Roundtable: Transparency & Engagement Required To Bridge Japan’s ESG Divide

PRovoke Media20th November 2023

PRovoke Media partnered with Weber Shandwick to explore why Japanese companies need to step up communication around their ESG efforts.

Japanese companies have made significant progress in recent years in the realms of governance and ESG strategies.

However, these efforts often go unnoticed on the global stage, leaving them just short of being recognised as true leaders. Meanwhile, Japan’s corporate sector is often characterised by governance scandals of the type that have rocked such companies as Jonny Inc and Big Motor this year. 

With shareholder activism on the rise, and companies increasingly being judged on their ESG progress, Japan Inc is realising that a low profile does not necessarily help its stakeholder engagement efforts. That challenge is amplified by the need to communicate more effectively beyond the country’s borders, to international audiences that typically expect greater transparency. 

To explore these issues in greater detail, PRovoke Media partnered with Weber Shandwick in Tokyo last month, inviting a select group of in-house communications and ESG leaders to discuss how Japanese companies can bridge the gap between their leading ESG work and lagging global perceptions.

The conversation began with insights from Weber Shandwick chief corporate affairs officer Chris Deri, who outlined the backdrop for Japanese companies — with foreign direct investment at a 10-year high of US$32.5bn, and sustainable investment now worth an eye-catching $2.8tn in the country.

“This is an extraordinary time for Japanese companies in terms of raising capital, attracting new investors into your company’s stock and securing higher valuations,” said Deri. “But, it’s really important to understand that — in addition to traditional expectations about growth and profitability — that investors are really looking for companies in Japan, and globally, to demonstrate and achieve real ESG performance and impact from an investor standpoint.”

Much of that revolves around governance, traditionally considered corporate Japan’s weak point, thanks to such issues as complex business structures, excess cash on the balance sheet, unclear succession planning, conservative business practices, and inefficient capital structures. The introduction of a corporate governance code in 2015 highlights the progress that has been made at a policy and regulatory level, while there has been a noticeable uptick in ESG reporting at an individual corporate level.

Even so, Japan remains Asia’s busiest market for shareholder activism, with 89 campaigns launched in the first half of this year alone — accounting for more than 10% of the global total. “You have to take real action from a business standpoint around ESG and take it really seriously,” explained Deri. “And you have to take equally seriously the way that you provide transparency and communications and engagement about your goals, about your performance, and about your impact from an ESG standpoint, to tell your real business story.” 

Those findings set the backdrop for the ensuing conversation among communications and ESG leaders from a diverse range of Japanese leaders. The transcript of this compelling discussion has been edited for length and clarity. 


  • Takako Ohyabu, chief corporate affairs officer, Takeda Pharmaceuticals

  • Chris Deri, chief corporate affairs officer and president, C-suite advisory, Weber Shandwick

  • Royanne Doi, corporate governance specialist

  • Atsushi Matsunaga, CMA director, corporate governance and ESG expert, S&P Global Market Intelligence

  • Arun Sudhaman, editor-in-chief, PRovoke Media (moderator)

Sustainability & green-hushing

“Japan has been doing stakeholder capitalism for hundreds of years”

Few issues highlight the enduring power of communications as much as a significant gap between perception and performance. Is that enough to explain why Japanese companies are sometimes viewed as lacking in terms of ESG, despite the progress they have made, particularly in terms of sustainability? Our panellists had some provocative answers. 

Chris Deri (CD): Here’s what I know, that Japanese companies are world-class companies with regards to R&D and innovation and leading with values and understanding all their stakeholders. I do know that there are many examples of Japanese companies that are leaders in performance around ESG topics. But what I would say is, I think that there is significantly less communication about it compared to multinationals in Europe and the United States. It’s a sort of virtuous flywheel of real innovation in what you do as a business, communicating about that, engaging stakeholders, hearing stakeholder feedback, and having that inform what you’re going to do in terms of your business performance. I know that Japanese companies are doing a lot, but I think we need to talk about that flywheel of action, communication, engagement, listening, and then continuing to incorporate that listening from different stakeholders.

Atsushi Matsunaga (AM): Due to the nature of my work, I sometimes interview foreign investors and I’d like to share some impressions I got from those interviews. For instance, when it comes to whether the corporate governance has improved at Japan companies, most investors would evaluate positively. Ever since the revision of the governance code in 2021, I see that most Japanese companies have been improving at a pace that exceeds expectations. 

