Guidance on Climate-related
Financial Disclosures 3.0(TCFD Guidance 3.0)

October 2022

Foreword

Foreword

Kunio Ito

Chair of the TCFD Consortium, Director of Hitotsubashi CFO Education andResearch Center
In Japan, there has been an increase in the momentum to respond to the
TCFD Recommendations following the formulation of the TCFD Guidance by
the Ministry of Economy, Trade and Industry (METI) in 2018. The TCFD
Consortium was established under the initiative of the private sector in May
2019 with the cooperation of the government. Today, the number of TCFD
supporting institutions in Japan is the largest in the world at 1,062,
representing about 28% of the world's TCFD supporters. This trend has
accelerated since the Corporate Governance Code was revised in 2021 to include TCFD disclosure.
At the TCFD Consortium, companies and investors engaged in information disclosure and its
utilization activities based on the TCFD Recommendations have accumulated related discussions.
Various initiatives have been undertaken to date, including the formulation and revision of Green
Investment Guidance, the formulation of TCFD Guidance 2.0, a revised version of the first edition by
METI, and co-hosting of the TCFD Summit hosted by METI. As a result, recognition of TCFD in Japan has
increased, which led to an improvement in corporate disclosure as well as an increase in constructive
engagement based on the information disclosed.
In light of the growing acceptance of TCFD in recent years, we have revised the TCFD Guidance 2.0
to be released as "TCFD Guidance 3.0" with an aim of increasing corporate value and increasing theactivity of financial and capital markets through the effective use of TCFD, especially for companies
considering disclosure in the future.
In TCFD Guidance 3.0, the commentary on TCFD disclosure has been thoroughly revised based on
the results of the TCFD Consortium's discussions and the latest knowledge from publications from TCFD
and others. In addition, the latest trends have been included as addendums. In order to improve incontent as well as keeping it compact, the sector-specific recommended disclosures section is
published in a separate volume. In addition, case examples will be presented separately based on thecases to be published this year.
As TCFD receives increased attention and disclosure standards based on TCFD is considered in theInternational Sustainability Standards Board (ISSB) , the Consortium, as the world's largest organizationof TCFD sponsors, hopes to further support the disclosure and use of climate-related information incollaboration with the world.

Foreword

Mary L. Schapiro

Vice Chair for Public Policy, Special Advisor to the Founder and Chairman,
Bloomberg LP, and Secretariat of TCFD
The recent revision of the Corporate Governance Code in Japan has
resulted in a significant increase in TCFD Supporters and Japanese companies
committed to implementing TCFD Recommendations. Climate-related
disclosure has only become more critical in the two years since the publicationof the TCFD Guidance 2.0, particularly in light of continued fast-paced
developments on climate and a global emphasis on transition finance andcarbon neutrality commitments.
The TCFD Consortium has been at the forefront of helping companies put the TCFD
Recommendations into practice. Its TCFD Guidance 3.0 strikes a unique balance between providing
easy-to-understand instruction on how to begin the TCFD disclosure journey and describing the latest
developments in climate-related disclosure, including the Task Force’s recent work on metrics, targets,and transition plans. It is a valuable resource, especially for organizations that are in the process ofimproving their disclosures and communicating their actions to enhance sustainability and resilienceon climate-related issues.
The TCFD Consortium has been exemplary in promoting climate-related disclosure to achieve greatertransparency on climate in financial markets, and I would like to once again congratulate theConsortium for its publication.
.

Table of Contents
Chapter 1 Introduction ...................................................................................1
A. Background ..................................................................................................... 1
B. Purpose of Developing this Guidance ............................................................. 4(1) History of Developing the Guidance ......................................................... 4(2) Purpose of revising the Guidance ............................................................. 5
C. Where this Guidance Stands........................................................................... 7(1) Overall Picture of the TCFD Recommendations and Annex ...................... 7(2) Relationship between this Guidance and the TCFD Recommendations
and Annex ................................................................................................ 8

Chapter 2 Commentaries on Disclosures in Accordance with the TCFD
Recommendations .........................................................................9A. Introduction .................................................................................................... 9
B. Medium of Disclosure ..................................................................................... 9
C. Governance .................................................................................................. 15
D. Strategy ........................................................................................................ 17(1) Recommended disclosure a) .................................................................. 19(2) Recommended disclosure b) .................................................................. 21(3) Recommended disclosure c) ................................................................... 23
E. Risk Management ......................................................................................... 28
F. Metrics and Targets ...................................................................................... 30(1) Recommended disclosure a) .................................................................. 33(2) Recommended disclosure b) .................................................................. 34(3) Recommended disclosure c) ................................................................... 34
G. Disclosure Methods for Companies with Diverse Business Models .............. 36
H. Steps for Implementing the TCFD Recommendations by Mid-cap and Smalland Medium-sized Companies ..................................................................... 37

Chapter 3 Increasing Corporate Value through TCFD Disclosure ................... 39
A. Increasing Corporate Value through TCFD Disclosure ................................... 39
B. Importance of Getting Started in Disclosure ................................................. 39
C. Refining for Better Disclosure ....................................................................... 40

Chapter 4 Addendums ................................................................................. 41
Overview of related guidance ....................................................................... 41
Institutional background on climate-related disclosure in Japan .................. 43
Measures related to TCFD Recommendations in other frameworks andstandards ...................................................................................................... 45

IFRS Sustainability Disclosure Standards ....................................................... 47
Overview of discussion on transition ............................................................ 49
Recent publications from TCFD ..................................................................... 51

Appendix....................................................................................................... 53
Appendix 1︓ Members of the TCFD Consortium Steering Committee and Number of TCFD
Consortium Members ..................................................................................... 53
Appendix 2︓ List of Key Relevant Literatures Reviewed During the TCFD Guidance Revision........................................................................................................................ 55

Chapter 1 Introduction
A. BackgroundIn response to the Paris Agreement adopted in December 2015, there has been an increase
in climate change mitigation and adaption activities worldwide. The financial industry has also
been stepping up efforts to assess the potential impacts of climate change on its assets, given
the substantial impacts climate change may have on the activities of the companies to which
they provide financial solutions. Institutional investors that make long-term investments, suchas pension funds and insurance companies, have become more conscious of environment,social and governance (ESG) elements, including climate change, as factors affecting thecorporate risks and opportunities to be considered in their financial decisions. Worldwide ESG
investments have doubled in the six years between 2014 and 2020 1. The impact of COVID-19
from 2020 has shed light on social issues affecting employees, other stakeholders, etc., andthus has revealed the growing importance of ESG as a factor in investment decisions. The focus
on an environment-friendly recovery has increased considerably and addressing climatechange is regarded as a central issue.
On the other hand, the degree of corporate disclosure related to the potential impacts ofclimate change up to present has been inadequate. Financial institutions found it hard tounderstand climate-related risks and opportunities (hereinafter referred to as“climate-related
issues”) in relation to the strategies and financial planning of companies. As a result, financial
institutions were unable to make adequate decisions on investment, lending, and insurance
underwriting, and there were concerns about the risk of financial instability in the event whenasset values became volatile. Therefore, the G20 Finance Ministers and Central Bank
Governors asked the Financial Stability Board (FSB) to review how the financial sector can takeaccount of climate-related issues. At the review held in September 2015, the FSB identified aneed for better information from companies to enable financial institutions to properly assess
the financial impacts of climate-related issues on companies.
Following this, the FSB established the private sector-led Task Force on Climate-related
Financial Disclosures (TCFD) in December 2015. The TCFD is composed of 32 members 2 fromdata users (mainly financial services companies and organizations), data preparers (mainly
non-financial companies) and companies undertaking ESG evaluations such as rating agencies
or consulting companies. In June 2017, following a consultation period of about eighteenmonths, TCFD published its Final Report: Recommendations of the Task Force on Climaterelated Financial Disclosures (hereinafter referred to as the “TCFD Recommendations”). The
Global Sustainable Investment Alliance (GSIA) "Global Sustainable Investment Review 2016" (http://www.gsialliance.org/members-resources/trends-report-2016/) and “Global Sustainable Investment Review 2020（http://www.gsialliance.org/wp-content/uploads/2021/08/GSIR-20201.pdf）
2 31 members as of September 2022.
1

1

Chapter 1 Introduction

Chapter 1
Chapter 2
Chapter 3
Chapter 4
Appendix

TCFD Recommendations provide a framework for the voluntary disclosure of climate-relatedrisks.
The situation surrounding the disclosure and use of climate-related information has evolved
significantly since the publication of the TCFD Recommendations. As of September 2022, morethan 3,800 organizations have expressed their support for the TCFD Recommendations, up
from 102 organizations at the time of the publication of the TCFD Recommendations.
According to the TCFD Status Report released by TCFD in October 2021 3, the average disclosure
rate across all 11 recommended disclosures of TCFD in the 2020 corporate reports of TCFDsupporting companies was 32%, a significant increase from 19% in 2018. On the other hand,
it was found that there were differences in the degree of disclosure according to disclosure
items, sector, and region.
The response to TCFD Recommendations is rapidly progressing in Japan. When the TCFD
Recommendations were first published, the United States and United Kingdom were ahead in
the number of organizations supporting TCFD. Since then, however, momentum in the numberof company responses to the TCFD Recommendations have gradually increased in Japan,
leading to the establishment of the TCFD Consortium in May 2019. The number oforganizations in Japan supporting the TCFD Recommendations reached 164 when the
consortium was established, putting Japan at the forefront in TCFD support. The number ofJapanese supporters has steadily increased since. As of present, there are 1,062 Japanesesupporters of TCFD Recommendations, making up about 28% of the total number of
supporting organizations worldwide. A significant factor is the publication of the revised
Corporate Governance Code in June 2021, which stated that companies listed on the Prime
Market should "enhance the quality and quantity of disclosure based on the TCFD
recommendations...or an equivalent framework".
In addition to supporting TCFD, there has been significant progress in information disclosure
through TCFD-related efforts. Many companies have begun disclosing during the period up to2020 4, and the number of Japanese companies responding to the CDP is 71% in 2021, farabove world average (47%). The number of Japanese companies listed on the CDP A list, an
index of the most advanced companies in environmental information disclosure andperformance, reached 56 among a total of 200, the highest in the world. These confirms that
information disclosure has improved in terms of substance. 5
As described above, quality and quantity of responses to TCFD Recommendations taken by
Japanese companies have improved. As of April 2022, there are 1,839 companies listed on thePrime Market. As financial institutions including banks make increased efforts to reduce
emissions from assets held or managed, loans, etc., similar efforts are being requested to midTask Force on Climate-related Financial Disclosures: 2021 Status Report
About 80% of the respondents to the TCFD Consortium’s FY2020 TCFD Consortium Member Survey (https://tcfdconsortium.jp/en/news_detail/20081202) expressed intention to disclose by 2020.
5 CDP Climate Change Report Japan (https://japan.cdp.net/)
3
4

2

Chapter 1 Introduction

Chapter 1

cap companies, SMEs and unlisted companies. Further progress in corporate climate-related
information disclosure is expected in the future, with the IFRS Foundation which establishes
the International Financial Reporting Standards (IFRS) considering detailed disclosure
requirements based on TCFD.

Chapter 2
Chapter 3
Chapter 4
Appendix3

Chapter 1 Introduction

Chapter 1

B. Purpose of Developing this Guidance(1) History of Developing the Guidance

Chapter 2
Chapter 3
Chapter 4
Appendix

In order to achieve the goals under the Paris Agreement 6 , fostering discontinuous
innovation which is not merely an extension of existing efforts will be essential. To that end, it
will be necessary to establish a “ virtuous cycle of environment and growth” where a)companies visualize their efforts to create innovation in order to make them clear to theirinvestors and other stakeholders 7, b) investors and other stakeholders undertake constructive
dialogue (engagement) with companies based on such disclosed information and support theirefforts toward decarbonization. c) investors and other stakeholders appropriately provide
finances to companies whose efforts towards decarbonization is confirmed throughengagement, d) companies achieve growth through realization of innovation, and e) the profits
generated are distributed to investors and other stakeholders, and are re-invested in further
innovation.
In the early stages, discussions related to climate-related information disclosure have been
conducted mainly by the financial authorities and entities within the financial industry, andviewpoints of non-financial companies were not adequately reflected. Considering that many
companies are currently affected by climate change, companies must recognize how climatechange affects their business activities and will potentially impact them financially, andcommunicate relevant information to investors and other stakeholders to get them tounderstand the impacts, if climate change is deemed to have material impacts on theirbusiness models. At the same time, by explaining how their production activities, products andservices contribute to the resolution of climate change issues, and how that contribution
drives their growth, companies can show investors and other stakeholders that they can
expand sustainably even while being impacted by climate change.
In order to realize the “virtuous cycle of environment and growth,” companies must interact
with their investors and other stakeholders not just by responding to their requests, but also
by actively communicating their strengths and repeatedly holding constructive dialogues withthem to deepen their mutual understanding.
As mentioned above, the TCFD Recommendations are deemed to be a useful set of tools for
dialogue between companies and investors and other stakeholders since it is an internationalframework originated by the G20, and there has been a gradual trend to integrate them into
global frameworks for corporate evaluation and national and regional institutions. From theviewpoint of disclosing companies, meanwhile, there are several issues which require further
examination, such as ways to determine the medium of disclosure, scenario analysis, and theIn December 2015, nearly 200 governments agreed under the Paris Agreement to step up the global response to the threatof climate change by “Holding the increase in the global average temperature to well below 2°C above pre-industrial levels
and pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels.”
7 “investors and other stakeholders” refer to investors, lenders, insurance companies, and other users of climate-related
financial disclosures, here and hereinafter in this Guidance
6

