Pollution: Digging Up Trouble In Japan

The country will spend a fortune cleaning up tainted soil

Residents of Tokyo's Ogikubo suburb were overjoyed earlier this year to learn that a mothballed aerospace factory in their midst was to be replaced by a condo development and park. But then the bad news broke: Turns out the former Nissan Motor Corp. facility sits atop a brew of potentially carcinogenic chemicals.

Nissan knew as far back as 1994 that decades worth of the degreasing agent trichloroethylene had leaked into the soil. In fact, the company knew that levels of the chemical were up to 16,000 times what is officially considered safe. Yet Nissan didn't go public until September, more than a year after informing city authorities that pressured it to come clean. Nissan defends its actions, saying the contamination did not pollute surrounding land or local water supplies. Besides, says Masayuki Hori, a company environmental official, "we did not want to upset the neighbors."

That is no consolation to Hiroshi Kitamura, a 42-year-old white-collar worker who lives nearby with his wife and three sons. He claims his family has suffered rashes and breathing problems since excavation of the site began, weeks before Nissan's public disclosure. His doctor can't substantiate a direct link, but Kitamura is taking no chances. He keeps all the windows shut and purifies the air with filtration devices in each room. "Is this any way for a world-class company to act?" he asks.

BIG BILL. A growing number of Japanese say it isn't. In December, a government-appointed panel began looking into legislation that is expected to make soil pollution a punishable offense and to force Corporate Japan to clean up its act. The bill will probably be based loosely on the U.S. Superfund Act of 1980 that mandated cleanup of toxic waste dumps with public and industry funds. Activists and legal experts are calling for tough wording and stiff fines for noncompliance. Yet manufacturers fret about getting hit with lawsuits and high costs. The total bill to scrub Japan's black spots: an estimated $122 billion.

While Japan restricts emissions of toxic chemicals into open air and water, soil contamination has remained hidden from public view. It wasn't until the early 1990s that the government even bothered to draft guidelines determining unsafe levels of land contamination. As in other countries, the use of some particularly toxic substances was phased out at many Japanese plants by the late 1980s. But, as elsewhere, the chemicals had already seeped into the ground. With little fear of liability, landowners have had no impetus to dig up trouble. What's more, until recently, property buyers typically did not ask about the environmental state of their purchase--for fear of insulting the seller.

That has started to change, now that Japan's lingering economic downturn has forced indebted companies to sell off commercial properties. Some of the buyers have been foreign investors, including investment banks such as Goldman, Sachs & Co. and funds such as California's Colony Capital. They have started to ask hard-nosed questions about environmental risk. "We treat industrial land in Japan the same way we would in the U.S.," says Daniel Klebes, managing director in the Tokyo office of Goldman Sachs.

TOUGH LESSON. In the meantime, Corporate Japan is coming to grips with the reality that cleanups are part of the cost of doing business. Consider Nomura Real Estate Development Corp. In February, it was forced to dismantle a nearly completed condo project near Osaka--after its engineers belatedly discovered they were building on an unregistered hazardous waste repository. The company has filed suit against the former landowner to recover part of its undisclosed losses on the failed project.

Back in Ogikubo, Nissan's cleanup is under way. Each day, trucks cart tons of contaminated soil to an on-site facility where the toxic agents are neutralized. The company figures the operation will take six months and cost upwards of $20 million. So far, Nissan has avoided legal entanglements. But the lesson for other companies is clear: Clean up now--or pay a higher price in lawsuits and business losses later.