In 2022, the Ministry of Economy, Trade, and Industry of Japan (METI) launched the “GX League” initiative to facilitate public-private-academia cooperation towards the decarbonization of Japan. METI recently announced the requirements for member companies to maintain an active participation to the GX League. These requirements highlight the importance for Japanese companies to establish credible low-carbon transition plans to support the achievement of their long-term climate goals. Codo summarizes what you should know about it.
What is the GX League?
In October 2020, Japan’s Former Prime Minister Suga declared Japan’s pledge to become carbon neutral by 2050. Two years later, to support this ambition, METI established the GX League (GX: “green transformation”), a forum for collaboration between the government and a group of companies, universities, and academic intuitions. The objective of this initiative is to support Japan’s 2050 goal, by meeting greenhouse gas reduction targets while providing an opportunity for economic growth and industrial competitiveness.
As of January 2023, 679 companies from various industries such as manufacturing, finance, and ICT had endorsed the GX League. They are collaborating with the government to develop rules for new market creation and prepare a carbon credit exchange scheme in order to have the League fully operational from April 2023 onward.
What are the requirements for participating companies?
All 679 companies that are participating in the League and the new applicants are expected to follow a list of requirements, including the formulation of transition plans supporting the achievement of long-term goals. METI announced that companies may not be able to participate to some activities within the GX League if they do not meet these requirements. The requirements, announced in February 2023, are as follows:
1. Efforts to reduce own emissions through a clear transition strategy
Each company is required to establish 2030 emission reduction targets and interim targets for domestic direct and indirect emissions under the Emissions Trading Scheme (GX-ETS). Companies shall declare a carbon neutrality target for 2050 or earlier and formulate and publish a transition strategy to achieve it. Transition strategies should include:
- A carbon neutrality target before 2050 (long-term target)
- A domestic emissions reduction target for GX-ETS or a separately set quantitative reduction target for 2030,
- Specific carbon reduction actions with a set deadline for enacting,
- A governance system defining how the strategy will be executed.
Overall, in addition to Scope 1 and 2, alignment of Scope 3 emissions with the 1.5°C target scenario should be included in the strategy. Each company shall commit to disclosing their progress towards the GX-ETS emission reduction target and any trading excess emission reduction allowances and carbon credits.
2. Efforts to achieve carbon neutrality in supply chains
Companies are expected to support their suppliers and manufacturing partners in their efforts to reduce emissions toward carbon neutrality in 2050. In addition, companies shall create awareness among their customers through initiatives such as carbon footprint displays on their products and services.
3. Efforts to develop the green market through products and services
Each GX League participant is responsible for driving market greening by actively and preferentially purchasing green products. Companies are also expected to engage in cross-sectoral dialogue on climate change with other stakeholders, such as consumers, universities, academic institutions, and NGOs. They should aim to expand the green market through innovative products and services that contribute to generating carbon credits.
How credible are transition plans of Japanese firms?
GX League’s recommendations clearly aim at pushing Japanese companies to move from setting long term goals, to establishing actual credible low-carbon transition plans. This objective is in line with global trends led by Europe and the United States. In 2022, the US Securities and Exchange Commission announced upcoming new climate disclosure regulations including transition plans, and the EU presented its draft European Sustainability Reporting Standards, which also demand the disclosure of climate transition plans.
In February 2023, CDP published a report – “Are Companies Developing Credible Climate Transition Plans?” – which provides an overview of the present state of climate transition plan information. The international non-profit identified eight key elements that constitute a credible climate transition plan: governance, scenario analysis, financial planning, value chain engagement & low carbon initiatives, policy engagement, risks & opportunities, targets, and Scope 1, 2 & 3 accounting with verification.
The report, encompassing over 18,600 firms in 13 industries and 135 countries, found that 4,100 companies declared that they already have a 1.5°C-aligned climate transition plan. However, only 81 of them reported in sufficient detail to all 21 key indicators that represent a solid plan. Even though no country has an awe-inspiring track record, Japan leads the regional assessment, with 16 Japanese organizations reporting to all 21 essential markers of a credible climate transition plan.
It does not come as a surprise that most of GX League’s requirements align with the critical elements emphasized by CDP. This indicates that through the current efforts of Japanese companies, coupled with the GX League fully coming into action in 2023, Japan could take a more leading role in corporate climate action conversations in the future.
It is important that Japanese firms take advantage of this momentary lead through escalating commitments in line with the GX Leagues’ stated goals, otherwise they risk falling behind as international companies adjust to meet emerging regulatory standards.
One way of ensuring that companies stay on top of their low-carbon transition plans and meet the GX League requirements is the ACT methodology. Co-developed by CDP, ACT is internationally identified as a highly relevant framework in this field. Firms can use the ACT methodology either to develop a low-carbon transition plan from scratch, or assess the quality of an existing plan to identify strengths and weaknesses. In Japan, Codo Advisory is the first consultancy able to offer ACT-based services, and signed in 2022 agreements with CDP Japan, as well as with MUFG and Tokio Marine, to expand the reach for this support.
- GX League Basic Concept Press Release (METI)
- GX League Basic Concept (Full Text – Japanese)
- CDP Report (“Are Companies Developing Credible Climate Transition Plans?” – February 2023)
- ACT Methodology
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About our insight articles
Codo’s Insights are a series of articles written by our team, on topics that we identify as strategic for our clients and partners. We focus on developments related to corporate environmental sustainability, with the aim of supporting exchanges between Japan and other regions.
This article was written by Ilayda Tenim with contributions from Emilie Jones and Stéfan Le Dû. It was translated to Japanese by Morgane Benoist and Minami Shinohara.
Codo Advisory is an independent consultancy helping companies in Japan at all stages of their green transformation. Codo’s wide range of services are built upon internationally recognized science-based methodologies. They include climate education, ESG certification advisory, zero-carbon strategy definition and boutique consulting. Codo’s clients are organizations of all sizes and sectors looking to improve their global competitiveness and reduce their climate-related risks.
Codo Advisory is a Japan-based consulting agenc