Kao’s clean and green ESG strategy rooted in traditional “win-win-win” Japanese philosophy
There’s a growing trend towards evaluating companies from an Environment Social Governance (ESG) perspective when considering their long-term as well as sustainable strategies. Japan’s household and beauty care giant Kao is a pacesetter in this field, being listed topmost in ESG company rankings. We unravel Kao’s uniquely Japanese strategy for finding a way to bring about three-way satisfaction for consumers, the environment, and the company itself, and reflect on the shape of ESGs in a post-coronavirus world.
In 2017, Kao established their 4-year “Mid-term Plan K20” as part of its long term 2030 vision. That kicked off strategic initiatives that regard ESG as an investment rather than a cost. They set up an ESG Division in 2018 and in April 2019 released their ESG strategy called the “Kirei Lifestyle Plan”, built around the Japanese word “kirei” which means beautiful or clean, not only on the outside but also on the inside. It describes the value Kao aims to bring to everyday life with its brands, products and services. The “Kirei Lifestyle Plan” (Beautiful Lifestyle Plan) aims to meet the needs of consumers’ desires to “live a sustainable lifestyle”.
At a presentation in September 2019, President and CEO of Kao Michitaka Sawada announced the company’s determination to “dramatically change direction towards ESG-focused management”. The results of Kao’s ESG initiatives have also been reflected numerically. In a 2019 ranking of the best 200 companies that prioritize ESG announced by a Japanese media, Toyo Keizai, Kao was positioned in twelfth place and was the highest placed beauty-related company. Also, Kao has been recognized as one of the Most Ethical Companies by Ethispere 14 years consecutive included, for 13 years in a row in the FTSE4Good Index Series, and 4 years in a row in the FTSE Blossom Japan Index.
Kirei Lifestyle Plan — an ESG strategy infused with Kao’s essence
Around 130 years ago, Kao began as the manufacturer of domestically produced soap “of such high quality it could be used for face washing”. Junko Ohtani, Director for ESG Communications in Kao’s ESG Division, says of the Kirei Lifestyle Plan, “it revolves around Kao’s corporate philosophy the Kao Way, which has remained steadfast since the company’s foundation. This philosophy pledges to make safe soap at an affordable price to contribute to a cleaner, more beautiful and healthier lifestyle, and to put our hearts into making products that enrich not only customers but also the people around them.”
The “Kao Way” articulates the company’s mission, vision, values and principles. In place of a manual or set of regulations, the “Kao Way” acts as a point of reference for every Kao employee to reconfirm the significance of their work and help ask the right questions.
Employee engagement based on the “Kao Way” empowers people.
For instance, during the coronavirus crisis, Kao Netherlands donated MegRhythm Steam Eye Masks to medical personnel to help them take more comfortable breaks. This wasn’t an instruction from headquarters, but rather an initiative implemented by the staff at Kao Netherlands of their own accord. Having the focal point of the “Kao Way” for when staff asks themselves “what can we do as Kao?” allows the company the advantage of being able to firmly implement ESG strategies.
Working towards a common 2030 goal
Kao’s ESG strategy is about “contributing to society with sustainability integrated into company management, and enhanced corporate value leading to profits”, and to put this into practice they have focused on two approaches.
The first is supporting the concept of a Kirei Lifestyle and presenting a vision that’s clear and relatable to both employees and consumers.
The second is enhancing research and development (R&D) capabilities to expand business opportunities and profitable growth. Achieving both sustainability and profitable growth is essential in making the ESG strategy work.
From early on, Kao has been working to improve its packaging and containers by taking measures to lessen plastic usage and lighten the environmental burden. Their R&D, conducted from the perspective of the 4Rs (Reduce, Replace, Reuse and Recycle), has led to the refill package Raku-raku Eco-Pack that balances both ease-of-use and environmental friendliness and the Smart Holder which, when combined with the Raku-raku Eco-Pack, can be repeatedly used as a container and pump that also helps consumers to use up product contents completely.
Consumers won’t buy a product just because it’s promoted as environmentally friendly. The refills are being accepted by the market because they have the added value of being convenient and economical as well as environmentally friendly, and they create a cycle where the demand leads to further innovation and businesses themselves grow. With Kao’s pursuit of consumer benefit, 80% of purchases of Kao products within Japan are now refills.
Ohtani reveals that they’re also considering expanding into new fields: “While we’ve continued to develop laundry detergents and home cleaners for many years, we also have the technology for controlling microorganisms, such as for getting rid of bacteria. Currently, we’re considering how we can use these technologies to contribute to society.”
One recent outcome of Kao’s R&D efforts was from the joint research they conducted with Kitasato University and that was announced in May this year. It involved a successful acquisition of VHH antibodies that contain functions for inhibiting infection of the COVID-19.
Japanese society has long strived to achieve sanpou-yoshi, or “three-way satisfaction” (the idea of having things work out for the buyer, the seller, and society in general), through working to realize harmonious relationships and align to everyone’s needs so that each standpoint can reap their benefits. Similarly, for ESG strategies as well, Ohtani says, “we’re searching for a way that is unique to Kao as a Japanese company, and a way that fulfills all the aspects — the environment, convenience, and cost — can, I believe, be found with the help of everyone. That includes the industry as a whole as well as other industries that we can cross over and connect with.
“Due to the spread of digitalization, the COVID-19 pandemic is the first crisis in history that the whole world has suffered through together. It’s up to us to learn from this experience and change our behaviors.”
How will Kao deal with the unprecedented crisis of the pandemic? As the foremost ESG-engaged beauty company, their ESG strategy post-coronavirus is to explore how ESG should be best implemented as a Japanese company while creating added value for society and also growing as a business.
Text: Yukari Akiyama and Ching Li Tor
Original text (Japanese): Yukari Akiyama
