Page 20 - DIY Investor Magazine | Issue 34

HOW JAPAN IS MAKING STRIDES ON SUSTAINABILITY
Masaki Taketsume
Fund Manager, Japanese Equities
Europe is often held up as the ‘poster region’ of sustainable investing and it’s certainly true that ESG (environment, social, governance) issues are generally more embedded there than elsewhere. But Japan is far from a laggard in this area, particularly when it comes to the ‘S’.
In fact, Japan’s strengths on the social aspects of ESG investing long pre-date the current shifts towards sustainable investing. The concept of employees as a stakeholder is an important example.
‘JAPANESE CORPORATES DO INDEED HAVE A GOOD TRACK RECORD OF LOOKING AFTER THEIR EMPLOYEES’
SUPPORT FOR EMPLOYEES
Most employees in Japan would accept that the traditional idea of a ‘job for life’ is no longer a reality, but the underlying principle that companies will support their workforce is certainly still far more entrenched than in other regions.
The controversial ‘hire and fire’ practices sometimes seen elsewhere are still exceptionally rare in the Japanese corporate world.
In some aspects, many Japanese corporates do indeed have a good track record of looking after their employees. For example, in larger companies, such as Toyota, it’s still fairly common to offer dormitory accommodation for young employees.
From the company’s perspective, clearly this is designed to foster a sense of corporate culture and build loyalty to the firm. There are also many benefits for the employee as they can
be partially sheltered from the high costs of relocating to a new position, as well as gaining opportunities to meet different colleagues.
Nathan Gibbs
Client Portfolio Manager, Japanese Equities
There are nuances to the situation though. One is that the improved job security and the loyalty between employer and employee may effectively limit demands from workers for salary increases.
This has been a rational outcome during decades of deflation but, even now, as we are starting to see inflation pick up in Japan, wage demands have remained very muted, in contrast to other regions. It could be that workers are still prepared to trade a higher salary for greater job security, but companies will need to continue to uphold their end of that bargain.
Japan is also well known for a culture of long working hours, although ‘presenteeism’ (the need to be seen in the office) may become less prevalent after two years of frequent working from home during the pandemic. An encouraging point to
note is that we’re starting to see more companies actively seeking employee feedback through formal channels, such as anonymous opinion surveys. As elsewhere, this trend is being driven by larger companies.
Hitachi, for example, has been reforming its business model throughout the last decade, and its early adoption of a global HR system has allowed it to engage more effectively with its employees. We also find many other traditional companies, such as Fujitsu and even the some of the largest banks in Japan, including labour employment surveys among their ESG disclosures
A strong community focus is another area where we would argue Japanese companies have a sustainability edge. Even large corporates tend to have a ‘home base’ and strong ties to the suppliers and wider community around them.
‘A STRONG COMMUNITY FOCUS IS ANOTHER AREA WHERE WE WOULD ARGUE JAPANESE COMPANIES HAVE A SUSTAINABILITY EDGE’
DIY Investor Magazine · July 2022 20