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Climate Change

Japan to require 4,000 companies to disclose climate risks

FSA to first apply rules to listed companies on Tokyo 'prime' market next year

Japan's Financial Services Agency is developing climate risk disclosure rules that will apply to around 4,000 companies, starting in April 2022. (Photo by Yumi Kotani) 

TOKYO -- Japan's financial watchdog will require large companies to report their greenhouse gas emissions and make other climate-related disclosures, Nikkei has learned.

The new initiative from the Financial Services Agency is expected to cover around 4,000 companies, including those listed on the Tokyo Stock Exchange, andwill likely be enforced from April 2022, along with the TSE's plans to divide its stock market into three segments: prime, standard, and growth.

The FSA will first require companies listed on its prime blue chip market to comply with its new disclosure rules. It will then expand its coverage to all companies that submit annual securities reports, requiring them to make necessary disclosures after fiscal 2023.

The new guidelines could help investors and financial institutions better understand the risks and profit opportunities companies face due to climate change.

The FSA will require companies to make disclosures in accordance with the Task Force on Climate-related Financial Disclosures (TCFD), a framework developed by the financial authorities of important economies.

The TCFD is structured around four thematic areas: governance, strategy, risk management, and metrics and targets. Japan's FSA plans to encourage companies to make climate change-related disclosures in these four areas, for example, levels of greenhouse gas emissions, as well as estimates of the negative impacts of climate change -- such as rising temperatures -- to their businesses.

Companies will also be required to disclose how they determine risks associated with climate change and how management is dealing with those risks. Some Japanese companies are already grappling with the issue.

Department store operator Marui Group, for example, published in its annual securities report for the year ended March 2021 that its total greenhouse gas emissions, excluding indirect emissions from its entire value chain, were reduced by 27% compared with three years earlier.

In 2019, Japanese brewery group Kirin analyzed the impact of climate change on the agricultural yields of ingredients like barley and vine grapes, which are crucial to the drinks it produces.

Yet, the TCFD only establishes disclosure recommendations and it remains the onus of the companies to decide what and how much they want to make public.

There is also a gap in the requirements around climate change disclosures across regions. Europe expects companies to publish detailed data on their greenhouse gas emissions and energy consumption while Japan is still highly dependent on thermal power generation.

The International Financial Reporting Standards Foundation is expected to finalize the details of its framework on global sustainability reporting standards, which will be based on TCFD's, by June 2022.

As rules around climate change-related disclosures will have significant impacts on companies and their business strategies, countries including Japan are engaged in heated competition to take the lead in helping to set international standards.

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