Japan’s companies under pressure to pledge sustainable capital

Three years after Japan’s business union Kidanrin’s strong proposal to shift capitalism to a more sustainable model, its companies are under increasing pressure from government and employees to act on this pledge to look beyond short-term profits.

Long before America’s largest companies announced a shift from focusing on shareholder priority in 2019, CEOs at Japanese companies consistently argued that the well-being of employees and society should have value as returns to investors.

But, for most of the past three decades, as the economy struggled to shake off the downturn, companies resisted raising wages, and the workforce refrained from strong salary claims. Faced with a decline in the domestic market, firms invested in expanding abroad, resulting in a decline in domestic capital investment.

This runs counter to Kidanrin’s strategy of encouraging its members to spend expanding its industries in Japan, to create a “fairer and fairer society” in order to sustain long-term economic growth.

But now, despite the fastest consumer price rise in Japan in nearly 42 years, executives acknowledge that the success of Kidanrin’s “sustainable capital” campaign depends heavily on whether companies can support wage increases and launch a productive cycle of increased wages, consumption and prices.

Masakazu Kubota, Vice President of Kidanren, says, “Japan will grow if it can revive the economic dynamic by facilitating increased workers’ wages, learning new skills and moving labour.” He warns that “if you fail, you will go back to the last three decades” from low growth.

Since Prime Minister Fumio Kishida took office in 2021, there has been a fierce debate about which form of capitalism is best suited to leverage Japanese companies and sustain economic growth.