C-2021-001-9-WE

CSR: An International Comparison

Since it was introduced in the 1950s, the concept of CSR has continued to evolve, mainly in Western contexts (Latapí, Jóhannsdóttir, and Davídsdóttir 2019), while in Japan, it began attracting attention from around the end of the 1990s in response to overseas trends (Kawamura 2004). How firmly has this Western import been embraced by Japanese companies? Are there major differences in how it is practiced in Japan and other countries? How are the standards and objectives developed internationally being adapted and reshaped in Japan? To provide a basis on which to consider these questions, I present below a summary of comparative studies on CSR published in English and those published in Japan.

Where Does Japan Stand?

International Positioning of Japan’s CSR activities

The Welford survey (Welford 2005) is one of the best-known international comparative studies that includes Japan. The author conducted questionnaire surveys of companies in 15 countries in North America, Europe, and Asia in 2002 and 2004 in which CSR activities were classified into 20 categories. While the implementation rate in most of the categories was found to be significantly lower among Asian companies, Japan had a comparatively higher rate, particularly with regard to the publication of CSR reports. The study concludes that Western CSR initiatives are being closely followed in Asia, a trend particularly prevalent in Japan.

Baughn, Bodie, and McIntosh (2007) compared CSR in North America, Western Europe, the Middle East, Africa, Latin America, Eastern and Central Europe, and Asia using a questionnaire survey conducted by the World Economic Forum. They state that while Japan’s CSR in the domain of societal challenges lags behind levels in North America and Australia/New Zealand, it is ahead of Western Europe. And its environmental activities stand head and shoulders above all other countries.

These two studies note that Japan’s CSR is exceptionally well-developed in the Asian context. In international comparisons, Japan is often included among Western industrial democracies rather than as part of Asia because Japan’s political and economic systems are perceived to be closer to those of the West. For example, Gjølberg (2009) compares CSR practices in 15 EU countries, the United States, Canada, Switzerland, Norway, Australia, and Japan using an index consisting of socially responsible investment, participation in global CSR frameworks, publication of sustainability reports, and ISO14001 certification. Japan was ranked twelfth out of the 21 countries, with North European countries and Canada occupying the top positions. Gjølberg states that while Spain, France, and Japan are not perceived as being enthusiastic about CSR, they rank—quite surprisingly—in the middle of the list. Japan’s is ranked higher for international frameworks that require tangible achievements, while France and Spain have better scores in more open frameworks that emphasize processes rather than results.

Of the various CSR initiatives, Japan is noted for its proactive disclosure of information, such as through sustainability reports (Williams and Aguilera 2008). Tanimoto and Suzuki (2005) analyzed the characteristics of the large Japanese companies participating in the Global Reporting Initiative, an internationally accepted set of guidelines for information disclosure, and found that the higher the percentage of foreign shareowners and the greater the ratio of sales in overesas markets, the more likely companies were to participate in GRI. In addition, a comparison of CSR reports between Japanese and Western companies shows that the former devotes more space to environmental issues, while social issues and corporate governance are less frequently mentioned. Such findings are consistent with claims that Japan promotes CSR under pressure from the West and tends to emphasize the environment.

Bowerman and Sharma (2016) analyzed the relationship between CSR-related information disclosure and stock prices in Japan and the United Kingdom, finding that information disclosure in the UK leads to higher stock prices, a trend not observed in Japan. To explain this, the authors propose that information disclosure in Japan may be conducted with a broader range of stakeholders in mind, beyond just shareholders. Tran (2018), meanwhile, analyzes the relationship between the percentage of outside directors and ESG-related disclosure for Japan and the United States. The author states that the percentage of outside directors is positively related to information disclosure in Japan, but this trend is not seen in the United States. Similar to Bowerman and Sharma, the study indicates that the social norms of stakeholders other than shareholders may influence information disclosure in Japan.

According to the studies mentioned here, Japanese CSR can be characterized by the use of Western pressure to drive development, an emphasis on the environment, active disclosure of information, an emphasis on a wide range of stakeholders beyond shareholders, and corporate governance enabling such an approach. Most studies, though, limit their examination to CSR activities and performance and do not delve into the reasons and background behind such practices. I will next examine the various factors affecting CSR in Japan.

