As sustainability regulations tighten globally, businesses are seeking expert guidance to navigate complex compliance requirements while seizing new opportunities. In an interview with ALB, Dan Matsuda, Managing Partner of EY Law Japan, says the firm's integrated approach combines legal, tax, accounting, and strategic insights to deliver comprehensive solutions for clients' sustainability challenges. Drawing on EY's global network of sustainability professionals, the Japan team is helping companies tackle everything from EU deforestation regulations to carbon pricing strategies and clean energy transitions.
ALB: Given the increasing importance of sustainability across industries, what recent regulatory updates or trends in Japan do you see as most impactful for businesses, and how is EY Japan's Sustainability Law team supporting clients in navigating these changes?
Matsuda: Sustainability presents both risks and opportunities for businesses. Companies face growing pressure to identify and mitigate sustainability-related risks while making timely investments to capitalize on related opportunities. For example, climate change poses physical risks to corporations with assets vulnerable to extreme weather. At the same time, it offers significant opportunities for renewable energy companies contributing to decarbonization efforts. Similarly, labeling products as "eco-friendly" can enhance brand value but also carries the risk of greenwashing accusations.
Many companies face challenges in addressing sustainability issues. Through client conversations, we have identified several common obstacles, such as short-term profit pressures, complex supply chains, high transition costs, and the novelty and inconsistencies of regulatory frameworks. Sustainability has evolved beyond corporate philanthropy to impact every aspect of business, including marketing and strategy, legal, accounting, and tax. Traditional approaches often fall short, as reflected in the shifting landscape of accounting standards and practices that now emphasize environmental, social and governance (ESG) and non-financial sustainability disclosures.
Business law is also adapting to promote sustainability within corporate structures and across the broader economy. Modern sustainability-related regulations are moving beyond traditional environmental rules with straightforward compliance checklists. A significant trend is the transition of "soft law" into "hard law." Soft law refers to voluntary frameworks such as the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights. These outline sustainable corporate activities but do not impose sanctions for non-compliance. Adhering to these standards, however, often enhances financial performance, reputation, and brand value. Increasingly, these voluntary guidelines are becoming legally binding, as demonstrated by the EU Corporate Sustainability Due Diligence Directive and the European Union Deforestation Regulation (EUDR), which mandate supply chain due diligence.
Our team is actively assisting clients with EUDR compliance. This landmark regulation aims to combat deforestation by requiring companies to verify that their supply chains are free from deforestation-related impacts. It applies to companies established in the EU but also affects non-EU businesses due to the EU market's global significance. For Japanese companies with EU subsidiaries or those supplying products to the EU market, EUDR compliance is critical.
"Modern sustainability-related regulations are moving beyond traditional environmental rules with straightforward compliance checklists. A significant trend is the transition of 'soft law' into 'hard law.' Soft law refers to voluntary frameworks such as the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights. These outline sustainable corporate activities but do not impose sanctions for non-compliance. Adhering to these standards, however, often enhances financial performance, reputation, and brand value."
We have a tailored approach to address each client’s unique challenges. We conduct thorough gap analyses to assess readiness for EUDR requirements and identify areas for improvement. Challenges can range from determining the geolocation of production plots to meeting due diligence and reporting obligations for composite products. Some clients may first need an introduction to the regulation before they can start addressing the challenges. No matter the complexity, we offer practical, hands-on support to guide them through the process of achieving compliance with EUDR regulations.
EUDR compliance goes beyond meeting legal requirements; it is about positioning businesses for success in a sustainability-driven global market. Our experience supports clients to confidently achieve compliance while preparing them to thrive in an increasingly competitive and sustainability-focused marketplace.
ALB: EY Japan’s Sustainability Law practice is unique in its close collaboration with other service lines. Could you explain how this integrated approach benefits clients, particularly in complex projects like energy transition or sustainability-linked finance?
Matsuda: Sustainability-related issues often involve multiple dimensions, encompassing not just legal considerations but also tax, accounting, and consulting. At our firm, we facilitate a multidisciplinary approach, working seamlessly across service lines to deliver holistic solutions for our clients.
