Corporate Environmental Expense in the Perspective of Japanese Investors: Merely Another Type of Expense?

Article excerpt

INTRODUCTION

Since early 1990s scientists have admitted that humankind has been facing severe environmental crises due to the continuing occurrences of global warming, acid rain, ozone depletion, biodiversity loss, topsoil erosion, tropical deforestation, and groundwater depletion. Business societies, especially corporations seem to contribute to those crises because in the process of producing goods and services, they have been consuming most of natural resource reserves. Environmentalists argue that the resources that enter the economic process will eventually emerge as waste, at the exact level of resources intake (Welford and Starkey, 1996). Fortunately, it appears that business societies are better aware of the importance of environmental aspects in their production and management systems and realize that they have to take a proper measure on business-environment relationships. Historically business practices were designed based on one important assumption: unlimited environmental resources. However, in most part of the world, it appears that this view has changed along with the decline of natural resource reserves. In Japan, new era of environmental-friendly-business operation has been started by the government, and consequently, business institutions have to adapt to this change.

OECD (2010) outlined that Japan's experience in dealing with environment issue is valuable input for reviewing environment performance. The report showed that Japanese government has made substantial progress within this issue, allowing the country to become a leader in environmental innovations such as the 3Rs (reduce, reuse and recycle) approach for waste and eco-innovation and green technologies. While the government provides the basic environmental infrastructure and institutions, it should be noted that Japanese business communities that actively participate in the implementation of the environmental policies should receive the major acknowledgement. Graph 1 below describes changing proportions of pollutant abatement expenditure of business sector and both of local and central government.

[FIGURE 1 OMITTED]

The trends reveal the increasing role of the private sector in financing and managing environmental expenditures. It seems that the Basic Environment Law, which was enacted in late 1993, has been emphasizing on the advanced participation of Japanese companies. The law set forth the responsibility of the central and local government, corporation and the general public to preserve the environment. Particularly, corporations are pursued to responsible for taking necessary measures to prevent environmental pollutions resulted from their activities and to properly conserve the natural environment in conducting business activities (Stanwick and Stanwick, 2006). This resulted in a 22% increase in pollution abatement expenditure funded by Japan's private corporations since 2000 (OECD, 2010).

The issuance of the Environmental Reporting Guidelines 2000 and the Environmental Accounting Guidelines 2005 by Ministry of Environment of Japan has urged business entities to implement environmental awareness practices and allocate more funding into environmental expenditures. Commenting on exposure draft of Environmental Accounting Guideline 2005, the Japanese Institute of Certified Public Accountants (JICPA) reported that application of environmental accounting would stimulate firms to perform some environmentally relevant activities such as appraising investment in environmentally-friendly equipment and designing environmentally-friendly process (www.hp.jicpa.or.jp). The report also shows that the advantages of implementing corporate social and environmental responsibility agenda are mounting. Those implementations allow Japanese firms to have their competitive advantages compared to those of their counterparts in other countries.

At industry level, competitive paradigm currently has shifted from static model where firms put more attention toward lowering production and management costs so that they could have better costs structures compared to their rivals, or the ability to offer products with superior values so that they could justify higher prices, to dynamic model where firms focus on their capabilities to improve and innovate new products and processes continuously (Porter and van der Linde, 1995). …