The Legal Liability Japanese Companies Face: Why Climate Change Risks Are a Growing Concern

April 6, 2025 / activist360

The cover page of the “Directors’ Duties Regarding Climate Change in Japan: 2025” report by Dr. Yoshihiro Yamada, Dr. Janis Sarra, and Dr. Masafumi Nakahigashi, published by the Commonwealth Climate and Law Initiative (CCLI). The image of Mount Fuji symbolizes Japan’s resilience amidst the challenges of climate change.

Why Climate Change Matters

Climate change is a global challenge that’s affecting every corner of the world. Rising temperatures, extreme weather events, and unpredictable climate patterns are causing disruption, and no country is immune from its effects. Japan, an island nation, is particularly vulnerable to climate change because of its geographical location and dense population. Companies in Japan are now facing significant risks, not only from the physical impacts of climate change but also from the legal and financial responsibilities that come with it.

As climate change accelerates, the risks to businesses are no longer something that can be ignored or delayed. Corporate leaders in Japan are beginning to understand that failing to take action on climate-related risks could lead to severe consequences.

What Are the Risks of Climate Change?

Climate change poses two major types of risks to businesses: physical and transition risks.

Physical Risks are those that arise from the direct impact of climate change. These risks are divided into two categories:

Acute (immediate) risks: These are extreme events such as typhoons, floods, and heatwaves. For example, in recent years, Japan has experienced severe typhoons and record-breaking heatwaves, causing massive destruction.
Chronic (long-term) risks: These refer to gradual changes such as rising sea levels and ongoing temperature increases. Both of which can have a slower but equally harmful impact on businesses, especially those relying on natural resources.

Transition Risks are related to the global shift toward a more sustainable, low-carbon economy. As governments, investors, and consumers push for greener practices, businesses face new challenges:

Regulatory risks: New laws and policies aimed at reducing carbon emissions could impact how companies operate.
Market risks: As consumers demand greener products, companies that do not adapt may lose market share.
Technological risks: Companies that fail to innovate and adopt clean technologies might fall behind their competitors.

Why Japanese Companies Are Concerned About Climate Change

Japan faces multiple concerns when it comes to climate change. These concerns are not just about the physical damage caused by storms and rising seas—they also include financial and legal risks that could severely affect businesses.

Physical Risks: Japan is especially vulnerable to climate events like typhoons, heatwaves, and rising sea levels. For example, over the past decade, Japan has faced over JPY 13.7 trillion (USD $90.8 billion) in climate-related damages. Coastal cities like Tokyo, Osaka, and Nagoya are at high risk of flooding. The country’s agricultural sector is struggling with changes in temperature and rainfall patterns.

Transition Risks: The global shift towards sustainability presents challenges for Japanese businesses. Companies that fail to reduce their carbon footprint or invest in cleaner technologies may lose out to more forward-thinking competitors. Additionally, businesses face the risk of stranded assets—where investments in fossil fuel infrastructure become worthless as the world moves toward renewable energy.

Legal and Financial Liability: Directors of Japanese companies have a legal responsibility to ensure that climate risks are managed properly. If they fail to take action, they could be held personally liable. Japanese laws now require businesses to disclose material climate risks, and failure to do so could lead to lawsuits for breach of fiduciary duty. The pressure is mounting for directors to act, as investors and regulators increasingly demand transparency on climate-related risks.

Investor Pressure: Institutional investors are increasingly focused on sustainability. In Japan, investors representing trillions of dollars are demanding that companies disclose their climate-related risks and take meaningful action. If a company fails to do so, it risks losing investor confidence, which could lead to higher costs of capital and reduced access to funding.

Systemic Risk to the Economy: The Bank of Japan has warned that failing to address climate risks could destabilize the financial system. Mismanagement of these risks could lead to falling asset prices, loss of economic stability, and even disruptions in Japan’s banking system.

How Climate Change Affects Japanese Companies

The effects of climate change are already being felt across many industries in Japan. For instance, the manufacturing sector is vulnerable to extreme weather events that damage facilities and disrupt supply chains. Similarly, Japan’s agricultural sector faces challenges like reduced rice yields due to rising temperatures and unpredictable rainfall patterns.

The economic costs of not addressing these risks are significant. Companies that fail to prepare for climate change may suffer from damaged infrastructure, lost productivity, and increased operational costs. In some cases, the financial impact can be devastating, leading to significant losses in revenue and long-term damage to a company’s bottom line.

