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What are the SSBJ Standards? Their impact on sustainability information disclosure by domestic companies

table of contents

Introduction

The Sustainability Standards Board of Japan (SSBJ) standard is a new framework developed to strengthen sustainability information disclosure by Japanese companies. The standard requires disclosure of environmental, social and governance (ESG) information along with financial information, with the aim of supporting the sustainable growth of companies.
In this column, we will explain the overview of the SSBJ standards and their impact on companies, taking into account that the final version is scheduled to be published by the end of 3 2025.

1. overview of SSBJ Standards

The Sustainability Standards Board of Japan (SSBJ) standards were established as a new framework for sustainability information disclosure in Japan. The aim is to require highly transparent information disclosure that is in line with the actual circumstances of Japanese companies while ensuring consistency with international standards.

The standard will strengthen disclosure of environmental, social and governance (ESG) information alongside financial information, supporting the sustainable growth of companies. In particular, it is expected to promote corporate risk management, responses to climate change, and dialogue with stakeholders.

The SSBJ standard is expected to be applied to prime listed companies, and a gradual implementation of the standard is under discussion. In the first year of application, transitional measures will be established for the disclosure of comparative information and Scope 3 GHG emission amount.

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2. Background to the formulation of SSBJ standards

Following the establishment of the International Sustainability Standards Board (ISSB) in November July. The background to this was the need to expand ESG investment and strengthen corporate governance, with the aim of promoting greater transparency of non-financial information.

The formulation of the SSBJ standards is being carried out in response to recent international trends, and cooperation with the Global Sustainability Standards Board (GSSB), an independent advisory body of the Global Reporting Initiative (GRI), is being strengthened. In addition, regulations on sustainability information disclosure are being strengthened in Europe and the United States, and Japanese companies must also respond to these. Furthermore, there is a demand for cooperation with international initiatives such as the Japan-EU Green Alliance and the European Corporate Sustainability Reporting Directive (CSRD).

3. Information Contents required of companies

The SSBJ Standards require companies to disclose the following information:

Governance: Board of directors oversight structure and sustainability strategy policy.
Strategy: Climate change risk assessment, business impacts and adaptation strategies.
Risk Management: Methods for identifying, assessing and managing ESG risks.
Metrics and targets: GHG emission amount measurement and reduction targets and other sustainability indicators.

Companies are required to integrate this information into their financial reports and link it to the improvement of long-term corporate value. In particular, the SSBJ Standards adopt the concept of single materiality and require disclosure of information related to a company's financial performance. However, information on social impacts is also recommended to be disclosed if it has a financial impact.

4. Differences from international standards

The SSBJ Standards are aligned with international standards such as the GRI Standards and IFRSS1 and S2 standards, while also reflecting the characteristics of the Japanese market. In particular, they take a unique approach in the following areas:

Strengthening collaboration with GRI: We have signed a Memorandum of Understanding (MoU) with GRI to ensure consistency with international standards.
Application guidelines for Japanese companies: Addresses Japan's unique regulatory environment and business culture.
Consideration for small and medium-sized enterprises: Guidelines have been established to reduce the response burden not only on large companies but also on small and medium-sized enterprises.
Coordination with European policies: Consider compatibility with CSRD and CBAM(Carbon Border Adjustment Mechanism).

5. Impact on practice

The introduction of the SSBJ standards is expected to significantly change the information disclosure process for companies. In particular, the following effects are expected to occur:

Strengthening data management and disclosure: Collecting, organizing and disclosing sustainability data will be essential.
The need for third-party assurance: Introduction of a mechanism to verify the accuracy of information disclosure to increase reliability.
Promoting integrated reporting: Create reports that integrate financial and non-financial information.
Strengthening responses to investors and regulators: Adaptation to ESG investors and international regulations is required.
Utilizing digital tools: Data collection and disclosure processes are becoming increasingly automated, reducing the burden on companies.

The final version of the SSBJ standards will be finalized in 2025, and detailed implementation guidelines will be released for the start of application in 2027. Therefore, companies will need to develop action plans in the coming years in preparation for the clarification of the scope and requirements of the standards. In particular, companies will be required to review their internal processes and develop new disclosure formats.

6. The Importance of Sustainability Management and Its Future Prospects

For companies, sustainability management will be an essential element in improving their competitiveness in the future. The introduction of the SSBJ standards is not merely a regulatory response, but is closely linked to improving corporate value and long-term growth strategies. The following trends are expected in the future.

Expanding ESG investment: Investors use SSBJ standards to evaluate companies' sustainability strategies.
Evolving disclosure standards: More detailed information disclosure is required, and companies' responses are becoming more sophisticated.
Accelerating global expansion: Addressing sustainability is becoming increasingly important to increase competitiveness in international markets.
Promoting GX (Green Transformation): Collaborating with the Japanese government's carbon neutral policy.
Utilizing the Japan-EU Green Alliance: Strengthening international competitiveness while adapting to European regulatory trends.

By making proper use of the SSBJ standards, companies will be able to gain the trust of investors and consumers and achieve sustainable management. In addition, the key to future success will be to closely monitor the trends of the Japanese government and regulatory agencies and respond flexibly.

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<Source>
overview of the proposed sustainability disclosure standards by the Sustainability Standards Board of Japan (SSBJ)
https://www.ssb-j.jp/jp/wp-content/uploads/sites/ 6/20240423.pdf