Corporate Sustainable Development Research——Interpreting How ESG Data Empowers Businesses

On November 23, 2023, Beijing time, Mr. Wu Dayou, the initiator and head of the International Institute For Advanced Data Management Study, Ms. Huang Zhihui and Mr. Li Shaoqing, members of the Japan Research Center, conducted a joint online live broadcast with the theme of "Corporate Sustainable Development Research—Interpreting How ESG Data Empowers Businesses".

Japan places significant emphasis on humanistic care and environmental governance, which aligns well with the ESG philosophy. Many Japanese companies have implemented measures in environmental protection, social participation, and employee welfare, contributing numerous practical examples to the field of ESG sustainable development. The Japan Research Center will conduct multifaceted studies on ESG sustainable development. In this live broadcast, the three experts discussed the background, current situation, significance, and related cases of ESG.

Mr. Wu Dayou: Our Japan Research Center is located in Osaka, a region rich in history and culture. It's an honor to have Ms. Huang Zhihui and Mr. Li Shaoqing from the Japan Research Center share information about ESG sustainable development in Japan today. Japan has producedmany Nobel laureates in recent years and conducted numerous outstanding scientific research projects internationally. China now attaches great importance to ESG work. We hope to gain a deep understanding of the current state and measures taken for ESG work in Japan through this live broadcast, for learning and reflection.

Mr. Li Shaoqing: Let's start by introducing the essence of ESG. ESG stands for Environmental, Social, and Governance, the first letters of these three English words combined. The concept of ESG was explicitly proposed in 2004 as part of the United Nations Global Compact program. This is a series of investment concepts and corporate evaluation standards that measure a company's environmental, social, and governance performance rather than financial performance. It advocates that investors consider not only a company's financial condition but also its social responsibility when making investment decisions, including the company's strategies and contributions to global warming and human rights protection, thereby comprehensively assessing the investment value of a company.

However, the prototype of the ESG concept actually existed as early as the 1960s and 1970s. Regarding the environment dimension, which is recognized by countries and enterprises worldwide, the Stockholm Climate Conference in 1972 first proposed that "all companies should bear responsibility for climate change." Since then, a preliminary consensus on global climate protection has been formed. Subsequent agreements like the Kyoto Protocol signed in Japan and the Paris Agreement signed in Paris have continued the consensus and work on global climate protection.

Currently, countries in Europe and America have higher levels of ESG implementation. Within East Asia, China, Japan, and South Korea eachhave their own practice cases. As a developed country, Japan has actively explored the ESG field with economic support. By 2021, Japan's ESG investment had reached 24%, with a focus on environmental governance (E) and social contribution (S). Key industries include the energy sector, manufacturing, and transportation. We've prepared some business cases from these industries to help everyone better understand how companies in these sectors implement ESG.

Mr. Wu Dayou: Thank you, Mr. Li, for sharing the background of ESG in Japan. The popularity of ESG in China is still low, and it is extremely difficult to achieve a high AAA rating based on the international MSCI scoring criteria (the top 5% globally, with only 0.3% in China). Most companies are attempting ESG, but the assessment results may only be CCC, the lowest rating. Currently, several companies in China that have received an AAA rating include Yadea, Lenovo, Li Auto, and XPeng Motors. We also invite Ms. Huang to share some outstanding ESG corporate case studies from Japan.

Ms. Huang Zhihui: Regarding ESG practices by Japanese companies, we have selected a few representative companies. The first is ENEOS, Japan's largest energy company, with a turnover of 15 trillion yen in 2022, equivalent to 750 billion yuan. Their business covers oil and gas supply, hydrogen energy development, oil and gas exploration, and metal trading. In terms of oil and gas supply, ENEOS has made significant environmental contributions, such as developing clean energy to replace traditional energy. They disclose this information across 15 topics under the E, S, and G dimensions. These topics include contributions to a decarbonized society and biodiversity risk management under the environmental dimension; ensuring safety and health promotion, and compliance with international human rights rules under the social dimension; company compliance and promoting work-life balance under the governance dimension.

