Russian ties of Japanese companies in firing line
Energy supply poses headache for Tokyo, but executives also fear reputational damage
Japanese firms are under deepening pressure over their ties to Russia and are scrambling to assess their operations, company and government insiders say, after Western rivals halted businesses and condemned Moscow for invading Ukraine.
While environmental, social and governance (ESG) investors have previously targeted companies in Japan for fossil fuels, scrutiny over Russia could become intense. Executives say privately they are worried about reputational damage, a sign corporate Japan is becoming more responsive to pressure on social issues.
Japan’s trading houses, commodities giants long seen as quasi-governmental arms integral to Japan’s energy supply, have big ties to Russia. Last year Russia was Japan’s second-biggest supplier of thermal coal and its fifth-largest of both crude oil and liquefied natural gas (LNG).
“The energy issue has implications for national and public interest, so it has to be discussed properly with the government,” said one trading house insider, who like others spoke on condition of anonymity. “But we also have to think about our corporate value and about how we explain this to our shareholders. It’s a difficult position.”
Mitsui & Co and Mitsubishi have stakes in the giant Sakhalin-2 LNG project Shell is now exiting. Itochu and Marubeni have invested in the Sakhalin-1 oil project ExxonMobil is pulling out of.
Mitsui and Mitsubishi said they would consider the situation with the Japanese government and partners. Itochu and Marubeni declined to comment on plans related to Sakhalin-1.
Japanese firms have largely said they are watching the situation. An executive at a carmaker said management was holding daily meetings to gauge the impact of financial sanctions and the implication for parts supply.
“We’re also discussing reputational risk and how to deal with the news from the point of view of human rights and ESG – of course we’re aware of that,” the executive said. “But we can’t just immediately decide we’re going to pull out because we can’t tell how long the Ukraine crisis will continue.”
A manufacturing executive said his company felt a responsibility to local staff in Russia but was also concerned about the risk of saying nothing.
“Japanese companies have been slow to react. Too slow. And I can’t agree with that,” he said.
Prime Minister Fumio Kishida has unveiled steps to help cushion the blow from higher oil prices, but it is unclear what the government will do about broader dependence on Russia. Imports from Russia totalled around US$11 billion in 2020.