SDGs Management: Disclosure Rate of Climate Change Risk among Japanese Companies

• Sustainable

Nikkei Research has been conducting various surveys to evaluate the efforts related to SDGs of companies and local governments. Such as the Nikkei SDGs Management Survey and the nationwide Cities & Counties SDGs Advancement Survey, to name a few. We will introduce what outcomes can be obtained by SDGs management and advanced case studies toward combating climate change and achieving carbon-zero, which has become an urgent issue nowadays.

In this article, we will introduce the disclosure rate of climate change risk, a hot topic related to carbon-free.

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SDGs Management Project Team, Makiko Kobayashi

Disclosure of climate change risk exceeding 90% among leading companies, but stays below 40% in overall

2021 can be marked as the year where shareholders pressured companies to take actions on climate change and corporate governance. At ExxonMobil's shareholder meeting in late May 2021, pension funds and major asset management companies voted in favor of a shareholder proposal by an investor with only a 0.02% stake in the company -- an environmentalist was elected as one of the new independent directors. As the world accelerates toward carbon-free, climate change risk is becoming an important factor in investors' decisions. It will become increasingly important for companies to appeal their climate change measures to their external stakeholders in the coming future.
According to the results of the Nikkei SDGs Management Survey conducted in 2020 (response from total of 731 companies), 97.4% of leading companies (39 companies with a deviation score of above 65) disclosed their climate change risks, but the overall average disclosure rate of all companies was only 35.4%.

Figure 1. Disclosure of climate change directed to the reporting party

The rate of disclosure including the supply chain, such as raw material and component suppliers, was 84.6% for leading companies but just 20.5% in overall. This is far off from investors who think “climate risk is investment risk” and demand companies to disclose proactively.

Figure 2. Disclosure of climate change involving the supply chain

Triggered by then Japanese Prime Minister Suga's declaration of "carbon neutral by 2050" in his policy speech in 2020, Japan shifted its focus on targeting a carbon-free society. Companies are now abruptly required to take measures not only within itself but also covering their supply chains.

Revision of Corporate Governance Code would accelerate disclosure

In spring 2021, the Financial Services Agency of Japan and the Tokyo Stock Exchange (TSE) compiled a draft revision of the Corporate Governance Code which calls for publicly listed companies to disclose business risks and countermeasures upon climate change. Companies listed on the “prime” market, which will take over the current “first section” scheduled in April 2022 by TSE, will be required to explain clearly their risk analysis and business strategies to investors in line with the guidance of the Task Force on Climate-Related Financial Disclosures (TCFD) established by the Financial Stability Board (FSB), a global body representing financial authorities of major countries.
Kirin Holdings, which won the "Environmental Value Award" in the 2020 Nikkei SDGs Management Survey, estimated the increase in procurement costs associated with the decline in yields of barley, hops, and other raw materials for beverages due to global warming, while analyzing and disclosing the possibility of market expansion for its products due to the impact of infectious diseases and heat stroke.
To attract investment from inside and outside the country, it is essential for companies to describe their financial impact induced by climate change in a clear and understandable way.

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