The FSA moves forward with potential new climate risk disclosure regulation

A new regulation by Japan’s Financial Services Agency (FSA) may lead to the introduction of mandatory climate-risk related disclosures by March 2022.

According to Regulation Asia, the new climate risk-related requirement would apply to both listed and unlisted companies, the latter including those who submit securities filings for bond issuance.

Moody’s Investors Service stated that the proposed regulation would be ‘positive from an ESG perspective’ due to its stronger enforceability than the currently ‘comply or explain’ corporate governance code approach seen in Japan currently, and mostly targets large firms on the Tokyo Stock Exchange.

Furthermore, Moody’s claimed the regulation would improve transparency and data availability around climate-related risks which would aid investors and lenders in assessing individual companies’ exposure to such risks.

The organisation, however, said that ‘consistency and comparability’ across firms may be a near-term hurdle as companies could have different interpretations on how to disclose the information.

Moody’s analyst Ryohei Nishio said, “The proposed regulations mark an important step in increasing corporate climate risk disclosures in Japan. If implemented, the stricter disclosure requirement will likely increase the volume and level of detail in companies’ climate risk reporting.”

Earlier this year, the FSA revealed it was planning to develop a new framework for the certification of ESG-related products.

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