From sustainable to regenerative business
Mounting external pressure
Since starting our Sustainability in Japan study, Fabric has observed significant progress as Japan faces up to the challenge of transforming an unsustainable global economic model. Yet, as the world’s third largest economy, Japan must battle the outside perception of dragging its heels.
Actions by companies, government, and communities filter through to the public, changing behaviour at scale. How this systemic change occurs is the overarching question we explore in our work, and in this third report we’ve honed in on the underlying drivers and barriers to society wide transformation.
Our previous report pointed to the importance of regulatory pressure, but since banning free plastic bags in stores there have been few new regulations pushing Japanese businesses to be more sustainable. This is despite strong phase out laws and policies being implemented globally.
Pressure on public companies to disclose their impact through Environmental, Social, and Governance (ESG) frameworks has grown significantly, with EU and US-based companies taking these commitments seriously, and ripple down effects for Japan-based suppliers. These suppliers now need to provide meaningful data on the sustainable qualities of their materials and processes, while also committing to improving them.
Large Japanese companies, with their significant proportion of international investors, are also placing increased importance on ESG scores and applying pressure on their local supply chains.
These are perceived as a compliance framework which, although well intentioned, can become a burden on already strained resources for smaller companies — obligations that must be met in order to retain market share or contracts.
Some Japanese companies have positively embraced these constraints, using them as guidelines to innovate their businesses, with outcomes that can already serve as an inspiration for others. In Japan it’s Business-to-Business (B2B) companies selling into global sustainability leaders that are feeling the most pressure, and need to act most urgently.
Business-to-Consumer (B2C) companies are feeling less pressure due to relatively low levels of customer interest in sustainability. Without this interest growing, the rising tide of ESG consciousness in business can’t be assumed to create near-term shifts in B2C companies seeking to use sustainability as a competitive advantage.
A groundswell of sustainable communities
Fabric consults on a range of programs with Japanese companies — designing sustainable solutions from supply chain innovation to decarbonisation, inclusive employment practices, and material circularity.
We also embed sustainable and regenerative design principles in all of our programs, even those without an explicit sustainability objective, resulting in stronger work that’s received positively by partners.
We know these companies are engaging with sustainability challenges directly, seeing them as value creation opportunities that can position them as industry leaders, but the extent to which they feel their customers are ready has a direct correlation with how fast they’re willing to act.
Beyond our consulting work, we also help design grassroots, community solutions with smaller businesses and brands, focused on circular products and services. As these communities grow into the trunks and boughs of a new economy, and the people participating become leaders, it feels like transformative change is inevitable.
At the same time, we’re aware that most of what is being imagined and designed is yet to influence systems in Japan on a statistically significant scale.
With COVID-19 pandemic measures ending in May 2023, Japan has cautiously returned to previous economic behaviours, with a rebound in the travel and hospitality industries. This has come with greater public awareness of the multiple challenges we face as a global society, with the war in Ukraine influencing Japanese policy, and fears over a similar conflict in Taiwan prompting the largest increase in Japan’s military spending since 1952.¹
2023 is the year that Artificial Intelligence (AI) went mainstream with the emergence of ChatGPT and generative AI assistants, bringing excitement and apprehension as Japanese businesses grapple with digital transformation and whether these technologies can help with societal issues like population decline.
The threat of climate change is ever present in people’s lives, with an increase in the frequency of extreme weather events globally and at home, with Japanese mass media making this connection more explicit in their coverage.
We’ve just been through the hottest week on record and entered ‘uncharted territory’ according to the World Meteorological Association. ‘Polycrisis’ is now being used to describe this confluence of geopolitical, technological, and environmental conditions.
Our study shows climate change is now a primary concern for people in Japan, with 58% of Boomers and 47% of Generation X viewing this as an ‘existential threat to humanity’. Millennials and Generation Z are more optimistic (or potentially less informed), with less than a third believing the same. Instead they’re more concerned with human issues such as ‘providing a decent working wage for all’ and ‘eliminating hunger’, the top two concerns for each group.
Consumers as stakeholders with agency
Our previous studies focused on the relationship between Japanese businesses and their customers — with progress driven by people taking positive action to lead more sustainable lifestyles, and businesses creating shared value that delivers a competitive advantage.
This idea of mutual benefit between business and customer in sustainable transitions is crucial, and is at the centre of a system-wide view that considers the externalities of that relationship, particularly the impact on social and environmental systems.
This is essentially a ‘stakeholder capitalism’ model applied to the level of a customer relationship or transaction, a model that’s replaced ‘shareholder capitalism’ in most board rooms.
It’s also close to Japan’s confucian-influenced corporate culture where stakeholder dividends were never the top priority. There was little surprise when Prime Minister Kishida emphasised a new era of capitalism in 2022, asking Japanese companies to take responsibility across an expanded set of social and environmental outcomes.
