The Structure of Legal Risks in Scope 3 Disclosure Compliance

The previous blog article (Series: Trends in Sustainability Disclosure -Part I: SSBJ Standards and the Implications of Mandatory Scope 3 Disclosure for Companies) provided an overview of the SSBJ Standards and the impact of the mandatory Scope 3 disclosure requirements on companies. In particular, the article noted that, because Scope 3 disclosure presupposes the collection and management of information across the entire supply chain, it requires companies to implement measures that are fundamentally different from those involved in conventional disclosure practices.

In this context, the essence of Scope 3 compliance lies not merely in the "measurement and disclosure" of emissions, but also in the collection, sharing, and utilization of information in the context of relationships with numerous business partners throughout the supply chain. In other words, companies are now confronted with a new compliance environment in which they obtain information relating to third parties that are beyond their control and make disclosures based on such information.

Against this background, Scope 3 compliance inherently gives rise to legal risks in such areas as: (i) the Antimonopoly Act; (ii) the Proper Transactions Act and the Act on the Promotion of Small and Medium-sized Entrusted Businesses (formerly, the Subcontract Act and the Subcontract Promotion Act); and (iii) the Unfair Competition Prevention Act (trade secrets). The specific details of each of these risks are discussed separately below.

Risks under the Antimonopoly Act

Basic Framework under the Green Guidelines

In evaluating issues under the Antimonopoly Act in relation to Scope 3 compliance, the central framework to be referred to is the Guidelines Concerning the Activities of Enterprises, etc. Toward the Realization of a Green Society under the Antimonopoly Act (the "Green Guidelines") published by the Japan Fair Trade Commission. ¹

¹ Japan Fair Trade Commission, Guidelines Concerning the Activities of Enterprises, etc. Toward the Realization of a Green Society under the Antimonopoly Act (revised as of January 1, 2026).

The Green Guidelines set forth the basic position that initiatives undertaken by enterprises for environmental purposes will, in many cases, not raise issues under the Antimonopoly Act, because such initiatives often promote new technologies and efficient transactions and, as a consequence, contribute to consumer welfare. On the other hand, the Guidelines also make clear that, even where an initiative is pursued for environmental purposes, issues under the Antimonopoly Act may arise if, in substance, the initiative affects significant competitive parameters such as prices, quantities, customers, or trading conditions and substantially restrains competition among enterprises.

This point is directly relevant to the practical implementation of Scope 3 compliance. In other words, even where the objective is the measurement or reduction of greenhouse gas emissions, the scope and method of data sharing among enterprises, as well as the nature of requests made to business partners, may produce anticompetitive effects. Accordingly, the mere fact that conduct is pursued for a legitimate environmental objective does not, in itself, render such conduct lawful.

The following sections examine representative scenarios presented in the Green Guidelines and explain the underlying approach adopted therein.

Assessment of Joint Initiatives (Including Data Sharing)

Scope 3 compliance necessarily requires the collection and sharing of emissions data, and it is contemplated that multiple enterprises may jointly collect and analyze such data. With respect to such joint initiatives, the Green Guidelines provide that, in determining whether the initiative has anticompetitive effects, comprehensive consideration should be given to such factors as: (i) the number of participants, market shares, and similar factors; (ii) the nature of the data collected; (iii) the necessity of data sharing; (iv) the scope and duration of the initiative; and (v) the maintenance of independent activities in the marketing of goods or services (including refraining from the exchange or sharing of information relating to prices, quantities, or other competitively sensitive matters).

The analytical flowchart presented in the Green Guidelines is as follows. Even with respect to joint initiatives pursued for environmental purposes, the Guidelines do not determine legality or illegality on the basis of a single decisive criterion. Rather, they first examine whether the initiative is likely to produce anticompetitive effects, and where no such effects are expected, the initiative is regarded as not giving rise to issues under the Antimonopoly Act. Furthermore, even where anticompetitive effects are anticipated, the Guidelines adopt a step-by-step analytical framework that takes into account such factors as the availability of less restrictive alternatives and the necessity and reasonableness of the relevant initiative. In particular, with respect to initiatives involving data sharing and similar measures, the Guidelines suggest that such initiatives may be either procompetitive or anticompetitive depending on their specific design, thereby indicating that careful case-by-case structuring is of critical importance.

