Japan

YEAR IN REVIEW

(1 July 2024 to 30 June 2025)

ISSB-aligned sustainability disclosure standards have been finalised and are expected to apply to companies listed on the Prime Market of the Tokyo Stock Exchange on a mandatory basis. This will significantly enhance sustainability reporting requirements for such companies.
Application of such standards is expected to start for the fiscal year ending 31 March 2027 and will be phased based on the market capitalisation of the reporting company.
The revised green transition law will introduce a mandatory emission trading system in 2026. Companies emitting 100,000 tons of carbon dioxide per year (from any sector) will be required to take part.

Scroll down or click below for further information on each key theme.

Podcast Overview

Please click on the podcast above for a snapshot of the three key themes of ESG reporting, transition planning and greenwashing risks in respect of Japan.

KEY CONTACT

Katsuyuki Tainaka
Partner, Mori Hamada & Matsumoto

A. ESG Reporting

1. Are there legal or regulatory requirements for companies to make ESG disclosures in your jurisdiction?

Yes.

2. What are the key legislative and regulatory sources for ESG disclosure requirements and to whom do they apply?

The amended Cabinet Office Order on Disclosure of Corporate Affairs under the Financial Instruments and Exchange Act of Japan (Disclosure Order), which became effective in January 2023, sets out “sustainability” disclosure requirements to be reported in a securities registration statement filed by both Japanese and overseas companies that conduct an offering of securities in Japan, or an annual securities report filed by both Japanese and overseas companies that are obligated to make such a filing (i.e., companies which are listed in Japan or have filed a securities registration statement without being listed in Japan.

According to the Financial Services Agency of Japan (FSA), information relating to the environment, society, employees, human rights, anti-corruption, anti-bribery, governance, cybersecurity and data security may fall within the scope of “sustainability” mandatory disclosures.

The Corporate Governance Code published by the Tokyo Stock Exchange (Corporate Governance Code) also sets out general sustainability disclosure requirements for all companies listed on the Tokyo Stock Exchange. In particular, companies listed on the Prime Market are expected to collect and analyse the necessary data on the impact of climate change-related risks and earning opportunities on their business activities and profits, and enhance the quality and quantity of disclosure.

Sustainability reporting requirements for Prime Market-listed companies are expected to be significantly enhanced upon implementation of the SSBJ Standards - see section A.11 below for more detail.

3. Are the requirements mandatory or do they apply on a comply-or-explain basis?

The Disclosure Order contains mandatory disclosures in relation to sustainability, including environmental, social and governance aspects.

ESG disclosures under the Corporate Governance Code are on a comply-or-explain basis.

4. Which aspects of ESG do the requirements focus upon?

In an annual securities report, all sustainability issues including environmental, social and governance aspects are covered.

In a corporate governance report, the focus is mostly on environmental aspects.

5. Are the disclosure requirements based on international standards? If so, which one(s)?

While the Disclosure Order does not specify any framework for the purpose of disclosure in an annual securities report, it stipulates that sustainability information must be described from the viewpoint of the four core elements of the TCFD Recommendations: governance, strategy, risk management, and metrics and targets.

Environment-related disclosures in a corporate governance report are expected to be in line with the TCFD Recommendations or an equivalent disclosure framework.

6. How do the disclosure requirements approach materiality (e.g. single or double materiality)?

While neither the Disclosure Order nor the Corporate Governance Code clarifies that it adopts a single or double materiality approach, the Principles Regarding Disclosure of Non-Financial Information issued by the FSA mentions that materiality should be determined by each company taking into consideration various factors, including their category of business, business environment and the enterprise value of the company.

7. Are there requirements for the disclosure of GHG emissions? If so, please specify the scope (e.g. Scope 1, Scope 2 and/or Scope 3), to whom they apply and whether there are requirements on the measurement methodology.

Companies are not required to report their GHG emissions in their annual securities report or corporate governance report. However, a company that considers climate change to be a material risk must state its metrics and targets for climate change in its annual securities report, which often includes information about GHG emissions of the company.

Separately, under the Act on Promotion of Global Warming Countermeasures of Japan, a company that (a) emits a certain amount of GHG from all of its business facilities in Japan within a year, or (b) transports a certain amount of freight in Japan within a year by itself or with the assistance of carriers, is required to calculate and disclose the amount of GHG emissions from the company’s business facilities in Japan (i.e., Scope 1 and 2) in its report to be filed with the relevant governmental authority in accordance with the instructions published by the Ministry of Environment of Japan. Such reported data can be accessed by the public.

8.Are there requirements to obtain independent assurance of any ESG disclosures? If so, what is the scope of such requirements? If not, are there plans to introduce such requirements?

