What should be disclosed, and to what level of detail?

In the field of SSBJ compliance, questions like these often come up. They are, of course, natural questions. Yet as companies continue to address them, the discussion can gradually shift toward “how to fill in the disclosure items.”

However, SSBJ compliance is not merely a disclosure exercise. It can also be seen as a process of revisiting how a company understands its materiality and how that materiality is connected to its business and decision-making.

What is being asked is not only “what should be disclosed?”

It is also about what themes the company considers important, and how those themes are understood in relation to its business. The structure of that understanding itself may increasingly be subject to closer scrutiny.

One of the key concepts behind this is double materiality.

What Is Double Materiality, and Why Is It Difficult?

Double materiality generally refers to the idea of assessing materiality from two perspectives: financial impacts on the company, and impacts on society and the environment. While the concept has become increasingly familiar, it becomes more difficult when applied in practice.

One reason is that these two perspectives cannot simply be evaluated side by side. Impacts on society and the environment may, over time, translate into financial risks and opportunities through regulation, market shifts, customer expectations, and changes in the supply chain.

For example, businesses with high environmental impacts may face higher costs or reduced competitiveness as a result of future regulatory responses or changes in market perception. On the other hand, investments in human capital or consideration for the supply chain may affect corporate value over the medium to long term through improved productivity, brand value, or recruitment competitiveness.

In other words, what matters is not to organize impacts and financial effects separately, but to understand the “conversion relationship” between them. In practice, this connection is often fragmented. Impacts may be organized by CSR or sustainability departments, while financial aspects may be handled by risk management or corporate planning teams. Each may be organized to some extent on its own, but the connection between the two may remain insufficient.

In this state, materiality becomes difficult to connect as a coherent story. The basis for prioritization becomes less visible, and the information becomes harder to use for decision-making. What is happening here may not simply be a lack of organization, but a lack of connection.

What SSBJ Asks For Is the Quality of Connection

In SSBJ compliance, simply listing information is unlikely to be sufficient. Companies are expected to explain matters from multiple perspectives, including risks and opportunities, relationships with the business model, and links to financial impacts. In other words, it may be becoming difficult to provide a sufficient explanation while keeping impacts and financial aspects separate.

A company may be able to show that a theme is important. However, it may not have fully organized why that theme affects the business, when the impact may emerge, or whose decision-making it relates to. This kind of situation may be seen in many companies. SSBJ compliance can become an opportunity to revisit these missing points of connection.

Understanding this can slightly change the direction of response. Rather than treating SSBJ compliance as a task of adding new disclosure items, it can be seen as an opportunity to review existing materiality from a different perspective.

How to Organize It in Practice——Using “IT Talent Shortage” as an Example

So how can companies organize this in practice? Here, let us consider the example of an “IT talent shortage.”

Many companies include themes such as “human resource development,” “engagement,” and “diversity” in their materiality. These are all important themes. However, as they stand, they may be difficult to connect to SSBJ compliance or management decision-making.

The first thing to examine is the relationship with the business model. Which business depends on IT talent, and to what extent? Is the dependency in product development, customer-facing systems, or internal management processes? Unless this is identified, the subsequent discussion may remain abstract.

Next, companies need to examine how the shortage may affect the business. For example, it may lead to delays in development, deterioration in quality, or increased outsourcing costs. Then, they need to consider how these effects may appear financially, such as lost sales opportunities, higher cost ratios, or lower profit margins. Once organized to this point, management can more easily recognize the issue as a risk.

At the same time, it is also important to look at the opportunity side. Investment in IT talent may lead to improved productivity, a shift toward higher-value-added services, or a stronger employer brand.

What matters here is not to stop at the general statement that “talent is important.” It is about breaking the issue down into which part of which business it affects, and how. By doing so, the materiality can become easier to use for decision-making.

Without this breakdown, companies tend to get stuck at the KPI design stage. They may be able to list candidate indicators such as number of hires, turnover rate, training hours, or productivity. But it becomes difficult to explain how those indicators will be used in management decisions.

Conversely, if the dependency relationship and financial impacts have been organized, it becomes easier to see which KPIs are relevant to decision-making. KPI design then becomes less about forcing a choice of indicators and more about confirming the connections that have already been identified.

Prioritize a State That Can Be Put into Motion, Rather Than Perfect Accuracy

That said, it is not realistic to organize everything at once.

For the first year of response, it may be effective to focus on major risks and opportunities and begin with areas that can be explained using existing data. Rather than aiming for a perfect structure from the outset, it may be more important to first create a state that can be put into motion internally.

SSBJ compliance is not simply a task of filling in disclosure items. It is also a process of connecting materiality to decision-making and business operations.

Rather than adding something new, the question is how to reconnect what has already been organized. With this perspective, SSBJ compliance may begin to function not merely as an additional burden, but as an opportunity to review the company’s structure.

Neuromagic supports companies in designing approaches that keep disclosure and practice connected, from reorganizing materiality to addressing SSBJ compliance.

If you would like to connect your existing materiality work to double materiality, or if you do not want SSBJ compliance to end as a mere disclosure exercise, please feel free to contact us.

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