From eco SRI funds to CPAs well versed in environmental management accounting (EMA), the accounting and finance industries are starting to bank on the bucolic. In the Land of the Rising Sun where corporate social responsibility (CSR) - especially concerning the environment - is growing like a weed, these and other sectors are taking the lead to invest in a future where the grass is greener.
Japan has more firms certified under ISO 14001 environmental management-system standards than any other nation (about 20,000), according to a 2006 Japan External Trade Organization (JETRO) report on corporate environmental awareness. And 70 percent of 3,000 firms polled last year by Nikkei Ecology were cutting energy use and waste to obtain certification. Being certified offers an objective internationally recognized framework for corporate environmental policies, which is increasingly seen as a key to good business strategies. Such strategies require more than ecological expertise; these days, they may also require CPAs who understand EMA.
Environmental accounting, a way to quantify conservation costs and benefits - both monetarily as well as ecologically - is catching on in Japan. A Ministry of Environment survey showed that 712 listed and non-listed companies (about 30 percent of 2,524 surveyed respondents) had initiated environmental accounting in fiscal 2004. That may indicate a climb from about 13 percent in 2000. (The JETRO report notes varying sample sizes of previous surveys make comparisons uncertain.)
Methods vary but they generally allow companies to internally measure and assess the costs and benefits of expenditures such as pollution-prevention technology, site remediation, waste management and related taxes and fines, while quantitatively disclosing environmental activities - a key to any good corporate environmental policy. (A 2006 CSR report published by Japan Association of Corporate Executives shows 95 percent of its large-scale member companies in the manufacturing, transport or energy sectors issue environmental or sustainability reports.)
The Ricoh group, for example, divides economic benefits by conservation costs to calculate economic feasibility. "It divides overall environmental impact by sales to calculate environmental efficiency, which enables the company to ensure that the cost of a particular undertaking complies with its environmental policies and meets the expectations of society," according to JETRO. One industry in particular that's been banking on the benefits of corporate responsibility towards the environment is banking itself.
Lead by public institutions such as Development Bank of Japan and Shoko Chukin Bank, the finance sector now offers a buffet of environmentally-friendly financial products. Perhaps the most popular is low-interest financing for firms to obtain ISO 14001 certification - something that even some financial institutions have done themselves.
Bank of Tokyo-Mitsubishi UFJ opened its Environmental Finance Office in 2005, Mizuho Bank offers special financing for eco-conscious firms and environmental management efforts, while Kinki Osaka Bank offers low-interest financing for transport companies starting conservation systems and buying low-emission vehicles. The list goes on. In today's increasingly environmentally conscious Japan, such activities no doubt also enhance corporate images. And that's not all. Thanks in part to Japan's LOHAS (Lifestyles of Health and Sustainability) craze, merchandise retailers are not the only ones selling so-called green products that are good for the Earth.
"Eco funds," which invest in firms committed to the environment or environmentally friendly technology, appear to be attracting interest in the Japanese stock market. Securities and investment trust firms have been following the example of Nikko Asset Management, which established Japan's first such fund, the Nikko Eco Fund, in 1999. They may have suffered under the overall market slump of 2003, but times are generally better all around for funds. It's especially true of "eco SRI (socially responsible investment) funds," which by July 2006 totaled 25 varieties comprising a net-asset value that's grown by more than 50 percent in roughly a year, notes JETRO.
Such funds are far from hot stocks. But the weighted average market value of companies held in the main eco SRI funds has substantially outperformed the TOPIX index since 2000, and a 2005 Ministry of Environment report notes shares of environmentally conscious firms showed notable correlation between social and environmental efforts and corporate performance, according to JETRO. It appears there is yet another way to invest in the future - one's personal future as well as the fate of the environment.