This is not mandatory. According to a roadmap on the standards and independent assurance of sustainability disclosure published by the FSA in June 2025 (FSA Roadmap), it is suggested that independent assurance will become mandatory from the fiscal year ending 31 March 2028 or later, in stages (depending on the market capitalisation of the reporting company), for companies listed on the Prime Market of the Tokyo Stock Exchange. However, this is subject to further discussion.

9. For companies not subject to mandatory or comply-or-explain ESG reporting, are voluntary ESG disclosures customary?

It is uncommon for a company which is not subject to the ESG disclosure obligation under the Disclosure Order or the Corporate Governance Code to voluntarily make substantial ESG disclosures.

10. Has your jurisdiction issued or adopted a taxonomy on sustainable activities? Is it mandatory and what is its scope of application?

No, and regulators have not indicated any plans to develop a local taxonomy.

11.Are there plans to adopt or incorporate any (other) international ESG reporting framework (e.g. the ISSB Standards and/or the TNFD)? If so, please give details.

Yes. In March 2025, the Sustainability Standards Board of Japan (SSBJ) issued inaugural sustainability disclosure standards (SSBJ Standards) to be applied in Japan. The standards comprise:

the universal sustainability disclosure standards (Application of the Sustainability Disclosure Standards);
the theme-based sustainability disclosure standards No. 1 (General Disclosures); and
the theme-based sustainability disclosure standards No. 2 (Climate-related Disclosures).

The SSBJ decided to incorporate all requirements under IFRS S1 and IFRS S2, but with jurisdiction-specific alternatives which a reporting entity can choose to apply when considered necessary. If a company chooses not to apply any of the jurisdiction-specific alternatives, its disclosures will be in compliance with the ISSB Standards. On the other hand, if a company chooses to apply the jurisdiction-specific alternatives, the disclosures may or may not result in compliance with the ISSB Standards. The SSBJ Standards also contain certain requirements which are not included in the ISSB Standards. However, it is intended that companies preparing disclosures for these additional requirements under the SSBJ Standards would not be required to obtain additional information beyond the information obtained in the process of preparing disclosures in accordance with IFRS S1 and IFRS S2. The SSBJ has prepared a schedule of differences between the ISSB Standards and the SSBJ Standards.^[1] Once implemented, sustainability information disclosure in annual reports and other documents is expected to be legally required to be based on the SSBJ Standards.

The SSBJ Standards do not prescribe the scope of companies that would be required to apply such standards. However, the SSBJ developed their standards following the direction indicated by the FSA that the scope of companies that would be required to apply the SSBJ standards should be those companies which centre their business on constructive dialogue with global investors. In addition, according to the FSA Roadmap, the SSBJ Standards are expected to apply to annual securities reports filed by companies listed on the Prime Market of the Tokyo Stock Exchange from: (a) for companies with a market capitalisation of JPY3 trillion or more, the fiscal year ending 31 March 2027; (b) for companies with a market capitalisation of JPY1 trillion or more, the fiscal year ending 31 March 2028, and (c) for companies with a market capitalisation of JPY500 billion or more, the fiscal year ending 31 March 2029. Application of the SSBJ Standards to Prime Market-listed companies with a market capitalisation of less than JPY500 billion is still under consideration by the FSA.

In line with the ISSB Standards, the SSBJ Standards cover sustainability-related (and not just climate-related) disclosures. Reporting companies must disclose, amongst other things, sustainability-related financial risks and opportunities and GHG emissions, categorised as Scope 1, 2 or 3.

Making disclosures in line with the TNFD framework is expected to be examined by the SSBJ, taking into consideration international discussion. The SSBJ has not indicated a specific timeframe for this.

[1] https://www.ssb-j.jp/en/wp-content/uploads/sites/7/ssbj_20250331_01_e.pdf

12. Other upcoming developments / direction of travel

In addition to the matters referred to above, the Sustainability Disclosure and Assurance Working Group of the Financial System Council of Japan continued to discuss the safe harbour rule of ESG disclosures provided in an annual securities report of a company.

Japan issued its National Action Plan on Business and Human Rights in 2020, while the Ministry of Economy, Trade and Industry of Japan issued Guidelines on Respect for Human Rights in Responsible Supply Chains in 2022. The latter encourages businesses to conduct human rights due diligence and ensure access to remedies. However, there is currently no proposal for a mandatory human rights due diligence law in Japan.

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B. Transition Planning

1. Has your jurisdiction set decarbonisation targets and strategies?

Yes – to reduce Japan’s carbon emissions by 46% (and 50% as an intensity target) before 2030, compared to 2013.

2. Are businesses subject to any mandatory carbon pricing or other “polluter pays” instruments (such as ETS, carbon taxes or EPR schemes)? If so, please give details. If not, are there plans to do so?