Institutional Factors

Most comparative studies of CSR consider differences in the roles of government, business, and citizens in each country as background factors affecting CSR. A representative study is Matten and Moon (2008)’s discussion of explicit and implicit CSR. The authors compare the United States and Europe, and find that the United States practices “explicit CSR,” using the term “CSR” to clearly incorporate social responsibility into the business agenda, while European companies tend to practice “implicit CSR,” fulfilling their social responsibilities by cooperating with the government and establishing industrywide obligations. Said another way, CSR in the United States is seen largely as a voluntary effort by individual companies, while it is seen in Europe to focus more on institutional efforts.

Among the factors cited for the differences, Matten and Moon emphasize discrepancies in political and financial systems. The United States has traditionally eyed the role of government in the market with suspicion, while political parties and unions are regarded as key players in Europe. In addition, in the United States, stocks are held by a variety of shareholders, so there is a need for companies to demonstrate transparency and social responsibility. Conversely, in Europe, companies maintain long-term relationships with major shareholders and banks, and strong influence is exerted by other stakeholders as well. More European companies have been adopting the US style of explicit CSR in the wake of globalization, but this is often a hybrid type that also retains certain European features. Matten and Moon note that Japanese CSR is similar to the European model, with financing being provided primarily by banks and through cross-shareholdings and preference being shown for long-term partnerships with stakeholders, as indicated by practices like lifetime employment.

Matten and Moon’s argument has been used frequently in subsequent research on the relationship between CSR and Japan’s political and economic systems. Kang and Moon (2012) point out that CSR in Japan and Germany developed within the context of a financing system centered on banks and corporate governance consisting of close labor-management relations and consensus-based decision-making that gives a voice to employees as well as shareholders. A shift to US-style corporate governance has been taking place in both countries since the end of the 1990s, but the level of shareholder activism is still considered low. Gond, Kang, and Moon (2011) see similarities between Europe and Asia but also state that while Europe is marked by voluntary industry associations, the role of administrative guidance remains strong in Japan and South Korea. In Japan, CSR acts like a proxy of the government, prompting businesses to offer workers such welfare benefits as lifetime employment.

The basic assumptions of many studies is that CSR in Japan developed under corporate initiative, with businesses taking on the role of the state and broadly in line with international trends, resulting in a hybrid form unique to the country. But more detailed international comparisons have produced a clearer picture. For example, Conte et al. (2020) show that, relative to other Asian countries, Japanese CSR more closely embraces Western logic, is marked by a higher degree of penetration among companies, and its initiatives tend to be more explicit. Choi and Aguilera (2009), meanwhile, compare Japan and South Korea and find that Japan is lagging in meeting Western expectations in such areas as eliminating discrimination against minorities, women, and foreigners and strengthening corporate governance. Because corporations have traditionally developed independently of the state, with the government providing guidelines rather than enforcing legal requirements, companies have been left with a large degree of discretion in interpreting and implementing CSR. In fact, government guidelines have been formulated with considerable corporate input; as a result, while there has been signficant improvement in product and service quality, workplace safety, and environmental issues, progress has been slow in other areas where corporate resistance has been strong, such as eliminating discrimination and enhancing corporate governance.

Cultural Factors

Although there are fewer papers than those examining institutional factors, a number of international comparisons exist that focus on cultural differences. Lee and Herold (2016) compare CSR between Japan and South Korea using a model formulated by social psychologist Geert Hofstede. Using huge volumes of data, Hofstede characterizes the culture of each nation according to four criteria: the degree to which power disparities are tolerated within a nation, the degree of loyalty individuals feel toward groups, whether higher value is placed on competition and materialiasm or on consensus and quality of life, and whether there is a tendancy to avoid uncertainty. Lee and Herold conclude that Japan tends to be somewhat adaptive to power disparities, is group-oriented and highly competitive, and has a strong tendency to avoid uncertainty. Because Japan is a group-oriented country that is tolerant of imbalances in power, Japanese companies tend to make a distinction between important and non-important stakeholders. And the country’s aversion to uncertainty makes management emphasize long-term sustainability. At the same time, while Japan is a competitive and materialistic society, companies actively adopt environment-friendly policies based on a harmonious relationship with the government, which is at odds with Hofstede’s theory.