4

Chapter 1 Introduction

Appendix

5

Chapter 4

Information on TCFD Study Group can be obtained fromhttps://www.meti.go.jp/policy/energy_environment/global_warming/tcfd_study_group.html (in Japanese)
9 https://tcfd-consortium.jp/en/news_detail/20081201
10 The Corporate Governance Code, published by the Tokyo Stock Exchange in 2015, is a set of key principles that contributeto the realization of effective corporate governance. The Corporate Governance Code was first revised in 2018 to include thedisclosure of information on ESG factors by companies. In the subsequent revision in 2021, the Supplementary Principles statethat companies "enhance the quality and quantity of disclosure based on the TCFD recommendations… or an equivalentframework". (https://www.jpx.co.jp/english/news/1020/20210611-01.html)
8

Chapter 3

As mentioned above, support for the TCFD and disclosure of climate-related information inaccordance with the TCFD Recommendations have become a global trend, and Japan is in aleading position. On the other hand, the need for climate change measures became even moreurgent after then Prime Minister Suga proposed a carbon neutrality target in October 2020.
Furthermore, in the revision of the Corporate Governance Code in June 2021, 10 TCFD-aligned

Chapter 2(2) Purpose of revising the Guidance

Chapter 1

methods for incorporating the characteristics of each business. Hence, some companies havefound it difficult to promote disclosures just by referring to the TCFD Recommendations.
Under this backdrop, METI established the “Study Group on Implementing the TCFD
Recommendations for Mobilizing Green Finance through Proactive Corporate Disclosures”(hereinafter referred to as the “TCFD Study Group”) in August 2018 8. Following the discussion
in the TCFD Study Group, METI has published in December 2018 the first edition of the
Guidance on Climate-related Financial Disclosures (hereinafter referred to as “TCFD Guidance”,
which provided guidance on disclosure aligned with TCFD Recommendations, as well as usefulexamples and viewpoints which reflected industry-specific efforts. At the time of publication,
global implementation of the TCFD Recommendations has only begun. Therefore, it was
anticipated that the accrual of company disclosures and investor feedback in response is
expected to shed light on the ways forward to better disclosure.
Since the publication of the TCFD Guidance, there has been a significant increase in thenumber of TCFD supporters in Japan, as well as a considerable improvement in the substanceof the information disclosed. Under these circumstances, the importance of reflecting thelatest knowledge on TCFD to both companies as well as investors and other stakeholders wasreaffirmed, as well as the importance of promoting TCFD disclosure to a wider range ofindustries in order to foster dialogue with domestic and foreign investors by publicizing theefforts of Japanese companies internationally and to lead to appropriate evaluations.
Following these developments, the TCFD Consortium, an entity established in May 2019 whichbuilds upon the activities of the TCFD Study Group, has become a hub for accumulatingknowledge through discussions between companies and investors and other stakeholders. In
July 2020, the TCFD Consortium published TCFD Guidance 2.0, 9 reflecting the latest
knowledge gained since the first edition of the TCFD Guidance, as well as adding industry
disclosure recommendations, and expanding disclosure examples in Japan and overseas.

Chapter 1 Introduction

Chapter 1

disclosure by companies listed on the Prime Market is described in the Supplementary
Principle.

Chapter 2

Supplementary Principle 3.1.3
Companies should appropriately disclose their initiatives on sustainability whendisclosing their management strategies. They should also provide information on
investments in human capital and intellectual properties in an understandable and specificmanner, while being conscious of the consistency with their own management strategies
and issues.
In particular, companies listed on the Prime Market should collect and analyze theChapter 3

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
based on the TCFD recommendations, which are an internationally well-establisheddisclosure framework, or an equivalent framework.

Chapter 4
Appendix

Following these developments, it has become necessary for companies that were previously
thought to have little to do with climate change to analyze the impact of climate change, andto disclose the outcome of such analysis according to TCFD Recommendations.
This guidance was revised from the perspective of the disclosing companies. In 2020 and
2021, the TCFD issued a series of new guidance documents 11 that detailed the state-of-theart issues in disclosure. Therefore, companies that are already well on their way to enhancetheir TCFD disclosure should refer to such publications. On the other hand, for a large numberof companies that are new to disclosure according to TCFD Recommendations, these guidance
may contain issues that should be dealt with in the future and not in the initial year of
disclosure.
In light of the above, this guidance has been revised to primarily target companies that arein the process of expanding their disclosure efforts in line with TCFD Recommendations. In
addition, in order to improve readability by making the entire volume compact, the “Sectorspecific Recommended Disclosures” and the collection of case examples are published inseparate volumes. 12“Guidance on Scenario Analysis for Non-financial Companies, Guidance on Risk Management Integration and Disclosure,
Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures, and Guidance on Metrics,
Targets, and Transition Plans. For these, please refer to the TCFD home page (https://www.fsb-tcfd.org/publications/). The
TCFD Consortium and the Sustainability Forum Japan have translated the "Implementing the Recommendations of the Task
Force on Climate-related Financial Disclosures" and "Guidance on Metrics, Targets, and Transition Plans" into Japanese(https://tcfd-consortium.jp/news_detail/22042801)
12 A collection of case examples is scheduled for publication by March 2023.
11

6

Chapter 1 Introduction(1) Overall Picture of the TCFD Recommendations and Annex

Chapter 2

The TCFD Recommendations as described in Figure 1 present general recommendations, aswell as recommended disclosures and commentaries structured around the four thematic
areas of Governance, Strategy, Risk Management, and Metrics and Targets. The TCFD has
published the “Final Recommendations” and “Implementing the Recommendations of the
Task Force on Climate related Financial Disclosures” (hereinafter Annex). Furthermore, the
TCFD has published guidance documents on Risk Management, Scenario Analysis, and Metrics,
Targets and Transition Plans.

Chapter 1

C. Where this Guidance Stands

Chapter 3

Go ve r n a n ce
Th e o rga n iza tio n ’s go ve rn a n ce a ro u n d clim a te re la te d risks a n d o p p o rtu n itie s

Th e a ctu a l a n d p o te n tia l im p a cts o f clim a te -re la te dRiskrisks a n d o p p o rtu n itie s o n th e o rga n iza tio n ’s
b u sin e sse s, stra te gy, a n d fin a n cia l p la n n in g
Ris k Ma n a ge m e n t

Me trics

Figure 1

Th e p ro ce sse s u se d b y th e o rga n iza tio n to id e n tify,
a sse ss, a n d m a n a ge clim a te -re la te d risks
Me t r ics a n d Ta r ge t s
Th

t i

dt

t

dt

d

Core Elements of Recommended Climate-related Financial Disclosures

Source: TCFD, 2021. Implementing the Recommendations of the Task Force on Climate-related Financial
Disclosures, p. 14.

7

AppendixdChapter 4

St r a t e gyChapter 1 Introduction

Go ve r n a n ce
In d u s t r ie s a n d Gr o u p sa)St r a t e gy

b)

a)

b)

c)

Ris k
Ma n a ge m e n t
a)
b)
c)

Me t r ics a n d
Ta r ge t s
a)
b)
c)

Chapter 2

Fin a n cia l

Ba n ks
In su ra n ce Co m p a n ie s
Asse t Own e rs
Asse t Ma n a ge rs
No n -Fin a n cia l

Chapter 1

Su p p le m e n t a l Gu id a n ce for Fin a n cia l Se ct or a n d Non -Fin a n cia l Grou p s

En e rgy
Tra n sp o rta tio n
Ma te ria ls a n d Bu ild in gs
Ag, Fo o d , a n d Fo re st Pro d u cts

Chapter 3

Figure 2

Supplemental Guidance for Financial Sector and Non-Financial Groups

Source: TCFD, 2021. Implementing the Recommendations of the Task Force on Climate-related Financial
Disclosures, p. 7.

Chapter 4(2) Relationship between this Guidance and the TCFD Recommendations andAnnex

Appendix

This Guidance consists of four chapters. Chapter 1 describes the background leading up to
the launch of TCFD’s activities, the purpose of developing this Guidance, and the relationshipbetween this Guidance and the TCFD Recommendations as well as its Annex. Chapter 2
analyzes and provides commentaries on questions raised on the TCFD Recommendations andAnnex as well as provide concise descriptions relating to the four themes of TCFD, with an aim
to support corporate disclosure. In the revised Guidance, a more detailed description on thelatest publications by the TCFD is provided in the addendums in chapter 4.
The content of this Guidance is intended to simply describe the content of the TCFD
Recommendations and its Annex and does not deviate from or exceed the contents provided
in the publications by the TCFD.

8

Chapter 2 Commentaries on Disclosures in
Accordance with the TCFD
Recommendations
A. Introduction
In revising the Guidance, the TCFD Consortium identified issues related to information
disclosure through questionnaires to Consortium members, activities such as Working Groups,
and discussions at Roundtables. This chapter is a commentary on the issues identified as above,
including commentary based on the discussions at the time of formulation of the TCFD
Recommendations, information required and opinions by financial companies. Commentaries
are provided on questions on the following topics in the order described in the TCFD
Recommendations:i) Medium of disclosure (See Section B.)ii) Four themes of TCFD Recommendations (See Sections C to F.)iii) Disclosure methods for companies with diverse business models (See Section G.)iv) Steps for implementing the TCFD Recommendations by mid-cap and small- andmedium-sized companies (See Section H.)

B. Medium of Disclosure
The TCFD recommends that “preparers of climate-related financial disclosures provide suchdisclosures in their mainstream (i.e., public) annual financial filings 13.”

Financial filings refer to the annual reporting packages in which organizations are required to deliver their audited financial
results under the corporate, compliance, or securities laws of the jurisdictions in which they operate. (Excerpts from TCFD,
2021, Annex: Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures).

13

9

Chapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

Chapter 1
Chapter 2

3. Application of Recommendations
b. Which recommendations involve an assessment of materiality?
The disclosures related to the Strategy and Metrics and Targets recommendations
involve an assessment of materiality, with the exception of Scope 1 and Scope 2 GHG
emissions under the Metrics and Targets recommendation. The Task Force believes allorganizations should disclose absolute Scope 1 and Scope 2 GHG emissions independentof a materiality assessment. The disclosure of Scope 3 GHG emissions is subject tomateriality; however, the Task Force encourages organizations to disclose such
emissions.

Chapter 3c. Where should preparers disclose?
Preparers of climate-related financial disclosures should provide such disclosures intheir mainstream (i.e., public) annual financial filings.10 Certain organizations—those in
the four non-financial groups that have more than one billion U.S. dollar equivalent(USDE) in annual revenue—should consider disclosing information related to theStrategy and Metrics and Targets recommendations in other reports when theinformation is not deemed material and not included in financial filings.11 Other reports
include official company reports that are issued at least annually, widely distributed andavailable to investors and others, and subject to internal governance processes that are
the same or substantially similar to those used for financial reporting.

Chapter 4
AppendixOriginal footnote 10: Financial filings refer to the annual reporting packages in which organizations are
required to deliver their audited financial results under the corporate, compliance, or securities laws of
the jurisdictions in which they operate.
Original footnote 11: The Task Force chose a one billion USDE annual revenue threshold because it
captures organizations responsible for over 90 percent of Scope 1 and 2 GHG emissions in the industries
represented by the four non-financial groups (about 2,250 organizations out of roughly 15,000).
Source: TCFD, 2021. Implementing the Recommendations of the Task Force on Climate-related Financial
Disclosures, P. 7-8. “Organization” in TCFD recommendation refers to company or group etc. for which
consolidated financial statements are prepared.

Among the four thematic areas, the TCFD Recommendations stipulate that it is desirable forall companies to provide disclosures on to Governance and Risk Management in their financial
filings, as described above. 14 The reason for recommending disclosure to all companies isbecause many investors and other stakeholders believe that almost all industries arepotentially exposed to the impacts of climate change. Furthermore, TCFD recommends thedisclosure to be included in financial filings because financial filings are the information
14

In 2021, the TCFD updated its Annex to recommend that all companies also disclose Scope 1 and Scope 2 GHG emissions.”

10Chapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

Chapter 1
Chapter 2

resource most frequently referenced by investors and other stakeholders and subject tointernal governance practices.
The TCFD Recommendations also states that organizations should provide information on
Strategy and Metrics and Targets in annual financial filings when they are deemed material.
Furthermore, it is recommended that large companies 15 disclose such information in otherreports even when the information is not deemed material, since these organizations are more
likely than others to be financially impacted over time.

Chapter 3
Chapter 4

Figure 3

Recommended disclosure medium in the TCFD Recommendations

Certain organizations—those in the four non-financial groups that have more than one
billion U.S. dollar equivalent (USDE) in annual revenue—should consider disclosing
information related to the Strategy and Metrics and Targets recommendations in otherreports when the information is not deemed material and not included in financial filings.
Other reports include official company reports that are issued at least annually, widelydistributed and available to investors and others, and subject to internal governanceprocesses that are the same or substantially similar to those used for financial reporting. 16
The above is an explanation of the medium of financial disclosure in the TCFD
Recommendations. Note that the scenarios analysis as described in c) under Strategy in the
TCFD Recommendations is defined as “process for identifying and assessing a potential range
15
16

8.

Companies in the four non-financial groups that have more than one billion U.S. dollar equivalent (USDE)TCFD, 2021, Annex: Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures, pp.7-

11

Appendix

The Annex states as follows with respect to disclosure medium.

Chapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

Chapter 1
Chapter 2
Chapter 3
Chapter 4of outcomes of future events under conditions of uncertainty.” 17 A major issue yet to be
determined is whether such information based on an uncertain and long-term outlook should
be included in financial filings. In Japan, financial reports subject to statutory disclosure fallunder the category of securities reports. However, since there are penalties for false
statements in securities reports, there are views that they are not appropriate as a medium
for describing long-term risks and opportunities related to climate change, which involve
uncertainty. On the other hand, though the extent of disclosure varies according to items, 18
there is an increasing trend in the number of companies undertaking disclosure in line with
TCFD Recommendations in securities reports. 19 Furthermore, following the Working Groupon Corporate Disclosure of the Financial System Council, 20 the Financial Services Agency has
decided to include in securities reports a place to describe sustainability-related informationsuch as climate change related efforts.
Disclosure in accordance with the TCFD Recommendations is still evolving at this point.
Disclosure practices for effective information provision to investors and other stakeholders is
expected be refined with the accumulation of case examples. At present, there are various
disclosure mediums besides financial filings, such as integrated reports and sustainability
reports. For this reason, companies will need to appropriately combine such reports in order
to effectively provide information to investors and other stakeholders. Several examples of
disclosure mediums other than financial filings are described below.

Appendix

1. Integrated reports, annual reports 21
These are reports produced on a voluntary basis which compile both corporate financial
information and non-financial information, including sustainability-related information. The
available guidelines for integrated reports include the “Guidance for Collaborative Value
Creation” developed by METI, and the “International Integrated Reporting Framework”
formulated by IIRC. 22
2. Environmental report, sustainability report, CSR report, etc.
These are reports disclosing of non-financial information, including details on an entity’sefforts towards realizing a sustainable society. As sustainability reporting guidelines, a set of
GRI Standards developed by GRI are available.
According to the TCFD Consortium's questionnaire survey of member companies, financial
TCFD, 2021, Annex: Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures, p.83.
See e.g., p.10 of Japan Exchange Group, Inc., 2021. Survey of TCFD Disclosure in Japan(https://www.jpx.co.jp/english/corporate/news/news-releases/0090/b5b4pj000004jllw-att/TCFDsurveyEN.pdf
19
See e.g., TCFD Consortium, 2021. FY2021 TCFD Consortium Member Survey Result, (https://tcfdconsortium.jp/en/news_detail/20081202) p.4.
20 An English summary of the report is available at: https://www.fsa.go.jp/singi/singi_kinyu/tosin/20220613/03.pdf.
21 In Japan, the term “annual report” describes a voluntary disclosure report. Overseas, however, this term sometimes
describes statutory disclosure documents, as in the case of the “Annual Report and Accounts” in the U.K.
22 In June 2021, the International Integrated Reporting Council (IIRC) merged with the Sustainability Accounting Standards
Board (SASB) to form the Value Reporting Foundation (VRF) which was later consolidated with the IFRS Foundation.
17
18

12

Chapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

Chapter 1

institutions obtain information from multiple media, such as corporate websites,
environmental reports, and sustainability reports, in addition to integrated reports (Figure 4).

Chapter 2
Chapter 3

Figure 4Media Used by Financial Institutions Use to Obtain Information on investee companies (total

Source: TCFD Consortium, 2021, FY2021 TCFD Consortium Member Survey Result

13

Appendix

The TCFD Recommendations do not present a specific format for climate-related disclosure.
When a company discloses information in financial filings, integrated reports, sustainability
report, or the like, a key step is to demonstrate the relationship between the information
disclosed in these reports and the recommended structure of disclosures presented by the
TCFD recommendations. According to a survey conducted by the TCFD Consortium in 2021,
climate-related information is often disclosed through multiple media (Figure 5). While there
is a continuing trend to use integrated reports, sustainability reports, and corporate websites
as the primary disclosure medium, the number of non-financial institutions that chose
securities reports as the disclosure medium based on the TCFD has increased from 9 to 19.

Chapter 4

respondents: 57)

Chapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

Chapter 1

Non-financial institutions (154 respondents)

Financial Institutions (57 respondents)

Chapter 2
Chapter 3

Figure 5

The medium in which the information according to TCFD recommendations are disclosed

Source: TCFD Consortium, 2021, FY2021 TCFD Consortium Member Survey Result

Chapter 4
Appendix

As shown above, the choice of disclosure media is left to the inventiveness of each company.
On the other hand, integrated reports and corporate websites are the main sources ofobtaining disclosure information by financial institutions (See Figure 4 above). Since disclosure
according to TCFD Recommendations is intended to present the future of companies throughresponses to climate change, the view shared by financial institutions is that disclosure in
integrated reports is appropriate.
In the integrated reports, efforts have been made to include a correspondence table witheach item of the TCFD Recommendations and to explain the status of the responses according
to the structure of the TCFD Recommendations. As other measures, data that are too detailed
to be included in the integrated reports may be disclosed in the sustainability reports, andupdated data may be disclosed on the website and referred to from the integrated reports.

14

Chapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

The TCFD Recommendations recommend the following disclosures under Governance.

15

Appendix

Source: TCFD, 2021, Annex: Implementing the Recommendations of the Task Force on Climate-related
Financial Disclosures, p.17.

Chapter 4

Describemanagement’s role inassessing andmanaging climaterelated risks andopportunities

Guidance for All Sectors
In describing management’s role related to the assessmentand management of climate-related issues, organizations
should consider including the following information:
 whether the organization has assigned climate-related
responsibilities to management-level positions orcommittees; and, if so, whether such management
positions or committees report to the board or acommittee of the board and whether those responsibilities
include assessing and / or managing climate-related issues
 a description of the associated organizational structure(s) processes by which management is informed aboutclimate-related issues; and how management (through specific positions and / ormanagement committees) monitors climate-related issues

Chapter 3

Recommended
Disclosure b)

Chapter 2

Governance: Disclose the organization’s governance around climate-related risks andopportunities.
Recommended
Guidance for All Sectors
Disclosure a)
In describing the board’s oversight of climate-related issues,organizations should consider including a discussion of the
Describe the board’s
following:oversight of climate
 processes and frequency by which the board and/ or board
related risks andcommittees (e.g. audit, risk, or other committees) areopportunities.
informed about climate-related issues.
 whether the board and / or committees consider climaterelated issues when reviewing and guiding strategy, majorplans of action, risk management policies, annual budgets,and business plans as well as setting the organization’s
performance objectives, monitoring implementation andperformance, and overseeing major capital expenditures,acquisitions, and divestitures; and how the board monitors and oversees progress against
goals and targets for addressing climate-related issues

Chapter 1

C. GovernanceChapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

Chapter 1
Chapter 2
Chapter 3

As issues of interest to investors and other stakeholders, the TCFD Recommendations
mention the role of the board in providing oversight on the response to climate change, andthe role of management in assessing and managing the risks and opportunities of climatechange. One way to respond is to establish the organizational structure including thepositioning and roles of the Environmental Committee and the Sustainability Committee
headed by the Board of Directors and the top management, and to disclose them. In addition,
it is important to show the effectiveness of the organizational structure through demonstrating
how discussions on climate change are conducted and whether such discussions are reflected
in management. This can be done by disclosing the climate-specific roles and responsibilitiesof the constituting bodies and the management, as well as the process on how the discussion
is reflected in the management.
These are not only useful as general information on corporate governance, but are also
relatively straightforward to establish as disclosures based on TCFD Recommendations. Manycompanies present a flow diagram of a structure that includes a board of directors,
management, and related committees.

Chapter 4
Appendix16

Chapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

The TCFD Recommendations recommend the following disclosures under Strategy.

Organizations should describe how climate-related issues serve as
an input to their financial planning process, the time period(s) used,and how these risks and opportunities are prioritized.
17

Appendix

Organizations should consider including the impact on theirbusinesses and strategy in the following areas: Products and services
 Supply chain and/or value chain Adaptation and mitigation activities
 Investment in research and development
 Operations (including types of operations and location offacilities)
 Acquisitions or divestments Access to capital

Chapter 4

Describe theimpact ofclimate-relatedrisks andopportunities ontheorganization’s
businesses,
strategy, andfinancialplanning.

Chapter 3

Recommended
Disclosure b)

Organizations should consider providing a description of their risks
and opportunities by sector and/or geography, as appropriate.
Guidance for All Sectors
Building on recommended disclosure (a), organizations should
discuss how identified climate-related issues have affected theirbusinesses, strategy, and financial planning.

Chapter 2

Strategy: Disclose the actual and potential impacts of climate-related risks andopportunities on the organization’s businesses, strategy, and financial planning wheresuch information is material.
Recommended
Guidance for All Sectors
Disclosure a)
Organizations should provide the following information:
 a description of what they consider to be the relevant short-,
Describe themedium-, and long- term time horizons, taking into consideration
climate-related
the useful life of the organization’s assets or infrastructure andrisks andthe fact climate-relate issues often manifest themselves over theopportunities
medium and longer terms;
the organization  a description of the specific climate-related issues potentially
has identified
arising in each time horizon (short, medium, and long term) thatover the short,
could have a material financial impact on the organization; andmedium, and a description of the process(es) used to determine which risks
long term.
and opportunities could have a material financial impact on theorganization.

Chapter 1

D. Strategy

Chapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

Chapter 1

Organizations’ disclosures should reflect a holistic picture of theinterdependencies among the factors that affect their ability tocreate value over time.

Chapter 2

Organizations should describe the impact of climate-related issues
on their financial performance (e.g., revenues, costs) and financial
position (e.g., assets, liabilities).24 If climate-related scenarios wereused to inform the organization’s strategy and financial planning,such scenarios should be described.

Chapter 3
Chapter 4

Recommended
Disclosure c)

Appendix

Describe theresilience of theorganization’s
strategy, taking
intoconsiderationdifferent
climate-related
scenarios,
including a 2 °C
or lower
scenario.

Organizations that have made GHG emissions reduction
commitments, operate in jurisdictions that have made suchcommitments, or have agreed to meet investor expectations
regarding GHG emissions reductions should describe their plans fortransitioning to a low-carbon economy, which could include GHG
emissions targets and specific activities intended to reduce GHG
emissions in their operations and value chain or to otherwise
support the transition.25
Guidance for All Sectors
Organizations should describe how resilient their strategies are toclimate related risks and opportunities, taking into consideration atransition to a lower-carbon economy consistent with a 2 °C or lower
scenario and, where relevant to the organization, scenarios
consistent with increased physical climate-related risks.26
Organizations should consider discussing: where they believe their strategies may be affected by climaterelated risks and opportunities; how their strategies might change to address such potential risks
and opportunities;
 the potential impact of climate-related issues on financial
performance (e.g., revenues, costs) and financial position (e.g.,assets, liabilities);27 and the climate-related scenarios and associated time horizon(s)considered

Original footnote 24: These impacts may be described in qualitative, quantitative, or a combination ofboth qualitative and quantitative terms. The Task Force encourages organizations to include
quantitative information, where data and methodologies allow.
Original footnote 25: Organizations may agree to meet investor expectations regarding GHG emissions
reductions for various reasons, including concerns about access to or the cost of capital if they fail to doso.

18

Chapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

Source: TCFD, 2021, Annex: Implementing the Recommendations of the Task Force on Climate-related
Financial Disclosures, pp. 18-19.

How should preparers define short, medium, and long term?
The Task Force is not specifying time frames for short, medium, and long term giventhat the timing of climate-related impacts on businesses will vary. Instead, the Task
Force recommends preparers define time frames according to the life of their assets,
the profile of the climate-related risks they face, and the sectors and geographies inwhich they operate.12
Original footnote 12: 2030 and 2050 have become key target dates for addressing climate change
following the publication of the Special Report on Global Warming of 1.5°C by the Intergovernmental
Panel on Climate Change (IPCC). This report noted that to limit global warming to 1.5°C “global net
human-caused emissions of carbon dioxide (CO2) would need to fall by about 45 percent from 2010 levels
by 2030, reaching ‘net zero’ around 2050.”
Source: TCFD, 2021, Annex: Implementing the Recommendations of the Task Force on Climate-related
Financial Disclosures, p.8.

19

Appendix

The TCFD’s recommended disclosure a) under Strategy encourages organizations to explain
specific climate-related issues that would have material financial impacts in short-, medium-,and long-term time frames. For specific context on short-, medium- and long-term time frames,
TCFD provides the following guidance.

Chapter 4(1) Recommended disclosure a)

Chapter 3

As regards the relationship between a) and b) in the above guidance, recommended
disclosure a) requires organizations to identify short-, medium-, and long-term risks andopportunities (regardless of whether or not a scenario analysis is conducted), while
recommended disclosure b) requires organizations to explain the impacts of climate-related
issues on businesses, strategies, and financial planning based on such risks and opportunities.
Also, the scenario analysis in recommended disclosure c) also includes elements ofrecommended disclosures a) and b).
Important points at issue for recommended disclosures a), b), and c) are respectively
explained below.

Chapter 2

Original footnote 27: These impacts may be described in qualitative, quantitative, or a combination ofboth qualitative and quantitative terms. The Task Force encourages organizations to include
quantitative information, where data and methodologies allow.

Chapter 1

Original footnote 26: In interpreting the phrase “2°C or lower,” organizations should consider aligning
their scenario analysis with Article Two of the 2015 Paris Agreement which commits parties to “holding
the increasing in the global average temperature to well below 2°C above pre-industrial levels andpursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels.”

Chapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

Chapter 1
Chapter 2
Chapter 3
Chapter 4
Appendix

As stated above, what is appropriate time frame depends on the climate-related risks andopportunities that are expected to have impact. The physical risks posed by climate change
and the innovations on low-carbon technologies, on the other hand, encompass issues thatwill take much longer to address than is envisaged within the time frames envisaged in theoperating and financial plans or strategic and capital plans.
Against this backdrop, the IPCC Special Report on 1.5 °C indicated the need to reduce global
anthropogenic CO2 emissions to net zero around 2050 in order to prevent future temperature
increases from exceeding 1.5 °C. The year 2050 has become a focus of attention as a milestone
for long-term climate change measures, and therefore the target year for long-term plans ofmany countries. Furthermore, many countries including Japan have set 2030 as the target year
based on the Paris Agreement, and it is expected that measures that are much more advanced
than present levels will be taken to mitigate climate change. In this way, 2030 can beconsidered as a timeline that shows the midpoint of where the world wants to be in 2050. On
the other hand, countries, regions, and industries can take divergent paths toward carbon
neutrality in terms of cost and technology. For example, it may be possible to envision a futurein which emissions will be substantially reduced after 2030. In such a case, however, it isdesirable that the transition from 2030 to 2050 should be described as specifically as possible.
The above are mainly matters regarding transition risks. As the transition to carbon
neutrality is expected to bring about major changes in corporate strategies, many Japanesecompanies currently focus on transition risks. It should be noted, however, that it is desirable
for companies that aim to appeal to overseas investors to enhance their descriptions of thephysical risks expected to their siting in Japan, due to worldwide perception of the highoccurrence of natural disasters. Therefore, it is effective to consider cases where sufficientmeasures against climate change are not taken, such as the "4 °C scenario". Examples ofcorporate efforts to reduce physical risk include evaluating impacts on corporate activities andimplementing countermeasures by making use of information on natural disasters issued bypublic institutions (e.g., hazard maps). 23
Existing publication and data to be referred to in establishing such a long-term time frame
may include, for example, information on scenarios such as the International Energy Agency(IEA) for transition risks (See Reference 1), or information on physical risks such as those byinternational organizations that consider the impacts by industry and region (See Reference
2).

23

TCFD Consortium, 2021, Green Investment Guidance 2.0 p.18 footnote 20.

20

Chapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

The document can be downloaded from https://www.physicalclimaterisk.com/index.html.
Of these, “acquisitions or divestments” and “access to capital” were newly included in the 2021 revision of the“Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures”

24
25

21

Appendix

In addition, the 2021 update to the Annex also includes planning for transition to a low-carbon
economy (transition plan) as recommended disclosure item under certain conditions. This section
describes the transition plans that have become increasingly important in recent years, as well as
R & D-related investments that were of high interest when this guidance was first published.

Chapter 4

The TCFD’s recommended disclosure b) under Strategy encourages organizations to explain
the implications of climate-related issues for their businesses, strategies, and financial
planning. The following seven areas of business and strategy should be considered. 25
 Products and services
 Supply chain and/or value chain Adaptation and mitigation activities
 Investment in research and development
 Operations (including types of operations and location of facilities)
 Acquisitions or divestments Access to capital

Chapter 3(2) Recommended disclosure b)

Chapter 2

Reference 2: Information on scenarios that can be used when assessing physical risk
“Advancing TCFD Guidance on Physical Climate Risks and Opportunities,”24 publishedby the European Bank for Reconstruction and Development (EBRD) in 2018, examines
indicators related to physical risks and resilience (opportunities) and assesses physicalrisks such as extreme rainfall, floods, and sea level rises at three levels according toindustries.

Chapter 1

Reference 1: Overview of available IEA scenarios that can be used when assessing transitionrisk
IEA World Energy Outlook (WEO): The World Energy Outlook is IEA's annual long-term
energy-related forecast and flagship report. WEO 2021, the most recent issue as of the
publication of this Guidance, forecasts energy consumption by sector, and energy
source through 2050. There are four scenarios: Stated Policies Scenario, Sustainable
Development Scenario, Announced Pledges Scenario and Net Zero Scenario. In the Net
Zero Scenario, whose emission is the lowest, energy-related CO2 emissions would
become net zero in 2050. The IEA has also published Energy Technology Perspectives(ETP), which focus on individual energy technologies. The latest at the time of
publication of this guidance was in September 2020.

Chapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

Chapter 1
Chapter 2
Chapter 3
Chapter 4
Appendixa) Disclosure of transition plans
Many countries have set targets based on the Paris Agreement and have raised theirambitions with targets including carbon neutrality targets. Also, many companies have set
emission reduction targets based on their own or existing initiatives such as the Science-Based
Targets initiative (SBTi), which are also being raised from 2 °C to 1.5 °C or “net zero” targets.
Under these circumstances, it is important for companies to show how they will reach futuretargets that are often far from the status quo, and to obtain financing as needed.
At the same time, financial institutions are increasingly required to reduce emissions
associated with their investment and loan portfolios. Against this backdrop, an increasing
number of financial institutions are of the view that conducting dialogue (engagement) withinvestees and recipients of loans, supporting them to achieve targets while addressing
transition risks will lead to an increase in corporate value over the long term. Under thesecircumstances, companies that made their own GHG emission reduction commitments oroperate in countries with emission reduction targets are requested to disclose their plans fortransitioning to a low-carbon economy (transition plans), in an effort to effectively utilize suchengagement.
As regards ways to disclose transition plans, the Financial Services Agency, the Ministry of
Economy, Trade and Industry, and the Ministry of the Environment formulated the “Basic
Guidelines on Climate Transition Finance” in May 2021. 26 Furthermore. TCFD has published"Guidance on Metrics, Targets, and Transition Plans" in October 2021. 27 The former describes
the elements of recommended disclosure for the purpose of obtaining financing (such as bondissuance, bank loans) for transition, and the latter describes the elements of disclosure fortransition plan recommended as part of the company's climate-related information disclosure.
Since disclosure of transition strategies, etc. by fund raisers is important in transition finance,
it is anticipated that proactive disclosure of information according to the TCFD
Recommendations will lead to the acquisition of such funds.
b) Disclosure of investments in research and development
As regards investments in research and development in recommended disclosures b), recent
guidance documents indicate that opportunities, as well as risks, are important for climaterelated information 2829. The “Green Investment Guidance” states that innovation, including
R&D is an important part of company efforts to take advantage of climate-related
opportunities, and describes the importance of understanding and evaluation of innovation
by investors and other stakeholders.
METI website (https://www.meti.go.jp/english/press/2021/0507_001.html)
TCFD, 2021, Guidance on Metrics, Targets, and Transition Plans
28 "Whilst many investors are considering climate-related issues predominantly through a risk lens, they also want tounderstand opportunities." (FRC, 2019, Climate-related corporate reporting – Where to next? P.13)
29 "Companies that invest in reducing their carbon emissions and in capitalizing on opposites presented by the transition will
strengthen their position." (WBCSD TCFD Chemical Sector Preparation Forum, 2019, Climate-related financial disclosure bychemical sector companies: Implementing the TCFD recommendations, P.9)
26
27

22

Chapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

30

TCFD, 2021, Annex: Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures, p.83.

23

Appendix

Scenario analysis refers to a process for identifying and assessing a potential range ofoutcomes of future events under conditions of uncertainty. In the case of climate change,for example, scenarios allow an organization to explore and develop an understanding of
how the physical and transition risks of climate change may impact its businesses, strategies,
and financial performance over time.

Chapter 4a) What is scenario analysis?
TCFD describes scenario analysis as follows. 30

Chapter 3

TCFD’s recommended disclosure c) under Strategy encourages organizations to describe theresilience of their strategies under different climate-related scenarios, including a 2°C or lower
scenario. This section focuses on scenario analysis, which is useful in describing resilience.

Chapter 2(3) Recommended disclosure c)

Chapter 1

When discussing investment in research and development, companies should describe whysuch research and development activities are necessary in relation to the future risks andopportunities they have identified. In particular, companies should proactively describe theirefforts when investing in research and development activities that contribute significantly to
GHG emission reductions, such as efforts for energy-efficiency and the effective utilization of
CO2 emitted. Another important aspect from the perspective of addressing physical risks is
research and development focused on issues such as business continuity in times of extreme
weather events (e.g., maintaining supply chains, ensuring stable supply of energy), stableprocurement of water, stable supply of food, and so on.
When disclosing specific research and development activities, companies should describe
the total spending on research and development activities, budget allocations by research
topic, outcomes achieved through the commercialization of such technologies (e.g.,contribution to revenues, reduction of CO2 emissions), and the relationships between researchand development activities and the outcomes. Disclosing such information will help clarify thesignificance of research and development in companies, and as a result, investors will be able
to understand the long-term strategy of companies and the direction of initiatives geared
toward innovation.
For basic research and development efforts, it is desirable to describe on the awareness of
issues behind such efforts, as well as areas of technology that will be potentially impacted by
the research and development.
Another effective way companies can show their active engagement in innovation related
to climate change is to participate in innovation-related initiatives by the government andindustry associations, and to actively disseminate information on the same.

Chapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

Chapter 1
Chapter 2

The TCFD recommends organizations to develop two or more plausible scenarios, assess thepotential impacts of each scenario on their businesses, and clarify countermeasures. However,companies with little experience conducting scenario analysis often have little idea of how todevelop scenarios or find suitable methods to use for analysis. Many investors, on the other
hand, are of the view that scenario analysis is useful even if the results cannot be quantified
with a high degree of certainty 31 . Scenario analysis and related dialogue also provide an
opportunity for companies to identify their own risks and opportunities, and to review theirstrategies and business models 32. It is therefore desirable not only for investors, but also forcompanies themselves, to engage in scenario analysis.
Guidance on Scenario Analysis for Non-Financial Companies, published by TCFD, lists thefollowings as key elements and misconceptions of scenarios.

Chapter 3
Chapter 4

Table 1 Elements and misconceptions of scenarios
Scenarios Are Not:
Scenarios Are:
Predictions
Descriptions of alternative plausible futures
Variations of a single base caseSignificantly different views of the future
Snapshots of endpoints
Movies of the evolving dynamics of the future
Generalized views of feared or desired futures
Specific decision-focused views of the future
Products of outside futurists
Products of management insight/perceptions
Normative
Exploratory
Adapted from TCFD, 2020, Guidance on Scenario Analysis for Non-Financial Companies p.16. (Table C1, Figure
C1) and p.17

Appendix

The above description indicates that scenario analysis is not based on a company’scommitment or complex modeling, but rather a "story" in which a firm considers the path toits future business model based on its strategy. The primary focus of investor evaluation is not
the type of scenario used or the sophistication of the analysis, but how persuasive and valid
the analysis results, or "stories," are, and whether the company has taken the necessary
countermeasures against them. 33b) Applying the scenarios
According to the TCFD Recommendations, companies are free to develop their own
scenarios for analysis, and that using existing scenarios are also suitable. 34 In either method,“Given the uncertainty involved to climate change, scenario analysis is considered important and is one of the key elementsof the TCFD. Whilst implementation is developing, investors are supportive of companies evolving their approach.” (FRC, 2019,
Climate-related corporate reporting – Where to next? P.19)
Investors, however, are of the firm belief that a disclosure may still be helpful and assuring even if the results cannot be
quantified with high certainty. (Id. p. 20)
32 TCFD Consortium, 2021, Guidance on Utilizing Climate Information to Promote Green Investment 2.0 (Green Investment
Guidance 2.0), p.12.
33 For more detailed description, refer to TCFD Consortium, 2021, Guidance on Utilizing Climate Information to Promote
Green Investment 2.0 (Green Investment Guidance 2.0), p.11 – 13.
34 Organizations may decide to use existing external scenarios and models (e.g., those provided by third-party vendors) or
31

24

Chapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

Chapter 1
Chapter 2
Chapter 3
Chapter 4

it is important to not apply one single scenario but multiple scenarios from the viewpoint ofdemonstrating a firm's resilience to an uncertain future.
For the scenarios to be used, the TCFD Recommendations state that "different climaterelated scenarios, including those below 2 °C" should be considered. This is consistent withthe goals of the Paris Agreement. On the other hand, the temperature target assumed in the“Carbon Neutrality by 2050” which has been stated as a goal by many countries and companies
in recent years is equivalent to a 1.5 °C scenario, which imposes on companies a transition risk
considerably greater than that of 2 °C scenario. Therefore, the 1.5 °C scenario is useful for
visualizing the magnitude of the impact. 35
With ambitious targets set by both companies and financial institutions, it is likely thatconsideration of “Net Zero” and “1.5 °C” scenarios will be called for. However, companies thatare beginning their scenario analysis may use more conventional scenarios, such as the "2 °C
or lower" scenario, for the purpose of first deepening their understanding as well as limiting
the disparity between the direction to be aimed and the current situation.
As described above, existing external scenarios can be used in scenario analysis. The outline
and usage of these scenarios are described in detail in the “Practical Guide for Scenario
Analysis in Line with the TCFD Recommendations” 36 whose first edition was published in 2019by the Ministry of the Environment (MOE). The guide provides a detailed explanation of the
scenario analyses of companies, and lists the following scenarios as being applicable.
Parameters related to transition risk and physical risk are also listed in the Appendices of theguide.

