Ken Shibusawa is Japan’s leading voice on stakeholder capitalism. The Brunswick Senior Advisor reflects on the ESG landscape today, opportunities ahead for Japanese companies, and the legacy of his famous ancestor, called “the father of Japanese capitalism.”
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"The entrepreneur who built modern Japan” is how one biographer characterized Eiichi Shibusawa, a man who built more than 500 businesses and 600 social enterprises. Shibusawa’s prodigious output—he started Japan’s first bank in 1873, its first insurance company in 1879 and was involved in building schools and hospitals—helped bring a unique form of capitalism to the country.
“He didn’t introduce capitalism into Japan for personal profit, but because he saw capitalism as a way to usher in a new era, to change Japan into a modern society,” says Brunswick Senior Advisor Ken Shibusawa, Eiichi’s great-great-grandson. “In fact, he didn’t use the word ‘capitalism,’ which translates to into present-day Japanese as Shihon shugi—shihon is capital. He called it Gappon, which carries this sense of integration—what we today call stakeholder capitalism: Everybody has a role to play to create the value of a company.”
Fittingly, no voice in Japan has been more prescient on stakeholder capitalism in recent decades than that of Ken Shibusawa. In addition to his role at Brunswick, he is CEO of Shibusawa and Company, a strategic advisory firm for alternative investments, ESG and SDG alignment and human resource development. He is founder and Chairman of Commons Asset Management mutual fund, delivering long-term investment opportunities to Japanese households. He is Advisor to the President at The University of Tokyo, a Visiting Professor at Seikei University, Director of Keizai Doyukai (the Japan Association of Corporate Executives) and Steering Committee Member of UNDP SDG Impact. He serves on Prime Minister Fumio Kishida’s “New Form of Capitalism” panel.
In a recent conversation with Brunswick’s David Ashton and Masato Ui, Shibusawa reflected on ESG and stakeholder capitalism, spotlighting the opportunities and challenges for Japanese companies. Asked how his great-great-grandfather might view today’s landscape, he said, “Morality had to be integrated with the economics. ESG obviously didn’t exist in 1873, and Eiichi Shibusawa wasn’t an ESG investor, but his thinking was very aligned with it.”
How has the mix of the ESG issues evolved since you started working on it?
For me, people really started taking notice of ESG around 2004, in part because of what was going on across Europe and in the United Nations. The formulation of UN PRI [Principles for Responsible Investment] in 2006 was a big thing—and then when the GPIF [Government Pension Investment Fund] signed the PRI in 2015, that was a big movement here in Japan for ESG.
Up to that time, CSR [corporate social responsibility] was the buzzword. In Japan there were securities brokers and other players already in the space, but that was more in retail investing, and you could say much of it was essentially marketing. ESG involved the institutional investors, which was a big shift.
In the 20th century, Japanese companies appreciated their effects on the environment and on society. But it was through their products, and never really addressed directly through the capital markets. With ESG, it was an initiative by the capital markets to directly address externalities which until then had been overlooked—the “E” and “S” of ESG. That, for me, is the real genesis of it.
Technology obviously helped it come to the fore. The concept of externalities existed in the 20th century, but in the 21st century you were no longer just reading about it; you saw it in the palm of your hand every single day, with vivid images.
It was around ESG’s emergence in Japan that you launched Commons Asset Management, right?
Yes. My partners and I launched in 2008 and started investing in 2009, so around the time when ESG was gaining awareness. We never called it an ESG fund, but we were looking at the same thing: going beyond short-term profits to examine how the company operated in a multi-stakeholder world, across generations, for the long term. Our thinking was: Stakeholders are important for the sustainable value creation of a company; and if the value creation of the company is sustainable, across generations, that leads to long-term value creation for the shareholder.
ESG has evolved even within the last decade. I remember a discussion about 10 years ago where a Japanese corporate told me, “Everybody says ‘ESG’ these days, but all they talk about is G.” The rationale for that focus on the “G” was, unless the corporations have good governance and can hold management accountable for their decisions, there won’t be any meaningful action on the “E” or “S.” The “G” was also easy to measure: you look at about three or four numbers—outside directors, independent directors, board diversity, ROE—and you can get a sense very rapidly whether this company has good “G” or not.
Then the “E” came next. Not only because of the impact on the planet, but also because of its impact on companies: droughts, fires, hurricanes—conditions that materially hurt profits and create risks. And again, the E has a strong metric component to it, the science behind carbon emissions. And in Japan, the government set a carbon neutral commitment for 2050, which was a big move— it’s a target that companies in Japan can now try and align themselves with. I think former Prime Minister Yoshihide Suga saw that addressing these environmental issues wasn’t just a cost that a company has to endure, but a new growth strategy for many of them, an investment for future sustainable and new growth.