A prominent area of focus is the variety of carbon pricing policies that are being introduced around the world. It is crucial for international companies that want to highlight carbon offsets as a feature of their products to understand the impact of various carbon pricing policies. Companies need to assess the viability of their products within the context of these regulations, promoting compliance while evaluating potential market impacts. For example, when an international company plans to sell fossil fuel products, such as oil or liquefied petroleum (LP) gas, it becomes essential to evaluate the carbon emissions from the customer's perspective. Carbon pricing policies in the target jurisdiction could impose additional financial burdens or reputation risks on customers. Assessing such disadvantages within the context of local carbon pricing is key to successfully entering new markets.
"Sustainability-related issues often involve multiple dimensions, encompassing not just legal considerations but also tax, accounting, and consulting. At our firm, we facilitate a multidisciplinary approach, working seamlessly across service lines to deliver holistic solutions for our clients... Through our extensive global network, we leverage the experience of legal, tax, and consulting professionals across jurisdictions to deliver harmonized solutions."
Carbon pricing is a complex area that encompasses legal frameworks such as emissions trading schemes and reporting obligations, as well as considerations like carbon taxes. The interplay between these factors necessitates a holistic strategy. By collaborating with our tax team, which is experienced in sustainability-related tax regulations, and our consulting team, which provides strategic advice with industry-specific insights, we offer clients a comprehensive approach to carbon pricing strategies. Together, we evaluate the real impact of carbon pricing on our clients' products, providing multi-professional perspectives. Our integrated team helps clients navigate the financial, regulatory, and strategic challenges of carbon pricing, positioning them for compliance and market success.
Effective compliance with environmental regulations requires a balance of precise legal guidance and practical business solutions. We help you achieve this balance through close collaboration across our service lines. Our EY Sustainability Law Team provides clients with deep experience in regulatory requirements, which is essential for risk assessment and strategic planning. Our tax team offers insights into tax implications from a strategic viewpoint, while our consulting team integrates this legal framework into actionable business strategies, helping clients adapt their operations to meet current and future laws and tax regimes.
This collaborative model is particularly valuable for multinational clients operating in various regions with different regulatory landscapes. Through our extensive global network, we leverage the experience of legal, tax, and consulting professionals across jurisdictions to deliver harmonized solutions. Our solutions are designed to match our clients' worldwide strategies and meet the unique regulatory demands of each market in which they do business.
We anticipate that environmental regulations will become increasingly complex and interconnected. Our role is not only to keep clients informed about these changes but also to provide strategies that seamlessly integrate these requirements into their operations. For instance, developments in emissions trading schemes and carbon taxation could impact pricing and production decisions across multiple sectors. By staying ahead of these trends, we enable our clients to build resilience into their business practices.
Our integrated approach—combining legal, tax, and consulting experience—allows us to deliver a comprehensive suite of services tailored to the evolving landscape of environmental compliance. We help clients manage sustainability-related risks, enhance their sustainability profile, and gain a competitive edge in a market where environmental responsibility is becoming increasingly critical.
ALB: What role does EY Japan’s Sustainability Law team play in supporting clients' transition projects towards clean energy?
Matsuda: As competition in the renewable energy market intensifies, clients are increasingly seeking strategic advice on improving their project outcomes. Successful renewable energy projects require a multifaceted approach that goes beyond legal considerations. Our EY Sustainability Law Team provides clients with comprehensive support by integrating experience across multiple disciplines, delivering advice that combines legal, tax, accounting, and strategic insights.
We get involved in renewable energy projects from their earliest stages. This early involvement allows us to guide clients with a strategic perspective, aligning with their objectives and helping them make critical decisions about where, when, and how to execute their renewable energy projects. Whether the project is domestic or international, decisions regarding timing, location, renewable energy types, and project structures must consider legal, tax, accounting, and business factors. While technical legal knowledge is essential, understanding the financial and strategic context of the transaction often has an even greater impact on the feasibility and profitability of the project. In some cases, our consulting team leads the effort to identify high-quality opportunities. This proactive approach helps facilitate that projects not only comply with regulatory requirements but also align with clients’ long-term strategies in the renewable energy sector.
