From TCFD to SSBJ: Differences and practical steps that sustainability disclosure officers should know

For many companies, the first step in disclosing sustainability information has been to respond to the TCFD(Task Force on Climate-related Financial Disclosures). If responding to the TCFD was a training exercise to build the basics of sustainability disclosure, then responding to the SSBJ (Sustainability Standards Board of Japan) standards, which are the next step, can be likened to switching to full-fledged professional sports. It's just that the training will become tougher (deepening) and the playing field itself will be significantly wider (expansion) is.

This is not simply a change in standards, but rather an "evolution" of the framework, based on the experience gained from the TCFD, to enable companies to more persuasively tell "sustainability stories" that communicate corporate value to investors and stakeholders.

This article is aimed at those who are already involved in TCFD and sustainability disclosure practices, and will explain the specific changes that will occur as a result of the transition to SSBJ.What's changing and what should be done?The purpose is to provide a clear explanation from a strategic perspective.

Differences between TCFD and SSBJ: Two major changes to keep in mind

The transition from TCFD to SSBJ is not just a replacement of the standards."Deepening"and"expansion"Understanding these two changes is key to understanding the overall picture of what companies need to do.

Change 1: Deepening of climate-related disclosure: From TCFD recommendations to SSBJ climate-related disclosure standards

Until now, SSBJ has been disclosing information related to climate change in line with the TCFD recommendations."Climate-related Disclosure Standards"This will make it more detailed and specific.

What is particularly important is that this informationDisclosed in securities reportsThis means that the information disclosed must be understood in the context of other information, such as financial statements. Report users, including investors, are required to be able to more clearly understand how climate change risks and opportunities are linked to a company's finances.

Change 2: Expansion of disclosure topics: From climate change to general sustainability topics:

While TCFD focuses on climate change, SSBJ“General Disclosure Standards”This will significantly expand the range of sustainability topics that require disclosure beyond climate change.

in particular,Biodiversity, human rights, occupational health and safety, and relationships with local CommunityIt covers a wide range of sustainability Issue related to corporate activity , such as: It is necessary to identify topics that are important to your company and disclose the risks and opportunities associated with them.

Comparison table between TCFD and SSBJ

These two changes can be summarized as follows:

This "expansion" change raises new questions for practitioners: "How specifically should we approach topics other than climate change?" The process can be roughly broken down into three steps.

[Extended Edition] SSBJ General Disclosure Standards and the Process for Addressing Topics Other than Climate Change

SSBJ requires companies to take a systematic approach to disclosing information on sustainability topics other than climate change.

The overall response process: three steps

Our process for addressing topics other than climate change consists of three broad steps: This is a workflow that allows us to select and report on the most important topics from a wide range of possibilities.

1. Identifying risks and opportunities
First, identify the risks and opportunities that could affect the outlook for your business from among the sustainability-related issues surrounding your company.IdentifyTo do.

2. Identifying material information 
Next, in relation to the identified risks and opportunities,Organize important information (material information).

3. Collection, organization, and disclosure of information 
Finally, we collect and organize data from both inside and outside the company regarding the selected important information, and then use it in accordance with the governance system.Systematically compiled and disclosedTo do.

1. Identifying risks and opportunities – what should we look for?

When companies identify sustainability topics that are important to them, the SSBJ identifies sources of information they should consult.

• Items that must be referred to and considered

  • SASB Standards (Sustainability Accounting Standards Board)

    • This standard organizes sustainability topics that may have a financial impact by 77 Industry. You must refer to the topics for your Industry and consider their applicability to your company.

    • Even if you decide after consideration that a particular SASB topic is not applicable, it is important to internally document the process and reasons for that decision, which will ensure continuity in the event of an audit or changes in personnel.

• Items that can be referred to and considered at will

  • CDSB Framework

    • This is guidance on water-related and biodiversity-related disclosures that you can refer to if you consider these topics to be material to your company.

  • Examples of disclosures from other companies in the same industry or operating in the same region (benchmarking)

    • It is also recognized as an effective approach to refer to what topics competitors consider important and disclose.

2. Identifying material information: What does "affect the company's prospects" mean?

The phrase "reasonably expected to affect the company's prospects," which is used repeatedly in the SSBJ standards, is extremely important when determining what to disclose. This phrase can be understood by breaking it down into three elements.

• What is a "corporate outlook"?

  • This is a companyFinancial aspectsSpecifically, it refers to the impact on the amount and timing of cash flows, Funding capacity, Funding costs, etc. over the short, medium, and long term.

