Certificate of Advanced Studies on Corporate Social Responsibility, University of Geneva, 2011
Sonja Sutter
Corporate Social Responsibility and Extreme Events:
Example of Fukushima
Abstract
The tragedy of Fukushima is an overall shock to society, an unexpected disaster, a rare
and extremely devastating event in terms of social, ecological, economic and
psychological extents. The author analyses what Corporate Social Responsibility
(CSR) framework Tokyo Electric Power Company (Tepco) – the owner and operator of
the ill-fated Fukushima power plants - had in place and how well it was implemented
and managed before, during and after the Black Swan 1 Event happened. The author
looks into the question if Tepco’s CSR framework helped for crisis management and for
minimizing risks, costs and liabilities. Academic research is consulted for exploring the
relationship between CSR and Risk Management. The author discusses the
insurability of nuclear risks, potential market and government failure, touches on
government social responsibility and looks at developments in other countries before
concluding with some lessons learnt.
1
„The Black Swan Theory or Theory of Black Swan Events is a metaphor that encapsulates the
concept that The event is a surprise (to the observer) and has a major impact. After the fact, the event is
rationalized by hindsight.
The theory was developed by Nassim Nicholas Taleb to explain:
1. The disproportionate role of high-impact, hard to predict, and rare events that are beyond the
realm of normal expectations in history, science, finance and technology
2. The non-computability of the probability of the consequential rare events using scientific methods
(owing to the very nature of small probabilities)
3. The psychological biases that make people individually and collectively blind to uncertainty and
unaware of the massive role of the rare event in historical affairs
Unlike the earlier philosophical "black swan problem", the "Black Swan Theory" (capitalized) refers only
to unexpected events of large magnitude and consequence and their dominant role in history. Such
events, considered extreme outliers, collectively play vastly larger roles than regular occurrences. Taleb
regards almost all major scientific discoveries, historical events, and artistic accomplishments as "black
swans"—undirected and unpredicted. He gives the rise of the Internet, the personal computer, World
War I, and the September 11 attacks as examples of Black Swan Events.“
Source: Wikipedia, The Black Swan Theory. Available from:
http://en.wikipedia.org/wiki/Black_swan_theory [accessed 2 May 2011]
Table of Contents
1.
Introduction........................................................................................................ 1
2.
Tepco’s CSR Framework .................................................................................. 2
2.1 Overview ..................................................................................................... 2
2.2 Corporate Ethics and Compliance .............................................................. 3
2.3 Sustainability Report .................................................................................. 3
2.3.1 Framework ................................................................................................................. 3
2.3.2 Management Commitment ......................................................................................... 4
2.3.3 Corporate Governance ................................................................................................ 5
2.3.4 Performance Indicators ............................................................................................... 5
2.3.5 Stakeholders ............................................................................................................... 6
2.3.6 Corporate Responsibility Index Through Internet Consultation ................................... 7
2.4 Summary .................................................................................................... 7
2.5 Sustainability Indexes ................................................................................. 8
3.
Tepco’s CSR Implementation ............................................................................ 9
3.1 Before 11 March 2011 ................................................................................ 9
3.2 After 11 March 2011 ................................................................................. 10
4.
CSR and Risk Management ............................................................................ 14
4.1 CSR as Insurance-like Protection ............................................................. 15
4.2 The Insurability of Risks, Market Failure, Government Failure ................. 16
5.
Who’s Responsibility? ..................................................................................... 18
6.
Government’s Social Responsibility and Implementation ................................ 19
7.
Liabilities and Losses: Who Pays ................................................................... 21
8.
Developments in other Countries .................................................................... 23
9.
Lessons Learnt and Conclusion ...................................................................... 24
10.
Bibliographies and References........................................................................ 27
11.
Annexes .......................................................................................................... 31
11.1 Nuclear Power Plants and Earthquake Regions ..................................... 31
11.2 Nuclear power plants in Japan................................................................ 32
11.3 Tepco’s Nuclear Power Plants ................................................................ 33
11.4 Tepcos CSR Framework and Stakeholders ............................................ 33
11.5 Nuclear Emergency Declaration by the Prime Minister and His Cabinet 35
11.6 Tepco Communication Examples after 11 March 2011 .......................... 36
11.7 Tepco Share Price .................................................................................. 37
11.8 Nuclear Liabilities in Other Countries ...................................................... 38
ii
„We must use the extreme case as basis and starting point of our thinking, we should
not treat it as an exception that can be swept under the carpet.“2
1. Introduction
On 11 March 2011 an earthquake with a magnitude (M) of 9 hit Japan. Since the Ansei
Tokai earthquake (M=8.4) in 1854, 150 years ago, no such strong earthquake has
reached Japan. „Tokai earthquake“ is the synonyme for the every 100 to 150 years
happening severe earthquake of the Tokai-Nankai-Region in the subduction zone
between the Phillipine and Japanese islands. One hour later a tsunami with waves of
up to 40 meters struck the coast and flooded the Northeast of Honshu, killing
thousands of people and devastating whole cities. This tsunami is also referred to as a
once-in-a-hundred-years-event-tsunami3. On 12 March 2011 powerful explosions at
the nuclear power station of Fukushima were reported. Slowly the world started to
realize that a nuclear meltdown was happening. After being struck by two disastrous
natural catastrophies, as a consequence a third one followed. The probability of such a
triple event (earthquake, tsunami, nuclear meltdown) must be so low, that one might
say in reality it is impossible to happen. Especially in such a high tech industrial
society, where nuclear power plants were assumed to be just safe. Exploring on the
occurrence probabilities of these events, it turns out, that they were not so low.
Earthquake and tsunami risks are well known in Japan, their occurrence rather
expected. But if expected, were impacts on nuclear power stations preventable or
mitigatable? Is the nuclear meltdown a natural or a man-made catastrophy? Kiyoo
Mogi4 warned in a study issued in 2004 about the high probability of a Tokai
earthquake and its impact on nuclear power stations. He declared an upcoming
potential nuclear disaster as man-made. Nowhere else in the world are seismic activity
regions so congruent to nuclear power plant locations as in Japan (please see „Annex
11.1 Nuclear Power Plants and Earthquake Regions“). According to a study of Tsuneji
Rikitake, the probabilities for a great Tokai earthquake to recur are estimated to take on
values ranging 35–45 percent for a ten-year period following the year 2000.5 The
2
Taleb, Nassim Nicholas, 2007 (German Version 2010), Der Schwarze Schwan, Die Macht höchst
unwahrscheinlicher Ereignisse. German Version p. 14, free translation back into English by S. Sutter
3
In 1896 an earthquake at the same location as the one from 11 March 2011 occurred and triggered the
biggest tsunami in Japan’s known history.
4
Mogi, Kiyoo, 2004, Two grave issues concerning the expected Tokai Earthquake. University of Japan,
in Earth Planets Space, 56, Tokyo. Available from:
http://www.terrapub.co.jp/journals/EPS/pdf/2004/5608/5608li.pdf [accessed 13 June 2011]
5
Rikitake, Tsuneji, 1999: Probability of a great earthquake to recur in the Tokai district, Japan:
reevaluation based on newly-developed paleoseismology, plate tectonics, tsunami study, micro-
1
Earthquake Research Centre Japan estimated the probability of a Tokai earthquake
occurrence with 7.5 M for 30 years since 1 January 2005 at 99%. 6 Not only was a
strong earthquake in Japan’s northern region to expect, it was overdue according to
probabilistic calculations. Japan also has a history of tsunamis, the word „tsunami“
comes from the Japanese. Tepco had confirmed seismic safety of its nuclear power
stations. Human error? What happened, why did safety systems fail?
If the nuclear accident of 12 March 2011 was man-made, then this would mean that
Tepco, the government, the Japanese Nuclear Safety Commission (NCS) or the
Nuclear and Industrial Safety Agency (NIAS) would have had the possibility to prevent
this accident. Did Tepco - as operator incorporating guidelines and crisis prevention
measures requested from government and its institutions – try to prevent a man-made
disaster? Or was the incident out of control of Tepco? In order to help answering such
questions, let’s look at Tepco’s Corporate Social Responsibility framework. Whereas
various interest groups still promote nuclear energy to be sustainable, a nuclear
accident is certainly not a sustainable event. But who’s responsibility was it?
2. Tepco’s CSR Framework
2.1 Overview
Japan is divided into a number of regions that each get electric service from their
respective regional provider, all 10 electric power companies hold a monopoly of
generating and distributing power within a designated region and are strictly regulated
by the Japanese government. Nuclear energy accounts for approx. 30% of the
country‘s total electricity production and has been a national strategic priority. Before
the disaster in March 2011, 54 nuclear reactors were in operation. Nearly all of the
nuclear power stations are directly on the coast because big amounts of cooling water
are needed and taken from the sea.
Tepco operated three nuclear power stations – the six-reactor Fukushima Daiichi
station, the four-reactor Fukushima Daini station and the seven-reactor KashiwazakiKariwa station in Niigata Prefecture – amounting to 17 nuclear reactors providing 27%
of all power generated by Tepco before 11 March 2011. Please see Annex „11.2
Nuclear Power Plants in Japan“ and „11.3 Tepco’s Nuclear Power Plants“.
seismicity and geodetic measurements; Association for the Development of Earthquake Prediction, 1-518 Sarugaku-cho, Chiyoda-ku, Tokyo 101-0064, Japan. Available from:
http://www.terrapub.co.jp/journals/EPS/pdf/5103/51030147.pdf [accessed 13 June 2011]
6
Fujiwara, Hiroyuki, 2006, Japan Seismic Hazard Information Station. National Research Institute for
Earth Science and Disaster Prevention, Japan. Available from:
http://cais.gsi.go.jp/UJNR/6th/orally/O43_UJNR.pdf [accessed 13 June 2011]
2
On Tepco’s English homepage one finds easily a page on Corporate Ethics and
Compliance7 as well as Sustainability Report8 regarding the Fiscal Year ended 31
March 2010 (published in September 2010), and lots of other information such as
„Vision 2020“ or „Tepco‘s Environmental Highlights“.
