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sustainable japan

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Forum: Adapting to global rules on ESG disclosure
ESG/SDGs
HIROKO NAKATACONTRIBUTING WRITER

What do companies need to do in the faceof increasing global calls for them to disclose information related to environmental, social and governance (ESG) factors
in their business operations? To deepen
understanding of the latest trends, two
global institutes held a forum on Jan. 25 on
new sustainability-related disclosures.
The forum, conducted by the U.N.-supported bodies Global Compact Network
Japan (GCNJ) and Principles for Responsible
Investment (PRI), started with two keynote
speeches on new global sustainability disclosure standards that are currently underdiscussion, followed by a panel discussion
on what companies will be required to do
and what investors want them to do amid
the fast-moving changes.
A global move toward issuing accurate
and mutually comparable ESG-related disclosure standards across companies andcountries is accelerating, since the current
multiple frameworks confuse investors andother stakeholders. The International Sustainability Standards Board (ISSB), an independent body established in 2021, plansto release the final version of the global
disclosure rules in the first half of this year.
Its Japanese unit, the Sustainability Standards Board of Japan (SSBJ), is developing

Panel session moderator Takeshi Mizuguchi
COSUFI

the domestic version based on the global
baseline.
The forum also featured a panel discussion involving two Japanese companies
that are responsive on ESG-related reporting and two institutional investors that areclosely watching the disclosure trends.
One of the two firms, the retail company
Marui Group Co., said its management
focuses on dialogue with all types of stakeholders: customers, investors, business
partners, local communities, workers andfuture generations. For such interactions,disclosing financial and nonfinancial factors in uniform ways is important. “Without high transparency, dialogues withstakeholders would be meaningless,” said
Hirotsugu Kato, Marui’s director, managing
executive officer and chief financial officer
in charge of investor relations, finance, sustainability and ESG promotion.
The other company, KDDI Corp., also
said transparency and timely disclosure isnecessary to win the trust of all stakeholders. The telecommunications firm said it
now has a financial reward system for executives and employees that is linked to how
they achieve their key performance indicators (KPIs), including ESG-related ones. “Inthat sense, all workers are very consciousof ESG-related business management,” said
Nanae Saishoji, an executive officer, deputy
chief senior director of the corporate sector
and chief director of sustainability businesspromotion for KDDI.
As for the current global move to require
ESG-related disclosure, Kato said that Maruihas been ready for the trend, but that thehard part is predicting business opportunities because there is a time gap between
the corporate risks that are affected by climate change and the future opportunities
that will have an impact on earnings.
Saishoji also welcomed the trend
toward sustainability disclosure rules being
standardized. “But at the same time, it isnecessary for companies to have some discretion” in disclosure regulations, she said.

Shizuko Ohmi

Katsuya Kikuchi

Nanae Saishoji

When the moderator, Takasaki City University of Economics President Takeshi
Mizuguchi, asked Shizuko Ohmi, JP Morgan Asset Management’s head of investment stewardship for Japan, abut investor
reactions to the ISSB and SSBJ’s standardizing ESG-related disclosure rules, she hailed
the moves. “There are so many listed companies [in Japan] that have not yet disclosed
information related to ESG and sustainability,” Ohmi said. Moreover, although the
U.S. asset management firm is willing toinvest not only in big-name companies but
also fast-growing startups, the importanceof disclosing data contributing to a sustainable society has not been shared within thefirms in many cases.
“If the new standards help the companies
to disclose their basic information, such as
their governance and risk management,
and if corporate leaders realize the significance of the issue and respond to what isneeded in the business circumstances, thatwill create a constructive cycle in the companies,” she said.
Katsuya Kikuchi, associate director andhead of the responsible investment department for Tokio Marine Asset Management
Co., said standardized global disclosurerules would not only support corporate
reporting but also help investors to evaluate corporate values, which would be apositive factor for their valuations. He also
said such disclosure standards are helpful
for institutional investors because they are
under increasing pressure from asset owners to disclose more detailed data, such as
those on greenhouse gases, of companies intheir portfolios.
When the moderator asked the twocompanies to comment on the trend
toward making rules on disclosure, Marui’s
Kato said he hopes that active sustainability-related disclosure will raise investors’
reputations, and that additionally there will
be positive side effects on the company’s

