Tokyo (June 1, 2016): The introduction of Japan’s Corporate Governance Code in June 2015 was heralded as a major step forward in helping to open up Japanese corporations to greater transparency and oversight. But a new report released by Rainforest Action Network documents that while the Code appears to be having some positive impact on governance issues such as board independence, the same cannot be said of the Code’s effect on improving the transparency and integration of sustainability issues into corporate business operation.
“The findings in this report suggest that companies are either systematically misreporting compliance on sustainability issues, or, have a fundamental lack of understanding as to the difference between genuine sustainability reporting and superficial Corporate Social Responsibility (CSR) statements,” said Toyo Kawakami with Rainforest Action Network. “For Japan’s Corporate Governance Code to provide any confidence to shareholders interested in corporate sustainability performance, a major overhaul of the Code’s sustainability reporting obligations, guidance and compliance monitoring is urgently needed.”
According to a recent Tokyo Stock Exchange synthesis report of corporate compliance in the Code’s first year of implementation, more than 99% of companies self-reported to be complying with the Code’s sustainability and stakeholder provisions.
In the report, titled Shareholders beware: How major Japanese companies are misreporting sustainability under the Corporate Governance Code, Rainforest Action Network tested these claims by evaluating the Code reports of ten major Japanese companies known to have direct links to tropical deforestation risks. The report finds that while companies reported an awareness of generic sustainability issues, few identified the specific environmental and social risk factors they faced from their direct links to tropical deforestation, and none demonstrated how they are practically addressing these issues. In all cases, the companies were found to be linked to significant on-going environmental and social conflicts.
“The provision of clear and accurate sustainability information related to business operations, including through supply chains and investment relationships, is a critical part of assessing a company’s investment potential,” said Tom Picken with Rainforest Action Network. “The omission or concealment of such information can cause unforeseen losses to investors from company links to harmful environmental and social impacts, which in turn can result in brand reputation loss, cancellation of supplier contracts, shutdowns in production or legal action.”
The report recommends that the Code’s standards and guidelines for sustainability and stakeholder issues be strengthened and company reports be subjected to more active compliance monitoring by Japan’s Financial Services Agency (FSA). The report also concludes that concerted actions by all companies with business relationships linked to tropical forest-risk commodities will be essential for making progress to protect and conserve these unique and threatened ecosystems, while also respecting and upholding the rights of key stakeholder groups, particularly local communities.
You can view the full Report here.