Sustainability

・Support for Feasibility Studies, Disclosure Documents, and Interim and Post-Redemption Reports

“SDG bonds” encompass bonds issued to address environmental and social issues within an issuer’s sustainability strategy. This category includes green bonds, social bonds, sustainability bonds, sustainability-linked bonds and transition bonds.

Green bonds are typically issued to finance projects aimed at improving the environment. Both corporate and government issuers, such as companies and local municipalities, use green bonds to attract investors from around the world who are interested in supporting socially responsible goals.

Issuing a green bond requires meeting certain criteria and may involve additional procedures not present in standard bond issues, such as obtaining opinions from external valuation agencies. Regular reporting on funding allocations and environmental impact is also necessary, both at bond issuance and afterwards.

There has been a notable rise in the issuance of social bonds, which address social issues, and sustainability bonds, which combine green and social elements, by non-public sector entities.

Issuers now have access to diverse fundraising methods aligned with their unique needs. For example, sustainability-linked bonds do not restrict the use of proceeds to specific purposes, unlike green bonds. Instead, their financial and structural characteristics can change based on whether the issuer achieves Sustainability Performance Targets (SPTs) that contribute to the realization of SDGs.

Achieving a decarbonized society requires promoting energy-saving measures and long-term research and development for decarbonization, especially in sectors that are difficult to decarbonize. Transition bonds are increasingly used to fund these initiatives for climate transition-related purposes, aligning with the Green Bond Principles and the Sustainability Linked Bond Principles.

Mori Hamada has built up a wealth of experience assisting Japanese and overseas corporations, financial institutions, and J-REITs in the issuance of SDG bonds. We offer practical advice to clients considering these bonds, drawing on our substantial expertise in this area.

・Support for Feasibility Studies, Structuring, Documentation and Contract Management

The field of finance for ESG/SDGs initiatives is expanding through debt instruments such as green loans, which fund green projects, sustainability-linked loans, which link corporate loans to the more sophisticated sustainability management of borrowers, and transition loans in the form of green or sustainability-linked loans to support climate transition efforts.

Debt financing through loans enables more flexible structuring and documentation, reflecting discussions between lenders and borrowers, and in turn enabling innovative solutions. Small and medium-sized projects can also be easily structured, with local companies and financial institutions often collaborating to resolve region-specific ESG issues and revitalize communities.

In ESG finance via green loans, strict management of fund usage is essential, often employing a project finance framework. Project finance for green projects can be repackaged using securitization techniques and sold to investors as distinct financial instruments.

Drawing on our experience in financing transactions, Mori Hamada has developed substantial expertise in structuring and documenting ESG/SDGs finance. We provide advice tailored to meet the specific needs of projects from the perspectives of both financial institutions and fundraisers.

・ESG Finance Through Islamic Financial Methods

Sharia (Islamic law) that underpins Islamic finance is highly compatible with the non-financial indicators considered in ESG investments and financing. Bank Negara Malaysia (the Central Bank of Malaysia) promotes a financing approach that integrates Islamic finance with ESG investment under the “Value-based Intermediation Financing and Investment Impact Assessment Framework.”

Companies operating in Islamic countries, such as those in the halal industry, have traditionally needed to secure funds through Islamic finance. Moving forward, these companies are expected to broadly demonstrate their commitment to achieving ESG targets by adopting an Islamic-ESG finance model.

With our extensive experience in both ESG and Islamic finance, we endeavor to deepen the understanding of international guidelines and principles in this area and their practical application to individual transactions. By supporting our clients in achieving their objectives, we will continue to contribute to the global expansion of ESG finance.

・Support for Preparing Disclosure Documents such as Integrated Reports and Annual Securities Reports

In its final report released in June 2017, the TCFD (Task Force on Climate-Related Financial Disclosures) recommended a framework for disclosing climate-related information to investors, with the number of Japanese companies adopting this framework steadily increasing every year.

We are one of the few law firms that are members of the TCFD Consortium. We joined to express our support for the TCFD Recommendations and to facilitate appropriate disclosures that connect companies and investors.