Source: Japan Fair Trade Commission, Guidelines Concerning the Activities of Enterprises, etc. Toward the Realization of a Green Society under the Antimonopoly Act (revised as of January 1, 2026), p. 7.

For example, where multiple enterprises possessing a certain level of market share collect data concerning greenhouse gas emissions generated during the use phase of products and share such data for research and development purposes, if the shared data have been anonymized and aggregated with respect to customers and other demand-side participants, do not include competitively significant information such as prices or sales volumes, and each enterprise independently conducts its research and development activities and sales activities, anticompetitive effects are unlikely to arise, and the initiative is unlikely to raise issues under the Antimonopoly Act.

By contrast, even where an initiative likewise pursues the reduction of greenhouse gas emissions, if information relating to customer-specific prices or trading conditions is also collected and shared, such conduct may facilitate coordinated behavior among enterprises and substantially restrain competition. In such circumstances, notwithstanding the environmental objective of the initiative, there is a significant possibility that issues under the Antimonopoly Act will arise.

Accordingly, from a practical perspective, when sharing emissions data, it is important to limit the scope of the shared information to environmental indicators, implement measures to prevent the identification of individual enterprises or specific transaction details, and maintain a framework under which each enterprise independently makes decisions concerning pricing and trading conditions.

Risks under the Proper Transactions Act and the Act on the Promotion of Small and Medium-sized Entrusted Businesses (formerly, the Subcontract Act and the Subcontract Promotion Act)

In responding to information disclosure relating to Scope 3, there are also legal issues that warrant careful consideration from the perspectives of the Act on the Promotion of Proper Transactions Involving Small and Medium-sized Entrusted Businesses (the "Proper Transactions Act," formerly the Subcontract Act) and the Act on the Promotion of Small and Medium-sized Entrusted Businesses (formerly the Subcontract Promotion Act). Specifically, where a company subject to the SSBJ Standards requests its business partners to provide information necessary for Scope 3 disclosure, and the relevant transaction relationship constitutes a relationship between a commissioning enterprise (formerly, a parent enterprise (“oya jigyosha”)) and a small and medium-sized entrusted enterprise (formerly, a subcontractor (“shitauke jigyosha”)), the regulations under these statutes apply, and their applicability and compliance must therefore be examined.

The Proper Transactions Act prohibits a commissioning enterprise from requiring a small and medium-sized entrusted enterprise to provide money, services, or any other economic benefit for the benefit of the commissioning enterprise, thereby unjustly harming the interests of the entrusted enterprise (Article 5, Paragraph 2, Item 2 of the Proper Transactions Act). It is further understood that, where the amount of the economic benefit requested, the method of calculation, its purpose, the conditions governing its provision, or other relevant matters are unclear, and it is not apparent how such provision relates to the interests of the small and medium-sized entrusted enterprise, the conduct may constitute a violation of that provision. ²

² Japan Fair Trade Commission, Operational Standards for the Act on Preventing Delay in Payment to Small and Medium-Sized Entrusted Business Operators in Relation to Manufacturing Consignment, Part IV-7.

Accordingly, where, in the course of responding to Scope 3 disclosure requirements, a commissioning enterprise requests a small and medium-sized entrusted enterprise to provide various types of data necessary for emissions calculations—for example, information relating to raw materials, information relating to suppliers, and data relating to manufacturing processes—in order to fulfill its own disclosure obligations, care should be taken because issues may arise under the Proper Transactions Act if the request is made without sufficiently clarifying the nature and conditions of the burden associated with providing such data.³

³ See Ministry of Economy, Trade and Industry and Ministry of the Environment, Carbon Footprint Guideline (March 2023), p. 50.

In addition, under the Act on the Promotion of Small and Medium-sized Entrusted Businesses, where it is recognized as necessary to promote the development of small and medium-sized entrusted enterprises in accordance with the Promotion Standards prescribed by the Minister of Economy, Trade and Industry, ⁴ the competent minister may provide guidance and advice to the commissioning enterprise (Articles 3 and 4 of the Act).

