Japan issues its sustainability disclosure standards which incorporates key elements of the ISSB standards

On 5 March 2025, the Sustainability Standards Board of Japan (SSBJ) issued its inaugural sustainability disclosure standards (SSBJ Standards) which incorporates key elements of the Sustainability Disclosure Standards published by the International Sustainability Standards Board (ISSB) to ensure international comparability in sustainability-related financial disclosures (see SSBJ’s press release).

Background 

In June 2023, the ISSB published the final versions of the first two global sustainability disclosure standards (ISSB Standards) – IFRS S1 on General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 on Climate-related Disclosure (see our previous blog post). 

For many years, Japan has been recognized as one of the countries with the largest number of companies and organisations declaring their support for sustainability disclosure. In March 2023, new rules designed by the Financial Services Agency (FSA) were made effective, representing what might be called the first stage of mandatory sustainability disclosure rules in Japan. These rules mandated the creation of a new section for sustainability-related information in the statutory annual securities report. Under the rules, all listed companies in Japan are required to disclose sustainability-related information by following the four pillars recommended by the Task Force for Climate-related Financial Disclosures (TCFD) (Strategy, Metrics and Targets, Governance and Risk Management).

On 29 March 2024, the SSBJ published exposure drafts of the sustainability disclosure standards to be applied in Japan, seeking feedback from market participants and other interested organisations on the contents of such sustainability disclosure and the approach for adoption of the mandatory sustainability disclosure standards (see our previous blog post). Following the end of the consultation period on 31 July 2024, the SSBJ held extensive discussions in light of the comments received in developing its sustainability disclosure standards while adhering to its basic policy to align such standards with the ISSB Standards.

Summary of the SSBJ Standards

The standards introduce a structured approach to sustainability-related financial reporting and comprise three key documents:

• The Application Standard, which tracks the fundamental matters under IFRS S1, outlining basic requirements for sustainability reporting;
• The General Standard, which is aligned with the core content under IFRS S1, focusing on sustainability-related risks and opportunities; and
• The Climate Standard, which mirrors IFRS S2, detailing climate-related disclosures.

Source: News release by SSBJ on 5 March 2025

Implementation of the Sustainability Disclosure Requirements

The SSBJ Standards were developed under the assumption that they would eventually be required, under the Japanese securities laws and regulations, to be applied by entities listed on the Prime Market of the Tokyo Stock Exchange (TSE). 

At the Sustainability Disclosure Working Group (WG) meeting held on 14 May 2024, the FSA discussed a schedule for introducing the new rule in phases based on the companies' market capitalisation. Under the proposal, Prime-listed companies with a market capitalization of JPY3 trillion and above (which consist of 55% of the stock exchange's entire market capitalisation) will be required to issue their first sustainability report for the financial year ending March 2027, while those with market capitalisation of JPY1 trillion and above (covering 74% in aggregate) will follow one year later. The timeline for extending the scope to all the TSE Prime-listed companies remains as open as "sometime in 2030's" (see FSA’s press release).

Since February 2025, the FSA has also engaged in discussions around requirement for external assurances on sustainability disclosures to be provided by the auditors of listed companies. The FSA intends to formulate a domestic sustainability assurance framework and implementation rules by adhering to ISSA 5000 (General Requirements for Sustainability Assurance Engagements) by International Auditing and Assurance Standards Board (IAASB) which was finalised in September 2024.

Following the issuance of the SSBJ Standards, Prime-listed companies are given two years of voluntary compliance period before such rules become mandatory as early as March 2027. During this period, the rules may be fine-tuned following consultation with the business community and observing the situation in the European Union (notably the European Commission’s Corporate Sustainability Reporting Directive) and other countries which will have introduced the ISSB-based standards by then. The FSA will maintain ongoing communication with international counterparts and relevant stakeholders to ensure that the Japanese standards achieve international recognition and garner support from the business community.