COVID has disrupted supply chains and office life, real estate and business relationships. Global warming is putting corporate feet to the fire, forcing companies to revamp their processes. Trust, production schedules, efficiency and the environment are suffering in the resulting chaos.

In response, businesses in Japan are focussing on all sorts of transformative options—digital transformation (DX), sustainable transformation (SX) and green transformation (GX)—to meet the overarching goals of the UN’s Sustainable Development Goals (SDGs) as well as the environmental, social and governance (ESG) standards to make themselves more appealing as partners, suppliers and investment draws.

According to the Information Technology Promotion Agency, however, 90 percent of Japanese companies were dissatisfied with their own DX efforts as of April 2022. And this summer, the Sustainable Development Solutions Network announced that Japan had dropped out of the top twenty nations in performance related to achieving the SDGs—and scored last in five goals. Those five included Responsible Consumption and Production and Climate Action (Goals 12 and 13). Japan also slipped to second lowest in Decent Work and Economic Growth (Goal 8) due to factors such as importing products manufactured using forced labour.

What’s a company in Japan to do when it’s serious about transforming itself? Several CCCJ member firms offer solutions that help clients boost profit and efficiency, create better working environments, make their supply chains bulletproof, and do the focus on sustainability thing right.

Real True Accounting

Established in 2017, with headquarters in Toronto and primary software development in India, DLT Labs landed in Japan in 2018 with a blockbuster revolutionary blockchain solution: An immutable system for tracking data.

“One thing we want to clear up right away is that when people hear ‘blockchain,’ they think of cryptocurrency and Bitcoin,” says Andrew Neuman, the business development manager of DLT Labs Japan. “The only thing we have in common is blockchain itself. The ‘DLT’ in our name stands for ‘distributed ledger technologies,’ and what we offer is a platform that keeps all the information in one place. It can’t be deleted, and every business party involved can see what’s been changed whenever someone alters an entry. It significantly raises mutual trust.”

Neuman acknowledges the high level of trust that already exists among business entities in Japan, and their tight integration. “If you’re a department store that has a contract with a trucking company, for example, you’ve probably done business together for years,” he notes. “You can believe that the freight bill is accurate. However, that level of trust is not as common elsewhere in the world.”

Francis Lalonde, DLT’s chief commercial officer, was once a DLT customer. “I was VP of transportation for Walmart Canada for five years,” he says. “So I first hired DLT to track freight payments and resolve disputes, which the Harvard Business Review wrote about and is very, very complex,” “I had all that data, but I didn’t know what I was missing. I needed the engine that would pull all those various other systems to set business rules based on what I want to do as a customer, and generate smart contracts to dynamically build invoices and drive ESG initiatives.”

DLT successfully completed seven projects for Lalonde, who retired from Walmart last year. “For the first couple of years it was a bunch of people coding and building a platform. Now we’re sitting on 3.5 million lines of code that digests a crazy amount of data and does something smart with it. Now it’s commercializing time. We’ve got the same pain points in the industry, too, so it’s all transferable.”

Cocoa Central

The Japan External Trade Organization (JETRO) once focused on promoting Japan overseas. Its mandate now, however, is focused on drawing foreign investment into Japan. JETRO helped DLT Labs get incorporated as a Japanese company and connected with potential clients. JETRO recently interviewed Lalonde and Neuman about blockchain, streamlining supply chains, and achieving social progress. What do those last two have to do with each other?

“There’s growing focus on traceability here in Japan, and sourcing foodstuffs like cocoa and coffee beans from areas and farms that are sustainably and ethically managed,” Neuman answers. “For example, we had two projects, one with food giant Lotte and one with the Japan International Cooperation Agency (JICA).”

DLT Labs and its platform was a primary candidate when confectionery giant Lotte sought to trace the sourcing of cocoa beans from West Africa through to their final destination at its chocolate factory in Japan, and ensure that these beans were sourced from licensed farms that were not using child labour. 

“In Ghana, one problem is that people are chopping down the rainforest to grow more cocoa beans because there’s such a great demand for chocolate,” Neuman explains. “With global warming progressing, we clearly don’t want that.”