2.2 Corporate Ethics and Compliance
The Corporate Ethics and Compliance webpage is titled „Improving Corporate Culture“.
Tepco writes that in September 2002 it started an effort to counter and prevent reoccurring accidents at nuclear power stations. The Company announced four
commitments in the interest of creating a „Corporate system and climate of individual
responsibility and initiative.“ Through strict safety procedures public confidence shall
be established. The four commitments refer to disclosure of information and
transparency of nuclear operations, to proper performance of job-related duties by
Tepco‘s employees and organizations, to strengthening of internal surveillance and
reforming corporate culture in terms of quality assurance and internal communication
and to promoting corporate ethics by introducing internal audit procedures and
education and training.
As a reader of this web page one gains the impression that there is much to do in the
areas mentioned above (safety, control, transparency, public confidence), that there is
a huge agenda for improvements.
2.3 Sustainability Report
2.3.1 Framework
Tepco’s Sustainability Report contains 80 densly packed pages. It gives account about
Tepco’s CSR initiatives and achievements towards a sustainable society. The
Sustainability Report follows the 15 points outlined by M. Hopkins9. It is embedded into
Vision, Mission, Governance, Stakeholder dialogue, adherence to standards and
shows many performance indicators. Tepco’s Sustainability Report follows the AA1000
standard and along the lines of the GRI G3 Guidelines and its Electric Utility Sector
Supplement 10. Many but not all of the required aspects and performance indicators
are disclosed.
7
Tepco webpage, Tepco’s Corporate Governance, Compliance and Ethics. Available from:
http://www.tepco.co.jp/en/challenge/csr/c_g/index-e.html [accessed 1 May 2011]
8
Tepoc’s Sustainability Report for the year ended 31 March 2010. Available from:
http://www.tepco.co.jp/en/challenge/environ/pdf-1/10report-e.pdf [accessed 11 May 2011]
9
Hopkins, M., CAS in CSR 2011 at University of Geneva, Module 3 presentation slides
10
Global Reporting Initiative (GRI), 2000-2006, Sustainability Reporting Guidelines. Available from:
http://www.globalreporting.org/NR/rdonlyres/69B73A44-F372-4898-8548B657BA73F8FF/0/G3_Guidelines_English.pdf and GRI, 2000-2009, Electric Utility Sector Supplement.
3
2.3.2 Management Commitment
GRI guidelines ask to start with „1.1 Statement from the most senior decision-maker of
the organisation about the relevance of sustainability to the organisa-tion and its
strategy“. Also Tepco’s Sustainability Report starts with a statement of Tepco‘s
president Masataka Shimizu:
Tepco’s basic mission is to deliver electricity to society in a safe and stable manner.
Based on this commitment, we will pursue new social and environmental roles in
„leading the low-carbon era“ as we contribute to creating affluent and comfortable
lifestyles…Our idea about affluent and comfortable environments is a sustainable
society that is not only convenient and comfortable to live in, but that is filled with
spiritual affluence and harmonizes with nature.
After such words it is no wonder that Masataka Shimizu got sick and played a rather
unresponsible role in the aftermaths of the nuclear emergency declaration by vanishing
from the public. In the introduction Shimizu also states what shall be repeated
throughout the report:
We will maintain sound management practices to ensure stable electricity supply and to
earn the trust from society.
Through these management practices stakeholders shall receive greater satisfaction.
The Sustainability Report continues with „Initiatives until 2020“ that contain introducing
zero-emission power sources, expanding the use of renewable energy, promoting low
carbon high efficient thermal power stations, smarter power system networks,
supporting customers energy savings efforts, electrification in more sectors such as
transport and reinforcements of risk management. Interestingly, the introduction of
zero-emission power sources refers mainly to nuclear power generation as the biggest
contributor, the vision 2020 plan suggests an increase of Tepco’s nuclear power
production from 27% of its total output in 2009 to 48% in 2019. The author would like
to emphasize that it is just wrong to consider nuclear power as zero-emission source,
also with regard to CO211. The global energy situation, the problem of depleting energy
resources and the import dependency of Japan (80% of energy consumption need to
be imported) are described. The solution to all this challenges is clear to Tepco:
nuclear power production. Nuclear power as environment-friendly energy resource has
Available from: http://www.globalreporting.org/NR/rdonlyres/2B316BC6-A5EC-49E3-B8BA58B2EBA02D3C/2823/ReportingGuidelinesandEUSS.pdf [accessed 2 July and during all July 2011]
11
Apart from radioactive emissions, nuclear power emits CO2 during construction of the plant itself,
during extraction, milling and enrichment of uranium, transport, treatment and storage of waste as well as
decommissioning of the plant. Fossil fuels are essential to every stage of the nuclear cycle, and CO 2 is
given off whenever these are used.
4
another advantage in terms of fuel supply: uranium is imported from Australia or
Canada, politically stable countries.
2.3.3 Corporate Governance
According to the report, Tepco ensures sound corporate governance in order to
increase management transparency, strengthen risk management systems and internal
controls, and disclose pertinent information to stakeholders. There is an extensive and
detailed chapter on risk management and disaster prevention measures. Disaster
response plans are in place that shall prevent damage to power stations in the event of
an emergency and mitigate the extent of damage or achieve quick recovery. Maximum
priority is placed on personal safety and human life as well as on providing a
continuous supply of electricity.
There is a huge concern about a strong Tokai earthquake, but even in the face of a
disaster, Tepco has a strong social responsibility to deliver stable supply of electricity.
In a section called „nuclear safety measures“, Tepco claims it is creating disaster
resistent power stations. „Since the 16 July 2007 Niigata-Chuetsu-Oki Earthquake12
Tepco has been taking various measures to strengthen the Kashiwazaki-Kariwa
nuclear power station against disaster, all initiatives are also applied to the Fukushima
Daiichi and Daini nuclear power stations.“ And: „At the Fukshima Daiichi and Daini
stations we are confirming seismic safety.“ In 2010 Tepco had constructed seismicisolated buildings. „The seismic-isolated buildings feature an earthquake proved
structure in which a rubber or soft material placed between the building and the ground
foundation absorbs earthquake tremors. They are designed so that emergency
responses could be managed even if an intensity-7 level earthquake exceeding the
Niigata-Chuetsu-Oki earthquake occurs.“
2.3.4 Performance Indicators
All economic and environmental perfomance indicators are disclosed as recommended by GRI. Emission intensities are calculated, achievements with regard to the
Kyoto protocol are reported on, supply and demand side measures are elaborated on.
Social performance indicators are not quite so complete:
Many „Labor Practices and Decent Work“ indicators from GRI’s reporting guidelines
are not mentioned in Tepco‘s report: „Percentage of employees eligible to retire in the
next 5 to 10 years“, „policies and requirements regarding health and safety of
12
The Niigata-Chuetsu-Oki earthquake‘s magnitude was 6.6. It damaged the Kashiwazaki-Kariwa
nuclear power station. The plant was shut-down for 21 months for inspections and earthquake resistance
improvements. Source: http://de.wikipedia.org/wiki/Niigata-Ch%C5%ABetsuK%C3%BCstenerdbeben_2007 [accessed 12 July 2011]
5
employees and employees of contractors and subcontractors“, „days worked by
contractor and subcontractor“, „percentage of contractor and subcontractor employees
that have undergone health and safety training“, „information about notice periods“,
„ratio of basic salary by gender, employment category“ etc., these aspects are all
missing. On 1 January 2009, 18‘494 persons worked at the three nuclear power
stations of Tepco, only 2‘900, 15.8%, are Tepco employees.13 Total number of Tepco
employee accidents are far lower than contractor’s accidents. Whereas 0 Tepco
employees had serious injuries in FY 2009, 56 employees from contractors suffered
serious accidents. For all classified injuries contractors show multiples of accidents
compared to Tepco employees. Usually, contractor’s employees don’t have the same
training, routine and experiences as regular employees on a site. One would expect,
that workers from outside would need to undergo an intensive safety training before
working in a nuclear power station. The poor information about labor practices towards
employees of contractors and sub-contractors, especially with regard to health, safety
and training, indicates that good practices are not just forgotten to report on, but also
missing in reality. How Tepco can place top priority on safety with so many employees
coming from contractors and sub-contractors, from outside parties, seems mysterious.
Human Rights aspects and performance indicators are not complete compared to the
GRI Guidelines. The aspect „Corruption“ is not mentioned at all.
2.3.5 Stakeholders
Tepco addresses all of its designated stakeholders. These are customers, local
communities, business partners, future generations, international society, central and
local governments, employees, shareholders and investors. Tepco states „Tepco
widely communicates with a diverse group of stakeholders in its business activities.
Their views and requests are used to improve business operations and to retain strong
customer trust“. See Annex „11.4 Stakeholders of the Tepco Group“.
Tepco regards the Sustainability Report as a tool for communicating with the
stakeholders. The Sustainability Report 2009 was distributed 50‘000 times. Tepco
also distributed feedback questionnaires and received 620 answers, of which 35%
considered the Sustainability Report as very good. Respondents can ask questions
which are answered by Tepco in the Sustainability Report.
At the end of the Sustainability Report CSR initiatives are listed with FY 2009
achievements and follow up goals for FY 2010.
13
See table in Annex 11.3 Tepco’s Nuclear Power Plants.
6
2.3.6 Corporate Responsibility Index Through Internet Consultation
By relying on what was stated in the Sustainability Report, for example that Tepco
applies an anti-discrimination policy in recruiting, training and promoting, or that the
Board of Director’s actions are transparent, the author filled in the CRITICS
questionnaire from M. Hopkins14. It yields a 0.65, „a good level of social responsibility“.
