Stricter Regulations from 2024 Onwards

Starting in 2024, companies that emit more than a specified amount of GHGs will be required to report their emissions to the government and digitize the data for public disclosure. This move will increase the speed and transparency of reporting, allowing the public and stakeholders to access emission data more readily.

Digitization and Enhanced Transparency

The digitization of emissions data offers multiple benefits beyond meeting reporting obligations:

• Open Data: Publicly available emission data will become open data, accessible to everyone. This transparency allows investors and consumers to evaluate a company’s environmental performance more easily.
• Boost in ESG Investments: For investors focused on environmental, social, and governance (ESG) criteria, access to a company’s environmental data is a key evaluation factor. The public disclosure of emissions data is expected to accelerate the flow of ESG investments. Companies demonstrating efforts to reduce emissions will likely be viewed more favorably by capital markets, enhancing their reputations and financial standing.

Scope 1, 2, and 3 Emission Reporting Requirements

The reporting obligations will cover:

• Scope 1: Direct emissions from a company’s activities (e.g., emissions from fuel combustion in company vehicles or industrial processes).
• Scope 2: Indirect emissions from energy purchased and consumed by the company, such as electricity, steam, or heat.

By 2027, the obligation to report Scope 3 emissions, which encompass indirect emissions from a company’s entire supply chain, will be introduced.

• Scope 3: This category covers emissions throughout the supply chain, including emissions from the production of purchased goods, transportation, and the end use of products by consumers. Although collecting data for Scope 3 is more complex, as it depends on external partners, its inclusion will push companies to adopt more comprehensive supply chain management and emissions reductions.

Impact of the Mandatory Disclosure on Companies

The mandatory disclosure of emissions will have a significant impact on corporate environmental strategies. Here’s how it will affect companies:

• Impact on Investor Perception Public disclosure of emissions data will play a critical role in investor evaluations. Companies that show commitment to reducing emissions will gain increased interest from ESG investors, potentially boosting their ability to raise capital and positively influencing stock prices. Conversely, companies with high emissions and inadequate reduction efforts may be viewed as higher-risk investments.
• Impact on Business Operations To meet these regulatory requirements, businesses will need to reduce their overall environmental impact. Key steps may include:
  • Energy Efficiency Initiatives: To reduce Scope 1 and 2 emissions, companies will need to improve energy efficiency. This could involve incorporating renewable energy sources and optimizing energy use.
  • Strengthened Supply Chain Management: Managing Scope 3 emissions will require greater collaboration with suppliers. Companies may need to establish stricter environmental procurement standards and work on reducing emissions throughout the product lifecycle.
• Consumer Awareness and Brand Value Consumers are increasingly conscious of companies’ environmental practices. By transparently disclosing emissions data, companies can demonstrate their commitment to environmental responsibility, which can enhance brand value and attract environmentally conscious customers.

Conclusion

Japan’s mandatory GHG emissions disclosure regulations mark a significant shift for businesses. Starting in 2024, companies will need to disclose digitized emissions data and comply with Scope 3 reporting by 2027. This increased transparency will provide investors and consumers with the information needed to evaluate corporate environmental performance, influencing investment decisions and market competitiveness. To adapt to these changes, companies must prioritize sustainability in their operations, ensuring long-term success in a more environmentally aware market.