That means ensuring the beans come from a legally approved farm, showing that child labour is not used in the harvesting of those beans, and that children in those areas go to school and are not incentivised to work on the farm instead of getting an education.

“We want to let you know these things through these initiatives, with social progress, environmental sustainability and ethical sourcing,” Lalonde says.

In Cote d’Ivoire—also in West Africa—JICA launched an initiative to monitor and track those same issues. DLT’s platform is used to track when children are in school and whether these children worked on farms after school, and which types of labour they performed. JICA’s goal was to set up a system to incentivise parents to send their children to school rather than put them to work on cocoa bean farms.

Neuman explains that there are tasks that children under sixteen are allowed to do, like counting cocoa beans or babysitting smaller children. Tasks such as using a machete or spraying chemicals or burning back brush—are considered to be dangerous and unsuitable for children.

“JICA’s initiative encourages children to go to school, for which the schools are awarded a certain number of points each day for filing an attendance report. The farms also file work reports that show whether a child worked after school on their farm, for how long, and what type of tasks they performed.”

Farms can exchange the points for tools and fertilizer, while schools can trade them for schoolbooks or other supplies. 

Practical Point

Lalonde mentions a key point for firms embarking on a sustainability journey: once they start saving money as a result, they should repurpose some of those funds to drive a sustainable transformation. “I fed my sustainability journey at Walmart, buying electric trucks and all that, with savings from the DLT initiatives,” he notes. “Say you make $10 million of savings. You should reinvest 2 or $3 million into that.”

Lalonde adds that once companies in Japan start doing this, they’ll need a sustainability team. “If they have a department that has power within the corporate structure, a budget, and a clear path to upper management, companies will be all right.”

Neuman believes that Japan is very ripe for opportunity in the distributed ledger area. “Whether they’re ready for it, though, is another question.”

Pure Sustainability

Aluminium is the world’s second most used base metal on the planet. Metals and mining giant Rio Tinto sealed a deal with Marubeni Corporation in early 2023 to supply the trading firm with its RenewAlTM high-purity aluminium from the renewably powered New Zealand Aluminium Smelters. The first agreement of its kind in Japan and the Asia-Pacific region will provide downstream industry with a simple, integrated way to achieve ESG–related goals and requirements, such as reducing carbon footprints, showing lifecycle assessment, and responsible sourcing. Long-term security of supply at a time of growing supply-chain risks is another benefit. 

According to Rio Tinto Communications Manager Masaki Asanuma, RenewAITM and the company’s START platform empower its customers and their customers to make more sustainable choices. “The world’s first certified low CO2 primary aluminium brand, RenewAlTM has a carbon footprint of under four tonnes of CO2, while the average carbon footprint of primary aluminum extracted worldwide in 2020 was 12.2 tonnes,” she says. 

The START platform is a new standard in transparency, traceability and provenance. Using secure blockchain technology, START provides key ESG information about how Rio Tinto products were made. Customers receive a digital sustainability label—similar to a nutrition label found on food and drink packaging—and access to the platform where information is stored. 

START will help customers meet the demand from consumers for transparency on where and how the products they purchase are made. It also empowers end-users to make informed choices about the products they buy, enabling them to contribute to a sustainable future, and to differentiate between end products based on their ESG credentials. 

“We now offer Aluminium Stewardship Initiative (ASI) certified aluminium from all of our Canadian operations through a ‘chain of custody’ spanning Rio Tinto’s Gove bauxite mine in Australia to its alumina refinery, aluminium smelters and casthouses in Quebec and British Columbia, Canada,” Asanuma reports.

“This certification gives our customers independent assurance that the metal they use to make aeroplane parts, cars, smartphones and other products has been made to standards that protect biodiversity, respect Indigenous peoples’ rights, optimise water management and lower carbon emissions,” Asanuma adds. “ASI also creates a traceability mechanism—the first of its kind for any industrial metal—so that companies can be sure that the aluminium they buy was manufactured to meet ASI standards at every stage.”

