Gone are the days when Japanese businesses felt a healthy environment was a concept that could only be achieved at the expense of economic growth.

In the latest phase of the evolution in the relationship between business and the Earth, more Japanese firms are taking the environment into account to increase their competitiveness at home and abroad.

In Sony Corp.'s latest environmental report, for example, Chairman and CEO Nobuyuki Idei said, "Environmental conservation is one of our main long-term business management tasks, and we will take specific actions to reduce environmental burdens steadily and efficiently by setting midterm goals."

"Various factors have contributed toward getting businesses to try to integrate environmental concerns into their operations," said Kazuhiro Ueta, a professor of environmental economics and public finance at Kyoto University's graduate school of economics.

Those factors are the deterioration of the global environment, a shift in public policy toward promoting recycling and eliminating hazardous materials, and an international market that favors ecologically minded businesses.

The Japan Federation of Economic Organizations (Keidanren) drew up a global environmental charter in 1991, declaring that businesses consider themselves global corporate citizens and recognize that taking environmental measures is indispensable to their existence.

Hajime Ota, a former Keidanren adviser, said that at that time, member companies shared these ideas, though some expressed concern over the high cost of carrying them out.

"But overall, we all recognized that we must tackle environmental problems squarely," said Ota, who now teaches at Doshisha University.

With the advent of green-conscious consumer groups and with sustainable development becoming the battle cry of most industrialized nations, environmental friendliness is no longer just a trend -- it is a critical concern for all companies aiming to survive in the global market.

Environmental awareness has gained increasing sway in the amount of funds a firm can raise, the range of customers it can appeal to and the level of the technology it can develop.

The green market is expected to create new business opportunities and jobs -- which Japan sorely needs as structural reforms usher nonprofitable sectors off the stage.

Indeed, the government estimates this market will more than double from the current 15 trillion yen to 37 trillion yen in 2010 and create 1.4 million jobs.

It had become increasingly obvious to Japanese companies that, with the exception of a few sectors, they were losing ground to their counterparts in the United States and Europe when it came to addressing environmental concerns.

Policymakers, business leaders and academics pointed to the dangers this could pose for the economy in the medium and long term.

A government report released in July says that a major goal of the nation should be to create a "Wa no Kuni" -- a recycling-based society that severs ties with the "mass-production, mass-disposal" mentality of the last century.

The government is using a wide range of policy measures to nudge companies to become more environmentally competitive.

While a few decades ago the government placed priority on curbing pollution, the focus now is on using economic incentives and legal and structural frameworks to encourage firms to disclose their environmental activities.

In March, the Environment Ministry drew up specific guidelines for environmental reports and accounting for businesses.

"We call such measures information tools, which aim to encourage firms to take environment-friendly measures and provide investors and consumers with relevant information so they can evaluate companies' environmental performance," said Nobutoshi Miyoshi, an official with the Environment Ministry.

According to the ministry, as of March, 430 companies listed on the first section of the Tokyo Stock Exchange said they issue environmental reports, up from 270 firms last year.

The number of businesses that have received ISO14001 certification -- an international standard for environmental management systems that some experts have come to call "a passport to international transactions" -- has also risen, hitting 6,786 in July compared with 4,131 a year earlier.

Environmental consciousness is also becoming more important on the financing front, with investors starting to evaluate companies based on environmental performance and putting their money into more eco-friendly firms.

The Eco-fund, first introduced in August 1999 by Nikko Asset Management Corp., is an investment trust that screens businesses based on environmental initiatives. Assets of six such funds -- especially popular with women with no previous investment experience -- stood at 126.4 billion yen in January.

In another effort to encourage greener business, a law took effect in April requiring the government and affiliated organizations to purchase environmentally friendly products, covering 101 items in 14 categories, including paper, personal computers and copiers.

But despite the barrage of ammunition provided by the government, many firms say eco-friendliness is not a priority for consumers.

In an effort to have consumers become more aware of its environmental initiatives, Sony began in December distributing booklets that describe how its goods are safe for the environment.

"By providing detailed information on how our products are environmentally friendly, we hope consumers will set the environment as one of their conditions when selecting products," said Hiroyuki Tada, senior manager of planning office at Sony's corporate environmental affairs division.

Tada said that more policy measures are needed so businesses can reap greater profits from such products.

"We put a great amount of effort and money into making products using lead-free solder," he said. "Such efforts and products should be valued appropriately."

The next phase will be how to increase consumer awareness to the point that they understand that some eco-friendly measures will mean a greater financial burden. Many experts say that once this perception permeates the society, it will become easier for companies to calculate the value of their environmental steps.

One policy measure that industry has lobbied to prevent is green taxes, such as the carbon tax. While the extent to which such taxes affect competitiveness has yet to be fully grasped, some European countries have already begun introducing taxes on gasoline and fuel oil to reduce emissions of carbon dioxide and other greenhouse gases that contribute to global warming.

Although Japanese industry worries over the economic impact of such taxes, Takamitsu Sawa, director of the Institute of Economic Research at Kyoto University, said the introduction of a carbon levy would not dampen economic growth if certain measures were taken.

He said the government should consider slashing income tax to make up for green taxes, using revenues from a carbon tax for measures to curb global warming, and devising steps to ease the impact on energy-intensive industries such as steel and oil.

"Japan achieved economic growth despite various measures implemented in the 1970s to reduce hazardous emissions brought about by business activities," Sawa said. "So I believe that economic growth would not be affected by the introduction of a carbon tax.

"I also think that the price of energy should be much higher, in order to nudge consumers toward purchasing environmentally friendly and economically reasonable products."

Eishi Hosoda, a professor of economics at Keio University, said deregulation and streamlining recycling laws, as well as more environmental policies taken by local governments, could help exert influence over corporate activity and nurture green businesses.

He called for allowing private firms to deal with household waste, currently handled by municipal governments. This would halve costs, promote recycling and nurture the waste and recycling business, he said.

Local governments also need to be active in coordinating sectors, including manufacturers, recycling firms and consumers, Hosoda said.

He cited as an example the Tokyo Metropolitan Government, which put into effect in April an operation that links recycling firms and manufacturers in collecting electric appliances for recycling.

The Mie Prefectural Government last November launched a network of businesses of different types and scale to share information on activities they were undertaking to protect the environment.

The network, comprising 164 offices as of July, has become a place for cooperating in handling waste and recycling.

"As some firms' waste may be other firms' resources, we hope the network will help companies cooperate in reducing waste and encourage more efficient use of resources," prefectural official Shigeki Yoshinaka said.

But while the necessity, incentives and peripheral support are gradually coming into place, many experts said that how well Japanese firms complete the transformation into competitive green machines has yet to be seen.

Ota of Doshisha University said companies are not all moving at the same pace.

"Firms that have been looking ahead are strong (in the environment field). They have a high level of consciousness regarding the matter and the resources to put into the effort," he said, pointing to Toyota Motor Corp., which is working to develop environmentally friendly cars and fuel cells as a means to survive expected competition.

For companies on the other side of the spectrum, especially in energy-guzzling sectors such as steel, it is not that easy, Ota said.

Kyoto University's Ueta said the merits of having more green-conscious firms would not benefit just Japan.

"The Asian region is seen as the next growth center, and it would be best if it develops with as few environmental problems as possible. Japanese companies should use their expertise and experience to contribute," he said.

"Growth in the region links up with growth for Japan and its companies, and both the private sector and the government should formulate a strategy based on this perception."