JFS Newsletter No.85 (September 2009)
"Towards a Sustainable Japan -- Corporations at Work" (No. 83)
http://www.sompo-japan.co.jp/english/index.html

In the face of various planetary environmental problems such as climate change and the biodiversity crisis, the insurance and financial industries are now being expected to play a new role that is based on their core business activities. Examples include "eco-funds" and corporate social responsibility (CSR) financing offered as a response to the risks of future climate change.

Sompo Japan Insurance Inc. pursues a corporate vision of itself as a comprehensive service provider group for risk and asset management. The company has increased its corporate value over the course of a 120-year history, and made a strong commitment to global environmental issues when Yasuo Goto, at the time chairman of one of Sompo Japan's predecessors, the former Yasuda Fire and Marine Insurance Co., attended the 1992 UN Earth Summit in Rio de Janeiro.

In November 2008, Sompo Japan was endorsed under a program headed by the Minister of the Environment as an "Eco-First" company for its commitment to environmental protection. This endorsement program requires companies to make commitments, and Sompo Japan pledged the following five types -- to solving social problems through its CSR financing, to developing human resources by providing Education for Sustainable Development (ESD), to implementing energy conservation activities to create a low-carbon society, to promoting green purchasing, and to collaborating with local communities.

Major Japanese Companies Make Commitments to Environment Ministry under Eco-First Program
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Insurer Sompo Japan Introduces National Green Purchasing System for Agencies
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Among these commitments, attention is being especially focused on how a company takes advantage of its core business activities to develop CSR financing, such as "weather index insurance," a type of insurance designed to respond to the effects of climate change. Knowledge about environmental education cultivated through collaboration between corporations and non-profit organizations is also considered important as a way to promote global environmental action throughout society.

The Development of Weather Index Insurance

In recent years, worldwide climate change has caused extreme weather events, such as huge hurricanes and extensive floods, resulting in an increased incidence of severe natural disasters. For Sompo Japan, ways to adapt to and mitigate climate change pose significant business challenges.

Particularly with respect to adaptation measures, attention will be paid to how wisely the company can respond to the already emerging effects of climate change. Developing countries are especially vulnerable to climate-related disasters due to backward infrastructure development, and thus tend to suffer more severe damage.

Therefore, in order to find ways to adapt to climate change, Sompo Japan conducted research on new "risk finance" methods, in collaboration with the Japan Bank for International Cooperation (JBIC) and others. Based on the results of this research, the company launched a weather index insurance pilot project for farmers in northeast Thailand to pave the way for commercialization in 2010. Weather index insurance is an insurance product that enables customers to receive pre-determined payments when indices of temperature, wind velocity, rainfall, snowfall and so on reach certain levels. For example, when it does not rain enough to grow crops, this type of insurance will cover farmers' losses.

"In 2007, we launched a joint research group with JBIC on weather index insurance," says Kiyoshi Fukuwatari, Manager of Sompo's Corporate Social Responsibility Office, part of its Corporate Communications Department, explaining the product development background. "We conducted research on the situation in Asian countries and selected Thailand as the site for the pilot project because it has a certain level of economic stability and many farmers."

The pilot project was carried out in the province of Khon Kaen, and dealt with rice yields. Cooperating with Thailand's Bank for Agriculture and Agricultural Cooperatives (BAAC), the Sompo Japan project team explained the insurance scheme to local farmers, who were traditionally unfamiliar with insurance systems, and invited them to join the scheme. Since these farmers usually take out loans to cover rice farming costs from BAAC, the weather index insurance was offered only to farmers with loans.

Interview with people in Thailand
Copyright Sompo Japan Insurance Inc.

Satoshi Hirooka of the Alternative Solutions Section in Sompo's Commercial Risk Solutions Department visited the area twice, in June 2008 and August 2009, and said he received a good response from the farmers. "When we interviewed the farmers, they were grateful to have a way to avoid weather risks, and evaluated the scheme highly," he says.

As part of its preparations to commercialize of this product, the insurer now is setting up sources of reliable weather data from local meteorological weather stations while negotiating with the Thai government authorities' committee on insurance.

As an 'Eco Fund' Leader in Japan

Investment trust funds called "eco funds" have already become common in Europe and the United States and are starting to become popular in Japan. This type of product is designed to funnel investment towards companies that actively give due consideration to the environment in the course of their regular business activities.