Appendixdevelop their own, in-house modeling capabilities. (TCFD, 2017, Final Report: Recommendations of the Task Force on Climaterelated Financial Disclosures” (June 2017), p.29.)
35 For example, in the Net Zero Emissions scenario (NZE) of IEA which assumes net zero CO2 emissions from energy
consumption in 2050 with a temperature increase of 1.5 °C or less, anticipates carbon pricing of $200/t-CO2 in 2040, whereas
its Sustainable Development Scenario (SDS) with a temperature rise slightly above 1.5 °C, anticipates $140/t-CO2. (IEA, 2021,
Net Zero by 2050 A Roadmap for the Global Energy Sector)
36 Based on examples of support provided by the Ministry of the Environment, the document explains ways to improve as
well as practical points for scenario analysis for both companies that have started analysis and those that have already done
so. As steps for scenario analysis, preparation (company-wide involvement, setting the scope and time horizon for scenario
analysis), assessment of risk materiality, definition of scenario groups, business impact evaluation, definition ofcountermeasures,
documentation
anddisclosure.
The
document
canbedownloadedfrom:https://www.env.go.jp/policy/policy/tcfd/TCFDguide_3rd_EN.pdf

25

Chapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

Table 2

Chapter 1

TargetTransition risk

Examples of Applicable Scenarios

Applicable scenarios

 IEA WEO NZE2050, IRENA 1.5℃, PRI 1.5℃ RPS, NGFS Net Zero (Net zero

Chapter 2/ 1.5℃ scenarios)
 IEA WEO SDS, PRI FPS, NGFS below 2℃ (scenarios which aim to achieve
2℃ targets)
 IEA WEO STEPS, NGFS Current Policies (scenarios which do not achieve 2℃targets)
 Deep Decarbonization Pathways Project (2°C target achieved)
 IRENA REmap (Double the renewable energy ratio by 2030)
 Greenpeace Advanced Energy [R] evolution (2°C target achieved)
Physical risk

 IPCC RCP (representative concentration pathway) scenarios: RCP 8.5, RCP

Chapter 3

6.0, RCP 4.5, and RCP 2.6 37
Source: Ministry of the Environment, 2021, Practical guide for Scenario Analysis in line with the TCFD
recommendations: 2021 edition. In addition to the above scenario groups, the guide also identifies
migration risk and physical risk parameters from key scenario tools that can be used as a reference when
conducting corporate scenario analysis.

Chapter 4

Furthermore, "Guidance on Risk Management Integration and Disclosure" published by
TCFD in 2020 provides a list of effects of physical risks and migration risks typical to various
temperature rise scenarios, which can be useful for a preliminary examination of these risks.

Appendix

Table 3 Possible Implications of Different Temperature Increases
Temperature scenarios
1.5℃
2℃
3℃
Physical impacts
Sea level rise
0.3～0.6m
0.4～0.8m
0.4～0.9m
Chance of ice-free Arctic summer
Frequency of extreme rainfall
Increase in wildfire extent
People facing extreme heatwaves
Land area hospitable to malaria
Global GDP impact
Stranded assets

Food supply

1/30
1/6
+17%
+36%
X 1.4
X 1.6
X 22
X 27
+12%
+18%
Economic impacts
-10%
-13%
Transition: fossil fuel assets(supply, power, transport,
industry)

Changing diets,
yield loss in tropics

63%
+70%
X 2.0
X 80
+29%
-23%
Mixed: some fossil
fuel assets andsome physicalstranding
24% yield loss

5℃
0.5～1.7m
100%
+150%
X 2.6
X 300
+40%

-45%
Physical:uninhabitablezones, agriculture,
water-intense
industry, lost
tourism
60% yield loss, 60%
demand increase

Adapted from TCFD, 2020, Guidance on Risk Management Integration and Disclosure
The Working Group 3 Report of the IPCC Sixth Assessment Report published in April 2022
(https://www.ipcc.ch/report/sixth-assessment-report-working-group-3/) currently under review by the IPCC uses a new setof scenarios, the Illustrative Mitigation Pathways (IMP).
37

26

Chapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

Chapter 1
Chapter 2
Chapter 3
Chapter 4c) Quantitative aspects of scenario analysis
One of the major challenges in scenario analysis for companies, especially those in the earlystages of disclosure, is quantification. In addition to the difficulty of the analysis itself, the time
horizon for the scenario analysis is long, such as until 2050. This results in a wide disparity ofvalues according to the framing of scenarios, which makes scenario analysis difficult. In lightof these circumstances, the TCFD Recommendations do not consider quantification essential
in scenario analysis, and sees the value of qualitative disclosure. 38 Furthermore, the TCFD
maintains that scenario analysis should begin with a qualitative understanding of climaterelated risks and opportunities, and that hasty quantification will undermine the robustnessof scenarios and their role as communication tools. As regards disclosure of quantification, the
TCFD is of the view that it is a necessary goal, albeit one that companies should proceed insteps. 39
Financial institutions typically do not require an elaborate scenario analysis from the start,
but use the analysis to check how organizations see risks and opportunities of climate change
and manage their businesses accordingly. In disclosing a scenario analysis, it is desirable thatorganizations explain the underlying assumptions, as well as the reasons for the scenario
selection.
When conducting a qualitative scenario analysis, one possible way is to describe the impactsof climate change not in absolute values but on a relative scale, applying designations such aslarge, medium, and small. In such a case, it is desirable to be able to explain their meaning ina consistent manner.

Appendix“Task Force recognizes that, for many organizations, scenario analysis is or would be a largely qualitative exercise. However,organizations with more significant exposure to transition risk and/or physical risk should undertake more rigorous qualitative
and, if relevant, quantitative scenario analysis with respect to key drivers and trends that affect their operations.”, ” For an
organization in the initial stages of implementing scenario analysis or with limited exposure to climate-related issues, the Task
Force recommends disclosing how resilient, qualitatively or directionally, the organization’s strategy and financial plans may
be to a range of relevant climate change scenarios” (Excerpted from TCFD, 2017, Final Report: Recommendations of the Task
Force on Climate-related Financial Disclosures, pp.27-28.
39 TCFD, 2020, Guidance on Scenario Analysis for Non-Financial Companies, pp.30-31
38

27

Chapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

Risk Management: Disclose how the organization identifies, assesses, and manages
climate-related risks.
Recommended
Guidance for All Sectors
Disclosure a)
Organizations should describe their risk management
processes for identifying and assessing climate-related risks. An
Describe theimportant aspect of this description is how organizationsorganization’s
determine the relative significance of climate-related risks inprocesses for
relation to other risks.
identifying andassessing climaterelated risks
Organizations should describe whether they consider existingand emerging regulatory requirements related to climatechange (e.g. limits on emissions) as well as other relevant
factors considered.

Chapter 4

Organizations should also consider disclosing the following: processes for assessing the potential size and scope ofidentified climate-related risks and definitions of risk terminology used or references to existingrisk classification frameworks used

Chapter 2
Chapter 3

Chapter 1

E. Risk Management

Recommended
Disclosure b)

Appendix

Describe theorganization’s
processes for
managing climaterelated risks
Recommended
Disclosure c)
Describe how
processes for
identifying, assessing,and managing climaterelated risks areintegrated into theorganization’s overallrisk management.

Guidance for All Sectors
Organizations should describe their processes for managing
climate-related risks, including how they make decisions to
mitigate, transfer, accept, or control those risks. In addition,organizations should describe their processes for prioritizing
climate-related risks, including how materiality determinations
are made within their organizations.
Guidance for All Sectors
Organizations should describe how their processes for
identifying, assessing, and managing climate-related risks areintegrated into their overall risk management.

Source: TCFD, 2021, Annex: Implementing the Recommendations of the Task Force on Climate-related
Financial Disclosures, p. 20.

28

Chapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

Chapter 2

Table 4

Chapter 1

A “Risk Management” disclosure in the TCFD Recommendations is interpreted as adisclosure of processes for identifying, assessing and managing climate-related risks. The
financial impact of risks identified as a result of “Risk Management” is classified into the items
disclosed in “Strategy,” and the organizational structure of the supervision/implementation ofrisk management in the management of the entire organization is classified into the items
disclosed in “Governance.” One of the major concerns of investors is how climate-related risk
management is integrated into company-wide risk management. TCFD proposes thefollowing steps.
Initial steps for integrating climate-related risks into risk management

1

Ensure there is a general understanding across the company of climate change concepts
and its potential impacts.

2

Identify the specific risk management processes and elements that may need to be
adjusted for the integration of climate-related risk as well as the functions anddepartments responsible for those processes and elements

3

Incorporate climate-related risks into the existing risk taxonomy and risk inventory usedin the company. This includes mapping climate-related risks to existing risk categories
and types.

4

Adapt existing risk management processes and key elements based on information
gained in the previous steps and the characteristics of climate-related risk

29

Appendix

Adapted from TCFD, 2020, Guidance on Risk Management Integration and Disclosure.

Chapter 4

Guidance

Chapter 3

StepChapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

Chapter 1

F. Metrics and Targets
The TCFD recommends the following disclosures under Metrics and Targets.
Metrics and Targets: Disclose the metrics and targets used to assess and manage
relevant climate-related risks and opportunities, where such information is material.

Chapter 2

Recommended
Disclosure a)

Chapter 3

Disclose the metrics
used by theorganization toassess climate-

Chapter 4

related risks andopportunities in linewith its strategy andrisk management
process

Guidance for All Sectors
Organizations should provide the key metrics used to measureand manage climate-related risks and opportunities, as well as
metrics consistent with the cross-industry, climate-related
metric categories.30 Organizations should consider including
metrics on climate-related risks associated with water, energy,
land use, and waste management where relevant andAppendix

applicable.
Where climate-related issues are material, organizations should
consider describing whether and how related performance
metrics are incorporated into remuneration policies.
Where relevant, organizations should provide their internalcarbon prices as well as climate-related opportunity metrics
such as revenue from products and services designed for a lowcarbon economy.
Metrics should be provided for historical periods to allow fortrend analysis. Where appropriate, organizations should
consider providing forward-looking metrics for the crossindustry, climate-related metric categories consistent with theirbusiness or strategic planning time horizons. In addition, where
not apparent, organizations should provide a description of themethodologies used to calculate or estimate climate-related
metrics.

Recommended
Disclosure b)

Guidance for All Sectors
Organizations should provide their Scope 1 and Scope 2 GHG
emissions independent of a materiality assessment, and, if
Disclose Scope 1,
appropriate, Scope 3 GHG emissions and the related risks.31 All
Scope 2, and, iforganizations should consider disclosing Scope 3 GHG
appropriate, Scope 3 emissions. 32 33
greenhouse gas
GHG emissions should be calculated in line with the GHG(GHG) emissions,Protocol methodology to allow for aggregation andand the related risks. comparability across organizations and jurisdictions.34 As
30

Chapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

related risks andopportunities andperformance against
targets.

Original footnote 31: Emissions are a prime driver of rising global temperatures and, as such, are a key
focal point of policy, regulatory, market, and technology responses to limit climate change. As a result,organizations with significant emissions are likely to be impacted more significantly by transition risk thanother organizations. In addition, current or future constraints on emissions, either directly by emission
restrictions or indirectly through carbon budgets, may impact organizations financially.
Original footnote 32: The Task Force strongly encourages all organizations to disclose Scope 3 GHG
emissions. While the Task Force recognizes the data and methodological challenges associated withcalculating Scope 3 GHG emissions, it believes such emissions are an important metric reflecting an

31

AppendixOriginal footnote 30: Financial organizations may find it more difficult to quantify exposure to climaterelated risks because of challenges related to portfolio aggregation and data availability. The Task Forcesuggests financial organizations provide qualitative and quantitative information, where data andmethodologies allow.

Chapter 4loss tolerances, avoided GHG emissions through the entire
product life cycle, or net revenue goals for products and services
designed for a low-carbon economy.
In describing their targets, organizations should consider
including the following: whether the target is absolute or intensity based; time frames over which the target applies; base year from which progress is measured; and key performance indicators used to assess progress against
targets.
Organizations disclosing medium-term or long-term targets
should also disclose associated interim targets in aggregate orby business line, where available.
Where not apparent, organizations should provide a descriptionof the methodologies used to calculate targets and measures.

Chapter 3

Describe the targets
used by theorganization to
manage climate-

Guidance for All Sectors
Organizations should describe their key climate-related targets
such as those related to GHG emissions, water usage, energy
usage, etc., consistent with the cross-industry, climate-related
metric categories, where relevant, and in line with anticipatedregulatory requirements or market constraints or other goals.
Other goals may include efficiency or financial goals, financial

Chapter 2

Recommended
Disclosure c)

Chapter 1

appropriate, organizations should consider providing related,
generally accepted industry-specific GHG efficiency ratios.35
GHG emissions and associated metrics should be provided forhistorical periods to allow for trend analysis. In addition, where
not apparent, organizations should provide a description of themethodologies used to calculate or estimate the metrics.

Chapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

Chapter 1

organization’s exposure to climate-related risks and opportunities. For guidance on reporting Scope 3 GHG
emissions, see the GHG Protocol’s The Corporate Value Chain (Scope 3) Accounting and ReportingStandard.
Original footnote 33: When considering whether to disclose Scope 3 GHG emissions, organizations should
consider whether such emissions are a significant portion of their total GHG emissions. For example, seediscussion of 40% threshold in the Science Based Targets initiative’s (SBTi’s) paper SBTi Criteria andRecommendations, Version 4.2, April 2021, Section V, p. 10.

Chapter 2

Original footnote 34: While challenges remain, the GHG Protocol methodology is the most widely
recognized and used international standard for calculating GHG emissions. Organizations may use national
reporting methodologies if they are consistent with the GHG Protocol methodology.

Chapter 3

Adapted from TCFD, 2021, Annex: Implementing the Recommendations of the Task Force on Climaterelated Financial Disclosures, pp.21-22.

Original footnote 35: For industries with high energy consumption, metrics related to emission intensity
are important to provide. For example, emissions per unit of economic output (e.g., unit of production,
number of employees, or value-added) is widely used.

Chapter 4

The term “metrics” refers to the type of indicators used, and “targets” refer to the value ofsuch indicator to be achieved. For example, “Scope 1 and Scope 2 greenhouse gas emissions”
are metrics, and “emissions to be achieved in 2030 and 2050” are targets. These are discussed
below.

Appendix32

Chapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

As stated above, the TCFD recommends disclosure of metrics in line with their strategy andrisk management process. However, the followings are recommended as cross-industry
metrics to be disclosed.