Legal Responsibilities for Directors in Japan

Corporate directors in Japan have a legal duty to manage the risks their companies face, including climate-related risks. According to Japanese corporate law, directors must act in the best interests of the company and ensure the company complies with all applicable laws and regulations. This includes climate-related risks.

Under Japan’s Corporate Governance Code, directors are required to oversee the company’s efforts to identify, assess, and manage climate risks. Failure to do so could result in personal liability. In particular, if a director neglects to integrate climate change into their governance strategy, they could face lawsuits from shareholders or be found in breach of their fiduciary duties.

The Role of Climate Governance in Business Success

Proper climate governance is crucial for businesses to remain competitive in a world that is increasingly focused on sustainability. Companies that integrate climate risks into their strategy are better positioned to succeed in the long term. Effective climate governance allows businesses to anticipate regulatory changes, innovate with cleaner technologies, and align with consumer preferences for environmentally friendly products.

In the long run, companies that take climate action seriously can build resilience, improve their reputation, and reduce risks associated with physical and transition challenges. On the other hand, companies that ignore climate risks may find themselves falling behind their competitors or even facing financial ruin.

The Growing Importance of Sustainability

As global investors push for more sustainable business practices, companies that fail to disclose their climate risks or take action to address them are likely to see a loss of investor confidence. Investors are increasingly looking for companies that are committed to reducing their carbon footprint and addressing climate-related risks in their business strategies.

Failure to meet these expectations could not only damage a company’s reputation but also increase the cost of capital and make it more difficult to attract investment in the future. Companies that adopt sustainability practices now will likely enjoy a competitive advantage in attracting responsible investors and staying ahead of regulatory trends.

What Should Directors Do?

Directors of Japanese companies must act now to integrate climate risk management into their governance structures. They should:

Assess and disclose climate risks transparently.
Seek expert advice to ensure they are making informed decisions about climate change.
Ensure that the company’s strategy includes clear goals for reducing greenhouse gas emissions and adapting to climate impacts.

By taking these steps, directors can help safeguard their companies from the financial and legal risks associated with climate change and position them for long-term success in a decarbonized economy.

Call to Action

Japan is taking significant steps to address climate change, with its corporate sector increasingly aware of the legal and financial risks posed by climate impacts. As one of the countries leading the way in climate governance, Japan is setting a strong example for others to follow. However, the fight against climate change requires a global effort. The United States and other countries must step up their efforts to integrate climate risk into corporate governance, adopt stricter environmental regulations, and encourage businesses to embrace sustainability.

As individuals, we can support companies and governments that are prioritizing climate action. We can demand greater transparency and accountability from businesses on their climate-related actions and encourage them to follow Japan’s lead in addressing climate risks head-on. We need to act now—climate change is a challenge that requires bold leadership across the globe. Let’s work together to make sure that countries, especially those with significant global influence, do not fall behind in this critical fight for our planet’s future.

Yamada, Y., Sarra, J., & Nakahigashi, M. (2025). Directors’ Duties Regarding Climate Change in Japan: 2025. Commonwealth Climate and Law Initiative.

This is how Japanese youth view climate change today

November 27, 2022 / activist360

By Naoko Kutty, World Economic Forum

Pressure to act on the climate crisis is building among Japanese youth.
They are beginning to exert influence domestically and at international forums like COP27.
Japan’s younger generation must be fully integrated into climate policy-making decisions.
Read the blog in Japanese here.

As the world becomes increasingly aware of climate change, there is growing interest in sustainability, especially among the younger generation who will live to face the challenges in the next part of the 21st century. A survey of 6,800 consumers aged 15-69 in Japan about attitudes toward sustainability found that many consumers of all generations are open to paying a premium for sustainable products. What is noteworthy, however, is the flexibility on price. Generation Z have the highest tolerance for paying more, with 20% that would consider paying double – which is 2.5 to 10 times more than other generations.

Japanese about attitudes paying a premium for sustainable products.

Japanese youth mobilizing

Youth activism to demand more concrete action on climate change from the government and business is also gaining momentum. Youth Climate Conference Japan, which provides a forum for young people to talk about the climate crisis, has exchanged views with the government, major political parties, Japan Business Foundation, and has made the voices of young people visible in the form of policy proposals such as the regulation of plastic packaging and compulsory emissions labelling on food by 2025. The fact that the new generation will be the most affected by climate change, yet policy decision-makers are much older, creates a huge gap in society’s ability to address the crisis, according to one of the steering members of Youth Climate Conference Japan.