In 1999, Sompo Japan set up Japan's second eco fund, the Sompo Japan Green Open (nicknamed "Buna no Mori" or "Beech Forest" in Japanese). In the intervening ten years, the number of companies included in the fund, most of which are local financial institutions, has grown to 120 (as of March 2009), demonstrating Sompo's contribution to the spread of Socially Responsibile Investment (SRI) in Japan.

When selecting companies, a team from Sompo Japan Risk Management (SJRM) analyzes the environmental management of candidate companies based on data analyses in CSR reports, questionnaire surveys and interviews. In recent years, the focus of overall analysis has been global warming measures, but questions on biodiversity have now been added to the analysis as well. The SJRM team provides their analysis results to target companies as feedback, facilitating the acceleration of environmental initiatives in these companies.

As of the end of March 2009, the total net assets of the Sompo Japan Green Open amounted to 12,479 million yen. The fund has been performing very well in spite of the recent advent of global financial uncertainty. For three years in a row, it was awarded either the first or second prizes in the R&I Fund Awards, presented by Rating and Investment Information, Inc., a Japanese fund rating company, receiving awards as a Japanese SRI Fund under the Investment Trusts Category and as a Japanese Equity Fund under the Defined Contribution Pension Category.

Asked how the company could contribute to making eco funds even more popular, Fukuwatari answered, "In future, I think it would be effective to create a system to incorporate eco funds into pension investment management. The Sompo Japan Green Open is already offered as an option for defined contribution pension funds. We hope that individual investors will get a better understanding of eco funds through the pension investment system."

Supporting Biodiversity Conservation via a "Home Remodeling Loan Eco-Plan"

A unique product launched in January 2009 as a means of fulfilling CSR in finance is the Home Remodeling Loan Eco-Plan. The interest rate on Eco Plan home remodeling loans is 0.3 percent lower than for other home remodeling loan plans. In addition, 0.3 percent of the eco-loan amount is donated to "satoyama" woodlands protection activities. (Satoyama woodlands define traditional Japanese rural landscapes rich in biodiversity.)

The eco-home remodeling loans are available for installing eco-friendly home improvements such as photovoltaic generation systems, gas cogeneration systems, fuel cell systems and eco-friendly electric water heaters. The preferential interest rate helps support consumers, while the donation to satoyama woodlands protection activities supports environmental protection by promoting biodiversity conservation.

Nobuhiro Ueda, Manager of the Corporate Planning Department at Sompo-Japan Credit, explained, "There was no precedent for financial products involving biodiversity conservation, so we consulted an environmental NPO, Ecology Online. In the end, a fund-raising foundation, Satoyama Donguri Bokin (lit., Rural Woodland Acorn Fund), was established to support satoyama woodland conservation activities. Through this foundation, we started giving gifts to organizations that work for satoyama woodlands conservation in Japan and also meet our evaluation standards."

Woodlands close to agricultural villages in Japan used to be managed to generate woody material for fuel and charcoal. These thickets were well maintained by cutting trees down to stumps that re-grow branches, clearing underbrush and thinning out trees. Currently, however, satoyama thickets are disappearing due to urban sprawl and lack of management. The Acorn Fund gives pizza ovens to satoyama woodland conservation organizations to be used at outdoor cooking events held to attract participants in satoyama woodland conservation activities while contributing to the revival of thickets designed to produce firewood and charcoal.

Copyright Sompo Japan Insurance Inc.

The first pizza oven was given to the Children Adventure Plaza, which carries out its activities in Toyooka City, Hyogo Prefecture. Fukuwatari, who participated in the presentation ceremony, emphasizes the link to environmental education, saying "I was impressed by the public/private cooperation in this region to revive storks, which had become extinct in the wild in Japan. I hope that such projects are able to continue over the long term."

Sompo Japan has regarded environmental education as the most effective way to address global environmental issues. Thus, since 1992, the company has been providing open lectures on environmental issues for citizens and an internship program for students who want to work for environmental NPOs, the Sompo Japan CSO Learning Scholarship Program. Expectations are that the company will continue to promote sustainable programs, combining CSR finance activities, its main business, with a wide range of environmental education activities.

Written by Taeko Ohno

TAG Corporations at Work , Newsletter