• What does it mean to "influence"?

  • Our company contributes to natural resources, etc.dependenceFor example, the impact of a company's business activity on the environment and society may eventually lead to reputational risks and increased regulations.It will have an impact on your company's financesThis includes cases, and consideration from multiple perspectives is necessary.

• What is "reasonably expected"?

  • This is a companyNot just subjective, but objective perspectiveThis means making a judgment based on the following criteria:

  • (Example) Case of the apparel Industry

    • Let's say a company subjectively decides that "we only source our products from countries with low human rights risks and we know our suppliers well, so it's fine." However, from the perspective of an external third party such as an investor, this could be objectively seen as "the entire apparel Industry faces human rights risks in its supply chain."

    • In such cases, even if your company believes the risk is low, it must be recognized as a "reasonably possible" risk and must be considered.

This objective standard means that internal assessments of "our company has low risk" are no longer sufficient. Investors are now required to actively monitor and record what risks investors and external stakeholders perceive across their industry, even if those risks may seem remote from their own business activity.

3. Collecting, organizing, and disclosing information: The process of preparing information in a form that can be disclosed

Finally, for risks and opportunities deemed important, the information necessary for disclosure is collected and organized, and the information is prepared for inclusion in the securities report. At this stage, it is important to clarify practical procedures, such as which department holds which data and how it is collected. In addition, the source of the data, calculation methods, and assumptions are clarified, and the accuracy and consistency of the information are ensured through an internal review and approval process.

Furthermore, consistency with other disclosure items within the company, such as risk management, governance, and financial information, is confirmed, and the report is checked to ensure that the Contents is integrated without contradictions as a whole. By going through this process, the issues identified in steps 1 and 2 are completed as "disclosure information" that is easy for investors to understand.

Now that we understand the process for responding to the "expansion" of disclosure topics, let's look at the specific changes that will be made under the SSBJ to "deepen" the climate-related disclosures that many companies are already making.

[Deepening Edition] Key points of SSBJ climate-related disclosure evolving from the four pillars of TCFD

SSBJ's climate-related disclosure standards follow the TCFD's four pillar framework (governance, strategy, risk management, metrics and targets), but require more detailed information disclosure for each item.

governance

In addition to the traditional organizational chart and explanation of responsible persons, the following items are also listed:

• Skills and Competencies

  • The board and management must provide a detailed explanation of the skills, competencies, and experience they possess to oversee and make business decisions on the topic of climate change.

• Relation to compensation

  • Companies are required to disclose how climate change initiatives are linked to executive compensation (incentives).

Many of these requirements, particularly those relating to board skills and remuneration, will be familiar to companies that have already responded to CDPs questionnaires and may be able to leverage existing processes.

strategy

The "Strategy" section is where the greatest evolution from the TCFD is required, as it is the linchpin that links sustainability activity with financial results and is central to SSBJ's goal of integrating sustainability into its securities reports.

• Detailed disclosure of each risk and opportunity

  • For each climate-related risk and opportunity identified, you must separately describe the future financial impact and what measures you have taken to address it, or plan to take in the future.

• Materializing financial impact

  • The financial impact of risks and opportunities is not simply estimated in monetary terms, but is also calculated in terms of futureInvestment PlanorCash flow, etc.It is required to specifically show in the context of financial statements how the impact will be on the company's financial statements. While SSBJ requires quantification, it acknowledges that quantification is not always possible in cases of high uncertainty. In such cases, it is required to clearly explain why quantitative data cannot be disclosed.

• Specifying climate resilience

  • It is required to describe resilience as a result of analyzing multiple scenarios (e.g., 1.5°C scenario, 4°C scenario).Our business model and strategy are resilient in any scenario.If you can clearly state your conclusion, "This will be a good argument for investors."

Risk Management

This section, following the TCFD approach, requires companies to provide a more detailed explanation of the processes (procedures) they use within their governance structure to identify, assess, and manage identified climate-related risks. For example, companies could detail the specific criteria used to assess risks and the frequency of reviews by the responsible committee.

Indicators and goals

The team in charge must prepare to strengthen their data collection system. In addition to disclosing traditional GHG emission amount(Scope 1 to 3), SSBJ has also listed the following indicators as targets for disclosure:

• Application status of internal carbon pricing

  • We will disclose how we use our own internal carbon pricing for investment decisions, etc., and the pricing itself.

• Industry-specific indicators

  • Indicators specific to your company's Industry, as indicated by SASB standards, etc.

