{"id":13850,"date":"2024-10-30T13:48:27","date_gmt":"2024-10-30T04:48:27","guid":{"rendered":"https:\/\/codo.jp\/?p=13850"},"modified":"2026-06-03T14:47:13","modified_gmt":"2026-06-03T05:47:13","slug":"tisfd-insights-en","status":"publish","type":"post","link":"https:\/\/codo.jp\/en\/tisfd-insights-en\/","title":{"rendered":"TISFD: Focusing on the \u201cS\u201d in ESG"},"content":{"rendered":"\n
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Ulysses Aoki | Senior Managing Director, Codo Advisory<\/p>\n<\/div>\n\n\n\n

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In September 2024, the Task Force on Inequality and Social-related Financial Disclosures (TISFD) was launched, along with the release of a white paper titled “People in Scope.” Although a definitive framework has not yet been established, leaving TISFD\u2019s impact on businesses somewhat uncertain, this article delves into the background of TISFD, compares it with related areas like human rights and human capital, and offers insights on potential developments and implications for Japanese companies.<\/p>\n\n\n\n

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TCFD, TNFD, and TISFD<\/strong><\/h3>\n\n\n\n

The lack of actionable outcomes to address global issues like climate change has been termed the “Paris Agreement failure.” In 2015, in response to this, the Task Force on Climate-related Financial Disclosures (TCFD) was launched. Initially intended primarily as a framework for financial institutions, it has since become a widely adopted standard across climate-related international regulations.<\/p>\n\n\n\n

Climate change, being a top priority social issue requiring global cooperation, necessitated TCFD’s creation. However, biodiversity\u2014a closely related topic\u2014was left unaddressed. Research showing that half of the world’s GDP depends on natural capital highlighted biodiversity as another pressing global issue requiring cross-border cooperation, leading to the establishment of the Task Force on Nature-related Financial Disclosures (TNFD) in 2021.
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Subsequently, in September 2024, TISFD was established. However, the groundwork was actually laid in 2021 amid growing awareness of social issues exacerbated by the pandemic, including accelerating income inequality. Discussions began on forming a task force focused on inequality.<\/p>\n\n\n\n

Although inequality is a core issue, several other social concerns emerged in tandem with the Covid-19 pandemic, such as:<\/p>\n\n\n\n

\u30fbMass layoffs by corporations
\u30fbWage issues and rising living costs
\u30fbComplexity and stagnation in supply chains
\u30fbNeglect of upstream human rights issues in supply chains
\u30fbDeclining trust in government
\u30fbPolarization due to political and social ideologies<\/p>\n\n\n\n

While these are closely related to inequality, the scope of intertwined issues is vast. Considering these social challenges, stakeholders, especially investors, demanded a framework consistent with human rights and human capital, leading to TISFD’s formation in 2024 to address a broad array of social-related issues.<\/p>\n\n\n\n

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An overview of TISFD<\/strong><\/h3>\n\n\n\n

As outlined above, TISFD is still in its nascent stage, and a precise framework has yet to be defined. However, its initial report, \u201cPeople in Scope,\u201d published in late September, provides a general approach and perspective. Here\u2019s a summary of key anticipated outcomes:<\/p>\n\n\n\n

\u2460Global Disclosure Standards<\/span><\/strong>
Proposed global disclosure standards on inequality and social issues to guide businesses and financial institutions in understanding the impacts, risks, and opportunities, structured into four pillars, similar to TCFD.<\/p>\n\n\n\n

\u2461Guidance and Recommendations<\/span><\/strong>
Practical guidance on implementing the disclosure standards \u2460, including recommended Key Performance Indicators (KPIs) critical in the disclosure realm.<\/p>\n\n\n\n

\u2462Educational and Capacity-Building Resources<\/span><\/strong>
Resources to support a broad audience, including NGOs, civil society, and government entities, beyond just businesses and financial institutions.<\/p>\n\n\n\n

\u2463Foundational Concepts<\/span><\/strong>
An outline of the positive and negative impacts of business activities on \u201cpeople,\u201d showing alignment and relevance to established concepts such as human rights and human capital.<\/p>\n\n\n\n

\u2464Evidence of Impacts<\/span><\/strong>
Research demonstrating the impact of inequality and social issues on businesses and financial institutions, including how business activities might exacerbate these issues, as well as economic impacts.<\/p>\n\n\n\n

Points \u2460 and \u2461 provide the framework and guidance companies are seeking. Although frameworks like GRI and ESRS (set to be mandatory in the EU) already exist for human rights and human capital-related disclosures, they leave room for interpretation. TISFD is expected to make this area more rigid and standardized.<\/p>\n\n\n\n

