Sustainability Disclosure and Climate Risk: ESG BROADCAST shares key takeaways.
The Sustainability Standards Board of Japan issued an Exposure Draft on January 22, 2026, targeting the practical application of climate-related disclosures. This specific document addresses how entities can leverage the existing GHG Reporting System under the Japanese Act on Promotion of Global Warming Countermeasures. By providing clear guidance on using domestic regulatory data to comply with the SSBJ’s Climate Standard, the board aims to reduce the administrative burden on Japanese corporations. Stakeholders are invited to submit their comments on the proposed framework through March 25, 2026.
The GHG Reporting System serves as a cornerstone of Japan’s environmental policy, requiring facilities that meet certain energy and emission thresholds to file annual reports. The SSBJ developed this Exposure Draft by referencing the most recent updates to the Act made in March 2025. This alignment ensures that the disclosure standards reflect contemporary regulatory requirements while remaining useful for primary users of financial information. The proposal specifically addresses entities that apply jurisdictional relief to avoid duplicative reporting while asserting compliance with international-aligned standards.
Under the new proposal, the SSBJ clarifies that entities should utilize non-adjusted emissions rather than adjusted emissions for their sustainability disclosures. This decision stems from the board’s observation that non-adjusted emissions are more closely aligned with the Greenhouse Gas Protocol’s requirements. Specifically, the updated GHG Reporting System now requires the separate reporting of direct emissions and indirect emissions within the non-adjusted category. This structure mirrors the Scope 1 and market-based Scope 2 categories required by global climate reporting frameworks.
The Exposure Draft also resolves significant application challenges regarding Scope 2 greenhouse gas emissions. While the domestic GHG Reporting System does not mandate the reporting of location-based Scope 2 figures, the SSBJ proposal provides a simplified calculation method. Entities can multiply existing activity data by an average emission factor provided by the Japanese government. This approach is treated as a valid method under the jurisdictional relief clause, ensuring that companies can fulfill both location-based and market-based disclosure requirements without an undue technical or financial burden.
The board emphasizes that these requirements will apply to all entities subject to the Japanese Act that choose to utilize the jurisdictional relief provision. The final Practical Sustainability Disclosure Standard is expected to be released by the end of June 2026. Once finalized, the standard will be effective for annual reporting periods ending on or after March 31, 2027. However, the SSBJ is permitting earlier application to support companies that wish to transition their reporting systems ahead of the formal mandate to enhance market transparency.
Strategic significance lies in the institutionalization of a “single-window” reporting philosophy that harmonizes domestic legal requirements with global investor expectations. By enabling the GHG Reporting System data to satisfy SSBJ standards, Japan is significantly lowering the cost of compliance for its major industries. This move preserves the integrity of climate-related financial disclosures while ensuring that Japanese firms remain competitive in a global capital market that increasingly demands high-quality, comparable environmental data. Ultimately, this framework provides a clear roadmap for corporate Japan to transition toward rigorous, science-based sustainability reporting.
Image Credit: London Reporting Academy