Companies are feeling pressure on their performance from supply chains and other challenges, and in the absence of sustainable laws or regulations, it’s often their customers, with their agency as ‘dollar voters’, who have a significant influence over whether businesses do less harm and more good.
Our study found that around a fifth of Japanese people believe they can have a positive impact through brand decisions, a mindset dependent on them taking action when provided with sustainable options.
Customers making sustainable purchases aren’t just thinking about that specific product or service, but are also conscious of how it impacts broader systems and issues they’re concerned with, from being a member of society to a robust natural environment.
Tracking these behaviours over time is a key way to measure sustainable transitions, measuring the growth of conscious consumers until they represent the overwhelming majority.
A steadily growing consciousness
In our studies we measure sustainability consciousness as a combination of awareness, knowledge, attitudes, and behaviours.
Every day, people make decisions about products and services based on different qualities, a set of promises the brand represents, and each person’s perception of that brand based on their reputation.
The sustainability consciousness score serves as a proxy for these decisions, quantified across the Japanese population aged 15–69. This covers four generations of active participants in the Japanese economy, and frames the overall economic potential for sustainable business transitions.
We’ve identified five behavioural groups on a spectrum from Negative to High sustainability consciousness, with the majority of the population falling into the Low category. In 2022 we noted a significant upwards shift across the population when compared to 2021, but based on this trend it would take until 2030 for the peak in the population to sit in the middle of the spectrum.
Given the growing coverage of climate disasters, one might expect to see a dramatic increase in sustainability consciousness — but the reality is that behaviour change takes time.
Overall consciousness continues to increase at a steady pace, but a majority of 58% are still in the Low group. There’s no sign of a tipping point being reached. While millions are moving to higher levels of consciousness, there is also evidence of people shifting from the low to the negative group.
In terms of age, higher consciousness groups tend to be older, while Generation Z has relatively higher consciousness compared to Millennials, who remain the lowest age group.
One enabler of sustainability consciousness we identified in 2022 was ‘yoyu’, a sense of ease especially found in older participants, high income households, people working in large companies, and people not working.
This could be perceived as a form of privilege, with the highly conscious having the time and resources to become aware and informed about sustainability.
We’ve explored this notion further in the wellbeing sections of the 2023 study.
Drivers and barriers: Unique Japanese responses
In Japan we can also consider progress by measuring the growing literacy of the United Nations Sustainable Development Goals (SDGs). While they are a cultural import, they’ve come to represent a shorthand for sustainability in Japan, and are heavily promoted by: businesses, media, schools, universities, and governments.
In our 2021 study the majority of participants didn’t associate any of the SDGs with sustainability (‘sasutenabiliti’ / ‘jizokukanousei’). In 2023 that awareness has shifted by 8.1%, with awareness of all goals rising.
‘Protecting the oceans’ is the SDG associated most with sustainability, with the issue being directly felt due to the importance of seafood diets and fishing industries in Japan.
‘Taking climate action’ and ‘providing affordable, clean energy’ also remain in the top three concerns — touching daily lives through hotter summers and increased energy bills.
We can also view this progression as the rediscovery of traditional Japanese concepts like ‘sanpo-yoshi’, where shared value between buyers and sellers should also benefit society, with this social aspect increasingly represented by the SDGs.
The frugal ‘mottainai’ mindset has re-emerged in relation to material consumption and circularity, taking on new relevance. Our 2023 study found that large proportions of participants have already changed their behaviour in small ways, with a particular focus on reducing, reusing, and recycling, as well as repairs and refills.
Interest in significant actions like electric vehicle purchases or switching to renewable energy is also significant, although only a few have made these changes to date.
Overwhelmingly Japanese people cite financial constraints as the biggest barrier to sustainable change, with 53.5% of participants believing this limits positive social and environmental actions.
People perceiving sustainable actions as expensive is an important insight, as this isn’t necessarily the reality. Too often sustainable choices have been positioned as a premium option, whereas in reality sustainability is often driven by reducing consumption, with significant savings available by making small, meaningful changes.
This is unlikely to fit the narrative pushed by most brands looking to capitalise on sustainable transitions, although outliers like Patagonia have made reducing production and consumption part of their mission.
Lack of expertise, time, and inconvenience are equally important barriers, impacting 26–30% of participants.
Seeds of a regenerative future
Our 2022 study focused on innovation in food systems as a vertical where, due to the co-benefit for people and planet, we could see positive loops with customers driving sustainable change.
We also noted the rise of regenerative agriculture and food produced in a way that doesn’t just seek to minimise the negative impacts of production, but restores and replenishes ecosystems and communities, drawing on the regenerative nature of life itself.²
The idea that businesses can be a force for good, rather than minimising their negative impact, isn’t a new concept.
