Quantitative Text Analysis of Sustainability Reporting: Decarbonization Strategies and Company Characteristics in Japan

Abstract

Following the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), listed companies in Japan must disclose sustainability-related information since the 2023 financial year. As carbon neutrality becomes integral to corporate management, understanding the strategic approaches taken by companies is crucial. However, no large-scale text analysis of sustainability-related policies, including decarbonization strategies, has been conducted in Japan. This study applies natural language processing techniques to quantify and statistically analyze the sustainability-related texts of companies listed on the Tokyo Stock Exchange Prime Market. The analysis elucidates the relationship between decarbonization strategies, company size, industrial sector, and financial indicators. The key findings are as follows: 1. Large companies have the resources to focus on ‘climate change scenario analysis’ and ‘materiality management systems,’ while small companies emphasize inclusion such as ‘women's roles’ and ‘climate-related governance.’ 2. Strategies in energy-intensive and financial sectors engage more with ‘climate change scenario analysis.’ 3. Conversely, some highly profitable companies show comparatively weak focus on ‘climate change scenario analysis,’ possibly where their activities (e.g., in the Services industry) are currently perceived as being less exposed to future climate scenarios. 4. Company size and industry significantly influence the focus of sustainability strategies, whereas the impact of financial indicators is relatively less pronounced. This study presents the first large-scale analysis of mandatory sustainability reporting by Japanese companies under a standardized format. These findings provide critical insights for policymakers and business leaders, highlighting the importance of tailored approaches to enhance corporate sustainability practices in Japan.

Keywords: Carbon neutrality, Sustainability, Natural language processing, Statistical residual analysis