Introducing Sustainability into the Japanese Corporate Governance: The Shift to the “New Capitalism” or the Continued Gradual Transformation?

27 Pages Posted: 18 May 2022

Date Written: May 14, 2022


Japan’s corporate governance practice is making rapid developments towards engaging with sustainability. It is quite likely in the near future that Japan becomes one of the jurisdictions most advanced in adapting its corporate governance to sustainability issue in the near future. Already Japan has the largest number of companies having announced support for the TCFD framework in the world. The developments may continue in the coming years, not least because of the recent restructuring of Tokyo Stock Exchange. After the reform, companies listed in the Prime Section will find the ever larger need to acquire support from the investors through addressing the agenda that the investors are concerned about. This will give incentives to companies listed in the Prime Section to advance corporate governance reform further and, among others, take the sustainability agenda seriously.

Still, the approach to the sustainability agenda will retain the Japanese colour in both regulation and practice of corporate governance. The motivation for the reform is mainly the pressure from the capital market, in particular the institutional investors. The political power behind the reform is the center-right coalition, convinced of the need for economic growth through corporate governance reform appealing to institutional investors. The regulator prefers to employ coordinated approach to the industry, rather than to introduce a totally new regulation in a confrontational manner. On the side of the industry, monitoring mechanism is seldom adopted, while significant efforts are made in the solid implementation of the strategy for sustainability. Outside experts may be invited, but as advisors to the management, not as monitors of the latter. After all, most of the Japanese companies are still employee-dominated, with outsiders having an only limited, advisory role. The corporate governance of Japan does change, but changes take much longer time when affecting the core structure, as compared with the developments on the surface.

Keywords: Japanese corporate governance, sustainability, climate-related financial disclosure, shareholder activism, sustainability committee

JEL Classification: K22, K40

Suggested Citation

Kozuka, Souichirou, Introducing Sustainability into the Japanese Corporate Governance: The Shift to the “New Capitalism” or the Continued Gradual Transformation? (May 14, 2022). Available at SSRN: or

Souichirou Kozuka (Contact Author)

Gakushuin University ( email )

1-5-1 Mejiro
Toshima-ku Tokyo 171-8588

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