ESG in Japan: The case of a mixed legal system

ESG investing brings to fore the dual tensions concerning fiduciary duties: a tension between the interests of shareholders and stakeholders in the context of corporate governance, and a tension between investment return and broader societal purposes in investment contexts. In both contexts, Japanese fiduciary jurisprudence has taken an ambiguous position, which can be explained in part by the mixture within Japanese legal system of civilian and common law influences. But this leaves a puzzle: despite their historical responsiveness to stakeholder interests and apparent embrace of corporate social responsibilities, Japanese companies have been slow to embark on ESG investing. This chapter addresses this puzzle by reviewing post-World War II events in each of the environmental, social, and governance contexts to identify some of the idiosyncratic elements that define corporate behaviors. It is against these legal and historical backgrounds that Japanese companies and investors’ recent turn to ESG investing can be understood.