Smart Green Spaces

Toronto-based Colliers International is a leading diversified professional services and investment management company that began operations in Japan in 1988, established Colliers Japan in 2016, and opened its Tokyo office in 2017. The firm’s Green Lease checklist sets twenty-six checkpoints in four categories: Materials and Products, Air Quality, Water Use, and Energy Use. The list helps to visualize and drive sustainability and wellbeing initiatives in true GX fashion. 

While the checklist wasn’t developed specifically in response to the pandemic, it does offer related benefits. Air filtration is a key, for example. The MERV 13 or higher filters the checklist recommends can remove the coronavirus and other particles, including other viruses. Carbon monoxide detectors are also recommended for meeting rooms and dispersed zones. 

In energy conservation, a building automation system should be in place and monitored. The landlord should also control energy consumption by refrigeration, lighting, heating, ventilation and other equipment. EV chargers, using a minimum of 50 percent recycled materials and products, a composting program and “light harvesting” are also vital checkpoints.

How has the pandemic affected the firm’s business and what they offer? 

“The pandemic has drastically changed the way people work,” says Kohei Kawai, the director and head of research. “The functionality required in the workplace has changed dramatically, and so has the business of our Occupier service.” 

Colliers recently relocated its Tokyo headquarters to a building that fits the checklist requirements. The employee reaction to the move and the new environment have been positive. 

“Many employees feel their productivity and work-life balance has improved,” Kawai says.

“Satisfaction with the office environment—including ergonomics, noise control, space diversity and the interior—is also generally high. Nearly 70 percent of employees also feel that collaboration with colleagues has increased.”

Kawai provides a real-world customer example. “We proposed a flexible office space to an Internet services company, allowing their employees to work flexibly and productively while maintaining a hybrid workstyle that combines office and remote work,” he notes. “The relocation also gave the company the flexibility to expand its workforce in response to business growth.”

Pertinent Example 

Japan can look to British Columbia to see how government and industry are striving to ensure digital transformation, especially in the resources sector. Ryo Tokunaga of the BC office in Tokyo mentions a pertinent example in which BC partnered with industry to use digital technologies such as blockchain to increase value chain transparency and meet the ESG reporting needs of the mining industry. 

“From an export perspective, more than half of BC’s economy is composed of natural resources, such as forestry, mining and energy,” he says. “In the mining sector, for example, BC is home to over seven hundred global exploration and mining companies headquartered in Vancouver.” 

This industrial characteristic has led the province to consider certain facets when making policy decisions. For example, BC was one of Canada’s first provinces to enact mine reclamation legislation to help mine operators return land to a safe and environmentally sound state, and in 2022 it established a new ESG Centre of Excellence to draw ESG investments to the province. 

“Our province is committed to leveraging technology to increase transparency and trust related to where mineral products come from, and how they’re produced,” Tokunaga explains. “The BC government partnered with industry to create a ‘digital trust ecosystem’ to share sustainability data using blockchain technology, which enables the trusted exchange and automation of data on minerals across all participating members.” 

That also allows natural resource companies to bypass the need for physical documentation and instead use digital credentials to share sustainability data, certifications and credentials safely and easily with investors, purchasers, regulators and anyone else interested in their data. “Since digital credentials are secure and checked in real time, anyone viewing these credentials can trust that the data has not been tampered with during the exchange,” Tokunaga says. 

While Japanese companies are not involved in this specific initiative, there are consortium-based frameworks such as the Digital Supercluster Initiative and Center for Innovation and Clean Energy that are working on game-changing technologies to address the climate change challenge that are open for new initiatives in partnership with Japan. 

“I believe Japan and Canada both have strengths in fundamental research in many fields, but Canada does a bit better in supporting the initial commercialization, while Japan has strengths in making incremental improvements to fine-tune the product quality to market,” Tokunaga says. “At the BC office in Tokyo, we’re exploring the question of how we can increase mutual understanding and engagement that could potentially lead to the deployment of digital and climate technologies that have high climate impact and scaling potential.”