A thorough understanding of regulatory frameworks is indispensable across all disciplines, including law, tax, and accounting. Each of these areas informs project decisions, from structuring project financing to promoting compliance with local energy regulations. These factors are often interconnected, influencing each other in a cyclical manner, much like the chicken-and-egg scenario. This interconnection makes it essential to consider all factors within a unified framework.
Our EY Sustainability Law Team assists by collaborating with professionals across disciplines to provide clients with well-rounded guidance. We help clients not only become informed of the legal standards but also understand how tax and accounting considerations impact the overall project structure. For example, when advising on Japan's "GK-TK scheme" for renewable energy projects, we offer detailed insights into the tax benefits, legal implications, and potential liabilities in a single memorandum. Additionally, we participate in client meetings alongside colleagues from other service lines to deliver a holistic view of the proposed project structure. This integrated approach saves clients significant time and effort by eliminating the back-and-forth between separate professionals, which often leads to fixing one issue only to create another during the structuring process.
Our strength lies in bringing together multidisciplinary experience, supporting clients from the initial strategy phase through to project execution. This collaborative approach ensures that clients receive comprehensive guidance to navigate the complexities of renewable energy projects in an increasingly competitive market.
ALB: EY Japan’s Sustainability Law team is part of a global network of multi-lingual, tech-savvy professionals. What skills or backgrounds do you prioritize when building this team, and how do you facilitate their staying at the forefront of evolving sustainability laws and practices?
Matsuda: As part of the Global EY Sustainability Law Team, we work collaboratively across regions to support clients with sustainability initiatives and regulatory compliance. Team members in each region engage in ongoing conversations with clients. They strive to identify challenges and develop tailored solutions. To enhance our collective impact, we continuously share insights about the issues our clients face across regions and discuss how to deliver effective solutions. By prioritizing communication, we have successfully built a truly global team.
Passion for sustainability and legal proficiency are minimum standards for our legal professionals, but deep experience in sustainability is our core team value. We bring together professionals across a broad range of fields, including supply chain management, renewable energy, carbon pricing, circular economy, greenwashing, and sustainability disclosures. Our team covers key jurisdictions, including all EU member states, the U.K., and Asia-Pacific. This diverse experience allows us to address a wide array of rapidly evolving sustainability-related matters. Furthermore, we emphasize the ability to quickly understand the context of other fields and collaborate seamlessly with cross-disciplinary teams. We regularly share successful case studies of collaboration with other service lines, such as tax and consulting, to replicate these outcomes in other regions. Additionally, we exchange ideas on utilizing technology to enhance sustainability support, many of which have successfully materialized. This agility in cross-functional collaboration enables us to provide holistic, well-rounded solutions.
The introduction of advanced sustainability-related regulations across the globe necessitates a coordinated, global, and cross-functional approach. For instance, concern around greenwashing is growing in many countries. In Europe, dedicated regulations such as the EU Green Claims Directive and the Empowering Consumers Directive are emerging. In Japan, greenwashing cases have come to light, such as the Consumer Affairs Agency's action in December 2022 against companies making unsubstantiated biodegradability claims. Our regional team members actively research greenwashing cases in their respective areas and track global trends. We share the outcomes of this research with clients through webinars, helping them stay ahead of regulatory changes and emerging compliance risks.
Our EY Sustainability Law Team offers AI-powered services that help clients assess potential exposure to greenwashing risks. By leveraging AI, we screen thousands of webpages to get an overview of sustainability-linked claims, categorize social and environmental claims, and assess upcoming substantiation requirements for various claim types. This helps clients prioritize actions to substantiate their claims. We can customize our service to align with local regulations and languages through collaboration with regional professionals. By combining local insights with leading-edge technology, we support clients to effectively manage greenwashing risks while maintaining compliance with regional legal standards.
Through our combination of global reach, local insight, and cross-disciplinary collaboration, our team is well-equipped to deliver high-quality support in a rapidly evolving sustainability landscape. Through enthusiasm, experience, and modern technology, we help clients navigate the complex layers of sustainability regulations with confidence and success.
