CORPORATE SOCIAL RESPONSIBILITY IN GENERAL
1. CSR values and practices, including levels of support from government, business and the general public
For centuries, Japan has had unique business practices, especially in customer-oriented products or merchandise, and stable employment as typified by the lifetime employment and the seniority system, that may in present times be captured by the umbrella term of CSR. The roots of present-day CSR lie in the period following the second world war. The reindustrialisation of Japan from 1945 onwards generated opportunities for enterprises that often pursued their commercial interests and disregarded the negative effects on workers, the residents of nearby communities and the environment. By the 1960s, the situation culminated with high levels of environmental pollution and injuries suffered due to chemical effluent and/or emissions. Popular protests against environmental pollution became stronger, and the Japanese government introduced environmental legislation aimed at regulating disposal of waste and hazardous materials. Additionally, voluntary disclosure by Japanese companies began. This is a trend that continues even today.
According to the KPMG International Survey of Corporate Sustainability Reporting 2002, of the largest 100 Japanese companies, 72 published health, safety and environmental reports, social reports or sustainability reports in comparison with 49 in the UK and 36 in the US. Further, there are early indications that the interest of Japanese companies in the environment has broadened, and continues to broaden, into other areas of CSR, especially social issues such as community involvement, health and safety, equal opportunity, employee satisfaction, human rights, supplier relations, child labour, freedom of association, free trade and corruption.
The term CSR is now used to describe conduct that has been the norm in Japanese companies for a long time. In Japan, a company’s reputation has been very important, and to preserve it, many companies have taken the public interest into account when making management decisions. The term CSR is useful to clarify that public interest includes not only environmental issues but also those of various stakeholders. A series of recent corporate scandals, including a deliberately concealed product defect by a well-known Japanese car manufacturer, and the misrepresentation of imported beef as domestic by a well-known food company, have created a groundswell of public support for greater corporate accountability. Accordingly, companies are faced with the need to respond to an even wider range of CSR issues.
Although Japan does not have any ministry in sole charge of CSR, CSR-related legislative provisions can be found in many areas of government responsibility. As consumers have become more attentive to companies’ activities and more environmentally conscious, the pressure on companies to prove their genuine commitment to CSR grows.
2. Laws, statutes, government publications or other significant framework documents
No general or overriding framework law governing CSR exists in Japan. However, most ministries in Japan are moving ahead on various CSR-related policies, as set forth below.
From another perspective, the idea of maintaining fiduciary duties is also part of the overall framework of CSR. The Japanese Commercial Code (Law No. 48 of 1899, as amended) imposes fiduciary duties upon company directors, ie that a director is obliged to comply with laws and regulations, the company’s articles of incorporation and resolutions of its shareholders’ meetings, and to perform his duties faithfully for and on behalf of the company (Article 254-3). A court judgment states with regard to directors’ fiduciary duties under Article 254-3 of the Commercial Code that “a director, as a management specialist, is obliged to perform his duties faithfully in order to bring the greatest benefit to the shareholders of the company from a long-term perspective. However, because consideration for business partners, customers, employees, local residents, communities and all other related stakeholders is essential for realising such benefit, the director should manage the company and realise such benefit while paying due and proper consideration to such stakeholders.” Although there is no specific rule concerning what should be done by a company or company directors on CSR, other than compliance with the laws and regulations, CSR is moving towards becoming a soft law as a part of directors’ fiduciary duties.
The Japanese business federation, Nippon Keidanren, has announced its opposition to the standardisation of the CSR proposed by the ISO, and stated that it will promote CSR management in the private sector and work towards resolution of issues concerning the Japanese business community, including economic, industrial, social, and labour problems. Meanwhile the business federation has stated that it will communicate with various stakeholders including political leaders, administrators, labour unions, and citizens at large in order to rebuild public confidence in business, and that it will also attempt to resolve international problems and deepen economic relations with other countries through policy dialogue with governments, business groups and international organisations. In the federation’s opinion, CSR should be taken voluntarily and not regulated by laws or standards; it argues that CSR standards should not be legislated by government.