Disclosures will help profit potential
HIROKO NAKATACONTRIBUTING WRITER

In the first keynote speech for the sustainability disclosure forum, Hiroshi Komori, amember of the International Sustainability
Standards Board (ISSB), emphasized thatthe most important purpose of the planned
new standards is to support companies
so that they can fully demonstrate their
growth potential to international investors.
“What investors are focusing on is companies’ profit potential of their main business,”
Komori said, adding that disclosure itself
should not be their final goal. “Without thepotential, there is no need for investors toanalyze the disclosed data.”
Komori started by explaining the timeline
for the upcoming new global sustainability
disclosure standards. After the international
standards-setting board finishes receiving
feedback from companies and investors ondrafts released in March 2022, the ISSB plans
to issue by June the final versions of the two
proposed standards: one on climate, called
S1, and another on general sustainabilityrelated disclosures, called S2.

Taking into account discussions at theboard’s Japan unit, the Sustainability Standards Board of Japan (SSBJ), to add the country’s own conditions to the global baseline,
Japan’s Financial Services Agency will decide
whether to approve the standards as final
domestic disclosure rules. Komori said bluechip Japanese companies and those thathave a large share of global stockholders
would be allowed to apply the new rules earlier on their merit, since the approval processof the new regulation takes time.
The upcoming global standards are notsomething completely new, as they are competent, comparable and made from the multiple existing standards, Komori explained.
“We are working to solve the issue called‘alphabet soup,’” he said. Investors and others often use the term in criticizing the current situation in financial reporting, in which
companies use various global frameworks
issued by bodies known by their acronyms,
such as CDSB (the Climate Disclosure Standards Board) and SASB (the Sustainability
Accounting Standards Board) — many
standards have been created amid the rising
global attention to environmental, social andHiroshi Komori COSUFI

governance-related investment.
Following its focus on climate change, the
ISSB decided in December that the next priorities in developing future disclosure guidelines will be biodiversity, human capital,
human rights and the connectivity between
financial and nonfinancial factors, Komori
said.
At the end of his speech, Komori requested
that the leaders of Japanese companies continue to remind their workers of their taskof making society sustainable. “I believe theonly job they have to do is to keep on saying it to their workers. If they continue, theirwords will create their corporate culture,”
Komori said.

The forum’s second keynote speechhighlighted the sustainability disclosure
standards for Japanese companies thatare currently under discussion and the relevant issues to be addressed in the rapidly
moving trend toward corporate disclosure.
The first main topic was the schedule of
the Sustainability Standards Board of Japan(SSBJ) for issuing the Japanese version of
the global standards for disclosing environmental, social and governance (ESG)
factors. “The year 2022 was a time when
discussion over the disclosure rules largely
moved forward,” said Yukari Takamura,a professor at the University of Tokyo’s
Institute for Future Initiatives who is also amember of the SSBJ.
After Japan Exchange Group Inc. revised
the corporate disclosure guidelines in 2021,
the next year it started requiring companies listed in the Prime market, a major
segment of the Tokyo Stock Exchange,
to disclose sustainability-related factors,
including risks to be caused by climatechange and their management, as well as

business opportunities and their strategies,
based on recommendations made by theindustry-led Task Force on Climate-related
Financial Disclosures (TCFD).
Takamura also said the listed companies
will have to disclose ESG-related nonfinancial information in their annual securities
reports in the future. The SSBJ will develop
the Japanese disclosure standards from theglobal baseline to be set by the International Sustainability Standards Board (ISSB)
later this year. She said the Japanese regulations should be consistent and compatible
with the global ones. At the same time, the
SSBJ will discuss the issue of scalability forJapanese standards, considering how company sizes might affect the rules.
Takamura said the Japanese board will
eventually require third-party assurance
on the Japanese sustainability disclosures.
The International Auditing and Assurance Standards Board (IAASB), which sets
global standards for business, has started
developing standards for Japan and plans toapprove a draft by September and finalize
it by March 2025. The types of information
required for assurance, as well as conditions
on and qualifications for those who handle

