The Sustainability Standards Board of Japan (SSBJ) recently unveiled draft Sustainability Disclosure Standards, signaling a significant step towards promoting sustainable business practices. Established in July 2022, the SSBJ has been dedicated to developing high-quality standards that align with international sustainability norms set by the International Sustainability Standards Board (ISSB).
The draft standards integrate key elements from ISSB’s IFRS Sustainability Disclosure Standards, including IFRS S1 "General Requirements for Disclosure of Sustainability-related Financial Information" and IFRS S2 "Climate-related Disclosures". Divided into three exposure drafts, they cover universal application, general disclosures, and climate-related disclosures.
The SSBJ's structure ensures clarity by aligning the drafts with corresponding IFRS standards. Notably, IFRS S1 requirements are split into two standards: one covering general disclosures and another for core content. Despite this division, all standards must be applied simultaneously.
The SSBJ anticipates these drafts becoming mandatory for companies listed on the Tokyo Stock Exchange's Prime Market, under Japanese securities laws. Stakeholder feedback is encouraged, particularly regarding jurisdiction-specific options.
Yasunobu Kawanishi, Chair of the SSBJ, expressed gratitude to contributors for developing comprehensive drafts that include all IFRS requirements and jurisdiction-specific options. The SSBJ awaits feedback until the July 31, 2024 deadline.
Key highlights of the draft standard include:
Comprehensive Reporting: The standard encourages companies to provide detailed information on their environmental, social, and governance (ESG) performance. This encompasses areas such as carbon emissions, resource management, employee well-being, and diversity.
Materiality Assessment: Companies are urged to identify and disclose material ESG factors relevant to their operations. This ensures that stakeholders receive meaningful insights into the organization’s impact on society and the environment.
Climate Risk Disclosure: With climate change being a global concern, the draft standard emphasizes robust disclosure of climate-related risks and opportunities. Companies must assess their exposure to climate risks and outline strategies for mitigation.
Stakeholder Engagement: The standard recognizes the importance of engaging with stakeholders, including investors, employees, customers, and local communities. Transparent communication fosters trust and accountability.
Alignment with Global Frameworks: Japan aims to align its sustainability reporting practices with international frameworks such as the Global Reporting Initiative (GRI) and the Task Force on Climate-related Financial Disclosures (TCFD).
While currently available in Japanese, the SSBJ plans to release an English-language summary of the differences between the drafts and ISSB's standards.
In essence, these drafts underscore Japan's commitment to fostering sustainability and transparency in corporate reporting, aligning with global standards and engaging stakeholders to enhance business practices and contribute to the global sustainability agenda.
