Towards a better understanding
For this first edition of Investment & Pensions Asia, I would like to discuss some important points and challenges for the development of corporate social responsibility (CSR) and socially responsible investing (SRI) in Japan. To date, the definition of CSR has not been well established internationally. It requires an understanding of the social background that has led to the need for us to have greater corporate and social responsibility combined. I believe this is a key issue that needs to be addressed, so that CSR can be embraced on a global scale.
CSR in the financial sector can have a significant impact on society. This needs to be emphasized more in Japan. We continue to see financial scandals in corporate Japan and I regret the fact that the development of CSR among financial institutions has moved at a slower pace than in other sectors.
Employees are fundamental stakeholders for the sustainability of companies, and shareholders should also understand the concept. This is a theme IPERI has been expressing its opinions on.
To develop more competitive power, US companies are shifting their focus from shareholders to employees, and this movement has now arrived in Japan. We must now learn the virtues of a Japanese-style CSR.
Corporate pensions, the symbol of employee policy, are being looked at seriously by the proponents of CSR and SRI in Japan.
A new environment has recently emerged, which will provide a real boost for SRI market in Japan. Kofi Annan announced the UN’s ‘responsible investment principle’ earlier this year. This provides a framework for asset managers, corporate pensions and companies to enhance their interest in CSR and SRI.
In early 2005, the Annan invited a group of the world’s largest institutional investors to join a process to develop the principles for responsible investment (PRI). Individuals representing 20 institutional investors from 12 countries agreed to participate in the investor group. The group accepted ownership of the principles, and had the freedom to develop them as they saw fit.
The group was supported by a 70-person multi-stakeholder group of experts from the investment industry, inter-governmental and governmental organisations, civil society and academia. The process, conducted between April 2005 and January 2006 involved a total of five days of face-to-face deliberations by the investors and four days by the experts, with hundreds of hours of follow-up activity.
As a sign that the movement is gaining traction, SRI funds are reporting strong inflows and their performance has been good. In the past year, Sharpe ratios of SRI funds compared favourably in open-end mutual fund rankings. Over half the SRI funds in Japan beat the
The work is far from finished, and this becomes even more obvious when we see that Toyota Motors, often seen as one of the best CSR companies, has suffered a scandal relating to recall issues. Overall, in this century it is important for us all to be more thoughtful in our approach to business.
To learn and to practice a truly balanced CSR, I also think it is important to have an attitude of respect for the differences of each region’s history, culture, and social sensitivities.