CSR Archives (www.csrjapan.jp/index.html) is a well-known internet portal for CSR-related information, managed by the Japan Research Institute. Since its launch in March 2003, CSR Archives has provided information on CSR and sustainable responsible investment (SRI) in Japan and overseas, corporate best practices, and other relevant topics.
3. International treaties, conventions or standards
Japan has a long history of participating in international CSR-related developments. Many of the international agreements ratified by Japan only require the government to encourage compliance by companies, but are rarely binding on companies. Some notable international agreements to which Japan is a party are: the 1992 UN Rio Declaration on Environmental Development; the Basel Convention on the Control of Transboundary Hazardous Waste Disposal (which has inspired addenda to Japanese statutes); the Vienna Convention for the Protection of the Ozone Layer and the Montreal Protocol on Substances that Deplete the Ozone Layer; the UN Framework Convention on Climate Change and the Kyoto Protocol to the UN Framework Convention on Climate Change. Most notable is the Kyoto Protocol, in which Japan played a major role acting as host and becoming a signatory to the binding international agreement. With the ratification by Russia, the Kyoto Protocol is one of the few CSR-related international agreements that bind companies in signatory states.
Japan has also committed to the UN Global Compact and 22 Japanese companies are registered under it and abide by its provisions. Further, as a member of the Organisation for Economic Co-operation and Development (OECD), Japan officially encourages companies to adhere to the Guidelines for Multinational Enterprises developed by the OECD. Furthermore, Japanese newspaper companies held a Global Management Forum 2004 on CSR. The appearance of CSR publications in bookstores speaks to CSR’s growing prominence in Japan.
4. Non-statutory sources of liability for companies
Japan is a so-called civil law country and, in general, legal sources of liability need to be found in a statute. Under the Civil Code (Law No. 89 of 1896, as amended), Article 709 provides for liability of a tort-feaser in case of wilful misconduct or negligence, which may be used in attempting to enforce CSR obligations on companies operating in the Japanese jurisdiction. Under Article 709 of the Civil Code, a Japanese company could be liable where wilful misconduct or negligent actions by that company have caused damage to any person or entity.
5. Principal institutions, government agencies and/or major non-governmental organisations (NGOs)
There is no government department charged with the overall oversight of CSR in Japan. However, most ministries are moving ahead on various CSR-related policies in their respective fields: the Ministry of Economy, Trade and Industry takes charge of policy on the economy and industry, trade, science and technology, commerce and information, industrial safety, and natural resources and energy; the Ministry of Health, Labour and Welfare takes charge of policy on health, social issues, employment, and wages and labour welfare; the Ministry of Justice takes charge in a broad area including civil, criminal, corporate, and immigration matters and the protection of civil rights; the Financial Service Agency takes charge of ensuring the stability of the financial system and the protection of depositors, insurance policyholders and securities investors, and the supervision of private sector financial institutions; and the Ministry of the Environment takes charge of environmental policy and pollution control.
Moreover, the Ministry of Economy, Trade and Industry regularly held meetings of the advisory board on CSR, and published in September 2004 the Interim Report on Corporate Social Responsibility, which considered basic approaches to CSR, measures to promote it, and implementation of the 2001 guideline for environmental reporting. The Ministry of the Environment regularly investigates companies’ management performance on environmental issues, and has published annually since 1997 a report on their progress. It has also produced guidelines for environmental reporting and accounting, and published reports of workshops on eco-friendly banking and investment and socially responsible investment. The Ministry of Health, Labour and Welfare published an Interim Report on CSR in Employment, containing results of a workshop on CSR in June 2004. The Consumer Policy Committee of the Quality of Life Policy Council of the Cabinet Office in December 2002 published guidelines, entitled Building up Consumer Confidence in Business: Guideline for Corporate Code of Conduct, to encourage companies to formulate codes of conduct on desirable business practices and relationships with consumers.
