Japan is contemplating a mandate requiring its primary listed companies to publish annual sustainability reports in line with the IFRS’ International Sustainability Standards Board (ISSB) standards. This new rule, proposed by the Financial Services Agency (FSA), will be implemented in phases based on company market capitalization, with the largest firms expected to comply by March 2027.

The FSA’s Working Group on Sustainability Disclosure and Assurance (Sustainability Disclosure WG) initiated this proposal, aiming to enhance transparency and investor confidence while minimizing compliance burdens. The first phase targets companies listed on the Tokyo Stock Exchange’s Prime section with a market capitalization of JPY 3 trillion and above, comprising 55% of the exchange’s total market value. These companies will need to issue their initial sustainability reports by the fiscal year ending March 2027. The second phase extends to companies with a market cap of JPY 1 trillion and above by March 2028. The goal is to encompass all Prime-listed companies by the 2030s.

The Sustainability Disclosure WG is also addressing potential deviations from ISSB standards to balance global compatibility and local business interests. In collaboration with the FSA, the Sustainability Standards Board of Japan (SSBJ) released an exposure draft closely following ISSB guidelines, with some modifications. The final draft is expected by March 2025.

Key issues under discussion include whether sustainability reports should be part of statutory financial statements, transitional reliefs, safe harbor provisions for unreliable disclosures, and incentives for compliance. The FSA’s approach emphasizes fostering investor confidence and reducing compliance burdens, ensuring that the Japanese standards align with international expectations.

The public consultation on local adaptation of ISSB standards will conclude on July 31, 2024, with the final rules anticipated to provide at least two years for voluntary compliance before becoming mandatory.

Sources: 

https://www.mayerbrown.com/en/insights/publications/2024/06/japan-mulls-issb-based-sustainability-disclosure-mandatory-after-2027?utm_source=vuture&utm_medium=email&utm_campaign=%7Bvx:campaign%20name%7D 

https://www.engaged2perform.ca/with4yh/8a102110P1d51/