Japan - FSA & TSE (Financial Services Agency & Tokyo Stock Exchange)
- Countries: Japan
- Function: Climate-related disclosures required for top-listed companies; governance-related ESG policies encouraged
Japan has developed a structured, progressively tightening approach to sustainability disclosure, particularly around climate-related risks and corporate governance practices. This framework is jointly influenced by the Financial Services Agency (FSA), which oversees financial regulation and corporate disclosure standards, and the Tokyo Stock Exchange (TSE), which integrates ESG expectations into listing requirements and corporate governance codes.
The Financial Services Agency plays a central role by mandating ESG disclosure requirements through revisions to the Cabinet Office Ordinances on Disclosure of Corporate Affairs, which regulate securities filings such as annual securities reports. In 2022, the FSA formally incorporated climate-related disclosure requirements aligned with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations into these ordinances.
Under this mandate:
- All Prime Market listed companies (Japan’s top tier of publicly traded firms on the TSE) must disclose TCFD-aligned information, including governance, strategy, risk management, and metrics and targets relating to climate change.
- Climate risk disclosures must be included within annual securities filings rather than separated into voluntary reports, elevating the legal status and auditability of sustainability-related information.
Disclosures must address:
- Governance: Board-level oversight of climate-related risks and opportunities.
- Strategy: Material impacts of climate change on business models and financial planning.
- Risk management: Identification and management processes for climate-related risks.
- Metrics and targets: Greenhouse gas emissions (Scope 1 and Scope 2 at a minimum) and climate targets where relevant.
The Tokyo Stock Exchange complements regulatory action through corporate governance initiatives. The Corporate Governance Code, revised in 2021, encourages companies, especially those listed on the Prime Market, to enhance their sustainability-related disclosures.
Companies are expected to:
- Articulate sustainability strategies as part of corporate purpose and value creation narratives.
- Integrate ESG considerations into long-term business strategy and capital allocation decisions.
- Provide transparent reporting on climate risks, human capital development, diversity, and governance practices.
The TSE listing rules emphasize "comply or explain" obligations, requiring firms either to comply with disclosure recommendations or to publicly justify deviations. While this approach maintains some flexibility, peer pressure and investor expectations have driven rising rates of ESG integration among leading Japanese corporations.
Japan’s disclosure landscape is increasingly shaped by international alignment efforts. The FSA has committed to adopting sustainability reporting standards based on the International Sustainability Standards Board (ISSB) IFRS S1 and S2 frameworks. A dedicated Sustainability Standards Board of Japan (SSBJ) was established under the Financial Accounting Standards Foundation to oversee domestic implementation, with phased adoption expected starting from 2025.
Key characteristics of Japan’s sustainability disclosure system include:
- Early regulatory embedding of climate risk disclosure within statutory securities filings.
- Gradual movement from voluntary ESG reporting to legally enforceable sustainability information.
- Strong emphasis on governance structures, board oversight, and strategic integration of ESG factors.
- Balancing regulatory mandates with flexibility through "comply or explain" mechanisms under TSE rules.