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The trend toward carbon neutralization will bring many changes at companies. While advances in carbon pricing policy will expose GHG emission costs, companies that take insufficient carbon neutralization measures will be impacted in financing and through the exercise of shareholder voting rights. Additionally, when superficial carbon neutralization measures are eliminated through advances in rulemaking and mandatory corporate information disclosure, it will be a game changer leading to GHG emissions having a significant impact on corporate value.

In particular, in Japan, each sector is required to take additional steps, such as expanding the capacity and use of carbon neutral power sources, rethinking business models and supply chains, and promoting modal shifts, in order to achieve the 2030 and 2050 carbon neutral goals. Appropriate policy design is required, in particular a framework to properly evaluate companies making such efforts.

The achievement of carbon neutrality is an important issue not only for companies that emit large amounts of CO₂ but for all companies. For stakeholders, companies need to set out a transition story that clearly connects carbon neutralization to growth.
 

Key Highlights:

Carbon neutral trend could be game changing for businesses. Given that the carbon neutral trend is expected to bring about changes in the future, it may be game changing, making the status of GHG emissions an important factor in management decisions and requiring a review of existing business models. Gaining a competitive advantage will depend on the quality of the carbon neutralization measures that companies’ business partners take.

Mandatory information disclosure accelerates the trend toward carbon neutralization. In June 2021, the G7 Summit Joint Declaration expressed support for mandatory disclosures related to climate change under the TCFD framework. Since it targets not only business companies but also financial institutions, the companies will be compelled to improve the transparency of GHG emissions and management strategies in order to fund their growth and improve corporate value.

Lack of a standard definition of decarbonization may be a hurdle to corporate measures. Expectations are rising for companies to declare themselves carbon neutral, but it is unclear specifically what companies need to do. A clear direction is needed to coordinate a set of well-thoughtout policies, as well as a framework to evaluate corporate carbon neutralization efforts.

Corporate strategies are needed to translate the achievement of 2050 carbon neutral targets into growth. Given the game changing environment brought on by the carbon neutral trend, firms need to show they are taking steps to respond within the prescribed timeframe by clearly illustrating to stakeholders their measures taken, and future plans and strategies. Firms need to hammer out a long-term transition strategy towards achieving carbon neutrality, and, to translate strategy into growth, actively creating new markets and adding value.

A transition story is needed for achieving decarbonization and improving corporate value. It is important to be able to convince the people how companies can achieve growth while contributing to the realization of a decarbonized society.
 

Conclusion

In the light of the 2030 and 2050 carbon neutral goals set out by the Japanese government, companies need to seriously consider strategies for how to achieve the transition and turn it into a growth opportunity. As GHG emission status is becoming an important factor in management decisions, it is necessary to have a framework to evaluate carbon neutralization efforts in order to align corporate initiatives for business model transformation.

Meanwhile, companies need to also realign communications for its stakeholders. It is important to set out a transition story that shows what they are aiming for and how to get there. They need to integrate the carbon neutralization targets into the corporate strategy, and to ensure consistency in voice and implementation – joining different strands into a thread that connects the story from building through strategy integration to growth.

 

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