Points \u2463 and \u2464 are also noteworthy. TISFD aims to clarify distinctions among concepts like human rights, human capital, inequality, and well-being and relate these to economic impacts.<\/p>\n\n\n\n

Previously, frameworks like the GHG Protocol and carbon pricing established a clear economic value per ton, prompting gradual corporate and governmental action on emissions reduction. However, the \u201cS\u201d in ESG\u2014centered on human rights\u2014has struggled with economic quantification, often limiting companies to risk-reduction measures. Merely establishing a framework to address this could accelerate corporate action.<\/p>\n\n\n\n

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Human Rights and Human Capital Relationship<\/strong><\/h3>\n\n\n\n

Rather than creating a task force solely for inequality, TISFD was established to integrate human capital and human rights. Initially, IFRS\u2019s Sustainability Disclosure Standards were structured with S1 covering overall sustainability-related information and S2 addressing climate-related disclosures. There was speculation that S3 would focus on human rights. However, investors called for a comprehensive framework addressing issues like well-being alongside human rights, leading IFRS to expand S3 to include biodiversity and human capital.<\/p>\n\n\n\n

Traditionally, human rights were governed by broad principles, while in Japan, human capital management was largely guided by the Ito Report. However, the Ito Report is a unique domestic approach that scarcely mentions human rights, creating a \u201cGalapagos effect\u201d where Japan\u2019s view on human capital diverges from global perspectives. Fortunately, S3 and TISFD seem to be working toward harmonizing these areas.<\/p>\n\n\n\n

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According to TISFD’s concept, “human rights” ensure minimum well-being for all individuals, while “well-being” reflects the breadth of wellness in daily life. “Inequality” represents disparities in well-being and human rights within or between groups (e.g., racial groups). Additionally, TISFD highlights the relationship between these elements and human and social capital.<\/p>\n\n\n\n

When human rights and well-being are prioritized, human and social capital are strengthened, and vice versa. The challenge for TISFD is to align its recommended disclosure framework with this holistic perspective.<\/a><\/p>\n\n\n\n

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Future Developments and Impacts on Japanese Companies<\/strong><\/h3>\n\n\n\n

With TCFD\u2019s integration into the International Sustainability Standards Board (ISSB) in 2023, TISFD\u2019s framework could essentially become politically aligned with IFRS\u2019s ISSB, and S3 may incorporate the same content and approach.<\/p>\n\n\n\n

For Japan, the Japanese ISSB, named Sustainability Standards Board of Japan (SSBJ), has already released drafts for Japan\u2019s S1 and S2 standards, with finalized versions expected by March 2025. Japanese companies will likely apply S1 and S2 to fiscal year 2025 and include sustainability reports by late 2026.<\/p>\n\n\n\n

S3 implementation may not occur for about three more years, so regulatory activity from Japanese companies can be expected around then. Meanwhile, human capital disclosures have been mandatory in Japan since 2023, with Japanese companies showing unique progress in this area through the Ito Report.<\/p>\n\n\n\n

Going forward, Japanese companies will need to consider:
\u30fbSynergies between human rights and other areas in the \u201cS\u201d category
\u30fbThe gap between domestic human capital disclosure trends and the global standards TISFD aims to establish
\u30fbDomestic requirements addressed by TISFD that have not been widely discussed<\/p>\n\n\n\n

I believe responses to these issues require either government-led regulations and guidance or the need for businesses and civil society to present their own independent perspectives.<\/p>\n\n\n\n

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As Japan ranks highly (3rd globally) in the Human Capital Index, the country is considered to have a well-developed human capital framework. However, within business contexts, there are both strengths (lifetime employment, talent development) and areas needing progress (mental health, diversity, wage issues).<\/p>\n\n\n\n

Unlike the topics addressed by TCFD and TNFD, it can be said that there is still significant room for Japanese companies to contribute to the issues covered by TISFD, while there is also much for them to learn.<\/p>\n\n\n\n

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How did you find this article? As an individual passionate about the \u201cS\u201d in ESG and fortunate enough to have been involved in projects related to human rights, supply chains, social\/human capital since 2015, I am eagerly anticipating the development of TISFD. Precisely because social issues are complex and can at times be subjective, I feel the emergence of such a framework is crucial.<\/p>\n\n\n\n

If you are interested in transforming society for the better together with us at Codo Advisory, please feel free to reach out. We welcome not only project inquiries but also any feedback, collaboration opportunities, and job\/recruitment related discussions.<\/p>\n\n\n\n

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