The Promotion Standards provide that, in determining transaction consideration, a commissioning enterprise should comprehensively take into account such factors as changes in quality or performance, changes in specifications, fluctuations in order quantities or delivery frequency, the length of delivery periods, methods of payment, transportation costs, storage costs, costs associated with electronic ordering and settlement systems, various expenses including environmental compliance costs, and market conditions (Promotion Standards, Part IV, 2(5)).

⁴ Ministry of Economy, Trade and Industry, Promotion Standards (October 1, 2025).

Accordingly, where Scope 3 compliance imposes burdens on a small and medium-sized entrusted enterprise in relation to the acquisition or management of data, the commissioning enterprise is required to ensure that such environmental compliance costs are appropriately reflected in the transaction consideration and, as a prerequisite thereto, to engage in sufficient discussions regarding pricing and to reach a reasonable agreement between the parties.

In light of the foregoing, the commissioning enterprise should provide the small and medium-sized entrusted enterprise with a sufficient explanation of the background to, and necessity for, the request for data, thereby obtaining its understanding, while also clearly specifying the content and scope of the data requested. Furthermore, with respect to the costs associated with the provision of such data, it is important to conduct sufficient discussions regarding the allocation of environmental compliance costs, including their reflection in the transaction price, and to structure the transaction terms so that no unilateral disadvantage is imposed.

Risks under the Unfair Competition Prevention Act (Trade Secrets)

Under the Unfair Competition Prevention Act, a "trade secret" means technical or business information, such as production methods, sales methods, or other information useful for business activities, that is properly managed as confidential and is not publicly known (Article 2, Paragraph 6 of the Unfair Competition Prevention Act). As discussed above, among the information obtained from business partners in the course of responding to Scope 3 disclosure requirements, certain information may constitute trade secrets. In particular, information concerning product specifications and composition, sources of raw materials, manufacturing processes, and logistics details is often closely associated with the technical information and business know-how that form the basis of a company's competitive advantage and, accordingly, is highly confidential.

It should be noted that, where such information is acquired by improper means or used for purposes beyond those for which it was originally obtained, this may give rise not only to civil liability, such as claims for injunctive relief or damages under the Unfair Competition Prevention Act, but also to potential criminal liability.

For example, where information obtained for the purpose of calculating emissions is subsequently used for purposes beyond that original objective—for instance, as a basis for seeking price reductions in procurement negotiations, or by comparing and analyzing such information together with information obtained from other business partners in order to revise transaction terms—such use beyond the intended purpose may give rise to issues under the Unfair Competition Prevention Act.

Accordingly, when responding to Scope 3 disclosure requirements, it is important to enter into a confidentiality agreement with business partners in advance and clearly define the categories of information that will be treated as confidential information. In addition, with respect to the management of information obtained, companies should clearly classify information within their organizations and, to the greatest extent possible, manage their own information separately from information obtained from third parties. They should also establish a framework to mitigate the risk of unauthorized use by limiting the purposes for which such information may be used, implementing appropriate access controls, and maintaining records of information use.

Risk Management Required of Companies

In light of the foregoing, in responding to Scope 3 disclosure requirements, it is important for companies to establish an integrated compliance framework on the premise that the processes of collecting and sharing information across the supply chain inherently give rise to legal risks.

With respect to data sharing and industry-wide initiatives, companies are required to appropriately limit their scope and content and to structure such initiatives in a manner that does not impair the independent decision-making of individual enterprises. In addition, companies should assess in advance the risks associated with the nature of the information involved and the methods by which it is shared and establish any necessary operational rules and procedures.

Furthermore, when requesting information from business partners, it is important to provide a sufficient explanation of the purpose and necessity of such a request and, after ensuring transparency regarding the treatment of any associated costs so that the request does not impose a unilateral burden, to reflect such matters in the transaction terms through appropriate discussions. Moreover, with respect to information obtained, companies should clearly define both the scope of the information and the purposes for which it may be used, and establish an appropriate information management framework that takes into account the possibility that such information may include highly confidential information, thereby preventing inappropriate use or disclosure.

To ensure the effectiveness of these measures, it is essential that the company departments responsible for sustainability initiatives work closely with the legal and compliance functions to conduct risk assessments, establish internal rules and procedures, and monitor implementation in an integrated manner.