There are other studies that use Hofstede’s model to conduct international comparisons of CSR. For example, Witt and Stahl (2016) compare Japan, South Korea, and Hong Kong, which are identified as being Confucist societies with a strong group ethic, having relative tolerance for power disparities, and marked by moderate humanitarianism. Japan had the highest level of group orientation and humanitarianism, they conclude, and therefore tended to address the needs of a broad range of stakeholders, not just shareholders, making Japan closer to Germany than to other Asian countries.

Characteristics and History of CSR in Japan

Having reviewed the position of Japan’s CSR in international comparative studies and discussed the background to such studies, I will turn now to an examination of studies that focus specifically on Japan.

Hybrid CSR

Many of the studies mentioned in the preceding section identify two common features of CSR in Japan. The first is the development of a hybrid system combining Western-style CSR with traditional Japanese management practices. The second is a tendency to emphasize a broad range of stakeholders, not just shareholders. These features can help elucidate the emphasis many companies place on environmental issues and their relative openness to information disclosure. In the following, I will focus on these two points in reviewing the existing literature on the background and history of Japanese CSR.

Fukukawa and Moon (2004) analyzed changes in Japanese CSR since the late 1990s based on information on Japanese companies’ websites. They note that large Japanese companies have traditionally forged close relationships with employees, banks, and suppliers and fulfilled their social responsibilities to members of such communities. Many companies were compelled to revise these traditional practices, however, due to a number of developments. One was the growing recognition of the need to reform a system that rewarded loyalty in the face of numerous corporate scandals; another was the Asian currency crisis, which made it difficult to continue the practice of lifetime employment; a third was the establishment of new guidelines by the government and various industry associations; and a fourth was exposure to overseas CSR agendas as companies globalized their operations. In the midst of such systemic changes, companies institutionalized their environmental initiatives as part of CSR due to international pressure and in the light of the lessons learned from Japan’s earlier bout with pollution problems. Contributions to the community, by contrast, were not institutionalized as CSR, having traditionally been promoted through private networks. Because there were no clear government guidelines, these were rarely explicitly mentioned in CSR reports. The authors note that globalization has led to a shift in environment-related initaitives but that traditional Japanese practices persist in other areas.

In a later study based on interviews with Japanese companies, Fukukawa and Teramoto (2009) point out that when CSR was imported from abroad, many Japanese companies construed it to be a mindset rather than a program and associated it with their own, longstanding corporate philosophies. The authors argue that companies can be divided into those that view CSR as an organizational issue, given the need to meet external expectations, such as rankings for socially responsible investment (SRI) and CSR, and those that take a more conventional view of CSR as an expression of their corporate philosophy. There are also discrepancies among issues, with many Japanese companies not having a clear stance on human rights, for example, which traditionally has not been a major concern for Japanese businesses.

Yoshikawa, Tsui-Auch, and McGuire (2007), meanwhile, note that the recession and the growing prominence of foreign shareholders have forced corporate governance in Japan to shift from a management system centered on corporate insiders sitting on the board of directors to a US-style system, under which executive officers and directors have differentiated responsibilities. They add, though, that this did not mean that Japanese companies wholeheartedly embraced the US system but that they selectively implemented those reforms that could be incorporated into the traditional management system.

Much research has been conducted on the stakeholders that Japanese companies emphasize, a theme closely related to Japan’s hybrid CSR system. Lee and Herold (2016), for instance, examine the oft-mentioned importance Japanese companies place on stakeholders other than shareholders, claiming there is considerable disparity among companies on which stakholders are given priority. Wokutch and Shepard (1999)’s study describes the imbalances in the consideration given to various stakeholders. Referring to the company-centered community identified by Fukukawa and Moon as a “micro moral unity,” the authors say that while the social responsibility Japanese companies fulfill toward employees and others in these communities is high by global standards, their commitment to people outside that framework—such as employees of subsidiaries, non-regular staff, women, foreigners, and minorities—is considered low, suggeting that CSR in Japan is motivated not so much by a sense of altruism, as is assumed in the West, but rather by a Confucian sense of duty. The distinction made between insiders and outsiders that Wokutch and Shepard elucidate has been pointed out by many others in connection with such themes as the securing of human resources by demanding loyalty in exchange for membership (Eweje and Sakaki 2015), the absence of a concrete strategy in stakeholder dialogue (Tanimoto 2017), and the disregard of responsibility toward outsiders (Horiguchi 2021).