A major NGO involved in promoting CSR is the Green Purchasing Network, established in 1996 to promote the purchase of eco-friendly products and services. As of March 2004, it had about 2,889 member organisations, including corporations, local autonomous bodies, consumer groups, environmental NGOs and co-operative associations. The Network promotes the ideas and practices of ‘green purchasing’, draws up purchasing guidelines for each type of product, opens databases of environmental information on various products, holds seminars and study meetings, and awards commendations to organisations that have excellently performed in implementing green purchasing. Other NGOs that promote CSR include Greenpeace Japan and the Sustainable Management Forum of Japan, etc.
SPECIFIC AREAS OF CORPORATE SOCIAL RESPONSIBILITY
6. Human rights
In Japan, the principal legal document on human rights is the Constitution established after the second world war. It contains provisions that protect human rights over a broad range of areas such as religion, privacy, expression, association, employment, mobility, occupational choice, etc. Specifically, for example, the Labour Standards Law (Law No. 49 of 1947, as amended) enacted under the Constitution regulates employment relationships between employees and companies and contains protections for nationality, gender, and so on. Japan also participated in drafting the UN Declaration on Human Rights.
The Constitution defines the relationship between individuals and national government and any local public bodies, and there is no separate human rights. The Constitution is also considered to imposing the same obligations on private relationships between individuals and companies.
The Personal Information Protection Act (Law No. 57 of 2003), which came into force on 1 April, 2005, directly regulates private companies that hold and use personal information databases. Under this law, a company shall use personal information for a specific purpose, notify the individual of the purpose of collection of such information, and shall be prohibited from disclosing it to a third party without the prior consent of the individual.
7. Corruption
Corruption is dealt with under the Criminal law (Law No. 45 of 1907, as amended) and the Commercial Code. There are two distinct issues: that of companies that give money or undue advantage to a public official, and that of companies that improperly give money to shareholders.
With regard to the bribery of a public official, the official who receives, demands or agrees to receive money or undue advantage can be punished under the Criminal Law with up to five years imprisonment. If the official gives a specific promise when the money is received, the sentence can be up to seven years imprisonment, and if the official conducts an undue act or does not conduct his primary duty as a result of receiving a bribe, he can be punished with up to 15 years imprisonment. Additionally, an official who receives a bribe will be sentenced to a fine equivalent to the amount of the bribe. A person who gives, offers or promises to give money or undue advantage to officials can be sentenced to up to three years in prison.
Furthermore, in 1997 Japan ratified the OECD Convention on Combating the Bribery of Foreign Public Officials in International Business Transactions. In order to bring the Convention into force in Japan, in 1998 provisions were inserted into the Unfair Competition Prevention Law (Law No. 47 of 1993, as amended) that companies should not “directly or indirectly, offer, promise, give, or demand a bribe or other undue advantage to obtain or retain business”. Where a person gives or promises money to a public official abroad, that person can be punished by a maximum of three years imprisonment. Where a person abroad is acting on behalf of a company in offering or promising money to a public official, the company can also be punished with fines of up to ¥300 million.
With regard to the bribery of shareholders, Article 295 of the Commercial Code prohibits companies from providing money or undue advantage to a shareholder in relation to exercise of his voting rights. Where this is done corruptly, Article 497 of the Commercial Code contains penalties for both giver and receiver. The individual who receives or demands money or undue advantage from a company with the knowledge that such money or advantage is bribery can be punished with imprisonment of up to three years and/or fines of up to ¥3,000,000. Directors and employees who transfer money or undue advantage to shareholders in connection with the exercise of those shareholders’ voting rights can be punished with up to three years imprisonment or a fine of up to ¥3 million. In addition, where bribery is given to shareholders with a request that they exercise their influence improperly (for example, by preventing other shareholders from exercising their voting rights properly in order for the management to escape from its responsibilities), both the shareholder who receives, demands or promises to receive money or undue advantage, and anyone who gives, offers or promises to give it, will be sentenced to imprisonment of up to five years or fines of up to ¥5 million (Article 494).