Mr. Li Shaoqing: I can attest to this from personal experience. Working in Japanese companies, I've seen their management actively practicing balance. Japan has historically had a serious issue with overwork, which is a byproduct of its traditional economic development. However, entrepreneurs at many modern companies, particularly new enterprises, place significant importance on the lives of their employees. Theyencourage staff to improve their quality of life and spend more time experiencing it. The belief is that after employees have relaxed and refreshed themselves, they can return to work with a more active mindset, potentially leading to new ideas that could propel the company forward.

Ms. Huang Zhihui: Mr. Li shared his firsthand experiences regarding Japanese companies' efforts in safeguarding employee rights. My company's headquarters is in Hong Kong, where overwork is also a major concern. In Japan, the issue of overtime is controversial. At our company, we strongly discourage overtime and promote completing work efficiently within an eight-hour day to avoid it. Employee rights protection falls under corporate governance, which is closely intertwined with social responsibility.

Many Japanese companies have integrated social responsibility into their core operations. They proactively manage resource risks, develop early warning systems, and control emissions of carbon dioxide and other gases. China is also leading the world in environmental protection, committing to peak carbon emissions by 2030 and achieve carbon neutrality by 2060. Considerable progress has been made in recycling resources and promoting a circular economy.

Mr. Wu Dayou: Why is ESG so important in China? Beyond aligning with international standards, we see from the topics ENEOS focuses on that a company aiming for longevity will delve deeply into these issues. Many domestic small and medium-sized   enterprises (SMEs) engage in ESG due to requirements from supply chain leaders when venturing into overseas markets or conducting international business. This explainswhy only 18% of SMEs in China have disclosed ESG information, with over half having no plans to do so. I'm curious about what motivates Japanese companies to pursue ESG—whether it's to attract international investment or if there are specific legal requirements in Japan.

China has laws supporting the three dimensions of ESG, such as environmental protection law, labor law, and company law. However, regulations don't force companies to adopt ESG; they rather set a moral baseline and focus on facilitating voluntary ESG actions, optimizing corporate systems, and aligning with global standards. Perhaps Ms. Huang can share the reasons behind Japanese companies' recent substantial investments in ESG.

Ms. Huang Zhihui: ESG is crucial for SMEs to profit. Besides being in a good industry, a company needs a strong team, which cannot be achieved without sound corporate governance and social responsibility. For example, during our five-year development as a start-up, we have made significant efforts in corporate governance. Our company has 50% Chinese employees, for whom we provide regular free Japanese language training, and we offer positions or allowances to family members who move to Japan with them. We offer certification training and regular brainstorming sessions to all employees.

At different stages of development, companies have distinct governance and social responsibility tasks. As a start-up, we've built a solid management system over five years, now entering a stable phase. We quantify our achievements to plan future strategies.

In Japan, environmental laws are very strict. Everyone knows about Japan's garbage sorting rules, which vary by building. Committees rigorously inspect residents' trash, requiring them to re-sort incorrectly discarded items. These stringent measures have indeed raised public awareness of environmental protection and fostered the development of a circular economy.

Mr. Wu Dayou: Thank you for sharing. When discussing ESG, we often focus on the benefits it brings to businesses, but its essence is a mindset. Many companies pursue ESG ratings for practical reasons like attracting investment. However, what many companies need is to embed ESG consciousness. Just as culture can be assessed through KPIs in a company's culture evaluation, ESG can also become a KPI, rewarding outstanding employees. Has your company implemented any ESG evaluation metrics, Ms. Huang?

Ms. Huang Zhihui: We have strict KPIs for risk management in timeliness, mainly targeting management. On social responsibility, we hire professionals to ensure compliance, including controlling working hours, providing employee benefits, and offering simple positions to disadvantaged groups. We also set up a suggestion box, rewarding employees whose suggestions benefit the company. We have an annual environmental protection employee bonus, such as this year's award given to a Japanese colleague who saved water by making his own drainage pipe.