2.4 Summary
Tecpo’s CSR framework is incorporating its stakeholders, it addresses all the
designated ones in the Sustainability Report (see Annex „11.4 Stakeholders of the
Tepco Group“). Tepco is reporting according to AA1000 Assurance Standards and
therefore also according to the AA1000 Principles. This requires the adherence to the
principles of inclusivity, materiality and responsiveness. Tepco incorporates all of its
stakeholders and therefore the inclusivity principle is fulfilled. The third principle,
responsiveness to stakeholders, seems to be ensured as various stakeholder opinions
or questions are tackled in the Sustainability Report and provided with answers. In
terms of materiality Tepco addresses all material questions with three exceptions:

the possibility of an earthquake with a magnitude of 9 is ignored, it is even
claimed that seismic-isolated buildings at the nuclear plants at Fukusihma and
Kashiwazaki-Kariwa are in operation since 2010 and safe thanks to their
earthquake proof structures.

In the whole Sustainability Report the word tsunami does not appear.

The worst case scenario of a nuclear meltdown is nowhere mentioned.
Apart from the weaknesses in reporting the aspects and indicators of GRI’s Labor
Practices and Human Rights, the Sustainability Report of Tepco meets the
requirements in terms of form and contents AccountAbility, GRI and stakeholders would
expect ex-ante. Ex-post 11 March 2011, one should argue that the AA1000 materiality
criteria was violated due to the above listed 3 material omissions. Risk mitigating
measures and crisis plans in case of a nuclear meltdown should be part of a
sustainbility report of a nuclear power plant operator, the author finds. The word
„materiality“ is nowhere mentioned, either.
However, not even the Electric Utility Supplement of GRI asks for nuclear worst case
scenarios and respective crisis management. Neither does it guide to explore on
earthquake, tsunami or flood risks. The focus lies on nuclear fuel used, nuclear waste
14
MHC International Ltd., Corporate & Social Research, Rate your company. CRITICS (Corporate
Responsibility Index Through Internet Consultation of Stakeholders) questionnaire. Available from:
http://www.mhcinternational.com/external/rate-your-company.html [accessed 21 July 2011]
7
treatment, provisions for decommissioning nuclear power sites and workforce that
might be exposed to hazardous conditions.
Tepco followed best practice in sustainability reporting, comparing with some other
power producers in Europe and the US, their sustainability reports don‘t mention
neither earhquake nor tsunami / flood risks nor potential crisis management. But they
usually are third party certified, whereas Tepco’s English Sustainability Report does not
contain any third party independent certification with regard to the application of the
GRI and AA1000 standards.
2.5 Sustainability Indexes
Since 2009 Tepco was a member of three regional Dow Jones Sustainability Indexes
(DJSI): the Dow Jones Asia Pacific Sustainability Index (DJSI Asia Pacific), the Dow
Jones Asia Pacific 40 Sustainability Index (DJSI Asia Pacific 40), and the Dow Jones
Japan 40 Sustainability Index (DJSI Japan 40). The nuclear emergency at Fukushima
Daiichi power station prompted a review of Tepco’s position in the indexes. On 13 May
2011, SAM and Dow Jones Indexes15 announced the removal of Tepco from all these
three indexes. Reasons for Tepco’s removal from the index family were based on a
thorough review of the Media & Stakeholder Analysis. The analysis initiated a
significant reduction in Tepco’s sustainability score due to a negative impact in multiple
areas such as Environmental Management Systems and Occupational Health & Safety.
The resulting reduction rendered Tepco ineligible for further inclusion in the index
family.
One has to note that Tepco was never part of the global Dow Jones Sustainability
index, Tepco is not mentioned on sam’s Sustainability yearbook of 2010 nor 2011.
Therefore, Tepco was never amongst the sustainability leaders of SAM’s electricity
sector. The Sustainability Report issued in 2010, is commented by some journalists as
„A true manifest about CO2 reductions and social responsibility. It received lots of
interest – and approx. 3.2 bn USD new funds from capital markets.“16 According to
stock exchange prospectus, funds were raised for constructing new emission-free
power plants. It can be assumed that Tepco has been part of so called sustainable
funds.
15
SAM / Dow Jones Indexes, 13 May 2011, Press Release. Available from:
http://www.sustainabilityindex.com/djsi_pdf/news/PressReleases/110513_Tepco_Statement_Vdef.pdf
[accessed 18 May 2011]
16
Prudent, Ralph, 2011, Fukushima is an information disaster, Green Financials. Available from:
http://green.finanztreff.de/green/news_news.htn?u=5610268&sektion=kommentare&id=33128614&r=0
[accessed 29 June 2011]
8
Although there are some blogs on the internet that Tepco was part of the FTSE4Good,
Tepco has never been a constituent of the FTSE4Good index17.
3. Tepco’s CSR Implementation
3.1 Before 11 March 2011
In 2002 Tepco came under pressure by stakeholder groups and media and
reconsidered its corporate ethics and transparency framework – of which the company
was seen as a laggard, reflected by cover-ups and accidents in the past. Tepco was
forced to undertake an effort in gaining trust from society. A whistle blower had
revealed that Tepco Managers had hidden troubles at Fukushima and falsified reports
to the Ministry of Economy, Trade and Industry. End of August 2002, the government
of Japan revealed that Tepco was guilty of false reporting in routine governmental
inspection of its nuclear plants and systematic concealment of plant safety incidents.
Angry municipalities and citizens supported the government’s decision to shut-down all
seventeen nuclear reactors for inspection. Tepco's chairman, president as well as vicepresident at that time stepped down. By scanning the media one finds many reports
and critizism on Tepco’s transparency, information disclosure and safety culture. In
2007, Japan Times daily reported in 2007 that Tepco had hidden an accident that
resulted in uncovering more accidents in 1979, 1984, 1989, 1993, 1999, 2004 and
2007 – none of them were reported, writes P. Arora18. It is noted that the accidents in
2004 and 2007 ocurred after the company established its CSR ethics and compliance
system and after it had been found guilty by the government of Japan in 2002.
Eisako Sato19, governor of the prefecture of Fukushima from 1988 to 2006, had also
learnt from Tepco employees that security standards were violated and official
protocols were falsified in order to hide facts. As opponents of nuclear energy
generation were treated like public enemies, officials hid incidents in general, he
claims. Japan believed to be dependent on nuclear energy, therefore officials didn’t
want to bring their country into trouble. Eisako Sato refers to this as “nuclear
absolutism”. He also says that the nuclear disaster was to be expected.
17
Frank Higgs, Client Services Assistant - FTSE Group, 10 Upper Bank Street, Canary Wharf, London,
E14 5NP, UK, +44 (0) 20 7866 1810, email with answer received on 13 July 2011
18
Arora, Pankaj, 2011, Corporate Social Responsibility at Tokyo Electric Power Company, Triple Pundit
Planet, People, Profits. Available from: http://www.triplepundit.com/2011/03/tokyo-electric-powercompany-tepco-corporate-ethics-fukushima-50/ [accessed 4 July 2011]
19
Koh, Yoree, 18 April 2011, How Sato sums up governments nuclear response, The Wallstreet Journal
online. Available from: http://blogs.wsj.com/japanrealtime/2011/04/18/how-sato-sums-up-governmentsnuclear-response-soviet/ [accessed 1 May 2011]
9
On 2 March 2011, about nine days before Fukushima Daiichi reactor 1 melted
down, NISA formally disciplined Tepco for failure to conduct inspections on critical
pieces of equipment at the Fukushima 1 and 2 reactor. NISA found that Tepco had
violated safety regulations. NISA instructed Tepco to investigate the fundamental
reasons why inspections were not conducted, to put in place preventive measures, and
to issue them a full report by 2 June 2011.20 One would think that usually inspections
are not initiated by the one that is being inspected, but by an authority that just
inspects.
Is it bad luck or is it complete ignorance of risks and safety rules by all involved parties?
Originally, the decommissioning of Fukushima Daiichi reactor 1 was planned
after 40 years of operation, for beginning of 2011. But in February 2011, NISA
extended Tepco’s operating license by 10 years.21 One would expect that NISA had
carried out a strict control and review of the reactor before extending the life time of
such an old reactor. Instead, it accuses Tepco of negligent inspections.
According to observers the close relationship between Tepco management and
Japanese government is a main factor for the negligence of safety standards. In 35
years, improvement of safety standards and inspection of nuclear power stations
happened only 3 times.22
3.2 After 11 March 2011
At 7p.m.on 11 March 2011 – 4 hours after the earthquake had hit - the Prime Minister
and His Cabinet issued a nuclear emergency alert to the public (see Annex „11.5
Nuclear Emergency Declaration by the Prime Minister and His Cabinet“), thereby
emphasizing that no nuclear radiation was escaping at Fukushima. Tepco issued a
press release that all nuclear power stations in operation have automatically shut-down
as per 4.30p.m., that there are huge damages and therefore power supply will run
short. Then, Tepco’s information policy became slow, chaotic and not reliable, as
journalists and residents comment. (See Annex „11.6 Tepco Communication
Examples.“) The confusing communication led to more and more mistrust by most
stakeholders. The government started evacuations but seemed uninformed about the
impact of the damage.