From 2023 onward, the disclosure of certain sustainability information in annual securities reports became mandatory, presenting a new challenge for every listed company in Japan. Additionally, it is anticipated that sustainability information disclosures will continue to evolve, as Japanese standards set by the Sustainability Standards Board of Japan (SSBJ) in line with those of the International Sustainability Standards Board (ISSB) will be successively applied to listed companies.

As a leading firm in capital markets, Mori Hamada provides clients with advice based on the latest information, applying our deep insight and track record in handling corporate disclosure matters.

・Support for Preparing Disclosure Documents such as Integrated Reports and Annual Securities Reports

In recent years, biological diversity has become a subject of frequent debate in parallel with the issue of climate change. Under the Kunming-Montreal Global Biodiversity Framework agreed upon at the 15th Conference of the Parties to the Convention on Biological Diversity (COP15) in late 2022, participating countries, including Japan, must take measures to achieve the agreed-upon targets and encourage domestic companies to respond accordingly.

Movements have also emerged in the private sector to drive efforts to disclose corporate information related to the natural environment and biological diversity. For instance, the TNFD (Taskforce on Nature-related Financial Disclosures), established in June 2021, published its final recommendation on a framework for disclosing nature-related risks in September 2023. Following this, the ISSB decided to begin research to develop disclosure standards for biodiversity, ecosystems and ecosystem services.

In Japan, the government formulated a new national strategy for biological diversity in March 2023 based on the Kunming-Montreal Global Biodiversity Framework. Japanese companies are also placing greater emphasis on biological diversity and natural capital, as demonstrated by the participation of many in the TNFD Forum, a gathering of stakeholders supporting the taskforce’s discussions.

Mori Hamada assists companies in developing systems and making disclosures related to biological diversity, aiming to improve their governance while considering the interconnected issue of climate change.

・Feasibility Studies, Structuring, Preparation and Review of Disclosure Documents and Contracts, and Monitoring

ESG/SDGs play a crucial role in real estate and infrastructure financing transactions. J-REITs have been actively disclosing environmental (green) certifications and evaluations of their portfolio properties, provided by professional environmental assessment organizations. These certifications and evaluations include DBJ Green Building, CASBEE and BELS, among others. Additionally, J-REITs and listed infrastructure funds are increasingly undergoing GRESB assessments and disclosing the results.

The issuance of green bonds by J-REITs has surged in recent years. For these issuances, green evaluations are obtained from ESG evaluation organizations and rating agencies for the finance frameworks and the bonds, and these evaluations are disclosed in the relevant documents. There are also growing instances of green equity issuances by listed infrastructure funds and green equity offerings by J-REITs.

In terms of borrowings by J-REITs, there are numerous published cases of green loans, social loans and sustainability loans. From a slightly different viewpoint, there are also green leases, which are building leases with provisions for energy saving and environmental improvement that are anticipated to become mainstream in the real estate and infrastructure finance markets, whether for listed or unlisted (private) funds.

Mori Hamada relies on our significant expertise in real estate and infrastructure financing transactions related to ESG/SDGs to assist clients with the preparation and review of disclosure documents and contracts.

・Structure Advice, Contract Drafting and Review, Regulatory Advice, and Operational Advice

In Japan, there is a growing trend to establish impact investment funds, with an increasing number of announcements regarding domestic impact investment funds. These funds intend to generate social and environmental benefits through financial investments while ensuring monetary returns. They address a range of social issues, such as poverty, family challenges, and environmental concerns, all while achieving positive investment returns.

Impact investment funds can be structured as investment trusts or partnerships, such as investment limited partnerships. It is expected that a variety of structures will be employed for these funds in the future.

Drawing on our track record of supporting investment fund projects and impact investment initiatives, Mori Hamada provides valuable advice throughout all phases, from project launch to operation. This includes fund structuring, vehicle selection, contract documentation, and advice on relevant laws and regulations such as the Financial Instruments and Exchange Act of Japan.

・Dialogue with Shareholders on ESG, Responses to ESG-Related Shareholder Proposals, and Shareholder Activism

As ESG investment has grown, it has become an important theme in discussions between investors and their investment targets. In the US and Europe, ESG-based shareholder activism is prevalent, with activists gradually expanding from NGO or NPO stockholders to investment funds.

