Japan Exchange Group, Inc. has been working to close the perception gap between companies and investors regarding ESG-related disclosures, partly through bringing together both parties at seminars to encourage more constructive dialogue. This article introduces some of these seminars, and discusses how awareness of sustainability issues is progressing in Japan.

Stock exchanges stand in a unique position in their home markets, between companies who list on the exchange, and investors who participate in the market. This can help exchanges to become key players in the promotion of sustainable capital markets. With awareness of the need for sustainable practices growing, Japan Exchange Group, Inc. (JPX) sees an opportunity to use its unique position to help close the perception gap between companies and investors regarding ESG (environmental, social and governance)-related disclosures. This gap is substantial: a survey by the Life Insurance Association of Japan in 2019 found that while 28% of companies viewed the current level of disclosure as adequate, only 1% of institutional investors thought the same.[1]

With this in mind, JPX’s Sustainability Committee has been working together with a number of other organizations to hold seminars aimed at encouraging not just better disclosure (i.e. disclosure which can be used to inform investment decisions), but more constructive dialogue between companies and investors. This article will introduce some of the seminars which were held in 2019, and discuss how awareness of sustainability issues is progressing in Japan.

Firstly, with disclosure on climate change one of the biggest talking points of 2019 for domestic and international investors, JPX joined together with the Japanese Financial Services Agency (FSA) and other international organizations to raise awareness of the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (TCFD). In 2017, TCFD published a framework for companies to disclose information about financial risks and opportunities stemming from climate change, and as of February 2020, Japan has the largest number of companies in any one country who have declared support for this framework. However, many companies are still looking for guidance on how to put this disclosure framework into practice in their own organizations.

In February and December 2019, JPX and the FSA co-hosted two symposiums for listed companies and institutional investors, which discussed TCFD implementation in Japan and how companies and investors can improve dialogue around climate-related disclosure. Speakers at these events included high-level representatives from the FSA and government ministries, TCFD, academics, listed companies, and institutional investors including the Government Pension Investment Fund (GPIF). December’s event included presentations from listed companies who are already disclosing using the TCFD framework, which gave attendees crucial guidance as to how disclosure can work in practice.

JPX also co-hosted a TCFD-based forum in June along with the Principles for Responsible Investment, an international network of investors supported by the UN, which included speakers from the FSA, the Ministry of Economy, Trade and Industry, and the Ministry of the Environment, and attracted around 400 representatives from listed companies and investors. In October, around 270 representatives from listed companies (a full house) gathered to hear an introduction to the Sustainability Accounting Standards Board (SASB) and Climate Disclosure Standard Board's (CDSB) “TCFD Implementation Guide”, which was published in Japanese shortly beforehand. The consistent high turnout to these events, which included not just large-cap but also mid- and small-cap companies, and the enthusiastic participation seen from attendees, showed that Japanese listed companies are not just receptive to the idea of climate-related disclosure, but are proactively looking for guidance on how to begin.

While climate change was a big focus in 2019, JPX also continued to work on encouraging more general ESG disclosure and ESG investment. One commonly aired opinion from listed companies is that ESG rating providers are not transparent enough about their methods, and as a result it is hard to know what needs to be done to improve their company’s rating. Companies also comment on the lack of information in Japanese. In response to this, in November JPX invited representatives from FTSE, one of the largest providers of ESG ratings and indices, to speak to listed companies in Japanese about FTSE’s rating methodology, the meanings behind its rating categories, and the thinking behind its survey questions. The seminar was completely full, with many attendees waiting behind afterwards to ask specific questions about their own ratings, which the FTSE representatives answered in detail. Given that the demand for information in Japanese is clearly high, JPX now plans to invite other rating providers to hold similar events, with the aim of promoting better quality disclosures which can help investors with their investment decisions and engagement policies.

Although ESG investment in Japan is growing at an enormous rate (360% between 2016 and 2018[2]), there are still institutional investors who are unsure of how to integrate ESG into their investment decisions and engagement policies. In the same way, many companies lack information on how investors are looking at them from an ESG perspective, and are therefore struggling to engage constructively. To tackle this issue, in July JPX invited the International Corporate Governance Network (ICGN) to run their “ICGN Stewardship and Sustainability Program”, an education program for investors and corporates, at the Tokyo Stock Exchange building. The program, which is held sporadically in venues around the world, aims to give insights into topics such as how investors can and do integrate ESG into their decision-making, analyzing a company through an ESG lens, and real examples of stewardship in practice. The interactive program was attended by representatives from asset managers, asset owners, corporates and others, and provided a valuable opportunity to improve awareness of how stewardship is progressing outside of Japan. ICGN plans to hold the program in Tokyo again within the next couple of years.

With sustainable practices and disclosure among listed companies picking up and more investors integrating ESG into their investment decisions and engagement policies, the situation in Japan looks promising. JPX will continue to encourage better ESG disclosure and more constructive dialogue between companies and investors in 2020.


[1] https://www.seiho.or.jp/info/news/2019/pdf/20190419_3-all.pdf (p18)

[2] http://www.gsi-alliance.org/wp-content/uploads/2019/03/GSIR_Review2018.3.28.pdf (p8)