“I keep it in my bag most of the time. It’s a signal. A sort of club membership. I wear it when I need to . . . fit in.”
The amulet in question, described by the Japan head of one of the world’s biggest financial services companies, is not remotely exclusive. Quite the opposite. The UN’s sustainable development goals, after all, were originally conceived for the “people and the planet”. So why the cabal-like powers of a simple SDG lapel badge? The answer, for Japan, lies somewhere in the disputed territory between shareholders and society.
It is now a decade since the UN set these aspirational targets to address the various rolling crises humanity confronts. The 17 core goals include reduction of poverty, inequality and hunger, and the promotion of sanitation, healthy lives, education and responsible consumption. Combating climate change is prominent, sitting alongside affordable and clean energy. Even full employment is in there.
Japan’s national embrace of these goals, meanwhile, has been consistently fulsome. An “SDGs promotion headquarters” was quickly established in 2016 under the late prime minister, Shinzo Abe, while the powerful Keidanren business lobby was an enthusiastic adopter of the language and signage. The state broadcaster, NHK, produced a special celebratory song.
And while Japan may currently occupy only 18th position for SDG progress, it surely leads the world in the ownership and public display of the badges: a segmented ring with a brightly shaded chamber for each goal mainly worn by senior corporate executives. Or “17 colours; one red flag” as a Tokyo-based private equity veteran describes it when worn by that exact cohort.
This barbed observation will grate on anyone who subscribes to the idea that corporate Japan has struck an idyllic balance between the conflicting pulls of pure shareholder interests and the wider duties of a company to society. The objection, though, is not to the (inarguably noble) SDGs but to the smokescreen that Japan allows them to create.
To listed companies that do not, at heart, think they are owned by their shareholders or exist primarily for their benefit, the SDGs can be readily interpreted as a mandate to uphold that belief, he argues.
As well as being 10 years into the embrace of SDGs, Japan is also now a decade into having a corporate governance code. On one level, this document has imposed (or tried to impose) sorely needed standards and discipline; on another, it has provided the syntax for a debate on the fundamental purpose of listed companies.
Japan is hardly alone in finding that debate difficult, but it feels like crunch time there is uniquely imminent. The government itself has sensed that Japan’s market needs significant consolidation, and has updated the M&A guidelines to accelerate that by making it easier for domestic or foreign buyers to launch takeover bids. Already, in a few high profile examples, that has revealed the contours of resistance. The prospect of Canada’s Alimentation Couche-Tard buying Japan’s Seven & i has produced the argument that a more purely shareholder-focused owner would not maintain the convenience store chain’s commitment to providing services in the immediate aftermath of natural disasters.
There is also fundamental disconnection between a company’s sense of itself and the market’s. Talks on a proposed combination of Honda and Nissan have fizzled out, according to people close to the situation, because Nissan insisted this be approached as a merger of equals. Nissan’s perception of its corporate importance, it seems, was entirely disconnected from the fact that its market capitalisation is currently around a quarter that of Honda’s.
Whatever other societal expectations a listed company may bear, the market is supposed to push it to be an optimised allocator of capital. But a great many Japanese companies have not, for a rich variety of reasons, been good allocators of capital. Years of ultra-loose monetary policy, docile investor bases and other supportive factors have not seen them punished especially harshly. But now, whether through rising interest rates, greater shareholder pressure or other factors, harshness is coming.
Set against this, though, has been a protracted campaign to persuade Japan as a whole that it is a net beneficiary of all this misallocated capital. That PE exec may have been overly condemnatory. But the wearing of the SDG badge, in Japan at least, does seem to confer membership of an undeclared club: the one that will try to do shareholder capitalism the Japanese way for as long as is sustainable.
leo.lewis@ft.com