20
Adelstein, Jake, 20 June 2011, 9 Day Warning, Japan Subculture Research Center. Available from:
http://www.japansubculture.com/2011/06/9-day-warning-on-march-2nd-nisa-disciplined-tepco-on-laxequipment-checks-before-meltdown/ [accessed 18 July 2011]
21
Wikipedia online, Kernkraftwerk Fukushima-Daiichi. Available from:
http://de.wikipedia.org/wiki/Kernkraftwerk_Fukushima-Daiichi [accessed 18 July 2011]
22
Die Rundschau, Angst vor zweitem Gau, Swiss tv documentary, 20 April 2011
10
Management didn’t play a heroic role. Tepco President Masataka Shimizu didn’t
appear to the public due to health reasons. The Japanese Times commented „Tepco‘s
top management appears dysfunctional and in need of leadership“23. No Tepco
manager took command at the Fukushima plant site, where hundreds of people employees of Tepco and Tepco‘s subcontractors, firefighters and healthcare teams
work under massive radiation. Tepco managers stayed outside the 20 km evacuation
zone. The employees working at Fukushima are mainly temporary staff.24 Many of
the workers now at Fukushima are untrained employees that are hired from
subcontractors or other intermediaries. Those workers don’t have an option, declining
to work at Fukushima would mean that they wouldn’t get another job anymore. They
do the dangerous work until their bodies reach a nuclear radiation level of 250
millisievert – the limit that shall be unproblematic healthwise. They get daily salaries of
about 120 to 190 USD.25 According to CSRwire26 radioactive water poured over two
workers‘ boots and burned their feet when they tried to lay new power cables at the
Fukushima site on 24 March 2011. Obviously, the Fukushima work force didn’t get
proper boots, nor waterproof hazmat suits. The injured workers were poorly paid day
workers working for subcontractors. Tepco admitted that putting on boots was not
required by the company’s safety manual. Workers were not informed that water was
radioactive. They were also sent into turbine rooms, although it was known that high
radioactivity prevails. Many of these temporary employees are between 20 and 30
years old and they face a lifetime of higher risk of cancer and bone diseases. The
promises from the Sustainability Report about putting the highest priority on safety of
staff appear cynical. Also opposed to the Sustainability Report’s statements, risk and
disaster prevention was not in place for a nuclear accident, there were not thousands
of employees ready for fighting against the disaster. Tepco had to ask for volunteers,
of which they only found a few and therefore hired temporary employees that were not
in a position to decline.
23
The Japan Times, 16 May 2011, The new enervated Tepco. Available from:
http://search.japantimes.co.jp/cgi-bin/eo20110516a1.html [accessed 16 May 2011]
24
Also under normal circumstances temporary workers are dominating the nuclear work force. In 2009
88% of the work force operating Japan’s nuclear reactors were temporary workers according to Japan’s
nuclear safety authority. In Fukushima 89% of persons employed were no regular employees. Source:
see next footnote
25
Fritz M., 29 April 2011, Ganz unten in Japan, Work, publication from UNIA, page 8
26
Rheannon, F., 21 April 2011, Safety and Sustainability Lacked a Voice at Fukushima, CSRwire.
Available from: http://www.csrwire.com/csrlive/commentary_detail/4191-Safety-and-SustainabilityLacked-a-Voice-at-Fukushima [accessed 1 July 2011]
11
There was no crisis management plan in place at all. The repair and restoration works
the employees had to carry out were based on a trial and error mechanism. Nobody,
neither the international community, had any idea nor plan how to proceed in such an
emergency situation.
The damage to the environment is huge. Persons, animals, sea, soil and air are
contaminated. Fishing was forbidden within a radius of 20 km of Fukushima.
Radioactive substances were found in the soil and ground water also outside the 20 km
evacuation zone. Plutonium was found in the soil of the evacuation zone. Plutonium is
very heavy and normally doesn‘t spread. It only spreads in context with fires and
explosions and if not protected, human beings can inhale it which is very dangerous.
Should plutonium get into the ocean, it can’t be excluded that it will get into the food
chain, which would mean a deadly danger for human beings.
The nuclear disaster gained worldwide attention and overshadowed the humanitarian
tragedy that was and is still lasting in the earthquake and tsunami regions. The
governor27 of the Fukushima prefecture declined to accept an apology from Tepco
president Shimizu: „In view of the sorrows, anger and desperation of the population in
Fukushima, there is no way to accept an apology“. As mentioned already, it had turned
out that Tepco failed to maintain Fukushima as required. In addition, the International
Atomic Energy Agency communicated in June 2011, that nuclear safety guidelines had
not been updated in Japan since 1992.28 It was planned to construct reactors 7 and 8
at the Fukushima Daiichi station from 2012 on. In May 2011, Tepco officially dismissed
these plans due to the opposition of the local population.29
Criticism regarding safety is increasing: Tepco operated overaged nuclear reactors,
neglected safety rules and manipulated reports for maximising its profits. Tepco argues
that a tsunami risk hadn‘t been ignored completely, but its potential extent had been
underestimated and therefore no adequate precaution measures were taken. The
damaged reactors were hit by a 14 meter high flood wave. This was more than double
than experts had considered as a worst case scenario. Tepco acknowledged that the
power plants were only supposed to withstand earthquakes with a magnitude of 8 to
8.3. The earthquake had damaged the pressure container of reactor 1, cooling water
27
Japan Today online, 29 March 2011, Tepco apologizes again and again. Available from:
www.japantoday.com/category/national/view/tepco-apologizes-again-and-again [accessed 30 April 2011]
28
Kolonko P., 21 June 2011, Wachsende Angst vor Energieengpässen in Japan, NZZ online. Available
from:http://www.nzz.ch/nachrichten/politik/international/wachsende_angst_vor_energieengpaessen_in_ja
pan_1.10994928.html [accessed 21 June 2011]
29
Wikipedia online, Kernkraftwerk Fukushima-Daiichi. Available from:
http://de.wikipedia.org/wiki/Kernkraftwerk_Fukushima-Daiichi [accessed 18 July 2011]
12
escaped. Only 5 hours later a nuclear meltdown begun. 30 The tsunami had ruined the
diesel back-up generators that operate the cooling system. Even if the tsunami impact
had been foreseen and the back-up generators had continued working, it is
questionable if a nuclear meltdown could have been prevented through a functioning
cooling system.
To the general assembly of Tepco on 29 June 2011 a record number of persons
attended and expressed their furiousness about Tepco’s management. It took 6 hours
as opposed to 3 in past times. The management apologized for the devastating
nuclear accident, but was not able to calm down outraged participants. Angry
shareholders complained about the share price decrease by 85% since 11 March
2011 and demanded to abolish nuclear power production (see Annex „11.7 Tepco’s
Share Price“). Tepco bonds outstanding in the amount of 90 bn USD are considered
as junk. Many Japanese had invested in Tepco stock for their retirement pension. The
new CEO of Tepco, Toshio Nishizawa, stated that first priority be to regain control of
Fukushima Daiichi, second priority payments to the evacuation victims. For the
indemnification of these victims state aid is needed. Although government and Tepco
were emphasizing that Tepco shall not be nationalised, it was clear that financial
consequences of the nuclear accident will overburden TECPO’s capabilities. Neither
could Toshio Nishizawa give any indication when the Tepco crisis will be overcome.
FY 2010, ended in March 2011, shows a loss of 1‘258 bn Yen (15.7 bn USD).
Additional costs for clean-up, construction of new power plants and indemnification
payments will accrue in unknown amounts. In order to compensate the shortfall of
supply, it has to invest 1 bn USD per month in alternative energy production.31
Economic viability is questionable: Tepco faces a potential damages bill exceeding
its profits from nuclear power generation since 1970, the year it opened the Fukushima
Daiichi reactor 1according to a recent study by K. Oshima32. He estimates that Tepco
earned in that time about 4 trillion Yen (50 bn USD), which is possibly equal to or less
than the amount it must pay farmers, fishermen, evacuees and others affected by the
nuclear crisis. Some financial institutions estimate the damages that Tepco needs to
30
Prudent, R., 26 May 2011, Fukushima is an information disaster, 26 May 2011, Green Financials.
Available from: http://green.finanztreff.de/green/
news_news.htn?u=5610268&sektion=kommentare&id=33128614&r=0 [accessed 29 June 2011]
31
NZZ online, 29 June 2011, Instabiler Zustand von Tepco. Available from: http://www.nzz.ch/
finanzen/nachrichten/instabiler_zustand_von_tepco_1.11095219.html [accessed 1 July 2011]
32
Japan Times online, 28 June 2011, 38 years of nuke profits up in smoke? Article quoting a study from
Kenichi Oshima from Ritsumeikan University. Available from: http://search.japantimes.co.jp/cgibin/nn20110628x2.html [accessed 28 June 2011]
13
pay to 8 to 11 trillion Yen.
Other Japanese electricity producers and distributors are angry, too, as well as their
shareholders, they have to support Tepco by participating in a Nuclear Damage
Compensation Scheme 33.
Tepco‘s employees agreed to a management proposal to cut their pay as a sense of
responsibility for the world's worst nuclear disaster. Annual remuneration for board
members will be reduced by 50 percent since April 2011, while payment for managers
will be cut by 25 percent and workers by 20 percent both since July 2011 and bonuses
since June 2011. The company expects to save about 54 bn Yen (659 million USD)
per year from the pay cuts.34
4. CSR and Risk Management
Risk in statistical, quantifiable terms is defined as „impact of risk event“ * „probability of
occurrence“. Risk Management is identification, evaluation and quantification of a risk
as well as the implementation of risk handling options: avoid, reduce, transfer or
finance and assume the risk. A risk can only be avoided by not performing an activity
that carries that risk. Reducing a risk can be achieved by decreasing the severity or
the likelihood of occurrence with prevention safety measures. Risk can be transferred
by sharing or insuring with another party. A risk can also be accepted and budgeted for
it.
Various speakers at the modules of the CAS in CSR 2011 at the University of Geneva
stated that CSR is Risk Management, or CSR is part of risk management or the other
way round. Kytle/Ruggie35 wrote „Risk management by global companies should be
adapted to include CSR programs. CSR provides the framework and principles for
stakeholder engagement, supplies a wealth of intelligence on emerging and current
social issues/groups to support the corporate risk agenda, and ultimately serves as a
countermeasure for social risk.“
Although the study focuses on social risk in addition to traditional economic, political
and technological risks, the word „social“ could be interpreted in the same manner as in
33
Kolonko P., 21 June 2011, Wachsende Angst vor Energieengpässen in Japan, NZZ online. Available
from: http://www.nzz.ch/nachrichten/politik/international/
wachsende_angst_vor_energieengpaessen_in_japan_1.10994928.html [accessed 21 June 2011]
34
Wikipedia online, Tepco. Available from: http://en.wikipedia.org/wiki/Tokyo_Electric_Power_Company
[accessed 21 July 2011]
35
Kytle, Beth and John Gerard Ruggie, 2005, Corporate Social Responsibility as Risk Management: A
Model for Multinationals. Corporate Social Responsibility Initiative Working Paper No. 10. John F.
