28 May 2021 4 min read

ESG disclosures in Japan: why it’s an area of focus

By Aina Fukuda

Following the launch of an engagement campaign on ESG transparency by our Investment Stewardship team, we explore why we believe it is important that LGIM raises this topic directly with our investee companies in Asia, including Japan.



As explained in our previous blog, LGIM’s Investment Stewardship team has launched a new engagement campaign this year on the topic of ESG transparency with our investee companies. We chose to engage those companies that have a low Transparency score.[1] Where no improvement is observed, from 2022 LGIM will be voting against the chair of the board – or the most senior member of the board in the case of Japanese companies – of all LGIM Transparency score laggards, as previously announced in 2020.

Among the 101 targeted companies for this campaign, 53 are listed in Japan. Such a large number of Japanese companies in our list of target companies could be surprising, at first glance.

A recent study found that Japanese companies have the highest rate of sustainability disclosure, with 100% of the top 100 Japanese companies by revenue producing a sustainability report, and 96% of these companies including sustainability information in their annual reports. The same study found that Japan is one of the three countries surveyed where a majority of the top 100 companies issued an integrated report.[2]

There is also momentum on policy in Japan. Last year, the government committed to achieve net-zero carbon emissions by 2050. In addition, the Japan Corporate Governance Code is currently being reviewed (LGIM has responded to the consultation), with potential improvements to sustainability reporting requirements, including:

• Development by the board of a basic policy and disclosure by companies of initiatives regarding their sustainability (e.g. human-capital management and climate-change impacts);

• Enhancement by companies listed on the Prime Market of the quality and quantity of their climate-related disclosures, based on Taskforce on Climate-related Financial Disclosures (TCFD) recommendations or equivalent international frameworks.

So, despite these developments, why are so many Japanese companies failing to meet our minimum standards for ESG transparency?

We believe companies in Japan can go further in two main areas:

1. Alignment with internationally accepted reporting standards and frameworks

As with other markets, we support the introduction of robust ESG reporting rules in Japan, and alignment of ESG disclosure requirements in line with international best practice and investor expectations, to allow for investors and other stakeholders to access relevant, comparable, consistent, and verifiable ESG information globally. We advocate the consistent use by all companies globally of well established reporting frameworks (i.e. SASB, GRI, TCFD, CDP, CDSB). One of the indicators of our Transparency score looks at this, as reporting in alignment with internationally accepted reporting standards and frameworks will help stakeholders access information useful for decisions that is comparable across all markets, until the introduction of a simplified and harmonised global framework.

Japan had 41 different sustainable finance policies in 2020, all of which were voluntary. Although the Japan Corporate Governance Code also adopts a ‘comply or explain’ approach, the potential inclusion of TCFD-aligned reporting as a requirement under the new Code could help improve the quality of reporting, in line with investor expectations. Whilst Japanese companies show a higher level of support for TCFD reporting than any other country in the world[3], as of May 2020, only 29% of non-financial institutions and 36% of financial institutions in Japan had reporting fully aligned to the TCFD framework.

LGIM’s approach is to recommend mandatory disclosure requirements.[4] However, we believe companies shouldn’t wait for (local) legal requirements to take effect. They should instead seek to align with the main international standards and frameworks in order to be ahead of the curve and well prepared to meet future requirements.

2. ESG disclosures beyond the companies’ own reporting

As explained in our guide to ESG transparency, the financial community and various stakeholders increasingly rely on ESG data provided by third parties. Inaccurate ESG information held by a third-party provider and used by the investment community might result in markets inaccurately pricing company stock and/or bonds. Furthermore, investor sanctions may be imposed not only through voting, but also and increasingly at the capital-allocation level.

Through this campaign, LGIM seeks to raise awareness among our investee companies of the importance of verifying the information that ESG data providers hold on them. We believe it is the role of the board to step up on this issue and make sure the information third-party providers have on their companies is accurate for investors. In the instance of LGIM’s Transparency score, we are using data from third-party provider Sustainalytics and encourage our Transparency score laggards to get in touch directly with the firm to verify the accuracy of the data and/or seek to improve their score.[5]

At the time of writing this blog, six of the 53 Japanese companies to which we wrote had responded to our engagement. Whilst it is too soon to see measurable results from our campaign, we welcome the positive responses from companies seeking to improve their transparency in line with investor expectations.


[1] The detail of our methodology is available on our website.

[2] The other two countries were South Africa (where listed companies are required to adopt integrated reporting) and Sri Lanka.

[3] TCFD (October 2020): https://www.fsb.org/wp-content/uploads/P291020-1.pdf. Note that supporting organisations are expected to encourage TCFD implementation; however, there are no specific requirements to become a supporter.

[4] For example, in line with our recent response to the UK’s Government (BEIS) consultation on mandatory climate-related financial disclosures by publicly quoted companies, large private companies and LLPs.

[5] We publish the range of third-party data providers we use across different investment strategies in our guide to ESG transparency. For example, the LGIM ESG score uses data provided by HSBC, Refinitiv, ISS ESG, and Sustainalytics, but other strategies will use data from different providers.

Aina Fukuda

Head of Japan Investment Stewardship

Based in Tokyo, Aina leads LGIM's stewardship efforts in Japan. Working with colleagues in London and Chicago, she engages directly with companies, regulators and other investors on a range of issues, including climate change, biodiversity, board governance, and diversity. Prior to joining LGIM in 2019, she was a sustainability consultant at PwC Japan where she helped build the firm’s corporate sustainability advisory practice. Aina serves as the Deputy Chair of the Asian Corporate Governance Association (ACGA) Japan Working Group, which comprises 29 members with a combined global AUM of more than US$20 trillion. She also sits on the SASB Standards Advisory Group and represents LGIM at a number of organisations, such as the 30% Club Japan Investor Group and Japan Climate Leaders’ Partnership (JCLP). She is a licensed Certified Public Accountant (CPA) in the USA. Outside work, she enjoys spending time in nature and at the Aikido dojo.

Aina Fukuda