TOKYO -- Japanese companies are forming an alliance this month to disclose the risks posed by climate change to their businesses, taking a step toward greater transparency in an area where corporate Japan has lagged its Western peers.
The move seeks to attract long-term investment as environmental, social and governance criteria rapidly become a factor in how institutional investors in the U.S. and Europe allocate their capital.
The Japanese corporate group will support proposals by the Task Force on Climate-related Financial Disclosures, created by the Financial Stability Board, an international body of financial regulators headquartered in Basel, Switzerland.
The task force has gained support from roughly 600 companies worldwide, and the Japanese consortium adds nearly 100 companies, ranging from such banks as Mitsubishi UFJ Financial Group to industrial and consumer goods companies like Hitachi, NEC and Shiseido. Japan's Financial Services Agency and the Ministry of Economy, Trade and Industry have urged businesses to participate.
With ESG investment on the rise, such multinationals as oil major Exxon Mobil have begun to analyze and disclose the impact on their businesses of changes in energy demand and the growing use of electric cars.
Earlier this year, Norway's $1 trillion sovereign wealth fund said it would urge the 9,000 companies it invests in to provide more information on their greenhouse gas emissions and preparations for climate change.
The task force's goal is to make the dangers of climate change more visible. In Japan, the new group will provide a forum for companies to talk with investors. Analysis of long-term climate change scenarios and disclosure methods will also be explored.
Businesses will take the lead on communicating climate-related risks and management strategies, and investors will use the information to judge companies' long-term prospects for growth.
Japanese trading house Itochu analyzed climate change scenarios through 2040 as it prepares to ramp up such reports, and said it expects its energy business to maintain current profit levels.
Real estate group Tokyu Fudosan Holdings sees increased costs associated with building damage from wind and floods as well as cooling from rising temperatures.
Sumitomo Mitsui Trust Holdings, the first Japanese bank to endorse the United Nations' Principles for Responsible Banking, plans to limit loans for businesses that could contribute to faster climate change while encouraging investment in renewable energy.
Companies that neglect environmental policies are having more trouble attracting investors. By contrast, trading house Marubeni's stock jumped last fall when it announced a major reduction to its thermal power generation business.
Environmental issues have become tangible risks for companies. California utility PG&E applied for bankruptcy in January as debts swelled related to liabilities for its role in recent wildfires. Global natural-disaster-related damages have reached $200 billion per year, growing roughly fourfold over the last 30 years, according to the World Bank.