Item
GHG Emissions

Cross-industry metrics recommended by TCFD to be disclosed.
Overview of item
Unit

Amount and extent of assets or business activities
vulnerable to transition risks

Amount or percentage

Physical Risk

Amount and extent of assets or business activities
vulnerable to physical risks

Amount or percentage

Climate-Related
Opportunities

Proportion of revenue, assets, or other businessactivities aligned with climate-related opportunities

Amount or percentage

Capital
Deployment

Amount of capital expenditure, financing, orinvestment deployed toward climate-related risks andopportunities

Reporting currency

Internal Carbon
PricesPrice on each ton of GHG emissions used internally byan organization

Price in reporting
currency, per MT of
CO2eRemuneration

Proportion of executive management remuneration
linked to climate considerations

Percentage, weighting,description, or amountin reporting currency

Adapted from TCFD, 2021, Implementing the Recommendations of the Task Force on Climate-related Financial
Disclosures pp.79-80 (Table A2.1).

The TCFD states that a company's choice of any of the above metrics basically depends on
what the company considers important (i.e. material). 40 These metrics are not required to be
fully disclosed from the first year; time may be needed, especially if disclosure of climaterelated financial information is in the early stages, or methodologies to calculate the metrics
are under development.
Of the metrics mentioned above, GHG emissions and transition risks are central topics of
disclosure for many companies. With respect to the other items, physical risk is of high interest
to non-Japanese investors, as mentioned above. In addition, items such as internal carbon
price and remuneration are considered by investors as a measure to assess the degree of
whether companies consider climate change mitigation as being important.
For disclosures of Metrics and Targets, the TCFD recommends organizations not to limit
40

However, Scope 1 and Scope 2 emissions are recommended to be disclosed for all organizations.

33

Appendix

Transition Risk

Chapter 4

MT of CO2e

Chapter 3

Absolute Scope 1, Scope 2, and Scope 3; emissions
intensity

Chapter 2

Table 5Chapter 1(1) Recommended disclosure a)Chapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

Chapter 1
Chapter 2

disclosures to items recommended for disclosure, but to use narratives to help investors andother stakeholders understand how such metrics and targets are linked to the organization’svalue creation, and how such metrics are aligned to the organization’s strategy. A company
making a disclosure can deliver information more effectively to investors and otherstakeholders by clarifying the preconditions used in establishing the metrics and setting thetargets. The disclosure of any changes to a method for calculating metrics is also
recommended 41, along with reasons for doing so.

(2) Recommended disclosure b)

Chapter 3
Chapter 4

GHG emissions can be said to be the most typical metric recommended for disclosure. TCFD
recommends organizations to disclose Scope 1, Scope 2 regardless of the quantity or
materiality. On the other hand, TCFD maintains that the disclosure of Scope 3 GHG emissions
is subject to materiality though its disclosure is encouraged for all organizations. Therefore, of
the 15 categories, emphasis on disclosure should be placed on those that are deemed asimportant. 42 In addition, it should be noted that the boundaries defined by each company
with respect to assessment when calculating Scope 3 emissions are not identical. Hence,
simple comparison between companies is not possible. 43 TCFD recognizes the data andmethodological challenges associated with calculating Scope 3 emissions. Furthermore, it isdesirable that assumptions are presented upon disclosure of emissions.

(3) Recommended disclosure c)
AppendixCompanies are requested to set targets and track progress with respect to the metrics
whose disclosures are recommended. The targets should be consistent with company-wide
performance targets such as production and sales. In this context, it may be difficult for many
companies to show a reduction in GHG emissions because their future performance targets
are likely to show an increase in comparison with current performance targets. In such cases,
the target may be expressed as GHG emissions per unit of production.
One of the metrics included in the TCFD Recommendations as an illustrative example is“avoided GHG emissions through the entire product life cycle.” Disclosing GHG emission“An approach is to ... explain changes in calculations, changes from the previous year and scope and boundary” (FRC, 2019,
Climate-related corporate reporting – Where to next? P.23)
42 Which category is material depends on the sector; category 1 (purchased goods and services) may be of importance tofood industry, whereas category 11 (use of sold products) may be relevant for equipment manufacturers.
43 “Corporate Value Chain (Scope3) Accounting and Reporting Standard” includes the following information.
1.5 Scope of the standard(…)“Use of this standard is intended to enable comparisons of a company’s GHG emissions over time. It is not designed to support
comparisons between companies based on their scope 3 emissions. Differences in reported emissions may be a result ofdifferences in inventory methodology of differences in company size or structure. Additional measures are necessary to enablevalid comparisons across companies. Such measures include consistency in methodology and data used to calculate theinventory, and reporting additional information such as intensity ratios or performance metrics.”(Source) Greenhouse Gas Protocol “Corporate Value Chain (Scope 3) Accounting and Reporting Standard”
41

34

Chapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

Chapter 1
Chapter 2
Chapter 3
Chapter 4

reductions in the use phase of products and services, not GHG emissions as a single company,
allows a company to demonstrate the degree to which it contributes to GHG emission
reductions globally through its products and services. The Green Investment Guidance 2.0,
meanwhile, cites examples of the viewpoints of investors and other stakeholders. One investor,
for example, considers it important to take into account contribution to the entire value chain,i.e., not only greenhouse gas emissions but also incorporating addressing emission reductions,while another investor considers that information on GHG emission reductions in society as awhole is useful for duly evaluating a company that is making an effort to reduce GHG emissions,even if the company’s business expansion would increase emissions. Examples of methods toevaluate and disclose the amount of reduction contribution in the entire value chain are"Guidelines for Quantifying GHG emission reductions of goods or services through Global
Value Chain" by the Ministry of Economy, Trade and Industry 44 and "Contributing to Avoided
Emissions through the Global Value Chain - A new approach to climate change measures byprivate actors - (GVC Concept Book)” by Keidanren. 45
It should be noted that it is important to describe the preconditions for the calculation,
because the value of the reduction contribution varies greatly depending on how the
reductions are achieved. It is also desirable that reduction contribution is described separatelyfrom GHG emissions, since they are separate concepts.

Appendix

This document presents the basic concept and framework for quantifying the reduction effects of efforts by organizations
to reduce greenhouse gas emissions from their products and services throughout their life cycles (Each stage from raw
material
procurement
tomanufacturing,use,
anddisposal).
(https://warp.da.ndl.go.jp/info:ndljp/pid/11402477/www.meti.go.jp/english/press/2018/pdf/0330_002.pdf)
45 The document introduces the concept and importance of making reduction contributions through the global value chain(GVC) and provides examples of "visualization" of reduction contributions by various industries and companies(http://www.keidanren.or.jp/en/policy/vape/gvc2018.pdf)
4435

Chapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

Chapter 1

G. Disclosure Methods for Companies with Diverse Business
Models

Chapter 2
Chapter 3
Chapter 4

A company with diverse business models has multiple business domains with different
characteristics. In such a company, the materiality of climate change and business strategies
differ from business to business. In addition, the ability to establish, track, and disclose climaterelated targets may vary according to jurisdiction, sector, and business models. 46 The point at
issue when implementing company-wide disclosure, is therefore to determine the business
which strategies, metrics and targets should be disclosed, as well as the extent of description.
Investors and other stakeholders also request disclosure of information about the strategies
of individual business models. 47
The fundamental approach is to start by identifying climate-related risks and opportunities
for individual business models, and then to examine the potential impacts on the company as
a whole based on the current or future revenues and the magnitude of the materiality ofclimate change. TCFD Recommendations do not provide a specific definition of which businessmodels of a company are considered important, but focus should be placed on businessmodels that present and present significant physical and transition risks or opportunities. In
many cases, this should correspond to businesses which currently account for a significant
proportion of the revenues of companies. However, if companies expect the future expansionof a business domains which are currently small, it is desirable that they disclose according totheir expected future business portfolios by e.g., focusing their explanation on that business.

Appendix
TCFD, 2021, Guidance on Metrics, Targets, and Transition Plans.
“Investors acknowledged that disclosure is evolving, and that they want to understand the effects on the specificbusiness model and strategy, including on an asset-by-asset basis.” (FRC, 2019, Climate-related corporate reporting – Whereto next?) P.23)

46
47

36

Chapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

Chapter 4
Appendix

37

Chapter 3

See e.g., TCFD Consortium, 2021, “Green Investment Guidance 2.0” Addendum 3 “Initiatives for Investors and other
Stakeholders on Climate Change” (https://tcfd-consortium.jp/en/news_detail/20081201)
49 “The Task Force strongly encourages all organizations to disclose Scope 3 GHG emissions. While the Task Force recognizes
the data and methodological challenges associated with calculating Scope 3 GHG emissions, it believes such emissions are an
important metric reflecting an organization’s exposure to climate-related risks and opportunities.” (TCFD, 2021, Annex:
Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures)
50 The Japan Chamber of Commerce and Industry (JCCI) has drawn up a Global Warming Action Declaration for member
companies to publicize their environmental efforts. For details, refer to the website of the Japan Chamber of Commerce andIndustry (https://eco.jcci.or.jp/declaration in Japanese)48

Chapter 2

The TCFD Recommendations suggest that all companies, regardless of size, implement
disclosure related to Governance and Risk Management in their financial filings. As regards
disclosures related to Strategy as well as Metrics and Targets, TCFD recommends that nonfinancial companies with more than one billion U.S. dollar equivalent (USDE) in annual revenue
consider disclosing such information in reports other than financial filings when theinformation is not deemed material.
The series of climate-related financial initiatives established recently aim to align asset
owners, asset managers, banks, and insurance companies' holdings, managed assets,
investments and loans, and underwriting portfolios with emissions paths that aim to reach net
zero by 2050. Major Japanese financial institutions are also participating in such initiatives. 48
In response to this trend, mid-cap and small- and medium-sized companies as well as unlistedcompanies are also being requested to respond to the TCFD Recommendations.
Implementing disclosure in accordance with the TCFD Recommendations, however, is aconsiderable burden for mid-cap and small- and medium-sized companies. Requiring them to
implement disclosure on all recommended disclosure items immediately would be
problematic. Therefore, it is preferrable to have small- and medium-sized companies begin bydisclosing information that is manageable, and then to expand the coverage of disclosure instages. Of the four themes of the TCFD Recommendations, "Governance" and "RiskManagement," which are recommended to be disclosed in financial reports by all companies,
are considered to be relatively straightforward to disclose at the initial stage since they add
consideration of climate change to existing corporate governance and risk management
systems.
In recent years, TCFD has recommended disclosure of Scope 3 emissions. 49 There are cases
in which large corporate customers seek to reduce GHG emissions throughout their supply
chains by requiring mid-cap and small- and medium-sized companies to disclose their GHG
emissions. By disclosing their own efforts towards reducing GHG emissions, mid-cap andsmall- and medium-sized companies can draw attention from large companies that seek toreduce GHG emissions throughout their supply chains, and thereby increase their business
opportunities. 50 In this sense, it is desirable for mid-cap and small- and medium-sized

Chapter 1

H. Steps for Implementing the TCFD Recommendations by
Mid-cap and Small- and Medium-sized Companies

Chapter 2 Commentaries on Disclosures in Accordance with the TCFD Recommendations

Chapter 1

companies to first calculate their Scope 1 and Scope 2 emissions based on fuel and electricity
consumption, along with disclosure of Governance and Risk Management.

Chapter 2
Chapter 3
Chapter 4
Appendix38

Chapter 3 Increasing Corporate Value through
TCFD Disclosure
A. Increasing Corporate Value through TCFD Disclosure
In recent years, investors and other stakeholders have emphasized the effectiveness ofengagement as a measure to combat climate change. 51 The Green Investment Guidance
originally published by the TCFD Consortium in October 2019 and revised in October 2021
states, “As a practice of investors and other stakeholders, it is more important to be engaged
in dialogue with companies to facilitate their climate actions than to simply divest based onsuperficial criteria; engagement can lead to the enhancement of corporate value throughimproved efforts, thus increasing opportunities for investment.”
As these engagement efforts become more active, it will be important for companies toactively engage in disclosure in line with TCFD Recommendations and deepen their
engagement with investors and other stakeholders through disclosure in order to enhancetheir future corporate value. In order to foster such relationship between companies andinvestors and other stakeholders, it is desirable that information disclosure be conducted in avoluntary and flexible manner. There is a concern that excessive standardization of disclosure
content can have a negative impact on the decision-making of investors and other stakeholders.
The TCFD Consortium has called on policymakers and other stakeholders in Japan and abroadon the above points. 52

B. Importance of Getting Started in Disclosure
As mentioned above, there has been an increased effort to respond to TCFD
Recommendations. On the other hand, disclosure in accordance with the TCFD
Recommendations requires careful consideration of many information, including in particularscenario analysis, before a company can begin to provide the information when it starts thedisclosure. As such, there may be cases where a company hesitates to disclose or to support
the TCFD Recommendations. In view of this, the TCFD has presented an illustrative roadmap
to encourage companies to initially make disclosures on the types of information they canmanage, such as their Governance and Risk Management, and then to gradually move on todisclosures related to Strategy and Metrics and Targets. 53 As seen above, disclosure inaccordance with the TCFD Recommendations should not necessarily be thorough from thestart. It is important for a company to first begin the disclosure process, and improve and"Engagement takes time and effort, but might be the most effective way to accelerate the transit to a low-carbon
economy while avoiding the situation of stranded workers and communities.” (Investor Leadership Network, 2019, TCFD
Implementation: Practical Insights and Perspectives from Behind the Scenes for Institutional Investors, p. 18),
52 “Towards a More Decision-Useful TCFD Disclosure” (https://tcfd-consortium.jp/en/news_detail/20081201)
53 TCFD, 2020, 2020 Status Report, p.33.
51

39

Chapter 3 Increasing Corporate Value through TCFD Disclosure

Chapter 1

expand its disclosures gradually, as well as to demonstrate its commitment to do so in the firstyear of disclosure.

