The Sustainability Standards Board of Japan (SSBJ) Releases Drafts for Sustainability Reporting Standards

The Sustainability Standards Board of Japan (SSBJ) has unveiled exposure drafts for proposed sustainability reporting standards. This development aligns closely with the International Financial Reporting Standards (IFRS) Foundation’s International Sustainability Standards Board (ISSB) frameworks.

With these drafts, Japan's sustainability standards are poised to undergo a transformative shift, aiming to standardize sustainability disclosures across Japanese listed companies.

Embracing Global Standards: The SSBJ's Strategic Approach

The SSBJ, established in July 2022, has set forth its mission to tailor sustainability disclosure standards for the Japanese corporate sector while aligning with global benchmarks. The recent issuance of three exposure drafts underscores Japan's commitment to harmonizing its sustainability reporting with the IFRS's guidelines, particularly focusing on "General Requirements for Disclosure of Sustainability-related Financial Information" (IFRS S1) and "Climate-related Disclosures" (IFRS S2).

These drafts encapsulate the essence of Japan's sustainability standards, signaling a significant leap toward obligatory sustainability-related disclosures for listed corporations in Japan. The documents titled "Universal Sustainability Disclosure Standard," "General Disclosures," and "Climate-related Disclosures" represent a meticulous effort to cover a broad spectrum of sustainability reporting needs.

These drafts represent a dual commitment: to embody the full scope of the IFRS's established guidelines and to integrate necessary Japan-specific options for entities. The vision behind this release is clear – to align with global benchmarks while ensuring the standards resonate with the unique contours of Japan's corporate environment.

Navigating Local and Global Paths

A notable aspect of these drafts is the SSBJ's endeavor to balance global standards and local business peculiarities. This dual approach ensures a comprehensive framework that respects global best practices while providing flexibility for jurisdiction-specific adaptations.

Yasunobu Kawanishi, Chair of the SSBJ, has highlighted the collaborative process behind these drafts, inviting further input from the market to refine these standards:

“We would like to express our sincere gratitude to all those who have contributed to the development of the Exposure Drafts in such a short period of time.  The Exposure Drafts incorporate all requirements in IFRS S1 and IFRS S2, with some additional jurisdiction-specific options the entity can choose to apply.  We are interested in hearing the views from market participants, in particular, the need for such jurisdiction-specific options.”

Regulatory Evolution and Market Response

Japan's trajectory towards enhancing sustainability reporting is evident in its regulatory landscape evolution. The Tokyo Stock Exchange revised its corporate governance code in 2021, urging prime market-listed companies to start offering climate-related disclosures.

Furthermore, the Financial Services Agency (FSA) mandated the inclusion of a sustainability-related information section in annual filings for all listed companies last year. These steps mirror the global movement towards more transparent, accountable, and sustainable business practices.

A Timeline for Implementation

The SSBJ's roadmap envisions finalizing these standards by the end of March 2025, marking a significant milestone in Japan's journey toward robust sustainability disclosures. Stakeholders are encouraged to review and comment on the drafts by July 31, 2024, with the SSBJ providing English summaries to facilitate broader engagement.

This strategic initiative by the SSBJ aligns Japan with global sustainability reporting trends and reinforces the country's dedication to fostering a sustainable corporate ecosystem. As Japan's sustainability standards evolve, the global community watches closely, anticipating the ripple effects of these developments on international sustainability practices.

Explore the Drafts: For full details on the exposure drafts and the process for submitting comments, please refer to the SSBJ's dedicated webpage here.

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