Japan Takes a Leap in Sustainability Reporting with IFRS-aligned Standards

The Sustainability Standards Board of Japan (SSBJ) has announced the release of exposure drafts for new sustainability disclosure standards, a move that marks Japan’s commitment to harmonizing its reporting practices with the International Financial Reporting Standards (IFRS) Foundation’s International Sustainability Standards Board (ISSB). Established in July 2022, the SSBJ aims to tailor sustainability disclosure standards for Japanese companies while contributing to the global movement towards standardized sustainability reporting.

The introduction of these standards involves the issuance of three key exposure drafts:

• Universal Sustainability Disclosure Standard Exposure Draft focusing on the “Application of the Sustainability Disclosure Standards”
• Theme-based Sustainability Disclosure Standard Exposure Draft No. 1 on “General Disclosures”
• Theme-based Sustainability Disclosure Standard Exposure Draft No. 2 dedicated to “Climate-related Disclosures”

This structured approach, segregating IFRS S1 into distinct standards, is designed to ensure that sustainability disclosures comprehensively cover all requisite areas. While these drafts closely adhere to the ISSB’s frameworks, the SSBJ has introduced jurisdiction-specific modifications, offering companies flexibility to adapt to Japan’s unique business environment.

Yasunobu Kawanishi, the Chair of the SSBJ, has acknowledged the collective efforts behind the rapid development of these drafts and expressed eagerness to engage with market participants on the necessity of jurisdiction-specific options included in the drafts.

The issuance of these exposure drafts coincides with Japan’s ongoing efforts to elevate sustainability reporting standards among its listed entities. This initiative complements the Tokyo Stock Exchange’s revised corporate governance code and the Financial Services Agency’s (FSA) requirements for disclosing sustainability-related information in annual reports.

Stakeholders have until July 31, 2024, to submit their feedback on the exposure drafts, which are currently available in Japanese. An English summary detailing the variances between the SSBJ and ISSB standards is forthcoming, aiming to broaden the scope of feedback from international market participants.