Support for Listed Companies
TSE incorporates the fundamental principles for corporate governance established in Japan's Corporate Governance Code ("the Code") into its listing rules to contribute to effective corporate governance in Japan.
As shown in the subtitle: Seeking Sustainable Corporate Growth and Increased Corporate Value over the Mid- to Long-Term, the Code establishes fundamental principles for effective corporate governance at listed companies in Japan. It is expected that the Code's appropriate implementation will contribute to the development and success of companies, investors, and the Japanese economy as a whole through individual companies' self-motivated actions so as to achieve sustainable growth and increase corporate value. As sustainability issues are important management issues that can lead to earning opportunities as well as risk mitigation, companies should further consider addressing these matters positively and proactively in terms of increasing corporate value over the mid-to long-term, and to this end, the Code includes items concerning not only governance but also social and environmental factors as used in ESG investment.
Below are extracts from the Code that relate to social and environmental factors, as revised in July 2026.
To accompany this revision to the Code, the Financial Services Agency of Japan has published “Message to Management of Listed Companies” and “Message to the Person in Charge at Listed Companies.”
Message to the Person in Charge at Listed Companies (Financial Services Agency)
Source: Financial Services Agency
Extracts From the Code Relating to Social and Environmental Factors
General Principle 2
Companies should fully recognize that their sustainable growth and the creation of mid- to long-term corporate value are brought about as a result of the provision of resources and contributions made by a range of stakeholders, including employees, customers, business partners, creditors and local communities. As such, companies should endeavor to appropriately cooperate with these stakeholders.
The board and the management should exercise their leadership in establishing a corporate culture where the rights and positions of stakeholders are respected and sound business ethics are ensured.
Principle 2.2 Ensuring Diversity
Companies should determine and disclose the status of their policies and voluntary and measurable goals for ensuring diversity, including the promotion of employees to senior positions in the company from perspectives including gender, international experience, career experience (including lateral employees), age, and cultural background.
Companies should disclose their policies for human resource development and internal environment development to ensure diversity, as well as the status of their implementation.
Interpretive Guidance
The existence of diverse perspectives and values reflecting a variety of experiences, skills and characteristics is a source of innovation and new value creation and can be a strength that supports companies’ transformation and sustainable growth. In light of the importance of human resource strategies to achieve sustainable growth, companies should determine their policies and voluntary and measurable goals for ensuring diversity suitable for its situation from perspectives including gender, international experience, career experience (including lateral employees), age, and cultural background.
General Principle 3
Companies should appropriately make information disclosure in compliance with the relevant laws and regulations, but should also strive to actively provide information beyond that required by law. This includes both financial information, such as financial standing and operating results, and non-financial information, such as business strategies and business issues, risk and governance.
The board should recognize that disclosed information will serve as the basis for constructive dialogue with shareholders, and therefore ensure that such information, particularly non-financial information, is accurate, clear and useful.
Interpretive Guidance
Companies are legally required to disclose a wide range of information. The timely and appropriate disclosure of information in accordance with the relevant laws and regulations is essential for investor protection and securing market confidence. The board, kansayaku, the kansayaku board and external auditors all bear an important responsibility in this regard, starting with the establishment of an appropriate internal control system as to financial information.
In order to enhance transparency and fairness in decision-making and to ensure effective corporate governance, companies should actively strive to provide information including, but not limited to, what is required by laws and regulations and each Principle of the Code.
It has been noted that while the quantitative part of financial statements of Japanese companies conform to a standard format and therefore excel with respect to comparability, non-financial information, such as financial standing, business strategies, risks and environmental, social and governance matters, is often boiler-plate and lacking in detail, therefore less valuable. The board should actively commit to ensure that disclosed information, including non-financial information, is as valuable and useful as possible.
Irrespective of whether the disclosed information is required by law, the appropriate provision of information is an effective means to develop a shared awareness and understanding with shareholders and other stakeholders, in particular given that they suffer from information asymmetry. Appropriate information disclosure will also contribute to constructive dialogue based on Japan’s Stewardship Code.
General Principle 4
Given its fiduciary responsibility and accountability to shareholders, in order to promote sustainable corporate growth and the increase of corporate value over the mid- to long-term and enhance earnings power and capital efficiency, the board should appropriately fulfill its roles and responsibilities, including:
- Setting the broad direction of corporate strategy;
- Establishing an environment where appropriate risk-taking by the management is supported; and
- Carrying out effective oversight of directors and the management (including shikkoyaku and so-called shikkoyakuin) from an independent and objective standpoint.