Amid these global trends, ESG-focused shareholder activism is also emerging in Japan. The scope of this activism is broadening from “Governance” issues to include “Environment” and “Social” concerns as well.

Mori Hamada has a proven track record of supporting shareholder relations, including interactions with activist funds. We provide advice aimed at enhancing corporate value over the mid- to long-term, with a clear understanding of the motivations and objectives driving the recent rise in ESG investments.

・Assist in the establishment of sustainability governance systems by advising on agenda items for board of directors’ meetings, the formation and management of sustainability committees and related organizations, and the formulation of internal regulations

Amid a global push for companies to enhance their medium- to long-term sustainability efforts, including ESG elements, there is a growing recognition that addressing sustainability is crucial not only for risk management but also for seizing revenue opportunities. As sustainability becomes integral to management strategy, there is an increasing need to establish corporate governance systems to prescribe rules so management can effectively address these issues.
Furthermore, with the mandatory disclosure of sustainability information and the requirement for all companies to include governance matters in their annual securities reports for fiscal years ended on or after March 31, 2023, it is imperative for each company to reassess and refine its corporate governance system for sustainability.

Specifically, a company’s board of directors must establish fundamental policies for sustainability initiatives and oversee management’s execution of these policies. Additionally, many companies are forming sustainability committees under the board of directors or within management to evaluate and advance company-wide sustainability efforts. These companies must develop an effective system tailored to their unique circumstances.

Based on our wealth of experience in sustainability governance, we assist in establishing and managing custom-made sustainability governance systems that meet the specific needs and circumstances of each company.

・Support for adoption procedures, disclosure, and tax matters regarding directors’ and officers’ remuneration plans that incorporate ESG indicators

Partly impacted by Japan’s Corporate Governance Code, implemented in 2015, listed companies are increasingly urged to reassess directors’ and officers’ remuneration to ensure it serves as a sound incentive for sustainable growth. Incentive remuneration, including mid- to long-term performance-linked compensation and stock benefits, is becoming more prevalent. Traditionally, financial metrics such as sales and income have been used to calculate directors’ and officers’ remuneration. However, as more companies incorporate sustainability-related goals, such as ESG and SDGs, into their management targets, there is a growing trend toward linking remuneration to these sustainability (ESG) indicators.

When managing with ESG principles in mind, it is essential not only to integrate ESG elements into management targets, but also to incentivize management to implement measures that achieve these goals over the medium to long term. One effective approach is to incorporate ESG indicators into the directors’ and officers’ remuneration system.

Mori Hamada’s lawyers and licensed tax accountants possess the latest knowledge and extensive experience in legal and tax matters related to directors’ and officers’ remuneration. We provide optimal advice to companies throughout the entire process of developing and operating remuneration systems in line with each company’s individual needs and circumstances. This includes designing systems that incorporate ESG indicators, navigating procedures under Japan’s Companies Act (such as resolutions to approve remuneration at general meetings of shareholders, board decisions on remuneration policies, establishing remuneration rules, and procedures for granting stock compensation), disclosing remuneration in business reports and annual securities reports, and addressing tax treatment for both companies and officers.

・Support for developing human rights policies and other internal rules, drafting contract terms that respect human rights, conducting human rights due diligence, establishing and operating grievance mechanisms, and managing crises

For Japanese companies, integrating the perspectives of business and human rights into their management is becoming increasingly important and it is now an urgent issue for many.

Regarding corporate initiatives on business and human rights, there has been a swift increase in stringent regulations, primarily through laws in the United States and Europe. In May 2024, the European Union enacted the “Corporate Sustainability Due Diligence Directive,” mandating companies to conduct due diligence on human rights and the environment, which is expected to significantly impact Japanese companies. In addition, there is an increasing amount of legislation that accompanies trade regulations, such as the Uyghur Forced Labor Prevention Act in the US. In Japan, although not binding, the government formulated and published “Guidelines on Respecting Human Rights in Responsible Supply Chains” in September 2022. In response to these developments, Japanese companies have rapidly increased their focus on business and human rights, making it an urgent and important management issue.

