On April 6, 2021, the Council of Experts Concerning the Follow-up of Japan’s Stewardship Code and Japan’s Corporate Governance Code (Council) published a consultation on proposed revisions to Japan’s Corporate Governance Code (Governance Code) and Guidelines for Investor and Company Engagement (Guidelines) intended to, among other things, increase attention to sustainability and ESG matters and promote diversity among Japan’s listed companies.

The Governance Code sets out the fundamental principles for effective corporate governance of listed companies in Japan, while the Guidelines provide agenda items for engagement that institutional investors and companies are expected to focus on. The proposed revisions to these two documents could significantly influence the state of ESG and diversity among Japan’s listed companies, with a key emphasis on sustainability-related disclosures.

In this Blog Post, we provide additional background on the Governance Code and the Guidelines, as well as details and analysis of the consultation proposals.

The Governance Code and the Guidelines

The Governance Code was released in 2015 and has been incorporated into the listing rules of the Tokyo Stock Exchange (TSE) on a comply-or-explain basis. The Governance Code takes a principles-based approach to corporate governance, with a focus on five fundamental principles:

  • Securing the rights and equal treatment of shareholders;
  • Appropriate cooperation with stakeholders other than shareholders, including employees, customers, business partners, creditors and local communities;
  • Ensuring appropriate information disclosure and transparency;
  • Responsibilities of the board; and
  • Dialogue with shareholders.

The Governance Code complements Japan’s Stewardship Code, which was released in 2014 and promotes responsible investment activities among institutional investors. Together, the Governance Code and the Stewardship Code serve as “‘the two wheels of a cart’ such that the sustainable growth of companies will be promoted by both sides of investors and companies.

The Guidelines supplement both the Governance Code and the Stewardship Code by setting out specific engagement topics for investors and companies to consider.

Promoting Diversity

With respect to diversity, the consultation paper notes that the COVID-19 pandemic, in particular, has created new challenges requiring a diversity of perspectives and values at the Board and management levels. The paper states that it is “very important to build a system to ensure diversity in terms of gender, internationality, work experience, age., etc.” through the middle managerial level. To that end, the proposed revisions to the Code and the Guidelines would require companies to:

  • Disclose a policy and voluntary measurable targets in respect of promoting diversity in senior management by appointing females, non-Japanese and mid-career professionals; and
  • Disclose human resource development policies ensuring diversity, including the status of implementation.

Attention to Sustainability and ESG

The consultation paper encourages companies to adopt “the aim of increasing corporate value over the mid- to long-term” by positively and proactively addressing sustainability factors, including ESG factors. The paper also recognizes the importance of sustainability-related disclosures in promoting engagement between investors and companies and, in particular, highlights the Task Force on Climate-related Financial Disclosures (TCFD) and the forthcoming IFRS sustainability reporting framework as noteworthy disclosure frameworks. With this in mind, the proposals would require companies to:

  • Develop a basic policy and disclose initiatives on the company’s sustainability; and
  • Enhance the quality and quantity of climate-related disclosure based on TCFD recommendations or equivalent international frameworks at Prime Market listed companies.


In addition to the above, the proposals set out in the consultation paper would enhance Japan’s governance framework by, among other things, increasing the number of independent directors required for certain listed companies and disclosing a “skill matrix” of board members conforming to the company’s business strategy. The consultation closes May 7, 2021.