However, that does not mean that the investors look at Japanese companies as leaders in corporate governance. Currently, Japanese companies are regulated to have more than one third of outside directors on a company’s board. It’s still a low proportion. This is where Japanese companies may be lagging compared to global. While companies undoubtedly acknowledge that they are behind, they may find it challenging to overcome the harsh criticisms to improve these from both numerical and quality aspects. 

Royanne Doi (RD): If you telescope back a little bit and look at Japanese history, I think Japan has been doing stakeholder capitalism for hundreds of years, way before Western society. So I think Japan is doing quite well when it comes to G, if you go back far enough and look at it. In particular, 2019, Business Roundtable, in the United States, make this big fancy announcement with 181 CEOs saying that they’re going to operate their companies for the benefit of all stakeholders. And Japan’s been doing that for a long time. It’s one of the reasons why there’s literally tens of thousands of Japanese companies that are older than a hundred years. And they’ve been taking care of their employees and their society and community for as long.

Is it too much to say that it’s a little bit arrogance from outside for people to say that Japan is behind on governance? Having said that, I also think that Japan has been focusing on E. So I would say Japan’s good with E and G and maybe outside of Japan has been better with S. Japan is a small island nation, it has had to focus on E. By necessity, they were advanced on clean energy etc. So, let me be a little bit controversial and say Japan’s not a laggard, but I will say that they’re a little bit behind on S, and maybe in diversity, but they’ve been around for a while.

Takako Ohyabu (TO): For us, the way we approach sustainability is how we run a sustainable business. It’s about how do we do what’s right and make profit at the same time? And we’ve been doing this since the 1700s. Now, when you look at the list of top 10 companies around the world that have been around for generations, seven out of the 10 are Japanese companies. Takeda is 242 years old. So I do think there’s something around sustainability, if you define it as running a sustainable business, that Japan does lead. And when I took a look at the stock exchange companies, there’s around 1,800 companies that are listed, and about more than 130 have been around for a hundred plus years.

And regarding this gap that I mentioned, are we not seen as leaders? I want to ask, do you feel like you communicate better than your global competitors? (Very few hands are raised). I think this might show the reality. I joined Takeda four years ago when we acquired Shire. It’s the biggest M&A in Japanese history. And while we were integrating, the remit that I was given, was to globalize the corporate affairs function. At the beginning of my tenure, I often got asked by my Japanese counterparts, “So, Takako, why do we have to communicate our purpose? Why do we have to keep on talking about, be proactive about all of this?” And I would be like, “Why not?”

And I felt that there’s a sentiment internally at Takeda that if you are doing good work as a company, stakeholders should just feel that. We don’t have to overly communicate. But what I had to explain to them was, if you want to play at the global level as a company, there’s different rules of engagement. And if we don’t communicate, how are we going to attract the best talent? How are we going to attract the best partners? And how are we going to attract great investors? So that’s kind of the starting point.

Arun Sudhaman (AS): Do you sense or see any kind of reluctance in terms of corporates promoting their environmental credentials?

RD: Definitely Japanese companies are a little bit hesitant at the moment. And I just think it’s a smart business thing on their part. There’s a new thing called green-hushing, which is when you really are committed to the environment, you are doing good things, but you don’t want to tell too many people about it. And my perspective, from a business perspective, is the regulatory system around metrics of success and environmental reporting are not consolidated. And so I think companies are being cautious about ‘what is the metric that I’m going to be measured against?’ Since it’s too complicated at the moment, and it looks like it’s going to be reaching some kind of consensus in the next year or two, my sense is Japanese companies are being a little bit careful.

CD: I have a little bit of sympathy for companies that are green-hushing, because I do think there’s incredible complexity, and there’s disarray, especially from a global company’s perspective. I don’t know if it’s going to get sorted out in a year or two. And then the other piece, and I feel this as an American, a lot of these topics that fall dryly into an integrated CSR report about environmental and social performance, in the United States in particular, have become unbelievably politicized. Boring stuff about measuring your greenhouse gases or setting diversity goals for a diverse and strong workforce have become incredibly politicized. I do understand the instinct to green-hush. It’s not the right thing for all the reasons that we’ve talked about, but I think that there’s a lot of externalities that are causing that.

But the thing I’ll add, I do see a lot of my clients who come to us and they say, “We have such a great story to tell, we’ve got to get it out there.” And then what they focus on is looking backwards and talking about the results of an incredible amount of hard work and what they’ve already accomplished, but what we often tell companies is that that’s actually not breakthrough communications. Breakthrough communications is actually about looking ahead and setting goals and commitments. Setting goals and commitments that you don’t know if you’re going to be able to meet them, but putting a stake in the ground. That’s got to be a part of communication as well. And then communicating about your performance when you do hit those goals and when you don’t hit those goals. So just take your choice in the sort of calculated risks, either green-hushing for a bit, or if you’re going to communicate proactively, make sure that you do it in a way that does have the breakthrough effects that we’re talking about.