Kennedy School of Government, Harvard University. Available from: http://www.hks.harvard.edu/mrcbg/CSRI/publications/workingpaper_10_kytle_ruggie.pdf [accessed 31 May 2011]
14
the CSR definition, standing for economic, environmental and social36. CSR and Risk
Management care about the exactly same basic thing: making sure that risks are
identified, analysed and optimally handled. Kytle/Ruggie further state „The linkage to
CSR of core business processes can improve a company’s overall approach to risk
management by improving strategic intelligence and knowledge of social issues /
groups. This allows a company to not only design better risk management for current
issues but also help anticipate those coming down the pike.“
R. Adamson37 puts it the other way round: „Risk management is increasingly becoming
a key element of good corporate governance. Some corporations have developed
sophisticated and institutionalized ways to ensure that risk is identified and analysed .“
Godfrey, Merrill and Hansen38 put CSR in context with creating moral capital. In
addition, they propose that the resultant moral capital may have little to do with
generating economic value, but plays a substantial role in preserving economic value.
Thus, CSR investments can create value for their shareholders through the creation of
insurance-like protection in the face of certain types of negative events. „Developing
methods to uncover and understand the actual attribution processes stakeholders use
to assess penalties, would facilitate to understand the insurance effects observed in
this study.“
4.1 CSR as Insurance-like Protection
Crisis management and disaster prevention are a core of risk management and CSR.
It starts well before disaster strikes, not just in the sense that risks are identified,
evaluated and mitigated, response plans put in place and actions tested. If the
corporation has a history of acting in a socially responsible way – caring for people and
communities around their sites and those of their supply chain partners – they not only
have a better chance of bouncing back from disaster quickly, they will likely suffer less
reputational damage during and after the incident. A study from Oxford Metrica39
36
M. Hopkins, Module 1, CAS in CSR 2011, University of Geneva
Adamson, R., 22 March 2011, Corporate Governance and Risk Management blog, SFU Business,
Simon Fraser University, Canada. Available from: http://business.sfu.ca/corporate-governanceblog/2011/03/corporate-governance-risk-management-and-corporate-social-responsibility-in-emergingmarkets-a-symbiotic-relationship/ [accessed 31 May 2011]
38
Godfrey/Merrill/Hansen, 2009, The Relationship between Corporate Social Responsibility and
Shareholder Value: An Empirical Test of the Risk Management Hypothesis, Strategic Management
JournalStrat. Mgmt. J., 30: 425–445, Wiley InterScience. Available from:
http://www.unpri.org/files/Article1_GF.pdf [accessed 16 May 2011]
39
Knight, R.F. and Pretty, D.J., 29 September 2005, Protecting Value in the Face of Mass Casualty
Events, Oxford Metrica. Available from:
http://www.kenyoninternational.com/useful_info/Oxford%20Metrica,Protecting%20Value%20in%20the%2
0Face%20of%20Mass%20Fatalities.pdf [accessed 8 June 2011]
37
15
looked at publically traded stock valuations for ‘winning’ and ‘losing’ companies after
catastrophic man-made and natural events. Their research shows that when you are
able to react to business-interrupting crises with the assurance that you have
consistently prioritized people, you can preserve your stock market value by reacting in
a way that is transparent, truthful, and caring. If the company has been helping local
schools, investing in area infrastructure, or holding health events for the community, for
instance, stakeholders are likely to assume that they did all they could to protect the
community from disaster and that their response will be driven by genuine concern.
This allows the CEO to stand in front of the media and the community after a disaster
and say with sincerity that the company cares about the community and is truly doing
all it can to help.40
Although Tepco issued a good Sustainability Report and made the impression to care
about its stakeholders, all of them are angry. Tepco’s apologies are not accepted by
the population, the communities, the prefectures, the shareholders. Because Tepco
failed to implement what they promised, Tepco’s CSR activities did not lead to
improved risk management procedures as suggested by academic research. Tepco’s
president did not stand in front of media and community after the accident happened.
Nor was any crisis plan for a nuclear meltdown scenario in place. An insurance-like
protection thanks to CSR is neither observable in Tepco’s share price development nor
in the reactions of its stakeholders.
4.2 The Insurability of Risks, Market Failure, Government Failure
Insurance is a risk transfer measure and has a sustainability function. It protects
against the downside and helps to restore and sustain a situation after a loss or
damage by compensating the monetary value of the damage. Insurance companies
may ask to implement risk reduction measures or business continuity plans before
insuring, and they usually don’t insure all of the value but have the insured participate
with a deductible in order to avoid moral hazard. The better the Law of Large Numbers
can be applied to a risk distribution, the more certainty about the expected value can be
achieved, the easier and efficient is the insurance for both parties, the insured and the
insurer. Risks from nuclear power generation inherit fundamental insecurities: there is
a very low probability that the production of nuclear power will lead to an extremely
large damage. Neither the probability nor the amount of potential damage can be
40
Blades, M.,10 Feb 2011, How Social Responsibility Improves Crisis Management, Security Magazine
online. Available from: http://www.securitymagazine.com/articles/81774-how-social-responsibilityimproves-crisis-management [accessed 8 June 2011]
16
reasonably calculated. The occurrence can be man-made (as opposed to a natural
catastrophy like earthquake and tsunami). There are relatively few observations of
different reactor type incidents, therefore the Law of Large Numbers is not applicable
for nuclear power accidents. For these reasons, nuclear risks are hardly insurable by
the private sector. If financial protection through insurance cannot be obtained,
physical protection is the only option. But prevention from risks with a low occurrence
probability may be considered too expensive for society, or the risks are simply
unknown. The possibility that safety systems do not work as expected, or that workers
make mistakes, adds to the uncertainty. Therefore, a 100% nuclear risk protection is
not possible. Apart from the risks of nuclear power production, risks inherent to
extraction, transport, reprocessing and disposal of nuclear material shouldn’t be
neglected.41
The fact that potential nuclear damage cannot be insured in its full extent indicates that
there is a market failure. The market fails to provide high enough insurance
coverages because potential damage is too high. Therefore, the state steps in either
by providing nuclear damage insurance or indemnifying the uninsured damages that
typically overburden a nuclear power generator.42 If a risk cannot be reasonably
insured nor fully reduced or prevented, it can only be avoided or assumed. In this
context, CSR as an insurance-like protection gains very high importance and potential.
One could also argue it is not the market that fails, but the risk fails to qualify for a
market – because it is too big, not manageable nor controllable; a risk not suitable for
a society that values sustainability in social, environmental and economic terms. The
government is responsible for its citizens, it might have been accurate to avoid the risks
of nuclear power and the potential pains, damages and costs borne by the society. But
the government allowed Tepco to assume nuclear risks without appropriately preparing
and budgeting for it. Therefore, one could also argue that there is a government
failure. The government of Japan failed to protect its citizens from the huge risks
arising out of allowing nuclear power plants to be built in seismic active regions, and by
prioritizing the economic benefits of stable and cheap electricity supply to the risk of
devastating whole areas ecologically, socially and economically. The relatively cheap
41
Schwegler R., 6 April 2011, The Nuclear Industry: Fukushima or the End of a Renaissance, Inrate.
Available from: http://www.inrate.com/getattachment/Site/News-Events/News/The-Nuclear-industry--Fukushima-or-the-end-of-a-R/11-04-06-InrateNuclearEnergyRisks_EN.pdf.aspx [accessed 15 May 2011]
42
Even by selling its assets and cutting executive and employee remuneration, Tepco would not be able
to pay all compensation claims resulting from the Fukushima plant accidents. Apart from the emotional
and intangible pains, also the eventual financial burden will be borne by people in the form of taxes and
higher electricity rates.
17
nuclear electricity prices stem from the fact that not all costs and risks are priced in, that
nuclear power production is strongly subsidised and external costs are not internalized.
Only after the accident had happened, the government and Tepco worked out plans to
pay compensation to victims of the crisis. There was no plan beforehand that would
have shown potential costs of such an accident, and that would have allowed to budget
for it in some way. The externalisation of the true costs of nuclear power supply,
caused and supported by the government, leads to market distortion and failure,
nuclear power appears cheaper than it is, thus, resources are not optimally allocated.
5. Who’s Responsibility?
Apart from Tepco itself and the government, also General Electric (GE), the maker of
the Fukshima reactor 1, carries potential responsibility. However, GE’s liability in Japan
is limited as Japan’s regulatory system places most liability on the plant operator – in
this case Tepco. “In principle, nuclear operators are solely responsible for all of
compensation for damages caused by their nuclear facilities (§ 3.1 of the Nuclear
Damage Compensation Law). However, this clause should not be applicable to cases
caused by extraordinary massive natural disaster or social upheaval (Proviso to §
3.1)”.43
Most probably there were contracts in place between Tepco and GE that hold GE liable
towards Tepco for some amount and time during the originally foreseen lifetime of the
reactor. It would be interesting to know, if and how GE reacted to the extension of the
40 year old reactor by 10 years.
In theory, because failures of corporate governance and risk management can have
impacts that reach far beyond the company itself and lead to systemic harm for national
economies, or even the global economy, policy-makers have taken a strong interest in
passing rules and regulations that ensure that companies adopt good corporate
governance and risk management practices. Governments increasingly do not want to
take the chance on allowing firms to voluntarily adopt good corporate governance
practices and policies. Governments are creating new regulatory frameworks to ensure
companies improve their corporate governance. 44 Although Japan put new regulatory
43
Tepco FY 2010 Year-end Earnings Results (April 1, 2010 – March 31, 2011), dated 20 May 2011, p.
