METRICAL:S (Social) in ESG

Recently, awareness of ESG (or SDGDs) is spreading among the society and stakeholders surrounding companies. There are more and more opportunities for companies to introduce their ESG initiatives in analyst meetings, CSR reports, and integrated reports. It is a good thing to deepen the understanding among society and all parties concerned. More and more listed companies are giving presentations on their ESG initiatives at analyst meetings to explain their financial results, following their financial reports and outlooks. In this context, I have some questions. One of them is that not a few companies are focusing on BCP (Business Continuity Plan) as their G (Governance) initiative. Secondly, as part of their S (Social) initiatives, they are focusing on social contribution activities. This time, I would like to discuss the latter S.

It seems that there are many listed companies that feel that S (Social) is somewhat obscure when they come into contact with the ESG reports of companies on a daily basis. As mentioned above, we often see cases where companies introduce their social contribution activities or efforts to improve the working environment (e.g., work-life balance, childcare and family leave programs) as examples of their S initiatives. Of course, such individual efforts are included in the S (Social) category, but I feel that for the sustainable growth of companies, we should pay more attention to the improvement of the social environment from a broader perspective. Companies are engaged in corporate activities in a society where people are related to each other in various positions. In order to promote the smooth operation and sustainable growth of corporate activities in such a society, I think it would be a good idea to communicate that the company is managing its business from the standpoint of respecting human rights from a broad perspective.

Some companies that have taken the lead in ESG initiatives are now expressing their basic stance on human rights. I think it is easier for many people to understand if they follow this basic approach to human rights and refer to individual initiatives. Many of the companies that take this approach are large companies with global operations. This is probably because they understand that understanding and respecting diversity and people’s rights is essential for conducting business, and that this will reduce business risks. However, many Japanese companies don’t take this approach and express their views on “human rights”, but only describe individual initiatives such as those mentioned above in their reports.

One of the reasons for this is that there is a lack of understanding of human rights at the national level, rather than at the level of individual companies. For your information, the “World Press Freedom Ranking” by Reporters Without Borders (RSF), a non-governmental organization of international journalists, is a good reference for understanding the degree of penetration of respect for human rights in societies around the world. In the G7 countries, Germany is ranked 13th, Canada 14th, the UK 33rd, France 34th, Italy 41st, the US 44th, and Japan 67th. Although this ranking is just one example, it can be said that the respect for human rights in Japanese society is relatively low among the G7 countries. In my previous article, “The First Step to Board Diversity (Gender Diversity),” I discussed Japan’s ranking in the Gender Gap Index (120th out of 156 countries), which quantifies the gender gap by country, and the current situation of the small number of female directors. Gender is one of the major issues in human rights. Compared to countries where LGBTQ rights are recognized, Japan has many problems that need to be solved. For example, during the Diet session that ended last month, as a first step towards respecting LGBT rights, the LGBTQ Understanding Promotion Bill was discussed as a way to promote understanding of LGBTQ people in order to eliminate discrimination against LGBTQ people, but in the end it was not even put on the agenda. Whether it is gender issues or human rights issues, in order to make a major shift in conventional values, it is necessary to have the support of laws. The quota system will contribute to closing the gender gap in order to promote women’s advancement in society, and legal support is required to promote society’s understanding of LGBTQ rights as a human rights issue. Without such a social foundation, the promotion of S will not be easy.

Individual companies are also making positive efforts in the area of diversity. The restaurant industry, which is forced to hire foreign workers due to labor shortages, is one of the first groups to take such a proactive approach. A representative example, Monogatari Corporation (3097) is actively promoting the employment of foreign employees, and as of December 2020, it had 105 employees from 11 countries (9.5% of the total workforce), with four of them serving as store managers. In addition, based on the company’s philosophy of “placing the dignity of the individual above the dignity of the organization,” the company is promoting diversity regardless of nationality or gender, and is also working to support the activities of LGBTQ employees. In addition, the company has introduced a “Life Partnership System” that allows same-sex partners to receive the same treatment as legal marriages within the company. In Japan, where same-sex marriage is not yet legally permitted, this system allows LGBTQ employees to receive the same treatment as legally married couples. The company also focuses on improving the work environment by installing all-gender toilets in some of its workplaces. In other listed companies in the restaurant industry, such as Ringer Hut (8200), a significant number of part-time employees are foreign workers, and an increasing number of companies are focusing on training activities to instill the basics of customer service and the culture of Japan and the company.

In this article, two cases are discussed: one is a large global company that promotes S by stating its basic stance on human rights and then incorporating it into the individual initiatives, and the other is a restaurant chain company that promotes S from the perspective of diversity at the individual company level, even if the company size is not large. Respect for human rights, including diversity, is a necessary condition for global companies to promote their business, and if they do not move forward regardless of the pace of legal development in Japan, they will face increased management risks that will cast a shadow on their sustainable growth. On the other hand, I have introduced a restaurant chain company as an example of a company that can work on respecting human rights and promoting diversity, depending on the business environment and the philosophy of the individual company due to the labor shortage. However, while it is a pioneering effort for an individual company to set up an internal system that allows them to receive the same treatment as legally married couples in Japan, it goes without saying that it is preferable if the rights are protected by law. In the absence of such a social infrastructure in place, it makes us wonder how individual companies can promote S.

Aki Matsumoto, CFA

Please see detail research the following links.
http://www.metrical.co.jp/
Please feel free to contact the below email address if any interest or query.

Aki Matsumoto, CFA
Executive Director
Metrical Inc.
akimatsumoto@metrical.co.jp

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