“Disclosure and Engagement Guidance to Accelerate Sustainable Finance for a Circular Economy” Compiled

1. Background

In recent years, the global community is facing challenges due to a growth in demand for resources, energy and food, an increase in waste materials and the seriousness of environmental issues such as climate change. In this situation, there is a need to transform from the conventional linear economy based on a mass production, mass consumption and mass disposal pattern to a circular economy, from a mid-to-long-term perspective. In particular, triggered by the issue of marine plastic waste, resource circulation for plastics is attracting people’s attention worldwide and there are increasing calls for efforts to address the problem.

Moreover, an increasing number of investors, etc. have been engaging in ESG investments, triggered by the United Nations’ proposal of the Principles for Responsible Investment in 2006, and recently, funds focusing on a circular economy have started being organized. As seen in this trend, public awareness of the importance of a circular economy has begun to grow following climate change in terms of investment in the environment.

2. Purpose

Businesses that are anticipated to exercise leadership in innovation of technologies and business models, and investors/financial institutions that supply and circulate funds propelling businesses in financial markets are to play equally important roles in facilitating the transition to a circular economy.

The guidance is intended to encourage companies and investors, etc. to hold effective dialogues. In accordance with the guidance, companies should advance efforts for providing higher circularity in their products and services and making their efforts “visible” to investors, etc. by making use of integrated reports, annual reports and other means, while investors, etc. should appropriately assess companies’ efforts through engagement and appropriately supply funds to such companies.

3. Characteristics

• This guidance is the world’s first government-formulated guidance on disclosure and engagement specifically targeting a circular economy.
• Aiming to help stakeholders appropriately assess a variety of approaches to transition to a circular economy, the guidance is composed of four items in common with those shown in the framework for general ESG disclosure: “risks and opportunities”, “strategies”, “indicators and goals”, and “governance”; and six items on the premise of “value” and “business models” as important elements in reconstructing companies’ efforts as a consistent value creation story.
• The guidance emphasizes business opportunities in which companies make use of efforts for a circular economy in cultivating and winning new markets and enhancing competitiveness from a mid-to-long term perspective through the resulting outcomes, all the while aiming for improvement of corporate value.

Reference: Contents of the guidance

Chapter 1: Introduction

1. Background - Need for transition to a circular economy and challenges in the transition
2. Purpose of preparing the guidance

Chapter 2: Key points of disclosure and engagement

1. Composition of the guidance
2. Values
3. Business models
4. Risks and opportunities
5. Strategies
6. Indicators and goals
7. Governance
8. Key points of disclosure and engagement
  <Key points by field>

Chapter 3: Key points of disclosure and engagement in the field of resource circulation for plastics

1. General perspective
2. Key points unique to the field of resource circulation for plastics

(1) Risks and opportunities
(2) Indicators and goals

Chapter 4: Conclusion

4. Published materials

• Disclosure and Engagement Guidance to accelerate Sustainable Finance for a Circular Economy (summary) (PDF:555KB)
• Disclosure and Engagement Guidance to accelerate Sustainable Finance for a Circular Economy (full text) (PDF:2,807KB)

5. Website for reference

• Circular Economy and Resource Circulation for Plastics Finance Study Group  (in Japanese)

Division in Charge

Resource Efficiency and Circular Economy Division, Industrial Science and Technology Policy and Environment Bureau