Under the Financial Instruments and Exchange Act (the “FIEA”), listed companies, etc. are required to file an annual securities report with the local finance bureau within three months of the end of each fiscal year. The mandatory disclosure items in the annual securities report are stipulated in the Cabinet Office Order on Disclosure of Corporate Affairs (the “Disclosure Order”).
On January 31, 2023, the FSA amended the Disclosure Order to require the disclosure of sustainability information in annual securities reports for the fiscal year ending March 31, 2023 and thereafter. At the same time, the “Guidelines for Disclosure of Corporate Information, etc.” was amended and the principles-based guidance “Principles for Disclosure of Descriptive Information (Appendix) – Disclosure of Sustainability Information” (the “Principles”) was published, making the disclosure of sustainability information mandatory. The said Guidelines provide specific items to be disclosed in the disclosure of sustainability information, as well as the principles behind the disclosure of sustainability information.
Specifically, a new section entitled “Sustainability-related Policies and Initiatives” has been established in the “Business Status” section of the annual securities report, and the report must state the four components of consolidated companies’ sustainability: “Governance,” “Risk Management,” “Strategy,” and “Indicators and Objectives.” Of these, “Governance” and “Risk Management” are required to be stated, while “Strategy” and “Indicators and Objectives” are required only for those related to human capital, and the others are required only for important items.
Disclosure on responses to climate change is not a mandatory but optional item. However, if a company discloses that responses to climate change is important, it should be disclosed within the framework of the above four items. Disclosure of GHG emissions, including reduction plans, is not mandatory. However, the FSA’s Principles, which outlines the concept of disclosure and recommended content and approaches to disclosure of information other than financial information, states that, in light of the fact that GHG emissions have become an effective indicator that contributes to constructive engagement between investors and companies, companies are expected to actively disclose their GHG emissions, especially those in Scope 1 (direct emissions by the company itself) and Scope 2 (indirect emissions from the use of electricity, heat, and steam supplied by other companies) as defined in the GHG Protocol, based on a determination of materiality in light of each company’s business conditions and management environment.