Mr. Wu Dayou: Thank you, Ms. Huang! You've provided many concrete examples of how companies can integrate ESG into performance management systems. In Asia-Pacific, the rate of ESG information disclosure is rising, with advanced levels in Hong Kong, Taiwan, and Japan. China is pushing for digital transformation in companies, encouraging data asset consolidation to expand financial scales. This policy facilitates the maturity, completeness, and transparency of ESG data disclosure. Digitalization is closely related to sustainable development.

Black Cat Transport has introduced See-T Navi transport monitoring systems to collect real-time data on speed, continuous driving times, parking areas, etc. It reminds drivers to watch their speed, avoid obstacles, and plan routes, reducing emissions and enhancing delivery efficiency and safety.

Mr. Wu Dayou: The topic of safe transportation is interesting. In many places in China, the demand for logistics is speed and short routes, often ignoring safety. Our Australia and New Zealand Institute may share similar cases next time. To meet ESG requirements, some countries build animal crossings and bridges to reduce traffic accidents, protecting wildlife safety. ESG's social responsibility not only protects humans but also the natural environment and animals.

Mr. Li Shaoqing: Thank you for the addition, Mr. Wu. Besides safety, Black Cat Transport has made efforts in energy-saving transport. Collaborating with Mitsubishi Motors, they introduced electric trucks, significantly cutting greenhouse gas emissions and improving driver working conditions and health. Japan is a leader in energy conservation.

Regarding employee welfare, Japan has severe overwork problems, especially in transportation. The government established the "36 Agreement," limiting overtime to 960 hours per year. Black Cat set a goal to cut overtime by 50%, reducing long-distance road transport in favor of sea, rail, and air, decreasing fatigue driving, safety issues, and achieving energy savings.

Mr. Wu Dayou: Thank you, Mr. Li! Black Cat Transport's case is impressive. Next, let's discuss Lawson Convenience Stores. Lawson has rapidly expanded in China in recent years. How does a high-energy-consuming industry like convenience stores practice ESG?

Mr. Li Shaoqing: People might not immediately associate ESG with service industries. Last year, Lawson opened a Green Lawson store in Tokyo. Its concept is to create a future-friendly convenience store that is human-centric and environmentally friendly. It introduces virtual avatars for remote operation, enabling people with disabilities or pregnant women to work.

To save energy, Lawson uses closed refrigerators and makes its stores and baskets from renewable and recyclable materials, promoting recycling.

Mr. Wu Dayou: Thank you both for sharing! In China, one challenge is that many people are unfamiliar with ESG concepts. How to popularize ESG education is critical. Besides legal and policy promotion, society needs to talk, discuss, and apply it more. The Japan Research Institute will share more cases and measures to help everyone better understand ESG.

China's SMEs face a favorable trend in going abroad and developing due to state policy support. The director of China's Data Administration Bureau mentioned providing data access. Many SMEs struggle to compile ESG data, but relevant data could be obtained from local government departments for natural resource management, electricity, water supply, and land resources bureaus.

Beyond data support, we should learn from Japan on how to make ESG beneficial to companies, like Lawson's measures enhancing brand value and popularity among Japanese consumers. For SMEs, we need more policies like data inclusion to facilitate ESG implementation. Chinese banks are taking action, offering green loans and funds, which will be future trends. With data support, awareness promotion, and financial incentives, ESG becomes more feasible and easier.

ESG is a scientific economic logic concerning societal and individual development. Companies must incorporate ESG awareness, evaluations, and incentives into governance using official data or standards for effective execution. Creating an ESG report isn't difficult; the challenge lies in collecting ESG data and embedding its spirit into corporate culture and development plans. We hope the government can establish standards for SMEs' ESG data, helping them gain investors' attention and profit while pursuing ESG.

The key to ESG work is spreading ESG awareness among enterprises. The International Institute For Advanced Data Management Study andthe United Nations Shanghai Training Center are collaborating to promote ESG awareness. This aligns with China's overall policy direction, including peaking carbon emissions and achieving carbon neutrality. ESG presents an opportunity for companies to catch up and is crucial for aligning with international standards and enhancing competitiveness. The study will share more ESG case studies and knowledge in the future.