Japan Releases Proposed IFRS-Based Sustainability Reporting Standards

The Sustainability Standards Board of Japan (SSBJ) announced the release of new exposure drafts for proposed standards for companies to report sustainability and climate-related information, based on the recently released sustainability disclosure standards by the IFRS Foundation’s International Sustainability Standards Board (ISSB).

The release of the exposure drafts marks the latest in a series of steps that may see Japanese listed companies facing mandatory standardized sustainability-related disclosure requirements. Over the past few years, regulators and exchanges in Japan have been increasingly raising the sustainability disclosure bar for companies, with the Tokyo Stock Exchange in 2021 revising the corporate governance code with a requirement for prime market-listed companies to begin providing climate-related disclosures based on the TCFD recommendations, and to report on sustainability initiatives on a ‘comply-or-explain’ basis, and the Financial Services Agency (FSA) implementing rules last year mandating the creation of a sustainability-related information section in the annual filings for all listed companies, with required disclosures covering governance, risk management, strategy, and indicators and targets.

The ISSB was launched in November 2021 at the COP26 climate conference, with the goal to develop IFRS Sustainability Disclosure Standards, driven by demand from investors, companies, governments and regulators to provide a global baseline of disclosure requirements enabling a consistent understanding of the effect of sustainability risks and opportunities on companies’ prospects.

The IFRS released the inaugural general sustainability (IFRS S1) and climate (IFRS S2) reporting standards in June 2023, and in July, IOSCO, the leading international policy forum and standards setter for securities regulators called on regulators to incorporate the standards into their sustainability reporting regulatory frameworks.

The SSBJ was formed in 2022 under Japan’s Financial Accounting Standards Foundation (FASF) in order to develop sustainability reporting standards, in line with a legal framework to be developed by the FSA, and to contribute to international sustainability reporting standards, following the launch of the ISSB.

According to the SSBJ, the new exposure drafts were developed under the assumption that reporting according to the sustainability-related disclosure standards will eventually become mandatory in Japan.

Although the SSBJ released the standards as three exposure drafts, rather than the ISSB’s two standards, by dividing IFRS 1 (general sustainability) into two standards, including a “Application of the Sustainability Disclosure Standards” draft and a “General Standards” draft that contains IFRS S1’s “core content” section, the new SSBJ proposals are closely aligned with the ISSB’s sustainability and climate reporting standards, while incorporating a few jurisdiction-specific options that companies may apply.