3-5. EHS Information Disclosure and Corporate Valuation in the Age of ESG Investing

As ESG (Environment, Social, and Governance) investing expands globally, companies are expected to earn investor trust through disclosures on their environmental, social, and governance practices. EHS (Environment, Health, Safety) information disclosure is a key factor investors use to evaluate a company's sustainability and risk management capabilities. Here's an explanation of the key points for EHS information disclosure in the era of ESG investing and its impact on corporate valuation.

1. The Rationale for EHS Information Disclosure

EHS issues, such as climate change risks, occupational safety, and chemical management, directly impact a company's financial risk and business continuity, drawing significant interest from investors. Globally, frameworks like the GRI Standards and SASB Standards, along with the ISSB's Sustainability Disclosure Standards, have been introduced to demand transparent information from companies. In Japan, the Financial Services Agency is also accelerating the push for enhanced non-financial information disclosure.

2. EHS Information That Attracts Investor Attention

Investors evaluate a wide range of EHS information, not just simple environmental data.

• Environmental (E): CO2 emissions, renewable energy usage rates, waste reduction, and circular economy initiatives.

• Health and Safety (H/S): Industrial accident rates, working hour management, mental health measures, and employee training systems.

• Risk Management: Emergency response systems for accidents, audit results, and the status of corrective actions for non-conformities.

This data serves as an objective indicator of how seriously a company prioritizes sustainability and manages its risks.

3. Practical Tips for EHS Information Disclosure

• Adhere to International Standards: It's crucial to use frameworks like GRI, SASB, and TCFD to disclose information in a comparable format for investors.

• Balance Quantitative and Qualitative Information: In addition to numbers like CO2 emissions and the number of industrial accidents, you must also clearly state policies and improvement plans.

• Incorporate External Verification: Obtaining assurance from a third-party organization can significantly enhance data credibility.

• Create a Narrative: Instead of just reporting numbers, it's effective to show how EHS activities are positioned within your company's broader sustainability strategy.

4. The Relationship Between EHS Disclosure and Corporate Valuation

Appropriate EHS information disclosure can lead to a higher valuation from investors, which in turn results in more favorable access to capital and stock price stability. Conversely, concealing industrial accidents or environmental violations can increase reputational risk, leading to investor flight and a decline in stock price. Institutional investors, in particular, who prioritize ESG, value transparency, making proactive disclosure a key determinant of competitiveness.

5. Future Outlook

With the introduction of ISSB standards, a globally unified approach to non-financial information disclosure is progressing. Companies are no longer just disclosing information to meet regulations; they are expected to connect their EHS activities with their business strategy to enhance corporate value.

In the era of ESG investing, EHS information disclosure is not just an "obligation" but a "source of competitiveness." Providing information that is both transparent and credible will lead to sustainable growth and a higher valuation from investors.