One of the most prominent anti-corruption NGOs, Transparency International, ranked Japan 24th in its 2004 Corruption Perceptions Index.
8. Corporate governance and business ethics
In Japan, the legal basis of CSR in corporate governance and business ethics is found in the fiduciary duties of directors set out in the Commercial Code. Current calls for more transparency in companies have prompted Japanese legislators to bring forth two major changes. First, the American-style ‘company committee’ was introduced last year, which strengthens the board of directors’ supervisory functions; this committee oversees an internal control system which is disclosed in the company’s annual report. Since this practice came into force in 2003, more than 50 Japanese companies have adopted it. Second, the Ministry of Justice is working on an overhaul of the Commercial Code. After the changes, it is expected that the obligation to establish an internal control system will be imposed upon companies larger than a certain threshold even if they do not have a company committee.
Where the company lists its shares on a stock exchange, it is also required to comply with the Securities and Exchange Law (Law No. 25 of 1948, as amended), under which it must provide continuous disclosure. A recent amendment to this law requires that the Annual Securities Report of listed companies contains information about its corporate governance.
To promote good corporate governance, the Japan Business Federation established the Japan Business Federation Charter of Corporate Behaviour in 1991. This charter has been updated continuously and an implementation guideline published. While the Charter is not legally binding, it calls on Japanese companies “to respect human rights and to conduct themselves in a socially responsible manner towards the creation of a sustainable society”, and to “observe both the spirit and the letter of all laws and regulations applying to their activities both in Japan and abroad”. In addition, the Japan Corporate Auditors Association has a code of auditing standards.
9. Corporate responsibility to employees
In Japan, employees have traditionally been cared for by the lifetime employment and the seniority system. Lifetime employment and enhanced welfare was considered a company’s social responsibility. Japanese courts did not, and do not, easily allow a company unilaterally to dismiss an employee. Accordingly, Japan has a long history of corporate social responsibility to employees. The Constitution guarantees employees’ fundamental rights, including the right to work and to enjoy equal treatment. It guarantees the right of labour unions to organise, negotiate and strike on behalf of employees, and it prohibits child labour. Japan is a member of the International Labour Organisation.
The Labour Standards Law and other employment-related laws and regulations prohibit discrimination on the grounds of nationality, religion and social position; protect gender equality; prohibit forced labour; stipulate maximum working hours, overtime work and holiday working, and minimum extra payments for overtime work and holiday work; prohibit labour by children under 15 years old; provide for favourable treatment for pregnant women and women with babies under a year old; stipulate medical and leave expenses in cases of occupational accidents; and so on.
Recently, Japan has experienced a growth of irregular, temporary and part-time employment. This trend to diversification of working styles accelerated in the late 1990s. Women and the elderly have found employment on a non-regular basis; more workers are seeking non-regular types of employment; others find themselves obliged to take non-regular employment as there are fewer opportunities for regular employment. The expansion of tertiary industries, where there is a high proportion of non-regular employees, and more recently, the greater use of non-regular employees by individual companies, has also contributed to this trend. Employers are making extensive use of non-regular employees in order to reduce manpower costs or maintain flexibility at times of economic uncertainty. The Labour Standards Law has been amended in line with these trends, and the Law On Improvement of Employment Management of Part-time Workers (Law No. 76 of 1993, as amended) and the Law On Securing the Proper Operation of Worker Dispatching Undertakings and Improved Working Conditions for Dispatched Workers (Law No. 88 of 1985, as amended) adopted.
In relation to equal opportunities and the equal treatment of men and women, the Law on Securing, etc Equal Opportunities and Treatment between Men and Women in Employment (Law No. 113 of 1972, as amended) was adopted. This law prohibits discrimination against women in respect of recruitment, assignment, promotion, retirement, mandatory retirement age, termination or any other stage of employment. Companies are obliged to pay attention to issue of preventive measures against sexual harassment. To protect other workers in weak positions, Japan also has a Law On the Stabilisation of Employment of Older Persons (Law No. 68 of 1971, as amended), and a Law for Promoting the Employment of Disabled Persons (Law No. 123 of 1960, as amended).
