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The Environment Ministry said Tuesday it is preparing a bill to encourage more companies to reduce industrial pollution and protect the environment.

The legislation, tentatively called the Environment Management Promotion Law, would set standards for companies’ environmental reports. The aim is to allow investors to know which firms are the most environmentally friendly.

A neutral organization would be set up to assess and authorize the environmental reports.

The bill may also include rewards for certified companies. For example, favorable conditions on bidding for government projects could be granted, a ministry official said.

Environment Minister Shunichi Suzuki said the ministry plans to submit the bill in the next ordinary Diet session, to begin in January.

“We need a social structure in which environmentally friendly companies’ efforts for environmental responsibility pay off with a fair evaluation system,” Suzuki said.

Takaharu Hirai, a Ritsumeikan University professor familiar with companies’ environmental reports, welcomed the ministry’s plan. He said it will ultimately lead to more environmentally friendly products and services.

Hirai added, however, that establishing a system to evaluate the environmental reports’ validity is very difficult.

In recent years, an increasing number of firms have released environmental reports describing their individual efforts. Since there is no standard format, however, the reports’ contents are left up to each firm’s discretion.

The ministry is studying cases in Sweden and Norway, where firms are obliged to disclose environmental information along with their annual financial statements.

Japan already has a law that benefits companies producing environmentally friendly goods. Under the 2001 Green Purchasing Law, government offices are obliged to consider environmental factors when buying products for their offices.

But the new legislation would go a step further. It would judge companies’ business activities as a whole, not their products.

The legislation would have a different function from the standards set by the Geneva-based International Organization for Standardization. The ISO standards are used to certify companies with organizational structures that enable environmentally friendly operations.