The State of Sustainability in Japan – Key Challenges and Considerations

Introduction

Japan has long been regarded as lagging in its sustainability efforts. However, as a significant economic power deeply integrated with Japan, it lags in sustainability efforts. However, sustainable business practices have gained importance as a significant global economic power. The article examines Japan's sustainability landscape and challenges. It offers insights for foreign companies entering Japan's market or engaging Japanese businesses on sustainability.

The Current Sustainability Landscape in Japan

Slow integrated reporting adoption and insufficient ESG information disclosure are cited as areas needing improvement in Japan. The ICGN highlights the lack of independent outside directors as a major governance issue.

However, amid rising global ESG investing, Japanese corporations steadily advance sustainability initiatives. As of January 2024, Japanese PRI signatories reached 128, increasing around 1.6 times in 4 years (Asahi Shimbun). Driven by consumer awareness shifts, significant corporations are leading by expanding renewable energy adoption, developing eco-friendly products, and prioritizing human rights, signalling positive momentum toward sustainable practices.

Key Challenges Facing Japanese Companies 

Nonetheless, Japanese companies face several notable challenges in this domain:

Reluctance to Disclose Negative Information Japanese companies tend to be cautious about disclosing negative information, such as scandals or mishandling, in their annual and sustainability reports, often resulting in data deficiencies (Reuters, 2022). This lack of transparency can erode trust in these companies.

Underutilisation of Visually Compelling Content 

Many Japanese companies have yet to fully grasp the importance of creating engaging, visually appealing reports and web content for effective communication. Compared to their international counterparts, they often need help to leverage visuals effectively.

Excessive Attention to Detail Stemming from Perfectionism 

The traditional Japanese corporate culture is deeply rooted in perfectionism, leading to an undue focus on minute details that can hinder the timeliness of information disclosure.

Inward-looking Mindset Lacking Global Perspective Having historically concentrated on the domestic market, Japanese companies have tended to overlook the importance of appropriate global communication, resulting in a lack of international perspective, as noted by the Ministry of Economy, Trade, and Industry.

These challenges are often attributed to the lingering influence of traditional Japanese corporate culture.

Considerations for Foreign Companies Entering Japan 

Bearing in mind these cultural nuances, foreign companies considering entry into the Japanese market or engaging with Japanese businesses on sustainability matters should be mindful of the following:

• Thoroughly communicate their sustainability policies and international standards to local staff.
• Actively encourage mindset shifts among local personnel while embracing positive aspects of Japanese culture.
• Provide guidance and education to local staff from a global perspective.
• Maintain an open-minded approach to understanding cultural differences.

Considerations for Engaging with Japanese Companies

When conducting sustainability-related transactions with Japanese companies, it is crucial to:

• Consistently and demonstrate a commitment to sustainability.
• Carefully assess the current sustainability strategies of the Japanese counterpart and constructively propose improvements if needed.
• Foster a mutually beneficial relationship that creates a positive cycle of continuous improvement.

Conclusion

While cultural differences exist between East and West, achieving a sustainable society is a global imperative. Deepening mutual understanding and positively influencing each other is paramount. At TAMLO, with a presence in Japan and the UK, we offer an international perspective to analyse and navigate Japan's sustainability landscape accurately. Our in-depth research and tailored content creation support clients in addressing their unique challenges.