Japan's NPO Sector Today - U.S.-Japan Council

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

Speakers

Moderator: Junko Tsuda, Executive Director, U.S.-Japan Council (Japan)
Katsuji Imata, Vice Chair, Japan NPO Center
John E. Kobara, Chief Operating Officer, California Community Foundation
Nanako Kudo, Executive Director, Japan Social Impact Investment Foundation

Summary

Opening Remarks
Ms. Junko Tsuda, Executive Director, U.S.-Japan Council (Japan), opened the session by discussing the definition of “philanthropy.” Ms. Tsuda suggested that a definition may be an act or desire to help society by giving donations. The concept of philanthropy is essential to the subject of nonprofit organizations (NPOs). The two important components of the NPO sector are philanthropists, who provide the funds, and the social organizations, which carry out the philanthropic activities.

Mr. Katsuji Imata, Vice Chair, Japan NPO Center, agreed that philanthropy is an important aspect of the NPO sector. This is particularly true in an era of new forms of money. Mr. Imata also pointed out that the concept of social purpose organizations (SPOs) may be more fitting than NPOs for the situation today.

Mr. Imata then provided a brief history of the NPO sector in Japan. In the postwar period, people mainly turned to the government to solve their problems. There were some private, nonprofit organizations, but the concept of an NPO did not really exist. However, in the 1990s, the term “NPO” was introduced into the Japanese lexicon. They were understood as playing a complementary role to the government. A new law supporting their existence and role was then established in 1998.

The idea behind NPOs was that the government cannot solve all problems, and the public should take social action to help the government through NPOs. The 2000s then saw the rise of social businesses. Social businesses combined public and private interests. This was in part due to the difficulty of making a decent living while working for NPOs.

In 2008, the new category of “general corporations” was created in the NPO sector, in contrast to traditional NPOs, which were legally termed “specified nonprofit corporations.” One complication in Japan is the two-state system, which makes it difficult for NPOs to be officially certified and donors to receive tax reductions. Another complication is the “hometown tax.” People can receive tax reductions for donating to local governments and tend to do that rather than donate to NPOs.

Compared to the United States, the ratio of giving in Japan is 1:42 for individuals, 1:3 for corporations, and 1:75 for foundations. Nevertheless, Japanese people are becoming more socially-conscious and more willing to give their time and money.

Ms. Nanako Kudo, Executive Director, Japan Social Impact Investment Foundation (SIIF), spoke about the establishment of SIIF by the Nippon Foundation. SIIF aims to build an ecosystem of impact investing in Japan by showcasing impact investing and supporting intermediary organizations.

The Nippon Foundation is one of the oldest grant-giving foundations in Japan. A few years ago it started shifting from grant-giving to becoming a more proactive social innovation hub, to reflect changes in Japanese society. The Nippon Foundation wants to not only support needs on the ground, but also foster systemic change. Impact investment is an excellent way to promote the necessary collaboration among public and private partners for greater impact.

In addition, while there has been a rise in social businesses, as a public organization, the Nippon Foundation is not allowed to give grants to for-profit businesses. Sometimes, such businesses can achieve more than NPOs, but the Nippon Foundation is not able to support them. SIIF fills this gap. It was originally part of the Nippon Foundation but became an independent entity in 2017 in order to overcome legal restrictions and maximize impact.

SIIF invests in funds together with banks and institutional investors in the impact investment sector. SIIF also supports intermediary organizations that bridge the gap between financial institutions and social activities. SIIF also plays a role as a think tank to create a more enabling environment for social organizations and businesses.

Mr. John E. Kobara, Chief Operating Officer, California Community Foundation (CCF), first spoke about his background. He began by explaining the importance of each of us understanding our own story, and the opportunities and support we received to get where we are today. This is at the heart of our desire to give back to our communities.

Mr. Kobara then explained the history and role of CCF. CCF was established in 1915 and focuses on Los Angeles County and its needs. Los Angeles County is the poorest and most under-funded county in the United States. CCF aims to tackle not only immediate needs but also the underlying causes of the problems producing these needs.