Principle 4.5 Roles and Responsibilities of the Board IV: Sustainability Measures
The board should address sustainability matters positively and proactively in terms of increasing corporate value over the mid- to long-term. Also, the board should develop a basic policy for the company’s sustainability initiatives and take appropriate measures.
Interpretive Guidance
Sustainability (mid- to long-term sustainability) is an important management issue. From the perspective of assessing mid- to long-term corporate value, the importance of sustainability-related information is growing globally. The International Sustainability Standards Board (ISSB) has formulated a global sustainability disclosure standard (ISSB Standards), and there has been progress in countries’ implementation of the sustainability disclosure standard. In Japan as well, certain companies listed on the Prime Market are required to prepare their annual securities reports based on disclosure standards established by the Sustainability Standards Board of Japan (SSBJ), which are aligned with the ISSB standards. Meanwhile, it is important for companies to further promote positive and proactive responses to sustainability issues.
The board should recognize that dealing with sustainability issue, such as taking care of climate change and other global environmental issues, respect of human rights, fair and appropriate treatment of the workforce including caring for their health and working environment, crisis management for natural disasters, and diversity are important management issues that can lead to earning opportunities as well as risk mitigation, and should take appropriate measures to address these issues from the perspective of sustainable growth of the company and increasing corporate value over the mid- to long term.
Principle 4.7 Use of Optional Approaches
In adopting the most appropriate organizational structure (as stipulated by the Companies Act) that is suitable for a company’s specific characteristics, companies should employ optional approaches, as necessary, to further enhance governance functions.
In particular, if the organizational structure of a company is either Company with Kansayaku Board or Company with Supervisory Committee and independent directors do not compose a majority of the board, the company should establish an independent nomination committee and remuneration committee under the board, comprised primarily of independent directors, and seek appropriate involvement and advice from the committees.
Companies listed on the Prime Market should basically have the majority of the members of each committee be independent directors, and should disclose the mandates and roles of the committees, as well as the policy regarding the independence of the composition.
Interpretive Guidance
The ideal state of the board can vary depending on the characteristics of each company. Companies should adopt the optimal organizational structure best suited to their specific situation, while effectively utilizing optional committees, such as nomination committees and remuneration committees, to further strengthen their governance functions.
In order to strengthen the independence, objectivity and accountability of board functions on the matters of nomination (including a succession plan) and remuneration of the management and directors, the formation of nomination committee and remuneration committee is important. A nomination committee and remuneration committee should have the responsibilities of appropriately involving and providing advice to the board, including from the perspective of gender and other diversity and skills, in the examination of such important matters as nominations and remuneration.
Principle 4.13 Preconditions for Board and Kansayaku Board Effectiveness
- The board should be well balanced in knowledge, experience and skills in order to fulfill its roles and responsibilities, and it should be constituted in a manner to achieve both diversity, including gender, international experience, career experience, age, cultural background, and appropriate size. The board should identify necessary skills that it should have in light of business strategies and disclose the combination of skills that each director possesses in an appropriate form according to the business environment and business characteristics, along with policies and procedures for nominating directors.
- Persons with appropriate experience and skills as well as necessary knowledge on finance, accounting, and the law should be appointed as kansayaku. In particular, at least one person who has sufficient expertise on finance and accounting should be appointed as kansayaku.
At least one person with management experience in other companies should be included in independent directors. - The board should annually analyze and evaluate effectiveness of the board as a whole, and should disclose a summary of the results.
Interpretive Guidance
The board should identify the skills that are needed to perform its roles and responsibilities, and execute and implement its business strategies and business plans. Also, the board should consider the appropriate balance between knowledge, experience and skills of the board as a whole, as well as diversity and appropriate board size. Then, the board should make disclosure in accordance with the aim of this Principle, for example, “skills matrix” that lists knowledge, experience and skills of each director.
Outside directors, outside kansayaku, and other directors and kansayaku should devote sufficient time and effort required to appropriately fulfill their respective roles and responsibilities. Therefore, where directors and kansayaku also serve as directors, kansayaku or the management at other companies, such positions should be limited to a reasonable number.
In addition, when evaluating the board effectiveness, it is beneficial to make evaluations that take into account how the board should function in order to fulfill their roles and responsibilities. While there are a variety of ways for making evaluations, for example, one option is for each director to make a self-evaluation and to evaluate the board as a whole.