Activism & transparency

“If you want to be trusted, tell the truth” 

As many of our participants noted, Japan’s biggest ESG challenge may well revolve around the progress that is being made in terms of governance. Board composition and capital efficiency are just two factors that suggests compliance is more about box-ticking than material progress. Another is the continued scrutiny of corporate scandals such as those referenced by Deri. If there is progress in terms of governance, furthermore, the notion of a perception gap again arises — pointing to a clear need for Japanese companies to step up communication in an era of rising shareholder activism. 

RD: I would call it a big stone that’s starting to roll, and then it’s going to really pick up steam. I hear lots of Japanese board members now talking about ROE and ROI and capital efficiency in a way that I had never heard, I would not even have imagined, 20 years ago. So I do feel like Japanese corporates are catching on and are getting better, at least about the capital efficiencies.

The other thing I wanted to comment about is that Japan has created a kind of different kind of stakeholder activism; collaborative activism. Rather than coming into the shareholder meeting and pounding the table and voting people out, which they are getting better at, don’t get me wrong, it’s happening, and C-suite people are afraid of that. But there’ve been a few out there who have purchased a small minority share, asked for a meeting privately with management, offered their ideas, asked a few questions. There are some structures within TSE rules that allow you to ask questions. And so I feel that’s a very Japanese way to do it. I think it’s a very interesting and smart way for Japanese management to recognize that’s a good thing, when they knock on your door first and want to talk to you about their ideas. Because if you don’t, they will definitely go the other route and show up and vote you out of your job. So keep an eye out for that collaborative shareholder.

CD: Companies don’t like risk. It’s risky when you enter a new market, when you launch a new product, when you put millions, billions against R&D. Then, if you break it down, I think in different markets and different cultures, there’s particular risk-drivers. In the US, for example, companies would often set out goals for diversity of your workforce. The US is a highly litigious market. And so companies are constantly being sued for things like discriminating against employees, whether it’s hiring or promoting or firing and things like that. And so the instinct for companies is why would I want to communicate about this? Why would I want to be transparent?

Now, the somewhat simplified, but honest, answer to that is a pretty simple principle. If you want to be trusted, tell the truth. Even with all this complexity and different variables in different parts of the world, fundamentally a global company, whether they’re in Japan, whether they’re in the US, in order to maintain the trust of stakeholders — and we all agree that stakeholders are important beyond just shareholders — in order to maintain that social license to operate, I think we’ve all seen that you’ve got to be a trusted source of information. And so you’ve got to be that place where people can go for the good, the bad, and the ugly, in terms of information about your performance. Whether it’s financial performance, social performance, governance procedures, or environmental performance. It’s easy to sit on a stage and say do that. Underneath that, there’s a lot of day-to-day risk in doing that.

TO: When I look at Takeda over maybe the past 10 years, we’ve improved and evolved the governance structure itself, as well as the way we communicate. Christophe Weber, who is the CEO, joined in 2014 and ever since 2016, for instance, the number of independent directors has gone up from 20% to right now we’re at 80%. In terms of the number of women, 20%. Could we do better? Yes. But I think it’s really important to have the right skillset as well. It’s not just the gender aspect. So we’re really being deliberate about who we bring on board to make sure that we not only look at the gender diversity piece, but also in terms of the right skillset given the direction of the company.

Now, in terms of the board itself, we don’t have a chairman per se, but we have an independent director as the chair of the board. So he sets the agenda. Every single committee is now led by the independent director and all the members are independent directors. Having said that, the nomination committee, our CEO does sit as an observer, because he does need to input into the discussion. So yes, we’ve made some big structural changes as well. But on the communication side, obviously we do submit the governance report, which I believe all of the listed companies would, but we have gone maybe above and beyond to be very transparent in releasing our charter for each of the committees on our website. So anyone can access that and take a look. In terms of our compensation structure, we have also been very transparent.

And the reason why we do this is we are very values-based as a company — Takeda-ism, which is centered around the value of integrity. We bring this to life through what we call patient, trust, reputation, business. So every single business decision we take needs to be right for the patient. And once we can confidently say, yes, it is good, then we talk about does this business decision build trust with the different stakeholders? Is it going to reinforce our reputation? And how is it going to grow the business? So the fact that we have trust and reputation right in the middle before the business, that is really the principle we follow in terms of why and how we communicate around our governance. But we do have to be very realistic that once you are transparent, you do invite more questions. So your corporate communication team does have to be ready to be able to field all of that.