42. Available from: http://www.tepco.co.jp/en/corpinfo/ir/tool/presen/pdf/110520-e.pdf [accessed 29 June
2011]
44
Godfrey/Merrill/Hansen, 2009, The Relationship between Corporate Social Responsibility and
Shareholder Value: An Empirical Test of the Risk Management Hypothesis, Strategic Management
JournalStrat. Mgmt. J., 30: 425–445 (2009), Wiley InterScience. Available from:
http://www.unpri.org/files/Article1_GF.pdf [accessed 16 May 2011]
18
frameworks in place, eg by creating NISA in 2001 as supervisory body, it was not able
to enforce the implementation of strong corporate governance and risk management
procedures to Tepco. The government of Japan rather has to review its own
governance, risk management, control and supervisory procedures and functions.
From the beginning of the crisis, Tepco has insisted that the cause of the nuclear
meltdown was a natural catastrophy, the unprecedented, unforeseeable tsunami which
knocked out the electric power systems to cool the reactor. But there is increasing
evidence suggesting the cause of the meltdown was the earthquake itself and that the
meltdown begun before the tsunami arrived. As for the tsunami being “unforeseeable”,
this claim seems to be dubious from somebody living in the land from which the word
„tsunami“ comes from. Later, Tepco stated that it had underestimated the tsunami risk.
6. Government’s Social Responsibility and Implementation
As the state of Japan had promoted and advocated the use of nuclear energy, it is
responsible and accountable for the nuclear crisis. Apart from the fact that the impacts
of a nuclear accident can’t be handled without state aid. With regard to earthquake and
tsunami, Japan had sophisticated warning systems distributed on the sea45. These
warning systems had worked on 11 March 2011, however, due to the closeness of the
earthquake to Japan there was nearly no time to react. The prepared infrastructure
probably saved many people’s lives: gas valves were closed and high speed trains
were stopped automatically, traffic lights at the entrance of bridges turned red. The
nuclear power plants at Fukushima shut down automatically.
Nonetheless, also the government admitted that it had not been prepared for this
extreme event. This was noticeable in the confusing and hesitant information policy
and evacuation instructions. After the earthquake and tsunami event, prime minister
Naoto Kan declared a nuclear emergency state and at the same time calmed Japan’s
population down that no nuclear radiation was being emitted. Still the same day Naoto
Kan asked the population around 3 km to leave their homes and move to a safe place.
The next day, 12 March, residents within 10 km radius are evacuated. In the evening,
an evacuation zone of 20 km around Fukushima Daiichi and 10 km around Fukushima
Daini was declared. In April 243‘000 persons lived in emergency accomodations, first
no water or food was availabe. Greenpeace also measured radiation around
45
In 1896 an earthquake at the same location as the one from 11 March 2011 occurred and triggered the
biggest tsunami in Japan’s known history. The height of the 1896 tsunami reached 38.2 m, the highest
ever in Japan, approx. 20‘000 persons died. Source: Wikpedia
19
Fukushima and confirmed the values that the Japanese government had published.
Notwithstanding, Greenpeace requested an evacuation zone of 40 kms in order to
protect the population better, especially children and pregnant women. Greenpeace
critised the government: it fails to protect the population, doesn’t move the inhabitants
to a safe place and does not inform adequately. Government discussed to extend the
evacuation zone to 30 kms, but then didn’t. End of March also the International Atomic
Energy Agency recommended to extend the evacuation zone, Iitate – a small city 40
kms away from Fukushima - showed very high radiation values. On 22 April, the
government designated to evacuate Iitate. Middle of May first residents left, a typical
statement from a resident: „It sounds strange that the government first said we have
nothing to worry about but suddenly told us to leave".46
When NISA increased the severity level of the Fukushima Daiichi nuclear plant
accident from 5 to 7 on the International Nuclear and Radiological Event Scale, the
worst level of the scale due to the release of massive amounts of radioactive
substances, Yukio Edano, Japan’s Chief Cabinet Secretary, explained the reason for
the increase and stated at the same time that the situation has not worsened. When it
was noted that radiation limits were exeeding standard thresholds also outside the 20
km evacuation zone, the government increased the permissible values. Yukio Edano
communicated that there is no other option than drain tons of radioactive water from
the reactor buildings into the ocean – but, there is no danger for human health or
environment. Fishermen cooperatives started demonstrating.
Further it turned out that the Nuclear Safety Commission of Japan (NSC) had simulated
the radioctive contamination that was to expect from the Fukushima accident since 11
March 2011. In order to avoid panic, it agreed with the government to withhold that
information from the public. This information was published on NSC’s website on 2
May 2011, after Toshiso Kosako, a special scientific advisor to the Cabinet, resigned in
protest about the national crisis management. According to his resignation statement,
Kosako was confronted with a lack of government openness, poor cooperation with
international organizations, and an ad hoc decision making process that he argues has
put political and administrative convenience before public health.47 Of greatest concern
he found the ad hoc decision to permit 20 millisieverts of radiation exposure to
Fukushima school children. He argues that 20 millisieverts is at the extreme high range
46
The Japan Times online, 15 May 2011, Iitate start evacuations. Available from:
http://search.japantimes.co.jp/cgi-bin/nn20110515x2.html [accessed 8 June 2011]
47
The Asia Pacific Journal online, 1 May 2011, 20 Millisieverts for Children and Kosako Toshiso’s
resignation. Available from: http://japanfocus.org/events/view/83 [accessed 1 June 2011]
20
for short-term exposures in emergency situations, not suitable for daily life and
especially not to children. Kosako uses the term Government Irresponsibility.
Governments are socially responsible for their societies and citizens, but loyalty of
citizens towards their government is not unlimited, even in Japan. The population is
concerned about being adequately informed. Not much information has been given
about number and severity of radioactively contaminated persons or about treatments
in hospitals. Japan’s society mistrusts information about contamination of water, soil
and animals, about the food chain in general. The lack of transparency might have
avoided panic, but the resistance and distrust of the Japanese population not only
towards Tepco, but also towards its government, its institutions and officials, have
strongly increased.
7. Liabilities and Losses: Who Pays
The earthquake and tsunami damage in the Northeastern region of Japan will be the
biggest that a natural catastrophe has ever caused. More than 23‘000 persons lost
their lives, cities and villages were completely destroyed. 50‘000 households were
evacuated. Farmers and fishermen lost their business basis, companies lose sales
due to the fear that their products could be contaminated with radioactivity. Whole
industries interrupted or run short of production, delivery problems affect international
supply chains. Estimates of the monetary damage reach from 150 to 300 bn USD, the
World Bank estimates 235 bn USD.48 Those estimates don’t include the costs of the
nuclear meltdown and its long-term effects on the region. As per end of June 2011,
Japanese nonlife insurers have paid 847 bn Yen (= 10.4 bn USD) related to the 11
March 2011 earthquake and tsunami. Life insurance claims amount to 1.18 bn Yen so
far49.
While the deadliest earthquakes typically occur in emerging market countries due to
missing safety measures, the costliest earthquakes in terms of insured losses occur
much more often in industrialized regions. The Kobe earthquake (Japan 1995) took
6‘425 person‘s lives, total monetary damage calculated to 100 bn USD, of which 3‘5 bn
48
Nakamura D., 22 March 2011, Worldbank estimates Japan Damage up to 235 bn USD, The
Washington Post online. Available from: http://www.washingtonpost.com/wpdyn/content/article/2011/03/21/AR2011032100108.html [accessed 7 June 2011]
49
Am Best Week Japan online, 7 June 2011, Japan Nonlife Insurers Settle Quake Claims. Available
from: http://viewer.zmags.com/publication /b914f279 [accessed 7 June 2011]
21
USD were covered by insurance policies.50 According to estimates, the earthquake
and tsunami of this year will cost insurance markets ten times more than Kobe. Thus,
insurance payments cover only a small part of the total damages. Many households
haven’t been insured due to the high earthquake insurance rates.51 The main source
for compensation of the earthquake and tsunami losses will be the government.
The same is the case with regard to nuclear damages. By Japanese law, nuclear
power plant operators are required to cover third-party damages up to 120 bn Yen (1.5
bn USD) and to provide financial security or insurance in this amount per station.
Hence, the Fukushima Daiichi station was covered by private and government
insurance in this amount. These proceeds will be used to compensate the 50‘000
evacuated households. Each evacuated household will receive 1 Mio Yen (12‘500
USD) as compensation. Total estimated compensations for evacuation victims
therefore amount to 50 bn Yen (625 Mio USD). But there will be much more
indemnification payments necessary for radiation victims, healthcare, restoration of
contaminated areas or for lost sales or property due to contamination. The Japanese
government has estimated nuclear damage compensation to businesses and
individuals to be USD 17.5 bn.52 This number might be too small as civil claims could
proliferate. Tepco asked seven Japanese big banks to provide it with loans for clean
up works, repairs and compensation claims. Tepco was provided with credits in the
amount of 2 trillion Yen (25 bn USD) beginning of April. Those banks want an upper
limit for Tepco’s liabilities.53 So far it looks as if Tepco’s liability will not be capped,
neither will there be a limit to the amount of public financial support. In the face of still
disseminating radioactivity, huge debts and increasing costs, Tepco’s funds – including
the 25 bn USD emergency loan from Japan’s big banks – will soon be depleted.
The government set up a new state-backed institution to expedite payments to those
affected. The body is to receive financial contributions from nuclear power plant
operators in Japan, and from the government through special bonds that can be
cashed whenever necessary. The government bonds total 5 trillion Yen (62 bn USD).
