September 19, 2022
The Japanese Financial Services Agency (FSA) is aiming to implement a mandate that would force large firms and organizations in Japan to make climate-related disclosures in the near future. The Japan climate disclosure regulations were predicted to be implemented by April 2022.
The FSA has already introduced a range of Japan mandatory climate disclosure rules into the nation’s corporate governance code since mid-2021. However, this governance code is not a legally binding one. This gives firms that adhere to the code the option to either comply or explain why they have chosen not to.
In April 2022, the Tokyo Stock Exchange (TSE) replaced its first and second sections, the technologically focused JASDAQ, and the ‘Mothers’ startup market, with three new segments. The newly implemented segments are Prime, Growth, and Standard. Businesses and organizations listed on the Prime market will be required to comply fully with disclosure laws related to the Task Force on Climate-Related Financial Disclosures guidelines, which were implemented in April this year.
The Financial Services Agency (FSA) is Japan’s primary regulatory body tasked with stabilizing the Japanese financial system. It was originally established in 1998 as an arm of the Prime Minister’s Office. Later, it was dubbed a regulatory body by the Financial Reconstruction Commission (FRC) in 2000.
The FSA was initially only responsible for supervising private-sector financial organizations. But after 2000, it became the primary financial regulator of Japan. Today, the FSA is responsible for the stability of the nation’s wider financial system. Along with the safeguarding of its participants from fraud, terrorism financing, money laundering, and other financial crimes. The Financial Services Agency is based in Tokyo. Currently, it’s led by Commissioner Endō Toshihide and operates a range of regional offices across the country.
The FSA’s key roles include planning policies and legislation for the Japanese financial sector and inspecting and supervising financial organizations. Their role also includes auditing companies and public accountants for ongoing compliance with AML/CFT rules and laws and establishing standards for corporate finance, business accounting, and securities trading. Plus, they play a role in global AML/CFT efforts alongside other regulatory organizations.
As mentioned above, the FSA has already introduced a range of climate disclosures into the corporate governance code of Japan. But the code in question does not legally demand compliance from participating organizations. More recently, the FSA requires companies listed on the Prime blue chip market to comply with its new Japan mandatory climate disclosure regulations. In the future, this coverage will be expanded to all firms that submit annual securities reports. These companies will be required to make the correct disclosures after the 2023 financial year.
Japanese businesses will also be required to disclose how they determine their primary risks associated with climate change. They’ll need to explain how their management teams plan to handle those risks in the short and long term.
The TCFD, or Task Force on Climate-Related Financial Disclosures, is an organization based on a framework developed by the financial authorities of important economies across the globe. The TCDF is structured around four key, thematic areas: governance, strategy, risk management, and metrics and targets. It uses these areas of focus to create informed and intelligent climate-related disclosure guidelines that encourage accurate disclosure and reporting across industries and nations.
The Financial Services Agency of Japan is adopting this framework as the basis for all future ESG (environmental, social and governance) reporting regulations pertaining to its new Japan climate disclosure requirements. The FSA is also encouraging local organizations to make their climate change-related disclosures based on the guidelines of the TCFD.
Japan's mandatory climate disclosure and ESG reporting will present a steep learning curve for businesses of all sizes, locations and sectors. Businesses’ performances on ESG and climate risks constitute vast sums of qualitative and quantitative data points. In the case of emissions in the Scope 3 category, even more data is required for accurate reporting. Extensive climate disclosure requires organizations to work with a wide range of internal and external stakeholders to paint accurate pictures of risks and impacts.
Japan is rapidly taking the lead in Asia Pacific’s climate risk disclosures and disclosure regulations. Out of the 3,400 pledged TCFD supporters across the globe, a significant 843 of these companies are headquartered in Japan. This makes the nation a front-runner in the movement toward mandatory Japanese climate disclosure requirements.
Technological decarbonization platforms like SINAI can help your organization to take a more structured approach to ESG measurement and reporting. Using our first in class tools can ensure ongoing compliance with new climate risk disclosure mandates like those implemented by the FSA. All while still ensuring the profitability and growth of your organization in the long term.
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