ESG in Japan: Where have we got to and where are heading?

Climate change in particular has received continued focus in Japan this year; most recently, Prime Minister Suga announced the establishment of a USD 19 billion fund for green technology development to achieve Japan’s net-zero commitment by 2050 and we have been engaging with clients on ESG and related issues throughout the year. In a recent client roundtable in early December 2020, we explored the challenges inherent in embedding and implementing ESG goals in Japan from the point of view of the legal team.

During the engaging discussion we considered: (i) the strengths of Japanese companies; (ii) lessons learnt by legal departments as a result of Covid-19; and (iii) how legal departments can support "engagement" and disclosure of "opportunities".

Key takeaways were as follows:

• In some respects, Japanese companies can be seen to be ahead of the ESG agenda, on the basis that, arguably, they are keenly aware of their position in society with the result that they are used to balancing social responsibility with the pursuit of profit. They are more open to embedding ESG issues within the strategy and risk management frameworks because, to some extent, they have already been doing so.
• Once a target has been set (i.e. net-zero by 2050), the entire company can be mobilised to meet that target - this is a strength of Japanese companies.
• As a country that is not rich in natural resources, the energy industry in Japan has a significant amount of accumulated knowhow as regards energy efficiency while sustaining economic growth. This presents an opportunity for Japanese innovation.
• There is an increasing role for legal to assist management to assess what is needed to achieve ESG-related goals, and monitoring adherence to and compliance with those goals.

Over the past year, these issues have been increasingly on the agenda of board members and key stakeholders, and we expect the pace of this to accelerate in 2021.

You may also like to watch our videocast on ESG disclosure requirements in Japan.