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Prof Kim Schumacher is an associate professor in sustainable finance and ESG at the Institute for Asian and Oceanian Studies, Kyushu University.
Japan has made efforts to integrate sustainability and environmental, social, and governance (ESG) principles into its financial and corporate sectors. However, these efforts have been inconsistent, with some government and companies showing strong commitment and support while lacking rigorous implementation.
While Japan takes pride in supporting international bodies like the Task Force on Climate-related Financial Disclosures, this support doesn’t always translate into concrete action or meaningful impact.
In Tokyo, there is a visible display of Japan’s self-proclaimed world-leading status on corporate sustainability and ESG. However, without measurable impacts or data, these pronouncements can be seen as mere “greenwashing.”
This trend is also evident in sustainability reports from Japanese companies, where there is a gap between intention and resources/capacity to meet sustainability and ESG expectations.
One area where this gap is apparent is in staffing. Many Japanese companies face the risk of “competence greenwashing” by misrepresenting knowledge or skills related to sustainability or ESG.
Many businesses feel the pressure to showcase their sustainability and ESG-linked activities, products, and services, leading to the expansion of relevant departments. However, due to the lack of qualified personnel, existing staff members are often promoted to sustainability or ESG roles without sufficient experience. This results in the creation of managerial positions that are essentially marketing roles disguised as sustainability or ESG-related positions. Genuine experts are scarce in key sustainability or ESG roles within Japanese companies and financial institutions.
Recognizing the regulatory risk of “competence greenwashing,” Japan’s Financial Services Agency has acknowledged the need for credible sustainability and ESG expertise in the corporate and financial sectors. Financial watchdogs worldwide, including the European Banking Authority, UK Financial Conduct Authority, and the Monetary Authority of Singapore, have raised concerns about this issue.
The Japanese government has emphasized the need for ESG and sustainable finance solutions tailored to the unique Japanese context, which may differ from practices in the EU and US. However, these approaches have faced criticism for being voluntary or less stringent, leading to accusations of greenwashing.
One example is the promotion of climate transition finance, including transition bonds, and support for the International Sustainability Standards Board, a corporate disclosure framework focused solely on financial materiality. This differs from the EU’s proposals, which require disclosure of data relevant to the environment and society.
Japan also supports the concept of “Scope 4” or “avoided emissions,” allowing companies to consider the potential carbon reductions their planned products or services could generate compared to a business-as-usual scenario.
While Japan is making progress in line with international regulatory developments, more credible evidence is needed to support sustainability and ESG-related claims at both the government and corporate levels. This is crucial to reduce the risks of greenwashing and “competence greenwashing.”
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