Legislation has been adopted providing for the welfare of workers who take care of children or other family members (Law No. 76 of 1991, as amended). This entitles employees, women or men, to take parental leave if they have children under a year old and nursing leave if they have a partner, parents, or children who needs care. Companies shall not discriminate against an employee taking these types of leave.
With regards to health and safety, companies of a certain size are required to appoint a chief administrator of health and safety, have a health and safety committee, maintain a health and safety management system and to prevent employee accidents or health problems under the Labour Safety and Health Law (Law No. 57 of 1972, as amended).
10. Corporate responsibility towards the environment
The Basic Environment Law (Law No. 91 of 1993, as amended) replaced the previous basic law and forms the basis of Japanese environmental laws and policies. This law declares basic principles of environmental policy, defines the responsibilities of each actor in society, and prescribes policy instruments to protect the domestic and global environment. Prior to the adoption of this law, Japanese environmental policies had been based on the Basic Law for Environmental Pollution Control, enacted in 1967 to combat the serious industrial pollution that arose from rapid economic growth, and the Nature Conservation Law, enacted in 1972 to stop the destruction of outstanding features of the natural environment. Although these laws had considerable success in tackling environmental problems, they were insufficient to deal with new issues such as global environmental problems, urban pollution, loss of accessible natural environment in urban areas and the deterioration of environmental protection capacity in forests and farmlands. The Basic Environment Law, in addition to regulatory measures traditionally used for pollution control and nature protection, provides for: environmental consideration in policy formulation; establishment of an environment plan which describes the directions of long-term environmental policy; environmental impact assessment for development projects; economic measures to encourage activities for reducing environmental load; improvement of social infrastructure; promotion of environmental activities by corporations, citizens and NGOs; environmental education; and provision of information.
Many laws such as the Water Pollution Control Law (Law No. 138 of 1970, as amended), the Air Pollution Control Law (Law No. 97 of 1968, as amended), the Noise Regulation Law (Law No. 98 of 1968, as amended), the Offensive Odour Control Law (Law No. 91 of 1971, as amended) and the Waste Management and Public Cleaning Law (Law No. 137 of 1970, as amended) contain penalties not only for the offender but also for any companies whose representatives, employees or other personnel infringe their provisions. Although the penalties under these environmental laws are generally moderate, Japanese companies could be liable to any third parties damaged or injured by company activities under these laws, and under Article 709 of the Civil Code.
In general, Japanese environment law imposes upon companies an obligation not to discharge pollutants in excess of prescribed limits, and an obligation to make prior notification of the installation of a facility that discharges regulated pollutants. In addition, environmental legislation provides that companies bear strict liability for damage caused by any pollution exceeding prescribed limits that results in injury or death to a third party, regardless of whether the company was negligent. Moreover, where a company exceeds pollutant limits, the government will issue a warning or order to it to cease doing so. If the director or employee violates such an order, the law permits the company to be fined and the director or employee to be fined or imprisoned.
The Ministry of Environment oversees all environmental legislation and establishes standards for CSR reporting and accounting applicable to private companies. The two main sets of voluntary guidelines it has produced are the Environmental Reporting Guidelines and the Environmental Accounting Guidelines. A survey by the Ministry in March 2004 found that, of 6,354 companies that are either listed on the stock market or employ more than 500 employees (response rate: 44.0 per cent, 2,795 companies), more than 80 per cent of responding companies work positively on environmental management and have a specific action plan, 743 companies publish environmental/sustainability reports and about 1,600 companies disclose environmental information.
In May 2004, Japan enacted the Law On Promotion of Environmental Consideration (Law No. 77 of 2004), which encourages companies to disclose environmental information in relation to its business activities, and to take into account environmental information when investing in other companies.