When and how should you respond to these detailed disclosure requirements? Finally, we will explain the application schedule and key points regarding third-party assurance that practitioners should keep in mind.

Practical points to note: SSBJ application schedule and third-party guarantee system

The application of the SSBJ standards is expected to be implemented in stages according to the size of the company, based on discussions at the Financial System Council. A third-party assurance system will also be introduced to ensure the reliability of disclosed information.

Applicable companies and phase-in schedule (based on securities reports)

The new rules are expected to be applied in stages to companies listed on the Prime, depending on their market capitalization.

*A decision on whether to apply this to companies with a market capitalization of less than 500 billion yen is expected to be made in the next few years.

Scope and start date of third-party assurance, and points to prepare now

Discussions are underway to require third-party assurance for disclosures under the SSBJ. For the time being, practitioners should keep the following points in mind:

• Warranty Start Date: SSBJ standards applyNext termIt is expected to become mandatory from now on.

• Guarantee level: For the time being, we plan to start with the easier-to-implement "Limited Warranty."

• Current warranty coverage: Initially, the warranty coverage is expected to be limited to the following three items:

  • GHG emission amount(Scope 1, 2) *Scope 3 is not expected to be included for the time being

  • governance

  • Risk Management

The fact that the scope of assurance is initially limited to actual GHG emission amount(Scope 1 and 2) and governance and risk management processes should be seen as a clear message from regulators. This indicates their intention to first build a robust auditable foundation for the core sustainability data and processes, and to incorporate sustainability into management governance and implement risk management through a procedural process.

5. Summary: Leverage your experience with TCFD and start preparing for SSBJ compliance

As we have seen in this article, responding to SSBJ is not a completely new challenge, but rather an extension of TCFD."evolution"The knowledge and internal structure we have cultivated through the TCFD will serve as a solid foundation for telling a more compelling story about our corporate value in the new arena of SSBJ.

As a practitioner, I recommend starting your preparations now with two approaches:

• Defensive response: Gap analysis for "deepening"

  • To ensure compliance, companies should update their existing TCFD Contents to reflect the more detailed requirements of the SSBJ outlined in this article, particularly"Strategy" and "Metrics and Goals"Compare this with the items listed above and identify where the gaps exist.

• Offensive response: Topic exploration for "expansion"

  • Refer to the SASB Standards for your company's Industry, identify what sustainability topics are mentioned in addition to climate change, and begin discussions within the company.

The transition to SSBJ is a good opportunity to incorporate sustainability into our management agenda. Start preparations early and proceed with your actions in a planned manner.

If you would like specific guidance or support in carrying out these studies, please contact us.Zeroboard Consulting Service Introduction MaterialWe cover a wide range of support directly related to SSBJ, including TCFD, CDPs , SBT, and third-party verification, and can provide support tailored to your company's situation, including internal system development, gap analysis, and review of disclosure documents.

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【reference】

Sustainability Standards Board (SSBJ) Document: overview of SSBJ Standards
https://www.fsa.go.jp/singi/singi_kinyu/sustainability_disclose_wg/shiryou/20250421/01.pdf

SSBJ Supplementary Education Material "Sustainability-Related Risks and Opportunities and Disclosure of Material Information"
https://www.ssb-j.jp/jp/wp-content/uploads/sites/6/jponly_20250327_07.pdf

SSBJ Sustainability Disclosure Standards Application of the Sustainability Disclosure Standards

https://www.ssb-j.jp/jp/wp-content/uploads/sites/6/jponly_20250305_01.pdf

SASB Standards Navigator Apparel, Accessories & Footwear
https://navigator.sasb.ifrs.org/sector/CG/industry/CG-AA?industry_tab=activity-metrics

CDSB Framework Guidance on Applying the CDSB Framework for Water-Related Disclosures
https://www.cdsb.net/sites/default/files/cdsb_waterguidance_single170819_disclaimer.pdf

SSBJ Handbook: Determining the materiality of information about identified risks and opportunities

https://www.ssb-j.jp/jp/wp-content/uploads/sites/6/20250829_02.pdf

SSBJ Sustainability Disclosure Standards Climate-related Disclosure Standardshttps://www.ssb-j.jp/jp/wp-content/uploads/sites/6/jponly_20250305_03.pdf

Financial System Council Working Group on Sustainability Information Disclosure and Assurance Interim Summary
https://www.fsa.go.jp/singi/singi_kinyu/tosin/20250717/01.pdf