Japanese corporate directors who fail to address climate risks could face personal liability, according to a new report published by the Commonwealth Climate and Law Initiative (CCLI).

Japanese directors should identify and manage risks and opportunities relating to climate change. If they don’t, they could face personal liability for failing to act in accordance with their legal duties.

These are the findings from a new independent report published by the CCLI and authored by leading experts in corporate and securities law from Ritsumeikan University, Nagoya University, and the University of British Columbia.

This report provides comprehensive legal guidance on corporate directors’ responsibilities under Japanese law, outlining their duties to identify, disclose, and manage climate-related risks.

Why this matters

• Economic risk: Japan faces rising climate-related financial risks, with potential losses of JPY 952 trillion (USD 9.2 trillion) by 2050. Key industries like agriculture, infrastructure, and energy are particularly at risk from extreme weather events.
• Investor expectations: Over 85% of institutional investors in Japan are now factoring information from sustainability disclosures into investment decisions. Companies that fail to consider climate risks may lose investor confidence and capital.
• Legal risks: Directors must act in the best interests of their companies under Japan’s Companies Act. Failure to address climate-related risks could lead to breaches of directors’ duties, legal liability, financial exposure, and reputational harm.

Key insights for corporate directors

• Duties to identify and manage climate risks: Directors who fail to appropriately assess and address climate risks could face personal liability for breaching their legal duties.
• Internal risk management: Large stock companies must establish internal controls to manage financial risks, including climate risks, as part of board-level risk strategy.
• Board-level responsibility: Boards retain oversight of climate-related risks, even if delegated to specific committees.
• Recent regulatory changes: Japan now requires mandatory climate-related financial disclosures, including compliance with the TCFD framework. New sustainability standards will become mandatory for prime-listed companies from 2027.
• Business judgment rule: Courts may not apply the business judgment rule if directors fail to conduct proper analysis, seek expert advice, or exercise due care regarding climate risks.
• Proactivity rewarded: Boards that integrate climate governance will be better positioned to mitigate financial and reputational risks, maintain investor trust, and gain a competitive edge. Failure to act increases the risk of legal and financial repercussions.

What experts say about the findings

Prof. Yoshihiro Yamada – Vice Dean & Professor of Law, Ritsumeikan University:
“Corporate directors in Japan face a new reality: courts, regulators and investors now expect them to take climate risks seriously. Directors who fail to act with diligence and seek expert advice are exposing themselves to personal liability. This report provides a clear framework for boards to understand and manage these risks effectively.”

Dr. Masafumi Nakahigashi – Dean & Professor of Law, Nagoya University:
“Directors cannot ignore their company’s best interests and their shareholders. Nor can they ignore their legal duty to manage climate risks. Failure to consider these risks exposes both the company and its leadership to legal and financial consequences.”

Dr. Janis Sarra – Professor of Law Emerita, Peter A. Allard School of Law at UBC:
“The report reinforces the urgent need for corporate boards to put climate and biodiversity risks at the heart of their decision-making. Directors who neglect these risks face increasing exposure to litigation and regulatory scrutiny.“

Natalie Shippen – Executive Director, Commonwealth Climate and Law Initiative (CCLI): “The law is clear: Japanese directors have a duty to address climate risks. But this isn’t just about ticking legal boxes. It’s about smart corporate governance, preserving investor confidence and positioning businesses for long-term success. Today, Japanese directors face a golden opportunity to get ahead of the curve on these critical issues. Those who act decisively will not only protect their companies but also emerge as leaders in a rapidly evolving landscape.”

Sarah Barker – Managing Director, Pollination and Board Member at the Commonwealth Climate and Law Initiative (CCLI): “This report underscores the urgent need for boards to proactively and diligently consider how climate change may impact on the risk and strategy of their companies. The financial and legal consequences of inaction are growing, and the repercussions for both corporate competitiveness and personal liability are significant.”

Webinar – 9 April 2025

Join us for an exclusive webinar on the findings of the report, co-hosted with the Japan Climate Leaders´ Partnership (JCLP). Find out more here

• Date: Wednesday, 9 April 2025
• Time: 11:30 AM – 12:30 PM JST
• Format: Online (Zoom)
• Simultaneous English and Japanese translation will be provided.