Yukari Takamura COSUFI

the assurance, will need to be defined in the
future, she said.
The professor said the Japanese board’s
standards will likely be drafted by March2024 if the ISSB sets its standards in the firsthalf of this year.
Takamura also said she believes the Japanese rules will need to be able to adjust
to any developments in global goals, forexample the 2021 United Nations COP26
summit’s goal of limiting global warming to
1.5 degrees Celsius, and the goal set by theInternational Civil Aviation Organization,
an agency under the U.N. that supports
diplomacy and cooperation in air transportation, of achieving no carbon dioxide
emissions in aviation by 2050.

CDP Japan director, Michiyo Morisawa joined
after the panel session to give the closing
remarks. COSUFI

though the world is being divided, corporate
intangible assets are becoming more andmore important for their disclosure, andthe economic trend will not change. In thissense, the need for global standards remains
intact.” Saishoji agreed, saying, “Nonfinancial
value is ever more important under the situations that are hard to foresee.” Ohmi said
JP Morgan Asset Management’s system ofcorporate evaluation remains unchangedamid the political anxiety: “Currently, I see
no retreat in our global study, research andengagement activities.” Kikuchi said theimportant point is to know that intangible
assets are coming to have greater meaningfor companies. “To keep on raising the corporate values amid the uncertain situations,
we should understand how powerful intangible assets are, how much they are being
accumulated and how to
maximize them,” Kikuchi said. “Since Japanesecompanies no longer haveoperations only in Japan,
it is more andmore important for themto keep a global
viewpoint.”
Aiming to highlight issues
related to a sustainable society, The Japan Times gave
its support to this event by
becoming a media sponsor.

Fukuyama, Japan’s city of denim,
spins surge in public awareness
Satoyama~Authentic
Japan

Japanese standards moving forward
HIROKO NAKATACONTRIBUTING WRITER

Hirotsugu Katobusiness and management. “I believe suchdisclosure will urge the company to reform
itself, and that is very important,” Kato said.
The disclosure requirements will prompt
companies to make clear their corporate
purpose during the process of making theirtacit knowledge explicit. “If the new rules
help companies to create energy and accelerate their growth, it will be a tremendous
benefit for them as well as investors,” Kato
said.
When moderator Mizuguchi raised thequestion of whether countries’ different systems, such as on corporate recruiting, affectinvestors’ ESG-related evaluations, Ohmi
said JP Morgan Asset Management has its
own globally shared framework to gauge
companies’ ESG factors. Since Japanesefirms’ scores on human capital tend to belower than others in the framework, despite
their efforts to work on diversity, it checks
Japanese companies’ policies for improving
the current situation, she said.
Marui’s Kato and KDDI’s Saishoji said theywould welcome stricter standards set by the
global bodies. “That would prevent Japanesecompanies from becoming more like Galapagos Island,” Kato said. Saishoji added, “Itis easier for a company to reform itself withpressure from outside” because internal
voices calling for reform can be drowned out
and not lead to rapid changes.
Kikuchi from Tokio Marine said thatwhat is important is to consider what kindof human capital really helps to elevate an
enterprise’s values. If the global rule-setting
bodies conclude that there are certain common elements in the data and gather examples that can back this up, that would be
helpful in developing disclosure standards.
Kikuchi also said it is no longer rational for
Japanese companies to ignore overseas
investors, who account for a significant partof their overall shareholders.
Answering the moderator’s last question,
about the ongoing global political polarization and its possible impact on cooperation
for sustainability disclosure, Kato said: “Even

