Submission in relation to the Exposure Drafts ofSustainability Disclosure Standards issued by theJulySSBJ
2024
July 2024

Submission in relation to theExposure Drafts of Sustainability
Disclosure Standards issued bythe SSBJ
Background
ClientEarth welcomes the opportunity to submit comments on the SSBJ-issued Exposure Drafts of
Sustainability Disclosure Standards.
At a general level, we would like to emphasize the importance of adopting the highest quality standards,
by adapting the ISSB-developed standards to the Japanese context in a way which is forward-looking andmindful of the latest developments in the field of sustainability disclosure and requirements. We particularly
encourage the SSBJ to look to recent developments in the EU.

1Submission in relation to the Exposure Drafts ofSustainability Disclosure Standards issued by the SSBJ
July 2024

Comments
Our main comments are as follows:

1. Transition Plans: Under Para. 29(3) of the Climate ED, an entity discloses its climate-relatedtransition plan if it has one, in particular “the details of such plan (including the key assumptions
used to develop the transition plan and information about the factors and conditions essential toachieving the transition plan)”. We recommend that the SSBJ standards go beyond the ISSBstandards and align more closely with the EU Corporate Sustainability Due Diligence Directive(CSDDD) (in particular its article 15) by requiring companies to align with 1.5C and disclose credible
transition plans. The CSDDD provides that relevant corporations shall adopt and implementtransition plans “to ensure, through best efforts, that the business model and strategy of thecompany are compatible with the transition to a sustainable economy and with the limiting of global
warming to 1.5 °C in line with Paris Agreement and the objective of achieving climate neutrality”(art. 15.1).
Generally speaking, we note that none of the draft instruments put forward by the SSBJ refer tothe necessity for corporations to align their transition plan(s) with 1.5 °C pathways which match
global climate goals (or to explain the level of alignment, and in case of misalignment, the reasonfor it.
Our recommendation would be to make it mandatory for relevant corporations to prepare anddisclose at least one scenario which is aligned with the 1.5 °C pathways which match global climategoals.

2. Double Materiality: Para 50 of the Application ED (Para 17 of IFRS S1) is focused on the financial
materiality of climate change impacts on companies and omits any meaningful reference to themateriality of the impacts that companies have on climate change and the environment. In otherwords, ‘double materiality’ is not built in. The CSRD makes double-materiality assessment
mandatory for corporations falling under the scope of the CSRD. Previously, the European
Securities and Markets Authority (ESMA), for example, had recognised in its comment letter to theISSB that ‘double-materiality’ must be built into the ISSB’s disclosure framework. As it has not been,
the recommendation is to make sure that the Japanese implementation of the disclosure framework
be aligned with more demanding international standards. For instance, the Global Reporting
Initiative (GRI) also recommends policy maker to adopt double materiality (here).
Our recommendation is therefore to build-in a similar requirement for double-materiality
assessment in the Japanese Sustainability Disclosure Standards.

3. Emissions Disclosure: We strongly support the full disclosure of Scope 1, 2 and 3 emissions, andrecommend that they are disclosed without a materiality filter. Given the widespread recognitionof climate risk as a financial risk, and that companies’ carbon footprints mostly consist of Scope 3emissions, maintaining a requirement to disclose Scope 3 emissions is critical.

2Submission in relation to the Exposure Drafts ofSustainability Disclosure Standards issued by the SSBJ
July 2024
4. Carbon credit: (Climate ED – 99-101) (IFRS S2 – 36(e)). We are concerned that the SSBJ’s
proposed approach to disclosure of carbon credits will hide the actual climate-related financial risk
exposure of the entity. In order to ensure that company absolute emissions reduction targets (andprogress against them) are clear to users of SSBJ disclosures, our recommendation is that theentity disclose their emissions separately from carbon credits purchased, without aggregating thetwo. Carbon credits constitute ‘contributions’ (donations) to mitigation projects outside company
value chains (not valid compensation or offsets for fossil fuel emissions), and should be disclosed
as such. Use of offsets to 'address' or ‘counterbalance’ emissions alongside or in replacement ofreductions is one of the key barriers to decision-useful information on transition plans, and ispresently undermining achieving the 1.5 °C temperature goal globally. The disclosure framework
should be designed to provide users with transparency about what the company is doing to reduce,
which is itself incompatible with the clear statement that offsets cannot be relied upon to meettargets.
In this regard, we note that the CSRD has strict rules regarding how carbon credits purchases bycorporations should be reported. In a nutshell, companies under the scope of the CSRD will haveto disclose their emissions separately from carbon credits purchased, without aggregating the two.
We note that this is also coherent with the approach of the SBTi which regularly recalls that“financing mitigation activities outside of the company’s value chain acts as a supplement to value
chain abatement activities within the target boundary, not as a substitute.” (See SBTi, Aligning
corporate value chains to global climate goals. SBTi Research: Scope 3 Discussion Paper, July
2024, available here)

5. Financed Emissions – We note that the SSBJ proposed approach regarding financed emissions
is to deviate from the ISSB principle. The SSBJ is proposing that “a reporting entity may choose
not to disclose additional information about financed emissions if the entity engages in these
activities and is not regulated by the laws and regulations of the jurisdiction in which it operates toengage in such activities. If an entity chooses not to disclose such information, it shall disclose thatfact.” (paragraph 61 of the Climate ED).
We respectfully disagree with this approach. We believe that Financial Institutions should be ableto use tools such as The Global GHG Accounting and Reporting Standard Part A: FinancedEmissions (PCAF (2022), available here) to estimate their financed emissions, even if the entity
they are financing does not have the exact data. An allowance for financial institutions to not report
this data will mislead their investors into believing that they are exposed to less climate-related
financial risk. Financial institutions should be required to disclose all financed emissions andexplain where estimates were used to fill gaps in their data.
Our recommendation is therefore to not deviate from the ISSB approach regarding financed
emissions and to require financial institutions to report their financed emissions in every jurisdiction.

6. Delivery of Transition Plans. We would recommend that corporations which are disclosing
transition plans should identify in their disclosures the name of the member(s) of the Board ofdirector(s) personally in charge of the delivery of the plan rather than only the governance body.
(See General ED, paras. 8-10)3Submission in relation to the Exposure Drafts ofSustainability Disclosure Standards issued by the SSBJ
July 2024

Indeed, although investors can theoretically hold companies to account for their approach toclimate change through voting at AGM, there are limitations to effective accountability in practice.
For instance, the lack of a named director responsible for climate matters / company transition
planning is a key obstacle to investors using director (re-)appointment votes to hold company
directors to account in relation to climate change, as investors are not confident in which director
to hold accountable for climate-related failings. This is a key concern in Japan, as evidenced by
the numerous shareholder proposals filed in 2024 at major listed corporations in Japan on thisspecific topic and the significant support rate by shareholders of these resolutions (above 20%).
To address this concern, the governance requirements in the Exposure Draft should be amended
to require that a named individual board director is noted as being responsible for the overall designand delivery of the company’s transition plan (in addition to any relevant committee or subcommittee responsibilities). This would help ensure meaningful accountability for the delivery ofthe plan.

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