Financial institutions must prioritize producing robust and comprehensive decarbonization plans, according to a new report published by Japan’s Working Group on Financial Institutions’ Efforts towards the Decarbonization of the Economy.
According to the report, shared by Japanese regulator The Financial Services Agency (FSA) on July 21, the decarbonization of financial institutions is becoming “increasingly important” as Japan looks to make good on its net-zero targets.
Corporate climate transition plans should be a focus point for investors, the report reads, advising shareholders to pay particular attention to how financial institutions are planning to mitigate their climate impact over both the medium- and long-term.
Transition plans should also feature both qualitative and quantitative data, the working group advised.
One recurring issue in corporate climate transition plans is a lack of unification and standardization of emissions data. As such, the report recommends financial institutions “consolidate” emissions data for both client companies and companies in their supply chain to provide a comprehensive overview of their total emissions profile.
Companies should look to engage their supply chains to ensure they are also addressing similar climate-related risks and consider sectoral nuances that may impact their transition to net-zero.
Climate risk gained prominence in Japan in 2021, following the FSA’s mandate that all Tokyo Stock Exchange (TSE) Prime market-listed companies must report in line with Task Force for Climate-related Financial Disclosure (TCFD) requirements.
This regulatory development has also resulted in an increasing number of environmental shareholder proposals in Japan. So far this year, the 15 climate change-related proposals subject to a vote at Japan-listed companies have won 15.3% average support, compared to three winning 14% support throughout 2021.