C. Refining for Better Disclosure

Chapter 2
Chapter 3

As many companies begin to work on disclosure, the expertise of the disclosure preparers
and best practices of disclosure will accumulate. As a result, there will be more questions thatneed to be explained in Chapter 2 of this Guidance, and more case examples of disclosures toclarify those questions.
If more non-financial companies disclose, it will be possible to improve the sector-specificrecommended disclosures which will be presented in a separate volume, and to consider
expanding the industrial sectors. On a global level, the SASB has presented sector-specificsustainability metrics which are being incorporated in Climate-related Disclosures by the IFRSFoundation, while WBCSD is undertaking activities to address TCFD Recommendations on asectoral basis. As seen above, there have already been moves to work on sector-specificdisclosure, and Japan is ready to actively contribute to such moves.

Chapter 4
Appendix40

Chapter 4 Addendums
Overview of related guidance
Various guidance documents that are useful to refer to in conjunction with this guidance aredescribed below.

(1) Guidance for Utilizing Climate-related Information to Promote Green
Investment (Green Investment Guidance) 54
The “Guidance for Utilizing Climate-related Information to Promote Green Investment(Green Investment Guidance)”, initially published by the TCFD Consortium in October 2019provides a set of guidance to investors and other users of information. This can be regarded asa counterpart to this guidance. The Green Investment Guidance lists three elements necessary
to realize a “virtuous cycle of environment and growth”: promote constructive dialogue(engagement) to enhance corporate value; identify and assess the risks and opportunities
posed by climate change; promote innovation for decarbonization and create mechanisms forthe appropriate flow of funds. In line with the TCFD Recommendations, investors and otherstakeholders should understand the following perspectives a) Governance, b) Strategies andBusiness models, c) Risks and Opportunities, and d) Performance and Key Performance
Indicators (KPIs). It was revised in October 2021 as “Green Investment Guidance 2.0”, which
provided addendums on the followings: a) Paris Agreement and Carbon Neutrality, b)
Transition Finance, c) Initiatives for Investors and other Stakeholders on Climate Change, d)Evaluation on Participation in External Climate Initiatives, e) Carbon Pricing, and f) Climate
Change Risk Management for Investors and other Stakeholders, and the Role of NGFS.

(2) Guidance for Integrated Corporate Disclosure and Company-Investor
Dialogue for Collaborative Value Creation (Guidance for Collaborative
Value Creation) 55
METI published its “Guidance for Integrated Corporate Disclosure and Company-Investor
Dialogue for Collaborative Value Creation: ESG Integration, Non-Financial Information
Disclosure, and Intangible Assets into Investment” (hereinafter referred to as the “Guidance
for Collaborative Value Creation”) in May 2017 and subsequently revised in August 2022 as
Guidance for Collaborative Value Creation 2.0. Its aims were to help deepen mutual
understanding between companies and investors through information disclosure and dialogue
and to encourage companies and investors to take action toward sustainable value creation.
The Guidance for Collaborative Value Creation was expected to serve as a set of guidelines for54

https://tcfd-consortium.jp/en/news_detail/21100501

55https://www.meti.go.jp/english/press/2022/0831_003.html

41

Chapter 4 Addendums

Chapter 1
Chapter 2business owners / managers seeking to manage their companies in ways that create corporate
value, and to convey that information to investors. It is also designed as a guidance forinvestors that will enable them to grasp the information necessary to make investment
decisions, etc. and assess companies from a medium- to long-term perspective, and to serve
as reference for dialogue between investors and companies. The TCFD Guidance is positioned
as an itemized discussion of the Guidance for Collaborative Value Creation focused on climatechange.

Chapter 3
Chapter 4
Appendix42

Chapter 4 Addendums(1) Corporate Governance Code

Chapter 2
Chapter 3
Chapter 4

The Corporate Governance Code is a set of key principles that contribute to the realizationof effective corporate governance, and is issued by the Tokyo Stock Exchange, Inc.. The firstedition of the Corporate Governance Code was issued in June 2015, which was subsequently
revised in 2018 and 2021. The latest Corporate Governance Code at the time of the revisionof this guidance was revised in June 2021 and contains general principles, principles andsupplementary principles on the following five issues: (1) Securing the rights and equal
treatment of shareholders; (2) Appropriate cooperation with stakeholders other thanshareholders; (3) Ensuring appropriate information disclosure and transparency; (4)Responsibilities of the board, and (5) Dialogue with shareholders. Companies listed on thePrime Market are required to explain all principles of the Code including principles for Prime
Market. Companies listed on the Standard Market are required to explain all principles of theCode, and companies on the Growth market are required to explain on the general principles,
including explanation on the reasons of not implementing them, if such a case arises (theprinciple of comply or explain).
The Corporate Governance Code has increased its emphasis on ESG issues during the courseof its past revisions. In the 2021 revision, disclosure in line with TCFD Recommendations bycompanies listed on the Prime Market is described in the Supplementary Principle (seeChapter 2).

Chapter 1

Institutional background on climate-related disclosure inJapan

Appendix43

Chapter 4 Addendums

Chapter 1(2) Other regulatory measures
Japan has several institutional systems for disclosing climate-related information other thanthe Corporate Governance Code. Some of the key legislations are listed below.

Chapter 2

Table 6 Examples of legislations on climate-related information disclosure
Legislation (year of
Summary
establishment)

Chapter 3
Chapter 4
Appendix

Act on Promotion of Global
Warming Countermeasures(1998)

Since the 2005 revision of this Act, companies that emit above
a certain amount of GHG are required to calculate their own
GHG emissions and report them to the government. The Act on
the Rational Use of Energy (Energy Conservation Law of 1979)
also requires certain business operators to submit reports onenergy consumption.

Law Concerning thePromotion of Business
Activities with Environmental
Consideration by Specified
Corporations, etc., by
Facilitating Access toEnvironmental Information,
and Other Measures. (2004)

An institutional framework has been established to promote
the publication of environmental reports in order to promote
the voluntary environmental efforts of business operators. In
addition, major companies are obliged to make efforts topublish environmental reports.

Cabinet Office Ordinance on
Disclosure of Corporate
Affairs, etc. (2019)

Revisions of descriptions in securities reports to enhancefinancial and descriptive information. The revised descriptions
include the impact of a risk on the business, the nature of therisk, the measures to be taken, the likelihood of materialization,and the extent and timing.

44

Chapter 4 Addendums(1) CDPAn organization established to promote a wider understanding of the impacts ofsustainability issues globally, and to help disseminate opinions about those impacts. The GRI
Guidelines, published in 2000, are widely acknowledged as guidelines for sustainability
reporting.

(4) International Financial Reporting Standards (IFRS)IFRS refers to the international financial accounting standards developed by theInternational Accounting Standards Board (IASB) established under the IFRS Foundation. In
November 2021, the IFRS Foundation announced the establishment of the International
Sustainability Standards Board (ISSB) and began formulating sustainability disclosure
standards (see Addendum D). 57
56 CDSB, CDP, 2020, The building blocks: Connecting CDP data with the CDSB Framework to successfully fulfil the TCFD
recommendations (https://www.cdsb.net/buildingblocks)
57 IFRS Foundation website (https://www.ifrs.org/projects/work-plan/general-sustainability-related-disclosures/exposure-45

Appendix(3) Global Reporting Initiative (GRI)

Chapter 4

CDSB is an organization whose purpose was to promote the disclosure of environmental,
including climate change information in financial reports through the development of the
CDSB Framework for reporting environmental and climate change information, which aims tostandardize corporate environmental and climate change information disclosure. In April 2018,a revised version of the CDSB Framework was released to improve consistency with TCFD
Recommendations. In 2020, a guidance document was published on how to respond to the
TCFD Recommendations by utilizing CDP data and the CDSB Framework 56. In January 2022,
CDSB was consolidated into the IFRS Foundation (see below).

Chapter 3(2) Climate Disclosure Standards Board (CDSB)

Chapter 2

CDP is an international NGO formerly known as the Carbon Disclosure Project, which is an
initiative established in 2000. CDP sends questionnaires to companies to collect information
outlining their corporate efforts related to the three environmental issues of climate change,
water, and forests, and evaluates and analyzes the companies based on the responses obtained.
In 2018, CDP revised the questionnaire items to align them with the TCFD
Recommendations. In 2022, CDP began forwarding its questionnaire to all companies listed in
the Prime Market.

Chapter 1

Measures related to TCFD Recommendations in otherframeworks and standards

Chapter 4 Addendums

Chapter 1(5) International Integrated Reporting Council (IIRC)

Chapter 2

IIRC was established in 2010 with the aims of improving the quality of the information
received by providers of financial capital and establishing an approach for efficient information
dissemination. The International Integrated Reporting Framework was published in 2013 topresent an approach to preparing integrated reports. Since its publication, companies in Japanand elsewhere in the world have been transforming their annual reports into integrated
reports. In 2021, IIRC was consolidated with SASB (see below) to form Value Reporting
Foundation (VRF), 58 which was further consolidated with the IFRS Foundation (see above) inAugust 2022.

(6) Sustainability Accounting Standards Board (SASB)
Chapter 3
Chapter 4

SASB presented metrics (SASB Standards) on environmental and other issues such as socialand human capital metrics that can measure the long-term value creation capacity ofcompanies in a total of 77 sectors. In November 2018, SASB published new standards
consistent with the TCFD Recommendations which include industry-specific metrics andtargets that can provide actionable information on climate risks.
SASB, in collaboration with CDSB mentioned above, published the "TCFD Implementation
Guide” 59 providing commentary on TCFD, and the "TCFD Good Practice Handbook," acompilation of notable case examples of disclosure with explanatory commentary. 60 In June
2021, SASB was consolidated with IIRC (see above) to form VRF, which was subsequently
consolidated with the IFRS Foundation (see above).

Appendix(7) World Business Council for Sustainable Development (WBCSD)
WBCSD is a CEO-led organization of approximately 200 companies working towardsustainable development. Participating companies share their efforts and experiences on
issues related to sustainable development, in cooperation with governments and NGOs.
WBCSD has established sector-specific “Preparer Forums” to explore ways to respond to the
TCFD Recommendations. Reporting guidance has been published for the oil and gas, chemical,
electric utilities, food, agriculture and forest products, construction and building materials, andautomobile sectors. 61

draft-and-comment-letters and https://www.ifrs.org/projects/work-plan/climate-related-disclosures/#publisheddocuments)
58 Value Reporting Foundation（https://www.valuereportingfoundation.org/）
59 Available for download from the CDSB website (https://www.cdsb.net/sites/default/files/sasb_cdsb-tcfdimplementation-guide-a4-size-cdsb.pdf ) and from the SASB website (https://www.sasb.org/knowledge-hub/tcfdimplementation-guide/)
60 Available for download from the CDSB website (https://www.cdsb.net/tcfd-good-practice-handbook) and from the SASB
website (https://www.sasb.org/knowledge-hub/tcfd-good-practice-handbook/).
61 Can be downloaded from WBCSD website (https://www.wbcsd.org/Programs/Redefining-Value/TCFD/Resources).

46

Chapter 4 Addendums

Table 7

Overview of IFRS Sustainability Disclosure Standards published to date

A set of requirements covering all aspects of sustainability disclosure,including materiality, frequency of reporting, and location of information.

Climate-related
disclosures 64

A set of requirements for climate-related disclosure based on the four
themes of the TCFD Recommendations.

Industry-based
disclosure
requirements

Formulated as an Appendix to Climate-related disclosures, these
constitute a set of sustainability indicators and activity indicators to bedisclosed in 68 industries in 11 industries, drawing upon SASB Standards.

At the time of publication of this guidance, the exposure draft subjected to public comments is the latest version. The
descriptions were based on it.
63 Documents can be downloaded from IFRS Foundation website (https://www.ifrs.org/projects/work-plan/generalsustainability-related-disclosures/#published-documents).
64 Documents can be downloaded from IFRS Foundation website (https://www.ifrs.org/projects/work-plan/climate-relateddisclosures/#published-documents).
65 The reasons for this are given in Question 10 to the respondents of exposure draft, not in the standard itself.
62

47

Appendix

The IFRS Sustainability Disclosure Standards require that information be disclosed as “partof (a company's) general purpose financial reporting." In order to prevent conflicts with theregulatory requirements of a particular jurisdiction regarding general purpose financial
reporting, cross-references in other documents are permitted, but it states that these aresubject to the same responsibilities as the information contained in general purpose financial
reporting. 65
The disclosure items stipulated in the "General Requirements" and "Climate-related
Disclosures" are in accordance with the framework envisaged in the TCFD Recommendations,and require disclosure according to the four themes of "Governance," "Strategy," "RiskManagement," and "Metrics and Targets." On the other hand, many items whose disclosure isencouraged by TCFD such as Scope 3 emissions due to data and methodological issues arelisted as items that entities “shall disclose”. In addition, the "Industry-based disclosure
requirements" stipulate the disclosure of both sustainability-related metrics (Examples: GHG
emissions and energy consumption during production, environmental performance of
products) and activity metrics (production, sales, etc.) for many industries.

Chapter 4

Source: IFRS Foundation website (see footnote)

Chapter 3

Generalrequirements 63

Chapter 2

In November 2021, the IFRS Foundation (see above) announced the establishment of theInternational Sustainability Standards Board (ISSB) to establish corporate sustainability
disclosure standards. In the same month, it released a prototype of sustainability disclosure
standards, which was followed by a series of Exposure Drafts in March 2022. The Exposure
Drafts consist of the following 3 parts. Comments were received until July 29, 2022, with thegoal of releasing the final version by the end of 2022.

