Sustainable Business Practices and Strategies

The following is the summary of a breakout session that was part of the 2018 Annual Conference.

Speakers

• Moderator: Yuki Isogai, Partner, International Development, Sustainability, PricewaterhouseCoopers Co., Ltd.
• Tomoko Hasegawa, Director, SDGs Promotion Bureau, Keidanren (Japan Business Federation)
• Yuuko Iizuka, General Manager, CSR Department, Sumitomo Forestry
• Alan Oshima, President & CEO, Hawaiian Electric Company

Summary

Opening Remarks
The moderator, Ms. Yuki Isogai, Partner, International Development, Sustainability, PricewaterhouseCoopers Co., Ltd., began the sustainability breakout panel discussion by briefly introducing herself and her background. She then introduced the panelists, Ms. Tomoko Hasegawa, Director, SDGs Promotion Bureau, Keidanren (Japan Business Federation), Ms. Yuuko Iizuka, General Manager, CSR Department, Sumitomo Forestry, and Mr. Alan Oshima, President & CEO, Hawaiian Electric Company, and gave their brief backgrounds.

Ms. Isogai invited the panelist to explain each of their businesses. Ms. Hasegawa began by explaining Keidanren. She mentioned that Keidanren is committed to realizing a sustainable society because Japan has experienced a severe economic crisis, climate change is worsening, economic disparity between the rich and poor is worsening, and the global population is increasing. In relation to the SDGs, Keidanren is aiming for the realization of Society 5.0, which is the fifth development stage of human history. It is a future society in which AI, IoT, robotics, big data, and other innovative technologies will be used to the maximum effects for optimization of individual lives and society as a whole. In this society, it is believed that economic growth will become consistent with the solutions of all global issues and local challenges that we are facing today. At Keidanren, this concept is the central theme of their action plan for this year. Last year, Keidanren revised their code of conduct, or corporate behavior, to include the principles for sustainable growth. In addition, Keidanren launched a special website used to show examples of how Japanese corporations achieve SDGs though innovation.

Mr. Oshima began by touching upon the meaning of “aloha.” Aloha could be interpreted as “the joyful sharing of life and energy in this moment,” which connects us to a sustainability discussion. Mr. Oshima continued by explaining the Hawaiian Electric Company. The company serves approximately 95% of the electricity customers in Hawaii. Contrary to the belief that Hawaiian Electric Co. is not trying to promote smart and renewable energy fast enough, the industry recognizes the company as a leader in smart and renewable energy. Hawaiian Electric Co. is the leader in the U.S. for the percentage of customers with rooftop solar panels, and they are number five per capita for electric vehicle adoption. Mr. Oshima then showed a commercial video which described efforts being made to reach sustainable energy goals by Hawaiian Electric Co. with Verizon. One of the main points of the video is that one way to overcome issues is by partnering. A large challenge that Hawaii is presented with is based on the fact that none of the islands are connected. Anything that the islands generate has to be consumed or stored, and whatever is needed on the islands has to be generated or taken out of storage. Hawaiian Electric Co. is committed to becoming 100% renewable electric energy by 2045. Mr. Oshima concluded his presentation by emphasizing his appreciation for the partnerships with Japan, such as with Hitachi, Okinawa, and TEPCO.

Ms. Iizuka started by giving the history of Sumitomo. Sumitomo started by mining copper, and they were doing so in an unsustainable way; by cutting down many trees and causing pollution from the copper smelting process. Sumitomo Forestry was created with a forestation plan to replace trees that were reaped for copper mining. In addition, the company has biomass generation plants which use tree material for power generation.

Sumitomo Forestry will celebrate its 350th anniversary in 2041, so they plan to build a 350-meter high rise with wood. The company is promoting building tall buildings with wood because if you there is soil, rain, and sun, then trees are renewable natural resources. Ms. Iizuka concluded her presentation by mentioning sustainability is important because Sumitomo Forestry uses wood, so they always will need trees in order to continue their business.

Panel Discussion
Ms. Isogai started with Ms. Hasegawa by expression that she was impressed by the concept of Society 5.0, so she wanted to know why Ms. Hasegawa thinks the SDGs, human rights, and codes of conduct matter for business and her thoughts about the global trends around SDGs. Ms. Hasegawa replied by mentioning great interests of Japanese corporations in SDGs are caused by global changes which include technology, such as rapidly advancing digital technologies; economic and geopolitical shifts from the west to Asian countries, such as China and India; the population center changes in the sense of some Asian countries experiencing shrinkage and others experiencing explosions; climate change; and economic disparity between the rich and poor which leads to protectionism. All of these changes lead us to realize that we need to make economic development sustainable. If we do not, then we cannot achieve stable economic growth in the future which coincides with SDGs. The idea of SDGs is familiar with Japan because of making customers, companies, and society content is a common Japanese business mindset. Therefore, Japanese companies are interested in delivering on SDGs. For example, the Japanese government created organizations which participate in discussions of Japanese policies towards SDGs. Another factor is the expansion of ESG investment. This is triggered by the signing of the Principle of Responsible Investment (PRI) by the Japan Pension Investment Fund (JPIF). All of these factors contribute to the recognition that there is increasing interest of Japanese corporations towards SDGs.