Mori Hamada began advising companies on business and human rights in the early 2010s, when this area was still in its nascent stage in Japan. We have since contributed significantly to the development of legal practices in this area. Drawing on such expertise and experience, we assist clients in developing human rights policies and internal rules, as well as drafting various human rights-conscious contracts. Additionally, we support the implementation of human rights due diligence for supply chains and group companies as well as the establishment and operation of grievance mechanisms. We also provide support in conducting investigations and making announcements in the event of actual human rights issues, facilitating dialogue and collaboration with stakeholders, and formulating measures to prevent the recurrence of any human rights-related issues.

・Support for decarbonized energy development projects and their financing transactions

Transforming into a decarbonized society to combat climate change and the global climate crisis is regarded worldwide as an urgent issue. In Japan, both the public and private sectors have earnestly undertaken efforts to address these challenges in line with the “GX Basic Policy” approved by the Cabinet on February 10, 2023.

Mori Hamada offers a range of legal services for the development and financing of power generation projects aimed at expanding renewable energy use. This includes structuring, preparing power purchase agreements (PPAs) under the Feed-in Tariff/Feed-in Premium mechanisms, and documenting project and financing agreements. Using our experience and insight gained from large-scale thermal power plant development projects, we advise on the latest GX initiatives. These include constructing hydrogen and ammonia supply chains and their support systems, developing laws related to carbon capture and storage (CCS) projects, and addressing legal and systematic issues related to the battery storage industry.

・Advice on carbon credits including on emissions trading and the Joint Crediting Mechanism (JCM)

Since the early 2000s, Mori Hamada has played a key role in shaping Japanese legislation for the Kyoto Protocol, designing the Joint Crediting Mechanism (JCM), and developing other foundational frameworks for the current carbon credit transaction mechanisms, all while considering our clients’ needs. With the recent initiation of voluntary emissions trading through the GX League and the development of concrete structures for carbon pricing, we now provide a wealth of legal services for specific transactions. These include regulatory advice on voluntary carbon credits, establishing and documenting investment funds related to carbon credits, and offering guidance and support for the formulation of private JCMs.

・Support for the formulation of intellectual property strategies, the establishment of intellectual property management systems, and the utilization of and other measures for intellectual property and support for the disclosure of related information

To enhance corporate value, modern companies must promote operational and business reforms through DX while creating and utilizing intellectual property and intangible assets. Effective supervision of these activities is vital for a company’s sustainable growth.

In response to these developments, Japan’s Corporate Governance Code (revised in June 2021) now includes requirements for disclosing intellectual property investment strategies and for boards of directors to supervise these strategies. In January 2022, the Japanese government issued Guidelines on Disclosure and Governance of Strategies for Investment and Utilization of IP and Intangible Assets Ver. 1.0, providing a reference for companies in their dialogues with investors and financial institutions on these matters. To further promote investment in intellectual property research and development, the government published Ver. 2.0 of the Guidelines in March 2023, which outlines a communication framework for dialogue between companies and investors and for information disclosure to investors.

Mori Hamada has many lawyers with abundant experience in intellectual property and DX matters. We assist companies from a legal standpoint, attuned to the specifics of their businesses, in formulating intellectual property and DX strategies, establishing intellectual property management systems, and utilizing their intellectual assets. We also support companies in disclosing related information.

・Providing legal support for navigating environmental and decarbonization regulations across various jurisdictions

Many of the world’s leading nations are committed to the “2050 Carbon Neutrality” goal and are taking various measures related to the environment and decarbonization.

In addition to taking traditional policy measures (e.g., emission regulations and environmental standards), these nations are introducing a number of initiatives, including regulations and standards for batteries, which are critical for achieving a decarbonized society, standards for assessing the environmental impact of products during their lifecycles, environmental standards and local content requirements for subsidy eligibility, and carbon border adjustment mechanisms (CBAMs).

Addressing these regulations will become increasingly important for companies to remain competitive internationally and expand their businesses globally.

Mori Hamada has a team of lawyers with rich experience in handling cross-border regulatory issues, and we support our clients in traversing local regulations in collaboration with overseas law firms. Many of our lawyers are well-versed in international trade law and other global regulations, as well as the industrial policies of various countries, thanks to their experience in government ministries and international organizations. This expertise enables them to negotiate effectively with local authorities and the Japanese government from a rulemaking perspective.