Chapter 1

IFRS Sustainability Disclosure Standards62

Chapter 4 Addendums

Chapter 1
Chapter 2

As described above, the sustainability disclosure standards by IFRS Foundation gives theimpression of being more detailed than those by TCFD and that their disclosure is mandatory.
On the other hand, it is stated in the General Requirements that "An entity need not provide
a specific disclosure that would otherwise be required by an IFRS Sustainability DisclosureStandard if the information resulting from that disclosure is not material. This is the case even
if the IFRS Sustainability Disclosure Standard contains a list of specific requirements or
describes them as minimum requirements." 66 which means that the necessity of disclosure isleft to the materiality assessment of the company, and it can be interpreted that disclosure is
not necessarily required when it is determined to be immaterial. This suggests that disclosure
based on the standards developed by IFRS Foundation inquires what a company considers asmaterial.

Chapter 3
Chapter 4
Appendix
66

IFRS S1 General Requirements (Exposure Draft) paragraph 60.

48

Chapter 4 Addendums

Chapter 4
Appendix49

Chapter 3

https://www.icmagroup.org/sustainable-finance/the-principles-guidelines-and-handbooks/climate-transition-financehandbook/68 https://www.meti.go.jp/english/press/2021/0507_001.html
69 See the Ministry of Economy, Trade and Industry, Model Financing Committee for Climate Transition Finance(https://www.meti.go.jp/shingikai/energy_environment/climate_transition/index.html) (in Japanese).
67

Chapter 2

In order to achieve an ambitious goal such as "carbon neutrality," it is necessary to undergo
a transition from a long-term perspective, including various facility upgrades as well as
research and development, in sectors where emission reductions are hard to achieve. The roleof investors in evaluating and providing funds for such transitions is important, andinformation disclosure by companies is required in order to facilitate the provision of suchfunds.
Substantive discussion on the ideal way of the information disclosure in the transition
finance started around 2019. In order to share an internationally unified view based on thetrends of each country, the International Capital Markets Association (ICMA) published in
December 2020 the "Climate Transition Finance Handbook". 67 Based on this, the Financial
Services Agency, the Ministry of Economy, Trade and Industry, and the Ministry of theEnvironment formulated the Basic Guidelines on Climate Transition Finance in May 2021
(hereinafter Basic Guidelines), 68 from the perspective of companies that intend to benefit
from transition finance (mainly bonds). The Basic Guidelines specify the following four
disclosure elements necessary for issuance: Element 1: Fundraiser’s Climate Transition Strategy and Governance Element 2: Business Model Environmental Materiality
 Element 3: Climate Transition Strategy to be Science-based Including Targets andPathways Element 4: Implementation Transparency
The "Climate Transition Finance Model Project," which was launched in FY 2021, aims topromote the spread of transition finance by selecting financing cases that are consistent with
the Basic Guidelines as model projects and disseminating information. In FY 2021, bonds andloans were selected from 12 companies. 69
In addition, the "Guidance on Metrics, Targets, and Transition Plans" published by the TCFD
in October 2021, lists the following seven elements as characteristics of a transition plan aspart of a company's disclosure: (1) aligned with strategy; (2) anchored in quantitative elements,
including climate-related metrics and targets; (3) subject to effective governance processes;(4) actionable, specific initiatives; (5) credible; (6) periodically reviewed and updated; and (7)reported annually to stakeholders. The guidance lists the followings as elements of transition
plans, in line with the four themes of TCFD Recommendations.

Chapter 1

Overview of discussion on transition

Chapter 4 Addendums

Chapter 1

Governance






Chapter 2StrategyApproval by the board or appropriate committeesof the board
Oversight by the board or appropriate committeesof the board
Accountability by senior management
Incentives such as remuneration aligned withtargets
Reporting to the board or appropriate committeesof the board
Review and periodical update of plans, activities,
metrics, and targets
Ensuring transparency through reporting toexternal stakeholders
Independent review or third-party Assurance







Risk Management

Chapter 3Indicators and Targets


Description of risks facing the transition to a lowcarbon economy
Planning challenges and uncertainties facingorganizations to successfully executing its
transition plan






Chapter 4

Figure 6

Alignment with strategy of activities andtemperature goal
Plan assumptions, such as transition pathway
uncertainties and implementation challenges
Prioritized opportunities during transition to lowcarbon economy
Short-term and medium-term action plans
Supporting financial plans, budgets and related
financial targets
Scenario analysis of multiple climate-related
scenarios

Metrics that are monitored to track progressagainst plans and targets
Quantitative and qualitative targets based on
sound climate science, such as GHG emissions
targets
Transparent methodology
Dates on which the targets are intended to bereachedContribution of GHG emissions reductions,removals, and offsets

Elements of Transition Plan recommended by TCFD

Source: Created by TCFD Consortium based on TCFD, 2021, Guidance on Metrics, Targets, and Transition Plans

Appendix50

Chapter 4 Addendums

Since the publication of the TCFD Recommendations in 2017, the TCFD has continuously
published guidance on climate-related information disclosure. Of these, key publications aredescribed below. 70

70

These articles are available from the TCFD home page (https://www.fsb-tcfd.org/publications/).

51

Appendix

The Status Report is a survey on the progress of disclosure in line with TCFD
Recommendations as well as examples of disclosure, and has been published annually by TCFD
since 2018. Specifically, AI reviews of financial reports and integrated reports are conducted
to analyze the disclosure status. The 2021 Status Report concludes that, although information
disclosure has progressed year by year as a whole, disclosure of governance item b)(management’s role) and strategy item c) (resilience) are particularly low amongrecommended disclosure items. The reasons for the lack of disclosure of information on
financial impact was analyzed through interviews and consultation. As a result, it was foundthat only about 20% of companies disclosed their financial impact, citing difficulties in
obtaining relevant data and selecting and applying evaluation methodologies.
The Status Report describes TCFD-related initiatives in various countries. In Japan, alongwith the release of the Basic Guidelines on Climate Transition Finance in May 2021 and therevision of the Corporate Governance Code in June, the report introduces the activities of the
TCFD Consortium, including the revision of Green Investment Guidance 2.0, the activities of

Chapter 4(2) Status Reports (published annually since 2018)

Chapter 3"Implementing the Recommendations of the Task Force on Climate-related Financial
Disclosures" supplements the TCFD Recommendations and provides practical guidance for
implementing the TCFD Recommendations. Specifically, supplementary explanations areprovided for the four themes of the TCFD Recommendations. In particular, sector-specificguidance is provided for the financial sector and four non-financial groups (energy group,transportation group, materials and buildings group, and agriculture, food and forest products
group) with regard to Strategy, Risk Management, and Metrics and Targets.
The first edition was published as an annex to the 2017 TCFD Recommendations, which was
subsequently revised in 2021 to reflect the contents of the "Guidance on Metrics, Targets andTransition Plans" published simultaneously. The 2021 revision added more specific disclosure
recommendations based on the latest developments in "Strategy" and "Metrics and Targets"among the 4 themes of TCFD Recommendations and included cross-industry climate-related
metrics to be disclosed.

Chapter 2(1) Implementing the Recommendations of the Task Force on Climate-related
Financial Disclosures (Originally published in 2017 and revised in 2021)

Chapter 1

Recent publications from TCFD

Chapter 4 Addendums

Chapter 1

the GIG Supporters, and the holding of the TCFD Summit 2020, as "measurable success".

(3) Guidance on Scenario Analysis for Non-financial Companies(published in 2020)

Chapter 2
Chapter 3This publication provides guidance on the use of scenario analysis in non-financial
companies for the purpose of assessing climate-related risks and opportunities. It describes
what needs to be prepared for the analysis (supporting by the management, securingcorporate resources, etc.), strategic management using scenarios, and disclosure practices.
Scenario analysis is positioned to understand the performance of a company in a projected
future state. Notably, it states that in the assessment of climate risks and opportunities,
exploratory scenarios (which describes a diverse set of plausible future states) are used, as
opposed to normative scenarios which starts with a preferred or desired future outcome andthen back-casts plausible pathways (see section D(3) in Chapter 2).

(4) Guidance on Risk Management Integration and Disclosure(published in 2020)
Chapter 4
Appendix

This document aims to promote understanding of " Risk Management " in the TCFD
Recommendations. Its publication stems from the finding that 75% of companies surveyed by
the TCFD indicated the risk management recommendation is somewhat or very difficult toimplement, and that disclosure of risk management was lower than most other recommended
disclosures. It describes the characteristics of climate change risks, integration of climaterelated risk management with corporate risk management processes, and provides examplesof effective risk management disclosures. In addition, two international risk management
frameworks, COSO ERM and ISO 31000, are outlined.

(5) Guidance on Metrics, Targets and Transition Plans (Issued in 2021)
This publication was prepared in conjunction with the revision of the "Implementing the
Recommendations of the Task Force on Climate-related Financial Disclosures" and draws upon
the discussion on forward-looking metrics conducted during the latter half of 2020 as well as
the survey results indicating the difficulties in implementing the TCFD Recommendations. This
guidance sets out the principles of effective disclosure, metrics, targets and transition planning,as well as cross-industry metrics and elements to be included in transition plans.

52Appendix
Appendix 1︓
Members of the TCFD Consortium Steering Committee and Number of TCFD Consortium
Members(1) Members of the TCFD Consortium Steering Committee*In alphabetical order[Chair]Kunio Ito

Director of Hitotsubashi CFO Education and Research Center[Steering Committee member]
Takao Aiba
Project General Manager, Environmental Affairs Div., Advanced R&D
and Engineering Company, Toyota Motor Corporation
Koji Hora
General Manager Corporate Sustainability and CSR Department,
Mitsubishi Corporation)
Yasunori Iwanaga
Chief Responsible Investment Officer, Amundi Japan Ltd.
Masaaki Izumiyama
General Manager, Environment Division, Nippon Steel Corporation
Mitsuru Miyasaka
Managing Director, Head of Sustainability Office, Corporate Planning
Division, MUFG Bank Limited
Masaaki Nagamura
Fellow, General Manager, International Initiatives, Corporate
Planning Department, Tokio Marine & Nichido Fire Insurance Co.,Ltd.
Daisuke Oomura
Line Manager, Limited Corporate Planning Dept. Sustainability Div.,The Dai-ichi Life Insurance Company
Manabu Shibata
Director, ESG Promotion, Kao Corporation
Kazunori Takahashi
Deputy General Manager, Sustainability Promotion Division, Hitachi
Ltd.
Keisuke Takegahara
Executive Officer, Deputy Chief Research Officer, Chief Manager of
Sustainability Management Office, Corporate Planning &Coordination Department, Development Bank of Japan Inc.
[Chair of the Information Utilization Working Group]
Toru Terasawa
Executive ESG Advisor, Investment Div. Responsible Investment Grp.
Asset Management One Co., Ltd.
Hiroyuki Tezuka
Fellow & General Manager, Climate Change Policy Group,Technology Planning Department., JFE Steel Corporation[Chair of the Information Disclosure Working Group]
Masaharu Tounai
Environment General Manager, ESG Office, Corporate Management& Planning Unit, Tokyo Electric Power Company Holdings
Corporation
Toshihiro Yamauchi
Executive Officer, Accounting Dept., Sumitomo Chemical Co., Ltd.
(Note) Affiliation and position as of September 9, 2022.

53

Appendix

Chapter 1(2) Number of TCFD Consortium Members
Total of 694 organizations (as of September 22, 2022)

Chapter 2
Chapter 3
Chapter 4
Appendix54Appendix

European Bank for Reconstruction and Development, 2018, Advancing TCFD Guidance on
Physical Climate Risks and Opportunities

Chapter 1

Appendix 2︓List of Key Relevant Literatures Reviewed During the TCFD Guidance Revision

Financial Reporting Council, 2019, Climate-related corporate reporting Where to next?

International Energy Agency, 2020, Energy Technology Perspectives

International Energy Agency, 2021, World Energy Outlook 2021

Chapter 3

International Energy Agency, 2021, Net Zero by 2050 A Roadmap for the Global Energy Sector

Chapter 2

ICMA, 2020, Climate Transition Finance Handbook

Investor Leadership Network, 2019, TCFD Implementation: Practical Insights and Perspectives
from Behind the Scenes for Institutional Investors

Japan Exchange Group, 2021、Survey of TCFD Disclosure in Japan

Ministry of Economy, Trade and Industry, 2021, Basic Guidelines on Climate Transition Finance
Ministry of the Environment, 2022, Climate Change Adaptation Guide for Private Sector Preparing for Climate Risk and SurvivingMinistry of the Environment, 2022, Practical guide for Scenario Analysis in line with the TCFD
recommendations
Network for Greening the Financial System, 2021, NGFS Climate Scenarios for central banks
and supervisors
TCFD, 2017, Recommendations of the Task Force on Climate-related Financial Disclosures
55

Appendix

Ministry of Economy, Trade and Industry, 2017, Guidance for Integrated Corporate Disclosure
and Company-Investor Dialogues for Collaborative Value Creation: ESG Integration, Nonfinancial Information Disclosure and Intangible Assets into Investment (Guidance forCollaborative Value Creation)

Chapter 4

IPCC, 2022, Climate Change 2022: Mitigation of Climate Change

Appendix

Chapter 1

TCFD, 2020, Guidance on Scenario Analysis for Non-Financial Companies
TCFD, 2020, Guidance on Risk Management Integration and Disclosure
TCFD, 2021, Annex: Implementing the Recommendations of the Task Force on Climate-related
Financial Disclosures

Chapter 2

TCFD、2021、Guidance on Metrics, Targets and Transition Plans
TCFD, 2019, 2020, 2021, Status Report

Chapter 3

TCFD Consortium, 2021, Guidance for Utilizing Climate-related Information to Promote Green
Investment 2.0 (Green Investment Guidance 2.0)
TCFD Consortium, 2021, FY2021 TCFD Consortium Member Survey Result

Chapter 4

WBCSD TCFD Chemical Sector Preparer Forum, 2019, Climate-related financial disclosure bychemical sector companies: Implementing the TCFD recommendations

Appendix56