findings haveenabled me to develop a greater understanding of how this rustic information network functioned amongst the economically disenfranchised sectors of society, long
before the coming of electronic media that made communication more democratic.
For this opportunity I am grateful to the Tokyo Foundation. The Sylff fellowship and the SRA award enabled me to fulfil the academic potential that my projecthad. I would also like to thank Professor Clare Pettitt of the King’s College London, Mr. Graham Shaw of the Institute of English Studies, University of London,and Ms. Leena Mitford of the British Library for their kind guidance.

freedom struggle that swayed between peaceful marches and spells of armed resistancepunctuated with gunfire and bomb blasts. Independence came at a price, though, as thepartition of Bengal and Punjab resulted in the greatest human migration in history. This
period also witnessed communal riots in various parts of India, especially in Bengal andPunjab, claiming the lives of thousands of people. During the final stages of the Second
World War, when the British government was apprehensive of a Japanese invasion from
Axis-occupied Burma, they implemented a scorched-earth policy in Bengal Province. This
resulted in a massive famine, entirely man-made, that claimed the lives of at least 4 million
people.
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July 3, 2015

The Urban Art of Hip Hop among Young
Immigrants in Palermo, Italy
Martina Riina

The Migration Observatory of the Institute of Political Education “Pedro Arrupe” is a website that publishes the results of scientific research on migration to the island of Sicily,where the institute is located. Martina Riina, who received a Sylff fellowship in 2014,
chose to focus her research for the Observatory on the culture of second-generation migrants
by focusing on the ways in which they express themselves through the medium of hip hop.
*

*

*

B

etween April 2014 and February 2015 I conducted social anthropologicalresearch in Palermo on a form of musical and narrative expression known
as hip hop. My research focused on the ways in which young immigrants
living in the city express themselves through hip hop culture and on the importanceof this form of social and artistic communication in enabling them to find an identity in their new surroundings.
Urban Anthropological Approach
From a theoretical point of view, I tried to analyze the hip hop narrative as expressed mainly in the rap musical genre through sociological and urban anthropological perspectives, focused on the creative expressions of ethnic minorities in big
cities, their message, and elements of cultural resistance.
I followed the analytical approach of French sociologist George Lapassade, oneof the first scholars to address hip hop culture in his work on immigrants living inthe suburbs of Paris. Lapassade compiled his reflections in what soon became the
manifesto of youth hip hop culture—Le Rap, ou la Fureur de Dire (Rap, or theMartina Riina   Sylff Fellow, 2014, Institute of Political Education “Pedro Arrupe,” Italy.
Is an anthropologist and founder of a social association, Logiche Meticce, where she works
with children, youth, and adults from different cultures.
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Fury of the Word)—a deep investigation into the symbols, practices, beliefs, andlifestyles revolving around this expressive language.
I learned through Lapassade’s analysis about hip hop’s origins in the Afro-American ghettos of New York in the late 1970s. The youth in these communities asserted their freedom of speechthrough real street expressions of song,music, dance, and mural art, weaving
messages of civil rights with a desire to berecognized and to participate actively inthe social life of the city’s most deprived
neighborhoods, even among those belonging to different ethnic minorities
who populated those neighborhoods.
Starting from the history of hip hop,I studied the ways in which young immigrants in Palermo today proclaim their freedom of speech and the right to express
themselves, comparing these with the behavior of their native counterparts. I tried
to answer two fundamental questions: How do younger immigrants express themselves through the medium of hip hop and how does this “language” help create
opportunities for different groups to meet each other and to influence one anotherthrough a process of “cultural contamination”?
Presenting Distinctive Narratives
What emerged from my research was that the language of hip hop and, in particular, rap—its main outlet of expression—are significant channels of expression forundertaking a comparison of groups of young people; the fact that many of them,both immigrants and natives, “speak” the same language allows them to talk about
themselves, discuss and express their values, and register dissent in ways that arecomprehensible to all parties.
In the fieldwork phase of my research, I closely analyzed how this language
comes to life—the way it becomes the preferred channel both of communication
with others and of self-expression in relaxed, everyday settings, away from family
or school.
One of the most interesting aspects of the hip hop language is its manifestationin the form of “verbal challenge” or “poetic duel,” a dimension of rap’s expressive
world containing some extremely revealing elements regarding how contemporary
youths confront one another and present their distinctive narratives.
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The first thing to take note of is that rap is a modern and purely urban form oforal poetry. Given its Afro-American origins, it is characterized by improvisationand interaction with the audience as the “poet” tells their story.
The story may challenge the audience to question their attitudes toward specificissues with which they are involved, encouraging them to listen and respond tostatements that affect them as a community.
What young rappers are engaging in are verbal street fights involving blows ofrhymes and assonances. The aim of these “duels” is to express their feelings about
their rivals and also their frustrations and disappointments in an artistic manner—a process that might help reduce the number of actual, physical brawls. For
young immigrants living in Palermo,
the improvised dueling of words,
known in the hip hop jargon as “freestyle,” is a way of narrating their own
stories directly to their peers in arecognizable style, giving them an element of commonality in spite of theiruniqueness.
The linguistic specificities, for example, emphasize the different cultural backgrounds and gestures usedin the performances. They also have much in common in the ways topics are addressed, the messages contained in both the improvised and structured lyrics of thesongs, the problems faced by today’s youth, the performers’ ambitions and desires,how they spend their leisure time, and tastes in fashion, films, and music.
These topics allow immigrants and natives to know each other better, to learn
about their differences, and to reduce stereotypes and prejudices.
Educational Potential
During personal observations of these young people’s modes of self-expression, I
realized how important it is to formulate project ideas or social initiatives that allow them to be leaders of their own growth and to affirm their communication andartistic practices. Producing rap lyrics, for example, encourages young immigrants
to learn the language of the receiving society and, at the same time, gives them a
new channel to communicate their experiences. In an increasingly global and interconnected world this is essential in order to gain a better understanding and awareness of multiculturalism.
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Stimulating communication and transmitting shared messages are the enginesof rap, and it is for this reason that it has the potential to promote creativity andinnovative discoveries in educational and training settings, where aggregation andinterpersonal relationships are the fundamental conditions of growth.
In conclusion I would like to point out the importance of hip hop today foryoung people, both immigrants and natives, as an extremely interesting world ofartistic expression. The techniques
used to create and perform theirworks require great skill, effort, research, and continuous recombinations of sound and verbal elements.
The ready access to multimedia tools
helps young people to learn the use ofvarious technologies by themselves. A
rap text is often composed of sentences, refrains, and musical elements of songs written by other artists that are
mixed together to create new messages with personal, poetic elaborations. This also
allows them to “collaborate” with artists far away in time and space—evoking
memories of earlier artistic works and building on them through the reappropriation and reinterpretation of their lyrics.
Creative practices like hip hop in contemporary society are, in my opinion,much more than simple artistic genres: they represent people’s inner voice. It istheir personal way of saying who they are and where they come from, as well as
their conscious attempt to spread a message about their view of the world.

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