Japan's FSA codifies ESG disclosures for all TSE companies for first time
It’s surprising how little public discussion there has been about one of the biggest changes to the corporate sustainability landscape in Japan. As of this past April, the Japan Financial Services Agency (FSA) is requiring all Japanese companies listed on the Tokyo Stock Exchange to start reporting on sustainability-related initiatives.
The new policy, part of an amendment to the Cabinet Office Order on Disclosure of Corporate Affairs, will effectively force all listed companies to disclose what, if anything, they are actually doing to advance sustainability within their organizations.
The new requirements are two pronged. They include disclosure on efforts aligned to specific Japanese government goals regarding matters such as increasing the gender balance in companies (under the Act on Promotion of Women's Participation and Advancement in the Workplace). And then, they are more open ended, asking businesses to generally disclose any material issues related to sustainability that are specific to their own industry.
The deadline for disclosure is this June, causing a real scramble among companies to report on business dimensions that many may have never systematically considered before. This is especially true for those in the TSE's Standard and Growth sectors, and recent IPO companies.
As a baseline, the new FSA disclosures includes reporting on indicators, targets and efforts—where available—in the following areas:
Corporate Sustainability Strategy and Initiatives
Human Capital and Diversity
Corporate Governance and Risk Management
As to what are material sustainability issues, FSA does not provide a clear definition. In the absence of one, we believe the default is prescribed by the industry-specific metrics of the Sustainable Accounting Standards Board (SASB). SASB has been folded into the International Financial Reporting Standards Foundation (IFRS) under the newly formed International Sustainability Standards Board (ISSB). IFRS states in its lasted call for comments on the international applicability of the SASB Standards that “The SASB Standards serve as a primary source of guidance for applying IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) to help entities produce relevant and comparable disclosures in the absence of specific IFRS Sustainability Disclosure Standards [emphasis ours].”
Japanese companies are hard-pressed to outline and submit these new reporting dimensions in their Annual Securities Reports in time for their Annual General Meetings this June.
These listed companies can properly comply with the new FSA requirements and meet the deadline by:
Establishing clear job descriptions with responsibility for the collection of the necessary ESG data within the organization
Reviewing and cataloging the most pressing industry-specific material ESG issues they are facing in their current business, as far as they understand them
Working with ESG/Sustainability specialists to fill in any gaps where they need expert subject matter support
Writing and filing the sustainability reports as required by the new regulations and updating their Investor Relations materials
Read the Air can lend hand with its ESG Assessment and Reporting services (ESG A&R).
With our experience working with businesses in Japan on sustainable business initiatives and reporting, we are well placed to work with clients to handle this reporting in both English and Japanese.