: I take the criticisms from activists regarding companies’ weakness in corporate governance as a matter of quality. Just to make it clear that I’m not saying that the current external directors are the ones who are lowering the quality. I believe that the activists are looking at whether there is an appropriate supervisory framework in place when considering enhancement of corporate value.

For example, I think there’s still room for improvement in terms of the selection process and what criteria are considered when selecting external directors, what roles are expected of them, and whether there is a system for training them about the company’s corporate affairs. Additionally, skills of the selected external directors are now disclosed in many companies’ invitations to shareholder meetings. However, I think it’s important to reconsider the reason why they are disclosing their skills. The activists would certainly think that skills of these selected external directors should be based on a strategy — meaning, the company has a concrete strategy and these directors were chosen based on what skills are required to implement this strategy. This is where I see a difference between what activists and companies consider about disclosure of external directors skillsets.

Furthermore, in some cases, it seems like external directors are appointed from the main bank, or they may have been included just to meet the quota. For activists, these situations can be seen as ammunition for criticism. When a company makes an official announcement about a strategy to focus on a certain core business, and it turns out that there are no experts on that core strategy within the board of directors, it raises doubts about whether the board has the capability to consider the risks associated with this core strategy. If the company is generating profits and achieving the revenue, there may not be as much complaints. However, in many cases, if the company is seen as incapable of securing the revenue, that’s when activists fire up and criticize the company for not understanding the essence of corporate governance.

It’s important to consider corporate governance and corporate value together, to be aligned. 

Communicating better to attract capital

“It’s important for us to realize that intangibles are the new tangibles and drive corporate valuations”

As Doi points out, understanding why your organization exists is imperative for effective communication. Comms professionals, to little surprise, have a major role to play in this regard — particularly in terms of understanding that investor relations is just one step on the journey towards attracting capital and maximizing valuations. 

RD: If you have a particular communication message, you make a promise to your customer of some kind of service or goods. Then, the message that you give to your employees internally should match, because your employees need to deliver on the promise to the customers. And what you tell your investors should match the promise, and what you tell your regulators should match. When everything is aligned, I call that corporate spiritual health. As a former global ethics officer for a Fortune 500 company, your individual employee needs to know why they’re there, and what is their purpose, what are they supposed to do on that team? What does the team do in the organization? Why does the organization exist?

And you get this incredible economic lift when it is aligned, because when it doesn’t match, you have that cognitive dissonance, that’s when you struggle. It’s not just the purpose of why you exist, it’s your identity, it’s who you are. Until you get that straight, you’ve got nothing to say. Once you know who you are, then you have lots to talk about.

CD: It’s actually about dimensionalizing your communications. It’s about transparency. Investors are taking these ESG topics seriously, just as they take capital tables seriously, market-entry strategies. So you need to give them data. You need to put a story around that, but it needs to be data-backed. So that’s the communications approach for investors. And again, good, bad, and ugly; these are the goals we set, this is where we hit goals, this is where we missed goals. Same way you would do with financial performance.

TO: It’s important for us to realize that intangibles are the new tangibles and drive corporate valuations. This is why it’s important to consistently communicate to key stakeholders why the company exists (purpose), where it’s heading to create value (vision) and how you are going to realize the vision (strategy). This is why communications and stakeholder engagement are critical. A multi-stakeholder perspective is required at the executive commitee level, to help the company manage corporate risks and navigate stakeholder management. This perspective and skillset is something that communications or corporate affairs professionals have naturally developed through daily operations and can bring great insights and add value to corporations. 

AM: In business, I believe it is about being conscious of the cost of capital, and appealing to the fact that you can generate returns that align with shareholder expectations for the funds entrusted by shareholders. It is important to communicate not only that but also the ability to execute it, which requires a governance structure that can properly support it and directors with the knowledge to supervise effectively. By sharing such a system and efforts with shareholders and stakeholders, trust can be gained, which I believe can eliminate the so-called ‘Japan premium.’

Of course, there is much to learn from companies in other countries. In the past, while conducting interviews with investors, I attempted to interview foreign companies to understand how they perceive governance improvement or respond to activist attacks. Many of them expressed a desire to share their experiences, reflecting on the challenges they faced in recognizing the issues with their own governance, communicating with investors, and making improvements up to the present. This helped me better understand the struggles faced by Japanese companies today, and many of them expressed a strong desire to share their experiences. Additionally, some companies also wanted to share failure examples as part of their activist countermeasures, aiming to prevent themselves from ending up in a similar situation.

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