ESG Litigation Guide

The legal framework concerning Environmental, Social and Governance (ESG) matters in Japan has been largely developed through soft non-binding principles such as the Stewardship Code (SS Code) and Corporate Governance Code (CG Code). While aspects of each component of ESG are already addressed by certain hard laws, Japan has yet to implement additional ESG-specific hard laws and regulations that correspond with those implemented in other jurisdictions particularly in Europe, such as relating to ESG-related financial disclosure or supply chain due diligence. Climate change related litigation in particular poses significant ESG-related risks for corporations in Japan which is reflected by a substantial number of ESG related litigation proceedings concerning environmental concerns already decided or currently pending. To date, a number of claims have been commenced in Japan involving local residents’ attempts to stop the construction/operation of coal-fired power plants.

While litigation risk also exists with respect to workplace issues, including for matters such as harassment and general working conditions, only a small percentage of such cases move to full merits trials and companies are slowly implementing measures to address the situation. Though it seems that Japan has embraced ESG as a formulation for the social role of corporations much later than other countries, it is making efforts to improve its position on promoting more effective corporate governance structures. While challenges remain in this transformation, many corporations in Japan are seeking to improve their governance structures and implement appropriate measures both for the benefit of their business, as well as to reduce the growing litigation risk and actions by stakeholders.