The Sustainability Standards Board of Japan (SSBJ) announced the release of its finalized sustainability disclosure standards, based on the standards developed by the IFRS Foundation’s International Sustainability Standards Board (ISSB), and anticipated to form the basis of mandatory reporting for listed Japanese companies of sustainability and climate-related information.

The release forms a significant step towards internationally-aligned required sustainability reporting requirements for companies in Japan, following a mandate in 2023 by the Financial Services Agency (FSA) regulator for the creation of a sustainability-related information section in the annual filings for all listed companies, with required disclosures covering governance, risk management, strategy, and indicators and targets.

Over the past few years, regulators and exchanges in Japan have been increasingly raising the sustainability disclosure bar for companies, with the Tokyo Stock Exchange in 2021 revising the corporate governance code with a requirement for prime market-listed companies to begin providing climate-related disclosures based on the TCFD recommendations, and to report on sustainability initiatives on a ‘comply-or-explain’ basis.

The SSBJ was formed in 2022 under Japan’s Financial Accounting Standards Foundation (FASF) in order to develop sustainability reporting standards, in line with a legal framework to be developed by the FSA, and to contribute to international sustainability reporting standards, following the launch of the ISSB. In order to achieve international comparability, the SSBJ decided to align its new standards with the ISSB standards.

The IFRS Foundation’s International Sustainability Standards Board (ISSB) was launched in November 2021, with the goal to develop IFRS Sustainability Disclosure Standards to provide investors with information about companies’ sustainability risks and opportunities. The IFRS released the inaugural general sustainability (IFRS S1) and climate (IFRS S2) reporting standards in June 2023.

In March 2024, the SSBJ released its exposure drafts of its new standards. With the release of the finalized standards, the board said that it reduced the differences between the standards and the ISSB standards, following feedback on the initial drafts. The SSBJ said that it will issue a schedule of differences between its standards and the ISSB standards shortly, adding that it incorporated all of the requirements of the ISSB standards, while adding, when necessary, jurisdiction-specific alternatives that companies may choose to apply.

The release by the SSBJ includes 3 standards, as opposed to the ISSB’s two, including Universal Sustainability Disclosure Standard “Application of the Sustainability Disclosure Standards,” Theme-based Sustainability Disclosure Standard No. 1 “General Disclosures,” and Theme-based Sustainability Disclosure Standard No. 2 “Climate-related Disclosures.”

While the climate-related disclosures correspond to IFRS S2, the SSBJ chose release two standards to correspond to IFRS S1, with its Universal standards including the basic requirements for preparing sustainability-related financial disclosures, and its General Disclosures standard aligning with IFRS S1’s core content section outlining disclosures regarding sustainability-related risks and opportunities.

The SSJB said that it developed its standards under the assumption that they would eventually be required under securities laws to be applied by entities listed on the Prime Market of the Tokyo Stock Exchange.

Yasunobu Kawanishi, Chair of the SSBJ, said:

“Based on the feedback received on the Exposure Drafts, we reduced even further potential differences between SSBJ Standards and ISSB Standards.  A few differences remain, but we are committed to monitoring how disclosure practices in Japan and overseas develop in the coming years and to considering changing SSBJ Standards if determined necessary.”