CCF’s first role is as a social-change foundation. It not only provides grants but makes active efforts to foster change. CCF is also a fund-raising organization. Through these activities, CCF has close engagement with the community and donors. It provides a variety of services to donors to enable them to make even greater donations and have a larger impact.

Such partnerships are essential. Furthermore, they need to extend beyond their traditional forms and scope. CCF tries to connect a network for fostering social change. CCF also supports the planning and operations of NPOs. CCF focuses on four areas: education, healthcare, housing and immigration.

Lastly, Mr. Kobara pointed out that, in the United States, the super-rich are dominating the fund-raising landscape and there is a trend of bigger donations being made. On the one hand, such large donations are good, but they are also more likely to go to large organizations such as hospitals or universities, rather than NPOs. This is illustrative of the growing inequity in the United States and the world, which is a source of many major challenges.

Panel Discussion
Mr. Imata began the panel discussion by highlighting the need to engage donors and mobilize new sources of funding. While there may be growing inequity in Japan, this presents an opportunity for Japanese NPOs to invite the super-rich to give mega gifts. There is a growing trend of giving in Japan and there is great potential, given the high levels of saving in the country. Effort should be made to engage new donors.

Ms. Kudo pointed out that Japanese society has 18 trillion U.S. dollars in private financial assets and 65% of this is owned by people aged over 60. This money is sitting in banks and not being used for social benefit. The big question is how to tap into this potential. Banks are one useful channel. People trust financial institutions. However, banks are not highly aware of social investment and more needs to be done to engage them.

Mr. Kobara agreed that this is an important and challenging topic. Similar to Japan, there are many people in the United States who have large amounts of financial assets and want to do something with it other than pass it on to their children. Many want to donate, but do not know how to go about doing it. NPOs need to engage donors and find out what they want. This is the most important part of the process. Potential donors need a trusted space where they can explore the opportunities.

Mr. Kobara also explained that the United States has conducted studies on the transfer of wealth, which look at the amount of money available upon the mortality of the population. The transfer of wealth is quite large. There is incentive for some of this wealth to be used to reduce taxes or to be sent to charitable activities. However, most Americans do not know what such charitable activities could be and so nothing happens. There needs to be a bridge between people’s hearts and actual action.

Mr. Imata asked about ways to find and attract new donors, and open their eyes to philanthropic possibilities, as well as how to link this to system change.

Mr. Kobara likened new donors to undeclared college freshmen working out what their majors will be; they need to first learn to navigate the philanthropy landscape. That starts with exploring their interests and what they care about. Starting with the idea of system change is too complicated. This process of educating donors takes time and NPOs need to embrace that. If they can build a strong relationship with a donor, it could last a lifetime.

Ms. Kudo felt that more can be done to educate potential donors in Japan about social issues. For many, their ideas are limited to art and scholarship. One starting point may be to educate younger people about social issues.

Mr. Kobara pointed out that almost all activities can be relevant for starting the conversation with or education of donors. Taking the example of golf, he explained how almost any activity has the potential to be used for social change.

A member of the audience pointed out the lack of trust among the Japanese public for the nonprofit sector. This may be one of the barriers to developing social transformation bonds.

There was also a comment from the audience about how there are many bureaucratic procedures that hinder the activities of NPOs.

Mr. Imata agreed that trust by the Japanese public in the NPO sector is an issue. Government scrutiny in NPOs is a reflection of public sentiment. The public also sees this scrutiny, which creates a vicious cycle. The public and government should recognize the need for NPOs and their role. Certificates can help, but a market-oriented approach, whereby an NPO’s reputation is based on its fund-raising ability and size, would be best.

Ms. Kudo suggested that the lack of social impact bonds is less due to lack of trust in NPOs, and more the social impact bond system itself. The system has yet to be accepted, especially by governments. Still, there needs to be more trust in NPOs. One way to do this is to shine a light on social entrepreneurs who are making an impact.

Another point was raised by the audience regarding the need to standardize the measurement of social impact.

Mr. Imata explained that the Social Impact Measurement Initiative has been raising awareness among the Japanese public of social impact and its measurement and management. He agreed that it is important to standardize the measurement of social impact but cautioned against over-standardization, as different stakeholders view social impact differently.