CSR in Japan in the 2010s

Numerous studies have pointed to new CSR trends in Japan during the 2010s. Before then, initiatives had largely been limited to ensuring legal compliance, offering donations for causes unrelated to business activities, addressing environmental issues, and supporting immediate stakeholders (Davis 2014). However, the Great East Japan Earthquake triggered a series of new proposals, such as the Democratic Party of Japan’s “New Public Commons,” Keidanren (Japan Business Federation)’s emphasis on business continuity planning, and Keizai Doyukai (Japan Association of Corporate Executives)’s concept of the “value co-creating company.” A common thread linking all three is the need for closer coordination between social contributions and business operations, the recognition that companies are members of society, and an emphasis on the need to give greater consideration to stakeholders outside the company. The idea of linking social contributions with profitable business activities can also be found in such subsequent reports as the Liberal Democratic Party’s “Japan Revitalization Plan” and its proposals for a stewardship code, as well as a series of documents published by the Ministry of Economy, Trade, and Industry called the Ito Report (Davis 2016). This trend can also be seen in more recent initiatives, such as the creation of new problem-solving markets, as called for under the Cabinet Office’s proposal for Society 5.0; the strong push for the achievement of the SDGs by Keidanren; and the creation of new social value through strengthened stakeholder ties, as envisioned by Keizai Doyukai in its Japan 2.0 proposal (Suzuki, Sasaki, and Davis 2021).

These developments in the 2010s can be seen as attempts to rectify some of the perceived shortcomings of traditional Japanese CSR described earlier, namely, the discretion companies have had in interpreting and implementing CSR due to a lack of government initiative, the limiting of the scope of companies’ CSR initiatives to activities conforming to their traditional values, and apathy toward outsiders. The idea of value creation through CSR has met with some skepticism, however. For example, Kim, Saito, and Avvari (2020) analyzed how the concept of creating shared value (CSV)—addressing societal issues through a business model—was being implemented in Asia and found that CSV is seen in Japan as a means of maintaining existing corporate philosophies evocative of the community cultivated by Japanese companies in the past. While Kim et al. see this as indicative of companies’ emphasis on long-term business strategies, it may also be in line with some of the problem areas of CSR in Japan that were identified by Fukukawa and Teramoto (2009). Horiguchi (2021) also cautions that the tendency to disregard the interests of outsiders in traditional Japanese management may still be prevalent today.

Summary

The foregoing was a summary of existing studies on CSR in Japan. Many international comparisons show that the level of CSR in Japan is exceptionally high in Asia, being comparable to that seen in many Western countries. Major strengths include the publication of CSR reports and efforts to deal with environmental issues. The questionnaire survey on which this white paper is based also found that many Japanese companies publish their CSR initiatives in their annual reports and that a large percentage of companies are engaged in efforts to conserve energy and to use renewable energy.

The promiment role played by the corporate sector in promoting CSR in Japan has given rise to a hybrid system whereby Japanese companies have had a relatively free hand in interpreting and adopting overseas trends. Similar to companies in Europe, Japanese businesses have emphasized a broader range of stakeholders than in the United States. This is by no means a drawback, as this white paper’s survey reveals that companies that prioritize employees tend to incorporate ESG assessments into their CSR initiative more than those that give precedence to shareholder interests. That said, many studies note that the range of stakeholders Japanese companies pay heed to are limited to members of their corporate communities, and this is corroborated by the decline—as shown in our annual survey—in the number of companies engaging in dialogue with “outsiders” like the social sector. Heightened awareness of international trends and a fuller understanding of where Japan stands will be critical to ascertaining the advantages and disadvantages of Japanese-style CSR and enabling Japanese companies to make more effective social contributions while also achieving corporate growth.

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