Corporate Social Responsibility (CSR) budgets have long been built on this idea, although the majority of these initiatives act in parallel with the business, rather than being part of the core business model. CSR is often too limited to change a destructive model.
Sustainable business leaders such as Paul Hawken and Yvon Chouinard have long been advocating for businesses that are more thoughtfully and intelligently designed with nature. Not just ‘doing things to nature’ but ‘participating as nature’.³
This is regenerative thinking.
Alongside global transitions to hold companies to account, frustration has grown with the loopholes and inadequacies of current sustainability narratives. ‘Greenwashing’ is a common practice by companies in industries that damage the environment, leading to the tarnishing of the word ‘sustainability’ itself.
Against this backdrop, the shift to regenerative thinking has progressed, and is also starting to gain traction in Japan.
WIRED Japan, a relatively mainstream publication, recently showcased ‘The Regenerative Company’⁴ with several examples of Japanese businesses adopting regenerative practices — defined as catering to multiple stakeholders, with diversified sources of human and financial capital, and deep involvement in system change.
The human potential in regenerative business
Regenerative agricultural systems teach us to combine intentional design with a belief in the regenerative potential of living systems, embracing diversity and complexity. By doing this flywheel effects can emerge that restore, replenish, and produce at rates not previously thought possible.
This rediscovery is a source of immense hope, motivating the regenerative movement.
Human lives connected with these systems are transformed from linear, task-based work to being co-creators — making this an inspiration for designing regenerative models outside of agriculture.
The role of the farmer in the dominant chemical-agriculture regime today has been waking up and deciding what to kill. In a regenerative model this is transformed into deciding how to make life thrive, with a sense of awe based on the natural effects of these practices.
The experience of people throughout a transition should be a primary consideration. All systems express their underlying traits at every level, and the limitations of our current systems are obvious when considering just how many people have been left behind in the global economy.²
The challenge is taking principles from regenerative thinking and applying them to other forms of business to create abundant surpluses of any kind.
This regenerative opportunity can be defined as designing profitable business models that do better the more good they do, starting with the lives of the people employed and participating in those companies.
Our previous sustainability reports described similar ‘shared value’ relationships that companies should look to design with their customers in order to have a positive impact.
The role of large companies in addressing social and environmental challenges is a common expectation among Japanese people, with 36% saying they are definitely responsible and another 39.3% somewhat responsible. This is only eclipsed by government at 53% definitely responsible and 28% somewhat responsible. Communities and individuals are seen as holding the least responsibility.
People employed by organisations are some of the most important stakeholders in Japan’s sustainability transformation, and by allowing greater autonomy to express their beliefs and humanity in their work and communities, there is an opportunity for them to move beyond their perceived role as ‘consumers’.
One of the principal drivers of the regenerative farming movement is how much more rewarding and enjoyable it is to live and work on a regenerative farm over an extractive one.
Can the same thinking be applied to all businesses?
Companies that are able to redesign their business models, as well as their relationships with their employees and customers, can unlock a transformation in productivity while giving them a huge competitive advantage as an employer brand.
Positive employee attraction, motivation, and retention coupled with progress on social and environmental sustainability are able to be amplified — addressing Japan’s unique challenges around a competitive labour market and shrinking population.
These challenges are so acute that the government has been pushing Japan’s largest companies to develop ‘human capital’ strategies linked to sustainable transformation, which includes nurturing, engaging, and diversifying their employee base.
In reality, it’s the relationships and interactions between all these participants that will shape the new social fabric — with the social and human capital of people in these systems playing a critical role.
With the amount of time spent by Japanese people at work, and the potential for workplaces to be both a driver and barrier for social and environmental impact, we see the relationship between company and employee as being Japan’s sustainability nexus.
This is a nexus that can be transformed through sustainable and regenerative thinking, and this report — SJ3: The pathway to regenerative business — is focused on exploring this pivotal opportunity for Japanese companies.
- SIPRI (2023) The proposed hike in Japan’s military expenditure. https://www.sipri.org/commentary/topical-backgrounder/2023/proposed-hike-japans-military-expenditure
- Hawken, P. (2021) Regeneration: Ending the Climate Crisis in One Generation. [New York] ; [Great Britain], Penguin Books.
- Reed, B. (2007) Trajectory of Environmentally Responsible Design from: Reed, Bill. “Shifting from ‘sustainability’ to regeneration.” Building Research & Information. 13 Sept 2007.
- WIRED (2023) 「リジェネラティブ・カンパニー」とは何か──その3原則から事業領域まで、拡がるムーブメントの全体像, WIRED.jp. https://wired.jp/article/the-regenerative-company/
Fabric is a Strategic Design and Sustainability consultancy helping businesses move towards more innovative, sustainable futures. Based in Tokyo, we’ve been consulting with global and local companies since 2004. We have extensive experience bringing together design thinking, sustainability, and human insight to deliver good strategy for clients.