In addition, Global Climate Action, in which young people from around the world appealed for stronger measures against global warming, was organized around Japan to coincide with the UN General Assembly in September, with about 400 young people participating in demonstrations in the streets. At this protest, the first youth climate one in three years due to the spread of COVID-19, young people expressed their urgent desire to address the climate crisis, saying: “It is now or never to stop climate change” and “We can reshape our future.” One university student who is part of the Fridays For Future‘s movement in Japan, which was inspired to take action by Greta Thunberg’s school strike in Sweden, said she hopes the Japanese government will take more concrete action against its stance of maintaining coal-fired power production.

Next-generation leaders at COP27

With young people around the world speaking out against climate change more than ever before, global youth are taking a seat at COP27 in Egypt for the first time ever. Designed to amplify children and youth voices within global climate policy-making, the COP27 Children and Youth Pavilion in Egypt is positioned front and centre in the Blue Zone and is entirely led by young people.

Japanese high school and university students also participated in COP27. Suzuka Nakamura and Daiki Yamamoto, who have also been involved in Fridays For Future, are making a film at the conference, saying: “We now want to not only appeal, but also listen to people from various standpoints and send out messages.” The two students, who have continued to raise their voices on the streets and in the National Diet, admit that: “We feel weighed down by the fact that we were expected to play a role in solving climate change simply because we are young.” Their new project, entitled record 1.5, is a documentary that will chronicle the voices and actions of young people, environmental activists and local people from around the world gathering at COP27. Through these recordings, they hope to share the sense of urgency that those affected by climate change victims have for creating a foundation for dialogue toward essential solutions.

Involving children and youth in decision-making

As our planet faces a critical situation due to climate change, the world needs to take seriously the fact that young people are speaking out and taking action to challenge adults’ response to climate change.

Japan is on the path to carbon neutrality, with an interim goal of reducing greenhouse gas emissions by 46% compared to 2013 levels by 2030. According to the Ministry of the Environment and the Ministry of Economy, Trade and Industry, 797 local governments and more than 200 companies have declared their commitment to net zero emissions by 2050, and the public and private sectors are working together to achieve this goal. As the voices of children and youth are incorporated into these efforts, change will accelerate. Given that young people are powerful agents of change, it is hoped that a system will soon be in place to enable their participation in all decision-making processes related to climate change.

Global Climate Risk Index Shows Disastrous Impacts of Climate Change

January 5, 2020 / activist360 / Leave a comment

The Global Climate Risk Index by the environmental think tank Germanwatch shows that globally in the past 20 years, nearly 500,000 fatalities were directly linked to more than 12,000 extreme weather events. This amounted to approximately $3.54 trillion in economic damages.

The Climate Risk Index shows that climate change has disastrous impacts especially for poor countries, but also causes increasingly severe damages in industrialized countries like Japan or Germany.
–David Eckstein, Germanwatch

Climate Risk Index 2020, Table 2018 - 10 most affected countries — Climate Risk Index 2020, table 2018
(C) www.germanwatch.org/en/cri

Impact Especially Tough on Poor Countries

During 1999 to 2018, poor countries faced much higher impacts. Seven of the ten countries most affected are developing countries with low or lower middle income per capita. Puerto Rico, Myanmar, and Haiti were most affected. The Philippines were hit by the most powerful typhoon recorded worldwide in 2018.

Countries like Haiti, Philippines and Pakistan are repeatedly hit by extreme weather events and have no time to fully recover. That underlines the importance of reliable financial support mechanisms for poor countries like these not only in climate change adaptation, but also for dealing with climate-induced loss and damage.
–David Eckstein, Germanwatch

Those who are least responsible for the problem, are the ones who are suffering the most. This is unacceptable.
–Renato Redentor Constantino, Executive Director, Institute for Climate and Sustainable Cities (Philippines)

Industrialized Countries Also Impacted

Among industrialized countries, in 2018, Japan and Germany were hit hardest by heat-waves and severe drought.

Heat Waves

Science confirms the link between climate change and the frequency and severity of extreme heat.

Heat waves were one major cause of damage in 2018. Germany, Japan, and India suffered from extended periods of heat. Europe is now up to 100 times more likely than a century ago to experience extreme heat spells. The African continent heatwaves may be under-represented due to a lack of data.

Download Global Climate Risk Index 2020