SDGs, Sustainability, and ESG
These days, the popular phrases and framework of “SDGs”, “sustainability”, and “ESG” have permeated the global consciousness to the point that there is not a day you will go without seeing these words. Interest in these fields is rapidly growing all over the world as pushed by various driving forces including the growing demand from institutional investors and activists, the development of disclosure standards for corporate information (especially non-financial information), the development of voluntary regulation through industry initiatives, more robust regulations through new legislation in each country/region, and changes in individual attitudes and preferences in the consumer markets and labor markets. Japanese companies are also facing a staunch realization that this global trend is too strong to ignore. As the subject matter of SDGs and ESG is broad enough to be relevant to all corporate activities, companies are required to prioritize and address critical issues while analyzing the impact of their own business activities on their stakeholders. Moreover, it is not uncommon for cross-departmental efforts to be required.
In September 2022, the Government of Japan formally compiled and announced “the Guidelines on Respecting Human Rights in Responsible Supply Chains”, which has highlighted the importance of the endeavour of pursuing “business and human rights” and conducting “human rights due diligence” for suppliers and other business partners. In these fields, so-called soft law, which does not entail legal obligations, plays an extremely important role, and many companies seem to be struggling to deal with such issues as to what new policies they should implement and to what extent. However, as mentioned above, responding to requests from investors and the increasing need of disclosure standards, it cannot be denied that insufficient efforts to respect human rights, not limited to listed companies, may cause a default under a contract with a company’s business partners or constitute serious reputational risks which may lead to a product boycott. Furthermore, it is necessary to pay attention to the so-called “positive risk management”, in which efforts to address environmental issues, respecting human rights, and social issues will create new business opportunities or innovations, and improve a company’s reputation.
At Kitahama Partners, we provide advice on decision making and actions of companies based not only on domestic and foreign laws, but also on soft law such as global norms and various guidelines related to business and human rights. In this connection, regarding business transactions in foreign jurisdictions, particularly in Europe, there is an important need to give proper counsel and advice which take these issues into account, and therefore, our attorneys, who have experience in such types of cases overseas, are able to handle and navigate this evolving area of law and environmental and societal norms.