There are no mandatory carbon pricing tools at this stage, but there are plans to introduce a mandatory ETS.

In April 2023, the “GX League” started operating in Japan. This is a government-led scheme aimed at reducing participants’ emission of GHG (GX-ETS), with voluntary participation from a large group of companies in Japan.

Under the first phase of the GX-ETS, (i) each participant sets its own GHG reduction goal, and (ii) failure to meet this goal would result in the participant needing to either explain the reason for such failure or to “fill the gap” by purchasing other participants’ emission allowances created via the scheme or certain kinds of carbon credits. It is expected that the GX-ETS will become fully operational in the second phase starting from 2026 with increased government intervention and allowance trading under the scheme – details such as scope of coverage and extent of mandatory application are being considered.

In addition, new legislation pushing for green transition was passed in May 2023 to implement (from 2033) the paid allocation of emission allowances to the electricity sector, which is expected to be linked to the GX-ETS. In May 2025, this green transition law was revised, under which, companies emitting 100,000 tons of carbon dioxide per year (from any sector) will be required to take part in a mandatory emission trading system which the government plans to introduce in 2026.

Separately, in October 2023, the Tokyo Stock Exchange set up a voluntary carbon market. This market currently deals with J-Credits, which are public-sector credits certified by the Japanese government.

In relation to other mandatory tools based on the “polluter pays” principle, Japan has an EPR scheme for producers of certain containers, packaging and home electrical appliances, who are required to pay recycling fees to recyclers.

3. Are there mandatory requirements for companies to have in place and/or disclose climate-related transition plans? If so, please give details. If not, are there plans for such requirements?

As discussed above, the SSBJ Standards will apply to companies listed on the Prime Market of the Tokyo Stock Exchange. A company subject to those standards shall disclose in its annual securities report details of its climate-related transition plans, such as any major assumptions and essential factors and conditions underlying those plans (if the company has such plans).

4. Are there mandatory requirements to set, meet and/or disclose climate-related targets? If so, please give details. If not, are there plans for such requirements?

Participants of the GX-ETS are now subject to GHG reduction targets, with the targets being set by the participants.

Other than that, companies are not generally required to set or meet climate-related targets.

The Disclosure Order provides that, if (and only if) companies regard climate change as a material risk to themselves, such companies must set climate-related targets, such as GHG emissions targets, and state them in their annual securities reports.

5. Other upcoming developments / direction of travel

In October 2023, the government published “Addressing the Challenges of Financed Emissions”, which summarises the expected role of financial institutions in achieving carbon neutrality and the characteristics of financed emissions, so that funding for innovation and hard-to-abate industry transitions towards decarbonisation can be properly assessed and promoted. The proposed solutions to the challenges of financed emissions are organised into two categories: (a) methods for calculating and disclosing financed emissions, and (b) methods for disclosing indicators other than “financed emissions”.

From 2028, a fossil fuel levy will be imposed on suppliers of fossil fuel.

Furthermore, the government aims to fund as much as JPY 20 trillion in the coming 10 years to support private investment into green transition.

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C. Greenwashing Risks

1. Are there any recent examples of legal proceedings, regulatory actions or investigations against or into greenwashing in your jurisdiction?

No.

2. Are there any laws or regulations specifically dealing with greenwashing?

No, but in the “Comprehensive Guidelines for Supervision of Financial Instruments Business Operators, etc.” issued by the FSA, there is a section titled “Appropriateness of Business Operations Related to Investment Trust Management Business, etc.”, under which, a sub-section titled “Points of Attention with respect to consideration of ESG” refers to the fact that, where an investment trust does not fall under the category of ESG investment trust, the FSA will monitor to make sure the name or nickname of the investment trust excludes ESG-related terms such as ESG, SDGs (Sustainable Development Goals), green, decarbonisation, impact, sustainable, and other similar words in order to avoid misleading investors.

3. What are the likely grounds on which such proceedings, actions or investigations can be instigated?

Likely grounds include:

Disclosure liabilities under securities laws and regulations, e.g. providing materially false or misleading information in listing documents or other corporate disclosure documents, such as annual securities reports or securities registration statements;
Breach of directors’ duties; and
Claims in tort for misrepresentation.

There are also risks of regulatory enforcement pursuant to, for example, codes / guidance issued by financial regulators on the marketing of financial products and Listing Rules’ requirements on ESG disclosures.

4. Other upcoming developments / direction of travel

Although there have been no major greenwashing claims in Japan to date, the risks of claims against companies (particularly, listed companies and financial institutions) are expected to increase as reporting requirements become more robust and the sense of urgency on sustainability continues to grow.

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