11. Corporate responsibility to communities
The Japanese government has promoted structural reforms to encourage corporate responsibility towards communities and to stimulate the local economy, by setting up zones where the regulatory regime is amended, according to voluntary proposals by municipal bodies under the Law on Special Zones for Structural Reforms (Law No. 189 of 2002, as amended). Apart from this, companies are regulated by prefecture ordinances and other ordinances by municipal bodies, some of which are stricter than national laws, on environmental issues for example.
12. Corporate responsibility to overseas activities
Japan has no specific laws covering companies’ activities abroad. Instead, Japanese companies overseas are expected to operate in accordance with the laws and regulations of foreign jurisdictions. Nevertheless, there has been a recent judgment, of 20 September, 2000, by Osaka District Court (appealed to a higher court, and settled at the Osaka High Court on 11 December, 2001) which may expand the scope of director liability for companies’ branches operating abroad. Shareholders brought an action on behalf of the company under Article 267 of the Commercial Code, alleging that the directors and auditors had negligently caused damage to the company. The district court ordered senior executives of one of the Japanese largest banks to pay the bank $775 million in damages because of their failure properly to oversee a New York-based trader who engaged in illicit trading that resulted in huge losses. The award was the largest ever in a shareholder derivative lawsuit filed against individuals in Japan at that time. The case had been brought against nearly 50 board members by two individual shareholders who sought compensation for $1.1 billion in trading losses and for $340 million in fines that the bank paid to US regulators when they shut down the bank’s New York trading operations. A New York-based trader of the bank had been engaged in unauthorised bond trading and a cover-up of $1.1 billion losses incurred by such trading over 11 years. US regulators ordered the bank to pay $340 million in fine for the violation of the US Federal laws, and to pull out of the US.
The district court ruled that: “If the company organises overseas branches or offices and operates business activities outside Japan, the directors and the auditors of such companies are required to comply not only with Japanese laws but also all relevant laws and regulations of the foreign country where the company operates its business under the Commercial Code of Japan.” The court ruled that the directors and auditors were liable to the company for negligently supervising the activities of the employee who breached US federal law. This ruling may allow shareholders to monitor the actions of company representatives abroad and allow action to be taken against directors on behalf of the company where local laws are broken.
13. Procurement
The Ministry of Environment has created and circulated the Law Concerning the Promotion and Procurement of Eco-Friendly Goods and Services by the State and Other Entities (Law No. 100 of 2000), which encourages private citizens, state entities at the local, prefecture and national level, and private companies, to make their best efforts to search for and procure eco-friendly products. The government is also required annually to develop policies on how best to increase the use of eco-friendly products.
14. CSR reporting and socially responsible investing
Sustainability reports first began to appear in the 1990s. Currently, responding to various stakeholders’ needs, many companies provide comprehensive environmental information, ranging from their vision for the environment to the impact of the product life cycles on the environment, eco-friendly products, green procurement and so on. More reports are also published by companies which include information on companies’ undertakings with regard to labour relations, human rights, coexistence with local communities and other CSR issues. The number of Japanese companies practicing environmentally responsible management has grown sharply in recent years. In 1998, barely 200 private companies published sustainability reports, but by March 2004 their number had increased to 743, according to a survey by the Ministry of the Environment. The Ministry also promotes the use of its own environmental report guidelines, and is beginning to promote third party verification of environmental reports. As of March 2004, of the 743 companies issuing reports, 121 (16.3 per cent) submitted them for third party verification, and more than 400
(60.2 per cent of 743 companies) had either submitted them for such verification or were thinking of doing so in future. Another survey by the Ministry of the Environment has shown that investor interest in socially responsible companies is at 96 per cent. while the US reports 57 per cent and the UK 61 per cent by way of comparison.
In 1999, Socially Responsible Investment funds came into existence, investing exclusively in companies which adhere to its CSR-inspired code of socially responsible companies. The Ministry of Economy, Trade and Industry and the Research Institute of Economy, Trade and Industry established a workshop studying CSR; a report released in March 2004 stated that there are 13 Socially Responsible Investment funds in Japan with aggregate net assets of about ¥100 billion.
