The importance of disclosing sustainability information is increasing more and more.
When we consider the purpose of information disclosure, it is often done for defensive purposes such as regulatory compliance and risk avoidance. On the other hand, there is a growing discussion about the importance of proactive information disclosure aimed at improving corporate value. In this situation, many companies are likely dealing with sustainability information disclosure as part of their work while wondering, "Will improving sustainability information disclosure really increase corporate value?"
This article will examine the relationship between sustainability information disclosure and corporate value, using research data.
Defensive Sustainability Disclosure: Progress in Institutional Development
Progress in institutional development
Globally, progress is being made in establishing systems for sustainability information disclosure. For example, in Europe, the Corporate Sustainability Reporting Directive (CSRD) [1] has been implemented, requiring companies to disclose detailed information. In the United States, the SEC (Securities and Exchange Commission) has suspended enforcement of the Climate Change Risk Disclosure Rules, but has indicated its intention to uphold the legitimacy of the rules and seek a swift resolution in court [2]. In the medium term, it is unlikely that climate change-related disclosures will cease. Meanwhile, in China, the "Guidelines for Sustainability Reports for Listed Companies" [3] was published in April 2024 and is applicable to some listed companies.
Similarly, in Japan, there is a growing movement to strengthen sustainability information disclosure. The Sustainability Standards Board of Japan (SSBJ) published a draft of its Sustainability Disclosure Standards in March 2024[4], and the final version of these standards is scheduled to be published at the end of March 2025. The standards aim to ensure consistency with the International Sustainability Standards Board (ISSB), which sets international standards, while requiring companies to appropriately disclose non-financial information. For more details, please see "Helpful Information" below.
Mandatory Sustainability Information Disclosure: Planned Measures, Targets, and Impacts Explained
Greenwashing problem
According to PwC's Global Investor Opinion Survey 2023[5], 94% of investors believe that corporate reports on sustainability performance contain unsubstantiated claims, and this figure has increased from the previous year. The survey states that companies must continue to create value while simultaneously demonstrating to investors in some way the goals they have committed to in their sustainability efforts. Discussions on third-party assurance of disclosure information based on the aforementioned SSBJ standards are underway in the Financial Services Agency's Financial System Council Working Group on the Disclosure and Assurance of Sustainability Information.
Proactive Sustainability Disclosure: The Relationship Between Information Disclosure and Corporate Value
It is often said that ESG performance and comprehensive sustainability disclosure lead to increased corporate value. However, many people likely only have a vague understanding of this. In this section, we will explore the relationship based on research data and specific initiatives.
Ministry of Economy, Trade and Industry report
The Ito Report 3.0, published in August 2022, [6] highlights the importance of accelerating discontinuous transformation through constructive dialogue between companies and investors. In particular, it clarifies that sustainability information disclosure contributes to building trust with investors in long-term corporate value creation.
The article argues that addressing sustainability is no longer just a risk that companies must deal with, but is becoming a fundamental element of long-term business strategy, and that incorporating sustainability into management is essential to improving the ability to generate growth capital (earning power). It also points out that companies that do not address sustainability are finding it difficult to gain favor with investors, consumers, and the labor market, and as a result, this is increasingly impacting the continuation of their business activities.
Supported by research data
For over 40 years, numerous studies have been conducted on sustainability (ESG) disclosure, economic performance, and sustainability (ESG) performance. These include studies showing that economic performance determines sustainability disclosure (Cox and Douthett 2009[7]) and studies showing that sustainability (ESG) disclosure is related to economic performance (Cox 2008[8]; Oshika, Saka, and Jimichi 2020[9]). Among these, the most numerous studies explore the relationship between ESG performance and economic performance.
However, regarding the relationship between ESG information disclosure and economic performance, while many studies show a correlation, very few studies clearly demonstrate a causal relationship. Therefore, it has been interpreted that companies that can actively engage in sustainability are often financially well-off and have long had a strong management foundation, but there is also a lot of investment activity based on the idea that sustainability factors will improve performance.
This is a topic that will continue to attract attention in future research and practical applications.
What should companies do?
So far, we have considered the defensive and offensive aspects of sustainability information disclosure. Now, what specifically should companies do?
As mentioned above, no studies have been published that clearly establish a causal relationship between sustainability efforts and business performance. However, it is important to appropriately disclose sustainability-related information that contributes to the improvement of corporate value in the medium to long term. On the other hand, ESG rating agencies and investors who use this disclosed information may become more skeptical about the credibility of the disclosed content of investee companies and the accuracy of the measurement of data such as GHG emissions. Therefore, there is a need to standardize the information that forms the basis of evaluations to eliminate variability among companies and to address the validity of those figures. It can be said that steadily preparing for the disclosure system planned for the future and reliably implementing the disclosure of information collected in accordance with laws and regulations is a prerequisite for improving corporate value. However, in addition to that, the following efforts are required to demonstrate to stakeholders not only the company's financial situation but also its non-financial soundness.
- Deepen dialogue with investors and stakeholders: Disclose specific data and goals, and share a long-term vision.
- Improve data quality: Develop reliable data to support ESG performance and implement third-party assurance.
- Position information disclosure as part of your strategy: not merely as something to be complied with, but as a strategic tool for enhancing corporate value.
summary
As the importance of sustainability information disclosure increases, regulatory frameworks are being developed both domestically and internationally. With the SSBJ standards coming into effect in 2026, many companies are being forced to establish these systems. Beyond simply complying with regulations, building trust with stakeholders and enhancing corporate value through the enrichment and strengthening of non-financial information disclosure will be key to future business success. A strategic approach to sustainability information disclosure, considering both offensive and defensive strategies, is essential.
[1]Corporate sustainability reporting – European Commission
[2] https://www.sec.gov/files/rules/other/2024/33-11280.pdf
[3] Notification of 关于发《Shanghai Securities Exchange Launching Company Autonomous Management Guide No. 14—-Cabled Exhibition Report (Examination)》 | Shanghai Securities Exchange
Notification of 关于发《Shenzhen Authentication Exchange Launch Company Autonomous Management Guide No. 17--Can be held exhibition report (examination)》
Announcement of 关于发《Beijing Securities Exchange Listing Company Holding Management Guide No. 11—Can Holding Holding Exhibition Report (Examination)》
[4] Draft Sustainability Disclosure Standards for Special Website | Sustainability Standards Committee
[5] Investor 94% reported that companies' sustainability reports contain unsubstantiated claims. PwC releases Global Investor Opinion Survey 2023 | PwC Japan Group
[6] https://www.meti.go.jp/shingikai/economy/sustainable_sx/pdf/20220830_1.pdf
[7] Cox, CA and Douthett Jr., EB (2009) Further evidence on the factors and valuation associated with the level of environmental liability disclosures. Academy of Accounting and Financial Studies Journal 13(3), 1-26.
[8] Cox, CA (2008) Factors associated with the level of superfund liability disclosure in 10 K reports: 1991-1997. Academy of Accounting and Financial Studies Journal 12(3), 1-17.
[9] Tomoki Oshika, Chika Saka, and Masayuki Jimichi (2020) "Market evaluation and sustainability of 'companies that are good for society'," *Corporate Accounting*, Vol. 72, No. 1, 74-80.