"TOWARD A SUSTAINABLE JAPAN - CORPORATIONS AT WORK" ARTICLE SERIES Article No. 5
"ECO TAX: REFORMING MARKET WITHIN" (SEIYU)
http://www.seiyu.co.jp/english/index.shtml

Since ancient times, people have visited the local market looking for goods, be it once a day or once a week. Today, we visit the supermarket, where we can buy almost anything, from food to household products and electronic appliances. But the present-day supermarket, which profits by selling high volumes of products and promoting mass consumption, is also a symbol of issues concerning consumption and the environment, or more precisely, sustainable consumption.

In this sense, the supermarket can be seen as the closest, most important interface between people and products. How can a supermarket play an active part in building a sustainable society?

In answering this question, you may think of such measures as reducing environmental impacts at stores, providing environmental education to consumers, and selling environment-friendly products. Yes, they are certainly important. In fact, Seiyu, the fifth largest retail chain in Japan, has been investing its management resources in these activities with some success (See http://www.seiyu.co.jp/english/report_e.shtml).

Yet in the midst of intensifying global competition in the retail industry, a company cannot promote such activities in a vacuum. Retailers must also address the multiple and simultaneous challenges of making profits, remain cost-competitive, build efficient and effective management, comply with environmental regulations, and improve their environmental efficiency by unleashing each employee's creativity.

In this newsletter, we introduce Seiyu's approaches to address these challenges through a unique initiative--an in-house environmental tax system.

The Seiyu, founded in 1963, is a retail chain group operating more than 400 stores in Japan. Its net retail sales in fiscal 2002 were about 1 trillion yen (about U.S.$9 billion), and it employs a total of about 14,000 people on full-time equivalent basis, including more than 8,000 part-time employees. Seiyu was one of the first in this "industry closest to consumers" to promote environmental management, with the commitment of top management. In 1997, the company became the first retail company in the world to acquire ISO 14001 certification of its environmental management system in a unified, multi-site format. Since then, Seiyu has been placing a particular emphasis on its environmental education program (especially for children) and house-brand environmentally friendly products.

Since 1997, the company has been offering local children a hands-on "Eco-Niko Workshop" educational program, which became an acclaimed example in Japan of environmental learning provided by a corporation. In fiscal 2003, more than 12,000 people took part in the program at stores and schools, and learned environmentally conscious lifestyles through the store's activities. Also, since 1992, the company has been selling a house-brand of environment-friendly products called "Kankyo Yusen" (Environmental Choice), and the line has grown to a total of 96 items, resulting in sales of 373 million yen (about U.S.$3.4 million) in fiscal 2002 (for more information, please visit http://www.seiyu.co.jp/english/eco and find Sustainability Report. "Kankyo Yusen"is described on page 21-24, and Eco-Niko workshops on page 26-28).

The company, in an effort to improve its financial situation, achieved a business alliance with the U.S.-based Wal-Mart and received an infusion of funds in fiscal 2002. The company's next step in environmental management is to prove the value of prominent environmental initiatives while improving its overall efficiency.

Facing these challenges, the company has invented an in-house environmental tax accounting system. In this system, the company's head office acts almost like a government to collect an "eco tax" from each section and store based on environmental impacts, thereby giving every staff member an incentive to be environment-conscious and creative. This, they expect, will lead to a more speedy and effective reduction of the overall environmental impacts of the group.

The system functions as follows. Environmental impacts at the store level (the amounts of energy consumed and waste disposed, for example) are subject to tax. Environmental "improvements" (expansion of sales of environmental products and holding environmental education workshops, for example) are counted as tax deductions. The head office calculates and collects the balance between the taxes levied and the amounts credited, and uses the funds for environmental programs and community service activities (please see Sustainability Report page 46-48 for Eco-Tax).

External advisors helped to determine the coefficients for calculation of the CO2 emissions equivalent of each item. Take, for example, the calculation of the CO2 equivalent for Eco-Niko workshops. A family that implements all ten actions promoted by Japan's Ministry of the Environment under "Actions Each Person Can Do to Stop Global Warming," can reduce its CO2 emissions by about 766 kg per year. The company calculates the Eco-Tax conversion coefficient based on the assumption that half of the children who participate in an Eco-Niko workshop (about 20 participants in each workshop on average) will try energy conservation at home, and that they achieve half the ministry's estimated reduction. This will result in about 3,800 kg of CO2 reduced per workshop.

Individual efforts to stop global warming [766 kg CO2 emissions reduced per family]
X
No. of participants (i.e., families) [20 families]
X
Ratio of actions taken from action list [50%]
X
Ratio of families taking action [50%]
=
about 3,800 kg of CO2 emissions reduced per workshop

The difference of the taxable CO2 minus the deductible CO2 becomes the Eco-Tax CO2 for each store. A tax at the rate of 5,000 yen per ton (about U.S.$45) is then collected by the head office and those funds are re-invested for activities that include environmental components.

At the store level, this system creates an incentive to efficiently reduce this Eco-Tax CO2 by trying various measures. In fiscal 2002, a simulation was conducted through the Eco-Tax accounting system and it turned out that if this system had been implemented, 1.7 billion yen (about U.S.$14 million) of total taxes would have been collected inside the company. In fiscal 2004, the company will go into full implementation of the system, and it is considering the possibility of trading even outside the company starting from fiscal 2005.

This initiative is considered a preparation for future regulations in Japan. Since the need to reduce CO2 emissions, now mandatory since Japan ratified the Kyoto Protocol, is now recognized as an issue for Japan as a whole, the government is now assessing the introduction of a global warming tax. Meanwhile, the Tokyo metropolitan government is also considering making it mandatory for companies to reduce their CO2 emissions based on numerical targets for corporate facilities above a certain size.

To achieve the most efficient balance between consumption and the environment, market reforms are needed. In a sense, Seiyu is being proactive by reforming its own internal market today, but the company intends to continue working toward the day that the overall economy recognizes indicators of environmental impact with the same weight as indicators of sales performance.

PAGE TOP