Interpreting Corporate Management Through Risk Avoidance and the SDGs

The Global Risks Report (published by the World Economic Forum), released annually in January and generating global discussion, has prominently featured geopolitical risks this year—including state governance failures and breakdowns in both regional and global governance—largely due to the impact of the global situation since last year.

As you know, Japan chaired the G20 in 2019, and environmental risks (particularly the issue of plastic reduction) were also actively discussed at related meetings held around the world.

Globally, as in Japan, major risk trends include natural disasters such as typhoons, hurricanes, and earthquakes. This year alone, damages worldwide are estimated to reach 40 to 50 trillion yen. Economic opportunity losses are projected to be nearly double that figure.

Cyber Risk Tops Japan's List Amid Major Events
Japan will host major sporting events nationwide for several years starting this year. Countries attracting significant global attention become prime targets for cyberattacks, placing cyber risks high on the list. While cyber risks are often defined as "external intrusions leading to the destruction, theft, or tampering of information and data," they can also originate internally. Not all risks come solely from outside.

Human Psychology Emerges as a New Global Risk
A new trend emerging from the 2019 edition of this report is the first-time inclusion of human psychology as a risk factor. The overlapping impacts of societal, technological, and workplace transformations are increasing emotional and psychological stress, turning this into a risk. Simply put, we are now in a state where the potential for erroneous decisions and misguided management judgments stemming from human stress is significantly heightened.

② Global Risks and the SDGs: Perspectives for Corporate Action

　Mr. Tsuneo Oba

　Mr. Tsuneo Oba

The SDGs are now the common language guiding global transformation. Going forward, whether they like it or not, companies will be required to deliver results that contribute to the world and gain recognition for them. This is not just about addressing negative aspects; responding to the SDGs creates a $12 trillion market opportunity, according to UNDP estimates, meaning it is deeply linked to business growth. To achieve this, both the global risk perspective and the SDGs perspective must be considered together. We have reached a point where we must fundamentally transform the structures of industry and society itself.

Against this backdrop, many people are now driving major innovations from the grassroots level. For instance, many will recall Swedish high school student Greta Thunberg's 2018 school strike against climate inaction and her address at COP24. This activism remains a symbolic highlight in climate change discourse today.

This is because it represents action driven by the will of the next generation—those who will bear the greatest risks of climate change and become society's main actors—to shape their own future. It is crucial that both governments and corporations support their voice and initiative, whether directly or indirectly.

Essential to this is nurturing the next generation. For their sake, how many capable individuals can industry, Japan as a nation, and the global community produce? This will determine whether we can build a sustainable future society.

③ The Necessity of ESG-Integrated Management

　Yohei Kaneko, Head of ESG Activities Promotion, Kao Corporation

When companies link their business and management to the SDGs, there are generally two approaches: offensive and defensive. Defensive, in short, means responding to the increased scrutiny and demands from all stakeholders as the SDGs become more widespread in society.

Kao started about 130 years ago as a soap-making company. In our mid-term management plan, we set the ambitious goal of becoming a globally prominent company by 2030.

Two-thirds of Kao's business is domestic, and one-third is overseas. To significantly expand our overseas presence, we must become a company with a strong global presence. We want to achieve profitable growth and become a company whose corporate image is understood by people overseas. It must also be a company that benefits many people, including through high-level returns to stakeholders. We defined these three as essential requirements. To achieve them, we must rigorously address E (Environment), S (Social), and G (Governance).

Kao has long delivered valuable products to consumers, aiming to "realize a rich living culture." ESG activities cannot exist unless consumers recognize environmental and social responsiveness as valuable. This dilemma troubles many companies, including Kao.

Put simply, it boils down to whether sales or CSR-like activities are more important. However, ESG management cannot succeed without integrating these two. Therefore, Kao has changed its internal perspective. Specifically, we now focus on ESG where consumers are the protagonists.

Previously, activities like environmental initiatives were undertaken solely as Kao's corporate responsibilities. Going forward, we define consumers' actions for society and the future as part of a "rich life" – a life of satisfaction and pride. Kao will provide products that enable this. This vision was formalized in April this year as the Kirei Lifestyle Plan.

It's a lifestyle filled with consideration for everything. It values not only one's own clean and fulfilling life, but also ensuring the surrounding world is the same. Kao will work diligently toward this vision. Based on this, we have defined 19 actions, including environmental ones, and set KPIs for 2025 and 2030.
    
We are also tackling the much-discussed plastic issue. While refill products are widely adopted in Japan, they can reduce plastic usage by about one-sixth. With refill adoption exceeding 80%, plastic usage has not increased at all over the past decade. We declare that while growing our business, we will use the minimum amount of plastic possible as a company. We will recycle all of that minimal plastic. And we will thoroughly collect the plastic we have already released.

When expanding globally, it will become increasingly important not to view global risks solely through the lens of lost business opportunities, but rather to position them as growth opportunities. To achieve this, effectively integrating the SDGs as goals will be crucial. In Kao's case, we chose an offensive direction without using defensive language, positioning it as a long-term investment within our mid-to-long-term management plan – precisely as a growth opportunity.