Ms. Isogai mentioned that corporations recognized that they have to adjust in the changing world in order to survive. Ms. Isogai asked Mr. Oshima and Ms. Iizuka what particular drivers are behind their sustainable businesses and what kind of issues are faced in promoting that. Ms. Iizuka answered first by explaining that the main driver is about the financial sector; all of the investors want to know if corporations are implementing sustainable practices. In the past, the financial sector simply wanted comparisons of performance with the previous year; focus was on short-term profit. Now, the financial sector is asking companies if they will be sustainable in the next five or 10 years. She explained that the difficulties are how to shift the past culture of short-term profits towards long-term gain. In order to accomplish this, there needs to be a change in mindsets and communication. Mr. Oshima mentioned that, in Hawaii, it took social policy to change the way the company views its responsibilities. Since the Hawaii Clean Energy Initiative was put into law, the Hawaiian Electric Co. has been required to deliver clean energy throughout the whole state in efforts to be net zero by 2045. The important part is delivering it at a reasonable cost. Mr. Oshima noted that what is missing in this discussion is the fact that it is expensive for an energy company to keep the grid intact, safe, and delivering quality electricity. Thus, capital must be attracted, so returns are important to attract capital at a reasonable cost which translates to a lower cost for the customers. Mr. Oshima expressed his agreement with Ms. Iizuka in that everyone wants a sustainable future, but how to get there is the difficult part.

Ms. Isogai asked if the panelists see any difference between Japan and the U.S. in terms of long-termism, investors’ behavior change, and corporate activities towards SDGs. Ms. Iizuka replied that, at the moment, Japan is behind in ESG investment, but it has been changing rapidly in the last two to three years. On the corporate side, Japan is changing but still behind. For the U.S., many consumers do not care about energy costs because it is already cheap, so they are not motivated to get solar panels. Mr. Oshima responded that because the U.S. is so large, it depends on what sector is being looked at, and it varies depending on the region. The U.S. has not accepted the globalism that is needed for all of the changes that have to be made in order to survive.

Hawaii would like to produce and consume all the necessary energy itself, but in reality, it needs partnerships with outside entities in order to accomplish that. Ms. Hasegawa mentioned that a big difference between the U.S. and Japan is, in the U.S., the states have authority. However, in Japan, it is the federal government. Also, with regards to sustainability, Japanese industry is leading Japanese corporations in a certain direction which is Society 5.0 for SDGs. Whereas in the U.S. and Europe, corporations are doing their own sustainability strategies, and they cannot see a clear direction as a whole.

Ms. Isogai asked what kind of partnerships are important to make an actual impact and long-term profitability for companies and society. Ms. Hasegawa answered that Japan would like to make a collective impact towards achieving SDGs. Each corporation can make their own impact, but if coordination occurs, then there could be a big impact and substantial contribution to the achievement of SDGs. Ms. Iizuka responded that, in terms of partnerships, innovation occurs when there are partnerships with ventures or other organizations. Mr. Oshima added, regarding the previous question that Ms. Isogai asked, there are different motivators in the U.S. and Japan.

Ms. Isogai mentioned that everyone agrees that sustainability is important for corporations to survive together with society. However, at times, it is difficult to link day-to-day operations with how the sustainable practices are contributing to corporate value creation. Ms. Iizuka commented that, for the moment, it is difficult to prove that what is initiated in the company is adding value to tomorrow’s profit. However, in the longer term, it is very important. Mr. Oshima commented that they are tracking metrics, such as customer satisfaction, new products and services, etc. Their transformation plan is tied to sustainability. As the employees adopt the transformation programs, they have to be aligned with sustainability. A difference for the company is that they do not have big institutions as major investors, but rather families living in Hawaii that invest, which puts another layer to what they feel responsible for.

Ms. Isogai asked the last question about what kinds of trends will be seen in the future around sustainability and business. Ms. Hasegawa responded that there is still a long way to go for mainstream sustainability policy or implementing the SDG strategy into the main business. She explained that Society 5.0 is something that we will have to create and it will not come by itself. Keidanren would like to collaborate with many companies in order to realize Society 5.0. Mr. Oshima replied that the trend will have to shift from technology to the soft sciences. How to use technology and incorporate it for social and corporate good is where focus needs to be. Society has to learn more about the soft sciences, such as behavior and listening to customers. The trend for Hawaiian Electric Co. is to learn the soft sciences to understand behavior in order to change the critical behavior patterns that are needed to move forward. Ms. Iizuka mentioned that sustainability is not a burden. It allows for new business opportunities.

A question was raised from the audience for Mr. Oshima asking for his opinion about an energy model shift in transportation. Mr. Oshima answered that Hawaiian Electric Co. is concentrating on transportation electrification. Moreover, Part of the company’s aims for the future includes providing a sustainable community.

Ms. Iizuka received a question from the audience asking if Japan has a carbon offset market, or investment market, and if Sumitomo is leveraging that market. She answered that the carbon offset has been discussed for a long time, and there is no particular market. Some studies have been done, but they are not occurring at the moment.

Another point was raised by the audience for advice regarding what small and medium sized firms should do to realize Society 5.0. Ms. Hasegawa answered that any kind of process and open collaboration that can lead to innovation can also lead to realizing Society 5.0.

A question was raised again asking about the responsibilities companies have to protecting the environment and the different policies in different countries. Ms. Hasegawa answered that global corporations have to comply to CSR or human rights standards.