Japan has taken a significant step forward in sustainability reporting with the recent publication of its first-ever sustainability disclosure standards by the Sustainability Standards Board of Japan (SSBJ). These new standards, which closely align with the International Sustainability Standards Board (ISSB) frameworks—IFRS S1 and S2, mark a transformative shift in how Japanese companies will disclose their Environmental, Social, and Governance (ESG) performance.
While the SSBJ standards mirror the ISSB frameworks, they also introduce jurisdiction-specific modifications to accommodate Japan’s regulatory and business environment. This move underscores Japan’s commitment to international sustainability disclosure alignment while providing local flexibility to ensure smooth adoption.
Understanding Japan’s New Sustainability Disclosure Standards
On March 5, 2025, the SSBJ issued its inaugural sustainability disclosure standards, consisting of three core standards:
- Universal Sustainability Disclosure Standard – “Application of the Sustainability Disclosure Standards” (Application Standard)
- Theme-based Sustainability Disclosure Standard No. 1 – “General Disclosures” (General Standard)
- Theme-based Sustainability Disclosure Standard No. 2 – “Climate-related Disclosures” (Climate Standard)
These three standards correspond to the ISSB’s IFRS S1 and S2 but have been structured differently. The General Standard and Application Standard together fulfill the requirements of IFRS S1, while the Climate Standard aligns with IFRS S2.
Key Features of SSBJ’s Standards
- Alignment with ISSB Standards: The SSBJ has taken a global-first approach to ensure that Japanese companies’ ESG disclosures are comparable and consistent with international standards.
- Flexibility with Local Adjustments: While the standards closely follow IFRS S1 and S2, Japan allows certain jurisdiction-specific modifications, giving companies some room to tailor their disclosures.
- Gradual Implementation: The adoption is currently voluntary, allowing companies to prepare for eventual mandatory adoption under Japan’s securities regulations.
- Support for Transition: The SSBJ is providing guidance, educational resources, and relief measures to help organizations transition smoothly into compliance.
Why These Standards Matter for Japanese Businesses
- Strengthening ESG Transparency and Global Investor Confidence
As global investors place greater emphasis on ESG disclosures, the alignment of Japan’s sustainability reporting framework with ISSB standards will:
- Enhance comparability between Japanese and international firms.
- Improve investor confidence by providing transparent and reliable ESG data.
- Facilitate cross-border investment as companies meet globally recognized sustainability standards.
- Preparing for Mandatory Adoption
While the initial adoption is voluntary, the SSBJ has developed these standards under the assumption that they will become mandatory for companies listed on the Prime Market of the Tokyo Stock Exchange (TSE). This makes it imperative for businesses to start preparing now, rather than waiting for official deadlines.
How Japan’s Approach Differs from Other Global Sustainability Frameworks
Japan is not alone in developing ISSB-aligned sustainability reporting standards. Countries like the UK, Australia, and Canada have also started adopting IFRS S1 and S2. However, Japan’s approach has some unique elements:
- Dividing IFRS S1 into Two Separate Standards: Unlike ISSB’s single “General Requirements” standard, Japan has chosen to split it into the Application and General Standards. This ensures that companies clearly differentiate between core sustainability disclosures and general reporting requirements.
- Voluntary Phase Before Mandatory Rollout: While Europe’s Corporate Sustainability Reporting Directive (CSRD) is already in effect, Japan has taken a more gradual approach, allowing companies to familiarize themselves with the standards before enforcing compliance.
- Jurisdiction-Specific Adjustments: The SSBJ has made small, localized modifications to the ISSB standards, ensuring that the new disclosure framework works within Japan’s legal and corporate governance landscape.
Japan’s Sustainability Reporting Future
The release of the SSBJ sustainability disclosure standards is a landmark moment for ESG reporting in Japan. By aligning with IFRS S1 and S2, the country has ensured that its corporate sustainability reporting meets global best practices while allowing room for local flexibility.
However, several key questions remain unanswered:
- When will these standards become mandatory? While Prime Market companies are expected to comply eventually, no official date has been announced.
- Will Japan introduce a digital XBRL reporting mandate? As sustainability disclosures increasingly shift to structured data formats, an XBRL requirement seems inevitable.
- How will companies navigate the transition? The success of early adopters will influence how quickly other companies follow suit.
With global regulators, investors, and businesses pushing for greater ESG transparency, Japan’s move toward ISSB-aligned sustainability disclosure standards is a step in the right direction. The next few years will determine how effectively Japanese companies integrate these new reporting requirements into their financial and sustainability reporting frameworks.
For regulators operating in Japan, the message is clear: Start preparing now, because sustainability reporting is no longer just an option—it’s the future of corporate transparency.
