Synchronization of Non-financial Capital and Value Creation: Japan Should Show ROE of ESG

  • Ryohei Yanagi


Japanese companies prefer to discuss non-financial information such as ESG (Environment, Social, Government) and CSR (Corporate Social Responsibility) when they set agendas for talks with investors. Investors, however, want to discuss information in the financial statements. Both types of information indicate potential for growth and creation of corporate value, and they can be synchronized through market value added (MVA). The author specifies that MVA as defined as portion with PBR (Price Book-value Ratio) above 1 equals to Intangibles (non-financial capital such as ESG/CSR). The equation responds to assertions in Japan’s Corporate Governance Code (CGC), Stewardship Code (SC) and the Ito Review, which promote discussions of capital efficiency (i.e., improved ROE) and non-financial information in a broad sense. It is a sort of pursuing “ROESG (Return On ESG)” concept. In this context, the author provides empirical research proving this correlation with statistical significance between ESG and ROE as well as a global investor survey. The book’s three financial strategies bring investors and corporations together in a quantitative dialogue as shown in Chap.  4. This chapter suggests an agenda for that dialogue taken from results of the investor survey, and how to synchronize financial and non-financial value in a quantitative dialogue. The chapter includes the integrated report of Eisai (one of the largest pharmaceutical companies in Japan for which the author serves as CFO) as a case study and shows that financial and non-financial information can be synchronized by reporting the MVA and Equity Spread (ES) as evidenced by Yanagi (2017a). Overseas investors severely criticize Japanese corporate management, as the author proves through surveys, interviews, and quantitative analysis. However, remember one of the Aesop’s Fables “The North Wind and The Sun” anecdote. “The North Wind,” only criticism does not blow the conventional way of corporate governance in Japan. “The Sun,” constructive dialogue is the ideal and effective way to unbutton the old wears as The Sun got win through gentleness in the anecdote. Corporations and investors both must seek for a win-win. That is “Synchronization of non-financial capitals (ESG) and Equity Spread (or ROE)” as my value proposition. And this chapter is the author’s conclusion.


Non-financial capital ESG CSR Intangibles Equity spread MVA RIM Synchronization 


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Copyright information

© Springer Nature Singapore Pte Ltd. 2018

Authors and Affiliations

  1. 1.EisaiBunkyōJapan

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