31 ASIAN LEGAL BUSINESS – JULY 2023 WWW.LEGALBUSINESSONLINE.COM ESG would include companies, the government and academia. “On the ‘E’ pillar, while immediate decarbonisation would be ideal, ‘transition’ has been strongly sought in Japan. The goal to reduce greenhouse gas emissions is the same as other countries, but the approach might be slightly different locally,” Akihiko Takamatsu, a Tokyobased partner at Norton Rose Fulbright, tells ALB. Even before the latest Green Transformation policy was adopted, Japanese authorities issued a range of measures to push ESG forward, including finalising a code of conduct for providers of ESG data and evaluation, proposing new guidelines that define the scope for ESG Public Funds and introducing mandatory ESG disclosures for public companies. More recently, the issuance of the country’s first guidelines on impact investing also signals market interest in the space. The Japanese legal landscape concerning ESG measures has changed rapidly. “Like other countries, ESG is essential to all sorts of businesses, both positively and negatively in Japan,” says Takamatsu. “On the positive side, they will bring new opportunities, but on the flip side, they may potentially cause reputational, economic and even regulatory risks when each company treats them erroneously. Various stakeholders would have been escalating demands for environmentally sustainable businesses to be conducted by the company with which they have a relationship.” Several measures are in place to promote ESG in Japan. Amid the fast-changing regulatory landscape, Takamatsu says: “Our advice would be driven by these trends. As we need to focus on cutting-edge progressed ways for decarbonisation, we also need to properly advise on the transition at the same time.” MANDATORY DISCLOSURES The performance of public companies is always a key focus for the market in Japan. Japan’s Financial Services Agency (FSA) announced its sustainability and corporate governance disclosure requirements for listed companies earlier this year. The changes apply to annual securities reports and securities registration statements for financial years after Mar. 31. “The amended Ordinance and other relevant regulations will introduce mandatory disclosure by public companies of ESG-related information such as the company’s attitude towards sustainability and related initiatives, including information about governance and risk management (and strategy, and index and target if the company considers these to be material),” said Sayako Shiraki and Eriko Kadota, managing associates at Linklaters, in a note. Companies will also need to disclose information on human capital and diversity, including their policies on human resource training, improvement of the work environment, and the related index. “If the company is required by relevant laws and regulations to publish information about the proportion of women in management, rate of male employees who took paternity leave, and pay gap between male and female employees are also to be disclosed in the annual securities report, etc,” said Shiraki and Kadota. The amendments also offer clarification on forward-looking statements and liability for misstatements while bringing some much-needed focus to the ‘S’ and ‘G’ pillars that have lagged somewhat. “In Japan, the ‘E’ pillar has been strongly accelerated by the commitments from the governmental and private sectors, and the other two ‘S’ and ‘G’ pillars look less accelerated comparatively,” says Takamatsu. IMPACT INVESTING The issuance of the first guidelines on impact investing in Japan signals a growing interest in this area. And it is not just in Japan. Impact investing is a growing market globally, especially in Europe and the U.S. Takamatsu of Norton Rose Fulbright says that though Japan is a bit behind in regards to the development of impact investment, companies are now more focused on it. The key to success in this area is “disclosure.” “Once the disclosure is sufficient and consistent so that investors can evaluate, this area will progress,” Takamatsu says. The upshot is that Japan is taking steps to catch up with other developed economies regarding impact investing along with many others putting a stronger ESG-regulatory environment in place. Takamatsu says that on Jun. 30, 2023, the FSA published a report from ongoing working group discussions on impact investing and laying out eligibility requirements. The report is open to public comments until Oct. 10, 2023. The upcoming guidelines for impact investing will establish four requirements: novelty, effect, profitability and disclosures. The FSA aims to encourage impact investors to disclose the impact and profitability of their investments using objective indicators such as the number of