MAIKO MURAOKACONTRIBUTING WRITER

Did you know a denim fabric made inJapan has its own history of development? It comes from Fukuyama, a city inthe eastern part of Hiroshima Prefecturethat produces about 80% of Japan’s denim
fabric.
Ever since the first lord of the Fukuyama
domain, Katsunari Mizuno, started promoting the production of cotton in the
Edo Period, the textile industry has flourished, becoming part of the area’s culture.
In the late Edo Period, Bingo kasuri wasinvented — Bingo was the province thatencompassed Fukuyama in what is now
eastern Hiroshima Prefecture. It became
one of the three major types of kasuri,
along with Iyo kasuri in Ehime Prefecture
and Kurume kasuri in Fukuoka Prefecture.
The weaving skills for thick fabrics andindigo-dyeing techniques that were developed for Bingo kasuri have been passed
on to manufacturers of denim fabrics,
enabling the quality of Fukuyama denim,
which is highly regarded by renowned
fashion brands in Japan and abroad. Fukuyama companies engage in all of the stagesof the manufacturing process — spinning,weaving, dyeing, sewing, washing and selling — making it possible to complete an
entire production chain there.
However, Fukuyama has not been

Bicchu Bingo Denim merchandising contest
2021, grand prize FUKUYAMA

PAGE: 7

widely recognized among the public as
the city of denim because denim-relatedcompanies in the city focus mostly on
business-to-business trading, leaving people unaware that what they are wearing
came from Fukuyama.
This is why the Bicchu Bingo Japan
Denim Project was launched in 2016 in acollaboration among denim-related companies and municipalities in the Bicchu(western Okayama Prefecture) and Bingo
areas to promote the denim-producing
region.
The project consists of various elements,
one of which is the Bicchu Bingo Denim
Commercialization Contest started in
2021, which collects designs for productsthat use denim from across Japan. The
submitted designs are given the chance tobecome commercial products. Last year’scontest gathered 303 entries. The project participated in the Milano Unica, theworld’s premier textile exhibition, in 2018.
On the international front, the city
organized a tour for foreign buyers to visit
denim-related factories and hold businessmeetings last November to help denim
producers expand their sales channels
abroad. Yuichiro Tominaga, the head of
the city’s Industry Promotion Division,
said, “We used parts of Fukuyama Castle
such as Tsukimi Yagura (Moon-watching
Turret) as the venue for the businessmeeting sessions, providing the buyers
with an unusual and memorable experience of feeling the history of the city.”
The year 2022 was the 400th anniversary
for the castle, a rare example of a castle
that stands right next to a shinkansen
station and can even be viewed from theplatform.
November is also Wear Denim Monthfor employees of the city government.
Since 2016, the workers at City Hall wear
denim to work every November as part ofthe promotions of Fukuyama as the cityof denim.
These efforts seem to be paying off.
According to a survey conducted by thecity, the percentage of men and women

Buyers from overseas were invited to havedenim business meetings FUKUYAMA

living in the Tokyo metropolitan area who,
when shown about 20 statements describing Fukuyama, selected “the top denim production area in Japan” as something theyknew about the city, increased from 9.1% in2017 to 24.4% in 2021.
In recent years, Fukuyama has also seen
an increase in the number of young people
visiting from other areas to learn about
the manufacturing of denim fabric andproducts. The promotion of local denim
products has been expanding to the private
sector, and some companies have started
using denim fabric for their uniforms. One
hotel has denim-themed rooms. There also
are various events featuring denim.
Tominaga revealed that new and environmentally conscious ideas are poppingup, such as collecting and recycling local
companies’ uniforms and combining themwith denim fabric to create something
new in an initiative from the private sector, contributing to the promotion of local
denim and sustainability at the same time.
Fukuyama has become thefocus of high expectations
both home and abroad asa denim-producing areathat meets the needs of thetimes and can stand tall in
the world.
Fukuyama is a member of the Sustainable
Japan Network, a group of companies andmunicipalities that cooperate with this newspaper in spreading information about sustainability in Japan. You can also be part of the
network; scan the QR code for more details.