Non-Financial Capital Value Creation: Assessing Japan's Path to an ESG-Friendly Economy through the Yanagi Model

Abstract

This paper explores the possibility of Japan adopting the Non-Financial Capital and Equity Spread Synchronization Model, also known as the Yanagi Model, to build an ESG-friendly economy. The Yanagi Model focuses on incorporating non-financial elements, such as environmental, social, and governance factors, into companies' traditional financial performance measures. By doing so, the model aims to enhance firms' long-term sustainability and value creation. The paper assesses the potential benefits and challenges of implementing the Yanagi Model in the Japanese context through a review of relevant literature and case studies. The literature suggests that integrating ESG factors can lead to improved financial performance, reduced risk, and increased reputation for companies. However, there are also concerns about the lack of standardization and transparency in ESG data, as well as the potential for greenwashing or superficial adoption of ESG practices. Despite these challenges, the paper argues that the Yanagi Model could serve as a viable path for Japan to build an ESG-friendly economy, given the country’s recent push for sustainability and the growing demand for socially responsible investments. The paper suggests several recommendations for improving the model, such as increasing transparency and standardization in ESG data, enhancing stakeholder engagement, and promoting a culture of long-term value creation. Overall, the paper concludes that while there are challenges to adopting the Yanagi Model, its potential benefits for building a sustainable and ESG-friendly economy in Japan make it a worthwhile pursuit.