The new institution will include representatives from other nuclear generators and will
also operate as an insurer for the industry, being responsible to have plans in place for
50
Swiss Re Sigma No. 1/2011, Natural Catastrophes and Man-Made Disasters in 2010: A year of
devastating and costly events. Available from:
http://media.swissre.com/documents/sigma1_2011_en.pdf [accessed 2 July 2011]
51
Lüscher/Kowalsky, 25 March–7 April 2011, Viel Leid, wenig Folgen, BILANZ, 6/2011, p. 37
52
Earth track, 30 March 2011, Nuclear liability by the numbers. Available from:
http://www.earthtrack.net/blog/nuclear-liability-numbers [accessed 14 July 2011]
53
Neue Zürcher Zeitung, 29 April 2011, „Ringen um eine Haftungslimite“, page 27
22
any future nuclear accidents. Plans are that the organisation will be backed by public
money and mandatory contributions from the industry. This institution will inject funds
into Tepco. No details are provided on how much taxpayer money would go to the
fund. The institution will also guarantee bank lending to Tepco. 54 For its part, Tepco is
expected to adopt drastic restructuring measures – including salary cuts, a recruitment
freeze and asset sales – which will be overseen by a special government committee,
which will “for a certain period of time” have control of management of Tepco. Such
measures have been announced by Tepco. Tepco will repay the organisation a set
proportion of its profits over a period expected to be more than a decade55.
Please see „Annex 11.8 Nuclear liabilities in other countries“ for the situation in other
countries.
8. Developments in other Countries
Currently 30 countries operate 212 nuclear power plants with 442 reactor blocks. 56
Due to the expensive and lengthy process of constructing a new nuclear power plant,
operating life times of existing ones are being extended – like in the case of the
meltdown Fukushima reactor 1 - although originally their decommissioning had been
estimated to happen after 40 years of operations. USA has extended the licenses of
several 40 year old power plants by 20 years. Same process had started in Europe.
However, old reactors can only partially be upgraded security-wise. For a better
earthquake security a much stronger foundation would be necessary, but foundations
can’t be up-graded.
The extreme event at Fukushima prompted stress tests of nuclear plants around the
world. In Switzerland, considerations about tsunami risk led to new investigations
about flood risk of rivers around nuclear power plants. This resulted in an immediate
shut-down of the 40 year old reactor in Mühleberg. More flood risks are being detected
that could lead to pumping and cooling process failures. At an international press
conference at the OECD in Paris, Switzerland requested an international supervisory
body for nuclear power plant security that has binding and execution power. Nonbinding recommendations and voluntary standards are not enough. Nuclear power
54
Tepco FY 2010 Year-end Earnings Results (April 1, 2010 – March 31, 2011), dated 20 May 2011,
Nuclear Damages Compensation Schemes, p. 44+45. Available from:
http://www.tepco.co.jp/en/corpinfo/ir/tool/presen/pdf/110520-e.pdf [accessed 29 June 2011]
55
Nakamoto, M., 13 May 2011, Japan banks face Tepco plan pressure, Financial Times online.
Available from: http://www.ft.com/cms/s/0/e7e3d33e-7d13-11e0-a7c700144feabdc0.html#axzz1RooHYTmt [accessed 2 June 2011]
56
Schwegler R., Inrate. See footnote 41.
23
production needs to become safer. Prevention shall be improved, safety and
evacuation concepts shall be established.57 Also the European Union (EU) distances
itself from voluntarism, binding safety standards and goals for decreasing energy
consumption are necessary. 58 In 2007 the EU-countries had already decided to
reduce energy consumption by 20% until 2020 compared to the level in 2005, but this
goal was never binding.59 Upon the events in Fukushima, Switzerland and Germany
decided to exit nuclear power production stepwise, they now consider nuclear power as
not controllable. However, energy companies are threatening with claims asking for
huge amounts of indemnifications. They consider a politically forced shut down of their
nuclear plants as an expropriation.60
In many countries the population has either claimed a new evaluation of nuclear power
and a reduction of risks or a complete drawback of the involvement in nuclear energy.
Safety standards will be improved, liability limits will be increased as existing liability
limits in many countries currently only cover a small part of the costs in case of a
nuclear disaster61. See Annex „11.8 Nuclear liabilities in other countries“. Liability
limits will need to be covered by guarantors, insurance and mutual pools. All this will
make nuclear power production more expensive. The author doesn’t think that the
Fukushima disaster will have effects on the booming nuclear industry in Asia, nor in the
US. China alone plans to build 60 additional nuclear reactors over the coming years.
In most countries, energy companies and governments have strongly aligned interests
and are not interested in avoiding the externalization of nuclear power production costs.
9. Lessons Learnt and Conclusion
There is no 100% safety. Fukushima challenges the whole existing safety theory of
nuclear reactors. Several reactors failed in a way nobody would have foreseen, and
nobody knew how to react to it. Current models and safety standards of nuclear
reactors as well as crisis prevention plans must be based on wrong or incomplete
fundamentals. This refers to all nuclear reactors in the world.
57
NZZ online, 8 June 2011, Aussteiger bleiben Aussenseiter. Available from:
http://www.nzz.ch/nachrichten/wirtschaft/aktuell/aussteiger_bleiben_aussenseiter_1.10852485.html
[accessed 8 June 2011]
58
G. Oettinger, EU commissary, see next footnote
59
NZZ online, 22 June 2011, Brüssel ruft zum Energiesparen auf. Available from:
http://www.nzz.ch/nachrichten/politik/international/bruessel_ruft_zum_energiesparen_auf_1.11017143.ht
ml [accessed 22 June 2011]
60
See footnote 57, NZZ online, 8 June 2011
61
Schwegler R., Inrate. See footnote 41.
24
In Fukushima, radioactive substances continue to stream out into the sea, air and soil.
It is unclear, when the nuclear meltdown will be stopped. It is unknown, if and when
residents around Fukushima can return, and when workers can stop doing their job in
contaminated areas. A normalisation of the situation is nowhere in sight.
The nuclear meltdown can be considered as man-made. Safety rules had been
violated, existing serious risks had been ignored. Fukushima Daiichi reactor 1 should
have been decommissioned beginning of 2011, but it was not. Government, as the
ultimate regulatory authority, is co-responsible.
Tepco lost its face. It lost the trust from all of its stakeholders. In whatever form it
survives, Tepco will need to thoroughly reconsider and re-implement its corporate
ethics and transparency guidelines, its vision and definition of sustainable growth, its
CSR and risk management implementations. So does the government of Japan.
Transparency would be extremely important for regaining some trust from society and
other stakeholders.
CSR is risk management, it broadens traditional risk management by including social
risks. Several studies have shown the insurance-like effect of CSR activities, CSR
helps to minimize losses and liabilites – if applied sincerely. This was not the case with
Tepco, it failed to implement what it promised within its CSR framework. Missing GRI
Labor & Decent Work aspects and performance indicators may be seen as an indicator
for CSR performance. Lack of good records indicate that the company is as negligent
towards safety and its environment as with its employees and contracted workers.
The insurance-like effect of CSR activities becomes especially important, when
adequate insurance coverage is not obtainable. Nevertheless, if a risk leads to
potentially huge damages and is not 100% controllable, its avoidance should be
considered. This would be the task of the government as representative of its
population. In particular, nuclear power generation should not be promoted and
subsidised by government (which is the case in probably all countries), it leads to
externalisation of costs and to market distortions, resources are not optimally allocated,
nuclear power production appears too cheap. This could be prevented in the future by
adequate regulations that show the true costs of carrying that risk; new laws and threat
of punishment should be introduced that oblige nuclear plant operators, independent
authorities, regulators and appraisers to unconditional transparency regarding risk
management, adherence to safety standards, controls and inspections; liability,
responsibility and accountability limits should be increased, clarified and priced. This
25
might be the way to solve the interest conflict between nuclear safety and economic
interests.
There seemed to be an implicit agreement between civil society and the nuclear
industry: for a safe and stable power supply the risk of nuclear contamination is
accepted. That has changed now. Although the probability of a nuclear accident is
low, nuclear accidents occur again and again. The only way to be 100% safe from
nuclear damage is to avoid its risks, to avoid operating nuclear power plants. This is
what civil societies are realising now. Even when all nuclear reactors will be shutdown, some of the created risks will persist beyond next generations - the threats in
connection with disposal and storage of nuclear fuel rods.
The sources of extreme and unprobable events – Black Swans – have multiplied.
But we systematically underestimate their potential impacts.62
62
Taleb, N.N., 2007 (2010), German Version, p. 86
26
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30
11.
Annexes
11.1 Nuclear Power Plants and Earthquake Regions
Distributions of nuclear power plants (black circle) and large shallow earthquakes in the past 100
years (red circle) are shown on the same map
Source: Kiyoo Mogi, University of Japan, in Earth Planets Space, 56, li–lxvi, 2004, „Two grave issues
concerning the expected Tokai Earthquake“
http://www.terrapub.co.jp/journals/EPS/pdf/2004/5608/5608li.pdf [accessed 13 June 2011]
31
11.2 Nuclear power plants in Japan
Source: http://www.oecd-nea.org/press/2011/images/NPP_Japan_map2011.png [accessed 13 June
2011]
Tepco’s plants are Higashidoori, Fukushima Daiichi, Fukushima Daini and
Kashiwazaki-Kariwa.
32
11.3 Tepco’s Nuclear Power Plants
Source: Tepco Sustainability Report, p. 68
11.4 Tepcos CSR Framework and Stakeholders
Tepco's Corporate Governance and CSR63
Management Policy No.1
Value social trust
Our corporate activities are founded on earning trust from society
We have a social mission to deliver stable supplies of electricity. Based on this
awareness, we will make ongoing efforts to enhance the quality of services that meet
customer satisfaction.
By reinforcing the awareness of prioritizing safety, we aim to join the ranks of the
world's safest companies.
We will engage in frequent dialogue with stakeholders, including customers, local
communities, shareholders and investors, business partners, and employees.
63
http://www.tepco.co.jp/en/challenge/csr/c_g/index-e.html [accessed May to July 2011]
33
As a members of society, we will adhere to the Tepco Group Charter of Corporate
Conduct in all aspects of our activities.
Stakeholders of the Tepco Group
Customers as stakeholders shall receive enhanced customer services, Tepco
undertakes satisfaction surveys. Tepco ensures a comfortable life style based on
electricity. Environmental communication shall raise awareness regarding ecoconscious behaviour and how the individual customer can save energy in general.
Tepco has established a Nature School that organises nature observation events or
tours into the abundant green and biodiverse areas around Tepco’s power plants, thus
supporting environment and energy education. Local communities support activities
by Tepco and Tepco supports local communities by promoting local safety (eg safe
usage of electricity but also prevention of traffic accidents). Tepco provides education
on food, organizes science awards, supports trainings for nurses, helps handicapped
persons, they teach about radiation in their Nuclear Fuel Eco Schools to local residents
and engage in local beautification and clean-up activities.
Tepco places high value on mutual communication with shareholders and investors.
Apart from reports and publications shareholders and investors are invited to meetings
and to tours. By providing technologies and fostering human resources in the electricity
sector, Tepco helps building efficient power infrastructure for the international
34
community. Tepco participates in various partnerships that tackle the global-scale
greenhouse gas reduction. In interaction with business partners Tepco wants to
promote CSR in procurement. Supplier relations are fostered by seminars where green
procurement strategies or waste and recycling topics are discussed. Tepco has
established human rights education committees and a Human Rights Association of
Power Suppliers. Tepco has very strong and good relations with its employees.
Tepco’s Labor-Management committee holds regular meetings with Tepcos‘ labor
union in order to discuss working hours and safety issues. Tepco puts top priority on
safety of its employees. Employees are actively supported with education and training
schemes. Tepoc promotes awareness regarding harassments, it provides health
services to its employees, it empowers female employees (approx. 12% of Tepco’s
entire workforce), it promotes a good work-life balance and supports maternity and
child raising.
11.5 Nuclear Emergency Declaration by the Prime Minister and His Cabinet
Declaration of Nuclear Emergency
Friday, March 11 at 7:03pm, 2011
At 16:36 on March 11, 2011, an event falling under the provisions of Article 15,
paragraph (1), item (ii) of the Act on Special Measures Concerning Nuclear Emergency
Preparedness occurred at Tokyo Electric Power Company’s (Tepco’s) Fukushima
Daiichi nuclear power station. Having affirmed the need to implement emergency
measures to prevent any possible expansion of nuclear hazards, on the basis of the
provisions of this article, nuclear emergency is hereby declared.
Note: At present, no impacts from radioactive materials upon the area outside of the
facilities have been confirmed. Consequently, at the current time, residents of the area
targeted under this declaration and other persons in the area do not need to take any
special actions immediately. Persons affected are asked not to begin evacuation
hurriedly but rather to be on standby in their homes or current locations and access the
latest information via emergency public broadcasting services on wireless radio, TV,
the radio, and so on. Once again, radioactivity is not in fact leaking out of any nuclear
facilities. The public is asked to remain calm and stay well-informed.
http://www.kantei.go.jp/foreign/topics/2011/20110311Nuclear_Emergency.pdf [accessed 11 May 2011]
35
11.6 Tepco Communication Examples after 11 March 2011
At the beginning Tepco communicated some problems in the reactor building only.
Then the cooling systems became a danger. Nobody had mentioned cooling systems
during the first days. When after explosions white smoke was escaping from 2
reactors, the public speculated about boiling water in the cooling basin and melting of
fuel rods. There was no official explanation from Tepco. On 15 March 2011, another
explosion happened in a reactor and a fire started in another reactor. Naoto Kan learnt
this apparently from the tv and was only later informed by Tepco. 4 days after the
earthquake the prime minister exploded verbally and urged Tepco’s manager to reveil
more timely information. This helped and Tepco provided lots of information, however,
not in a reliable way and doubts about competence arose. This started when more and
more failures came to light. For example that Tepco hesitated to sprinkle sea water
onto the reactors due to fears the reactors would become useless. With every
information or publication a new problem field arose that had not been mentioned
before. Then it was announced that connection to the power grid was necessary, and
again later, that before connecting, all electrical installations needed to be checked.
The cooling by sea water was celebrated, later on warnings appeared that salty water
was not good for the reactors and could lead to calefaction of the fuel rods. Cooling by
fresh water was announced before finding out that fresh water was not yet available.
Subsequently, radioactive contaminated water in 3 reactor buildings was detected,
followed by the realization that additional drains and sewer pipes also carried
contaminated water and led it directly into the ocean. If those would spill over they
would reach sea and ground water. There was a leak on a pipe which was tried to be
plugged with cement, but the trial failed as well as further appraised applications of
mixtured materials. In April, Tepco announced that nuclear radiation was millionfold
above the tolerable threshold at the ruined reactors, some hours later they corrected
themselves saying that there is contaminated water in the reactors, but radiation levels
were only some hundredthousandfold of the tolerable threshold. A measurement
mistake. Nevertheless, all works were stopped. Thus, how reliable are the already
announced values and information in general? How many mistakes happened
already? Beginning of April, Tepco communicated radiation in the ground water, but, it
was not clear how much. The government expressed its deep regret about Tepco’s
confusing and unclear communication. Middle of April, highly toxic plutonium was
found in the soil around Fukushima. Tepco communicated that the amounts found
were unproblematic for human health. The plutonium found came from damaged fuel
36
rods. Tepco assumed that a nuclear meltdown in reactor 2 had started, but in the
meantime stopped again… until today, the Japanese population and the rest of the
world don’t know, what is really going on, how severe the damages are and will be, and
what of Tepco’s communication can be believed to be true, correct and sincere.
11.7 Tepco Share Price
Source: Bloomberg [accessed 29 June 2011]
Tepco‘s share plummeted from the pre-accident price of around 2‘100 Yen to 190 Yen
on 10 June 2011. 3 days later, the government‘s support program and Tepco‘s road
map for bringing the Fukushima nuclear crisis under control were announced. This
brought the share price back to 325 Yen end of June 2011. The last time its shares
traded so low was in 1951 with 393 Yen. Further damage to the reactors or serious
radioactive leaks could make Tepco shares worthless.
600‘000 shareholders as well as many corporate pension funds have included Tepco
stock in their portfolios. Nearly 20 percent of its stock is held by non-Japanese
investors. According to the Japan Times, this has reportedly led the Obama
administration to urge the Kan government to take steps to prevent a further decline in
37
Tepco stock.64 Not only pension funds that have directly invested in Tepco are affected
by Tepco’s share price decline. As the biggest Japanese power provider Tepco is also
included in the Nikkei index, on which many investors are exposed.
Credit ratings worsened in line: Moody’s put Tepco’s Aa2 credit ratings „on watch
outlook negative“ on 14 March, then downgraded it to A1on 18 March, further to Baa1
on 31 March and to Baa2 on 16 May 2011. S&P also marked Tepco’s credit ratings
with „negative“ and downgraded on 18 March to A+, then to BB+ on 1 April, to BBB on
13 May and to B+ on 30 May.65 It is interesting to note that these two rating agencies
downgraded Tepco mostly at the same day. And it were not necessarily the same days
that triggered a decrease in share price: for example on 18 March the share price was
in a slight recovery phase. That means that other information must have influenced
share price much more than rating downgrades. So announced the IAEA that the
further developments at Fukushima overnight made the „situation reasonably stable“.
Tepco wrote in a press release that the assessment of INES (International Nuclear and
Radiological Event Scale) on the incident at Unit 1, 2, and 3 of Fukushima Daiichi
Nuclear Power Station Earthquake resulted in "Level 5".66
Should Tepco go bankrupt, not only Japanese financial markets would be thrown into
chaos. Tepco’s interest bearing liabilities including bonds amounted to 7.3 trillion Yen
(87.5 bn USD), before receiving the loans of 2 trillion Yen (25 bn USD).
11.8 Nuclear Liabilities in Other Countries
The damages of a nuclear worst case scenario in Germany as calculated by the
Prognos Institute in 1992 by order of the Federal Ministry of Economics, could amount
to approx. 5‘000 bn EUR. As a comparison, Germany’s GDP in 2010 amounts to 2‘497
bn EUR. The German Nuclear Law regulates the liability limit to amount to only 2.5 bn
EUR. Austria is the only European country with unlimited liability. Other European
countries have even lower liability limits than Germany: Switzerland around 1.4 bn
EUR, Spain around 700 Mio EUR, Belgium and Sweden around 333 Mio EUR, the
Netherlands 313 Mio EUR, Great Britain, Poland and Slowenia around 165 Mio EUR,
France 84 Mio EUR and Italy 5.5 Mio EUR.67 In the US the Price-Anderson Nuclear
Industries Indemnity Act (Act) – a US federal law enacted in 1957 and renewed several
times - governs liability-related issues for all non-military nuclear facilities. The main
purpose is to partially indemnify the nuclear industry against liability claims arising from
64
Japan Times, 16 May 2011, see footnote 23.
Bloomberg; S&P Credit Portal [accessed 1 June 2011]
66
http://www.tepco.co.jp/en/press/corp-com/release/11031808-e.html [accessed 29 June 2011]
67
Schwegler R., Inrate, see footnote 41.
65
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nuclear incidents while still ensuring compensation coverage for the general public. It is
an insurance-type system in which the first approximately 12.6 bn USD (as of 2011) is
industry-funded as described in the Act. Any claims above the 12.6 bn USD would be
covered by a Congressional mandate to retroactively increase nuclear utility liability or
would be covered by the federal government. At the time of the Act‘s passing, it was
considered necessary as an incentive for the private production of nuclear power —
this was because electric utilities viewed the available liability coverage (only $60
million) as inadequate. Power reactor licensees are required by the act to obtain the
maximum amount of insurance against nuclear related incidents which is available in
the insurance market (as of 2011, 375 Mio USD per plant). The Price-Anderson fund,
which is financed by the reactor companies themselves, is then used to make up the
difference. This fund is not paid into unless an accident occurs68. Nuclear operators can
insure some limited amounts of their nuclear liabilities with a few industry mutual
insurance companies. How nuclear operators in the US, some of them highly leveraged
with low equity, would pay into the fund in case of an accident, remains hopefully not to
be seen.
68
http://en.wikipedia.org/wiki/Price%E2%80%93Anderson_Nuclear_Industries_Indemnity_Act [accessed
2 July 2011]
39