1.

International Trends
 

(1)

Overview of Comparison Between Climate Disclosure Standards

There are three global climate disclosure standards that were recently introduced: (i) the US Securities and Exchange Commission’s (“SEC”) Rules to Enhance and Standardize Climate-Related Disclosures for Investors (“Climate-related Disclosure Regulations”); (ii) the EU’s Corporate Sustainability Reporting Directive (“CSRD”) standards; and (iii) IFRS S2 (“Climate-related Financial Disclosures”) of the International Sustainability Standards Board (“ISSB”), which is part of the International Financial Reporting Standards (“IFRS”) foundation. Below is a table that shows comparisons between these disclosure standards.
 

(2)

US SEC Climate-Related Disclosure Regulations

The US SEC’s Climate Disclosure Regulations that were finalized on March 6, 2024 will become mandatory (in phases) starting in 2026, with the focus on large listed companies (large accelerated filers). Companies subject to disclosure are required to disclose non-financial information including climate-related governance, climate-related risk impacts on strategic and business models and prospects, climate-related risk management, and climate-related indicators and objectives. In particular, if the amount of greenhouse gas emissions (Scope 1 and Scope 2) is deemed material, such amount should be disclosed. If the emission of a certain greenhouse gas is deemed individually material, the level of emissions of that particular greenhouse gas should be disclosed in detail.

Third-party assurance on information relating to greenhouse gas emissions is also required, and the level of assurance will be different depending on the size of a company. Specifically, limited assurance will be required for large listed companies (large accelerated filers) for data from 2029 onwards (for filings in 2030), and reasonable assurance will be required for data from 2033 onwards (for filings in 2034), while for listed mid-sized companies (accelerated filers), only limited assurance will be required for data from 2031 onwards (for filings in 2032).
 

(3)

EU CSRD and ESRS E1 (Part of the First Set of ESRS)

The CSRD announced by the EU will be applied, in phases, to EU and non-EU companies that meet certain criteria, starting from the fiscal year that begins after January 1, 2024. However, the CSRD is legislated in the form of a directive (guideline) rather than a regulation, so it is not directly binding on EU Member States. Accordingly, each EU Member State is obligated to enact local legislation consistent with the CSRD within 18 months from the effective date (i.e., by July 6, 2024).

The CSRD sets forth entities subject to the disclosure requirements, and methods, principles, and procedures of disclosure. The details to be disclosed are stipulated in the ESRS, which is the CSRD’s subordinate regulation. On July 31, 2023, the EC announced the first set of the ESRS (cross-sectoral disclosure standards applicable to all industries), which became effective on January 1, 2024.

ESRS E1, which is a standard for climate change disclosure and part of the first set of the ESRS, sets forth a total of nine disclosure requirements, including the requirements for Scope 1, 2, and 3 emissions, total greenhouse gas emissions (Disclosure Requirement E1-6), total greenhouse gas emissions reduced or eased by purchasing carbon credits (Disclosure Requirement E1-7), and internal carbon price (Disclosure Requirement E1-8).

Companies are free to decide whether to make disclosures based on the materiality assessment results of the ESRS E1 disclosure requirements; when excluding such disclosures, they need to explain the materiality assessment results in detail.
 

(4)

ISSB’s IFRS S2 Disclosure Standards

The final drafts of the IFRS S1 and IFRS S2 announced by the ISSB in June 2023 went into effect on January 1, 2024. In particular, the IFRS S2 (climate-related disclosure standards) requires companies to make climate-related financial disclosures, such as governance and strategies, risk management, indicators, and objectives. With respect to indicators and objectives, companies are required to disclose information regarding cross-industry metrics that are applicable to all industries as well as industry-based metrics that were established by referring to the standards of the existing Sustainable Accounting Standards Board (which took into account characteristics of industries). The cross-industry metrics include Scope 1, Scope 2, and Scope 3 emissions; however, the obligation to disclose Scope 3 emissions is subject to a one-year grace period (such information will be subject to disclosure from 2026). In addition, the ISSB’s IFRS S2 requires disclosure of climate-related targets set by companies.
 

2.

Domestic Trends
 

(1)

Overview of Climate Disclosure Standards

In line with the global movement of mandatory climate disclosure, there are climate disclosure systems that are under discussion to be introduced or reformed in Korea: (i) the ESG Information Disclosure System led by the Financial Services Commission (“FSC”), and (ii) the Environmental Information Disclosure System under the jurisdiction of the Ministry of Environment (“MOE”). The following table includes the key details of the two systems.
 

(2)

Discussions on Establishment of ESG Disclosure Standards in Korea

The FSC has been seeking to make ESG information disclosure mandatory for KOSPI-listed companies of a certain size starting from 2026, and ultimately seeks to expand the scope of application to all KOSPI-listed companies. To this end, the government is in the process of establishing ESG disclosure standards in Korea through discussions with the Korea Accounting Institute’s Korean Sustainability Board.

The draft ESG disclosure standards in Korea will be announced in April 2024 and are expected to be based on global disclosure standards (such as the ISSB’s Sustainability Disclosure Standards). As such, climate disclosure standards are expected to be similar to the global standards. However, in order to ease the burden on companies in the course of enacting the disclosure standards, the FSC is considering ways to (i) pursue disclosures through the Korea Exchange, not through statutory disclosures pursuant to the Financial Investment Services and Capital Markets Act, and (ii) apply a minimum level of sanctions at the initial stage.
 

(3)

Reform of Environmental Information Disclosure System

The Environmental Information Disclosure System, which is based on Article 16-8 of the Environmental Technology and Industry Support Act and which has been reformed to enhance its consistency with the global ESG disclosure standards, went into effect from January 1, 2024. Therefore, starting from 2024 (for filings in 2025), listed companies with total assets of KRW 2 trillion or more on a consolidated basis are required to disclose their greenhouse gas emissions (Scope 1 and Scope 2), renewable energy consumption, use/recycling rate of plastic renewable materials, and the amount of water usage in water-stressed areas.

It has been known that the MOE is currently considering the following measures: (i) with respect to greenhouse gas emissions (Scope 1 and 2) and renewable energy consumption, expanding the disclosure requirements beyond listed companies with total assets of KRW 2 trillion or more on a consolidated basis to all companies subject to the disclosure system, and (ii) mandating that all listed companies with total assets of KRW 2 trillion or more on a consolidated basis disclose their Scope 3 greenhouse gas emissions, the use of circular raw materials, the status of biodiversity-sensitive areas, and performance indicators related to the K-Taxonomy.
 

3.

Implications for Korean Companies

Companies may be confused as to what standards they need to adhere to when setting up a compliance system for climate disclosure as the regulations for each climate disclosure standard vary from one country to another in terms of the scope and items required for disclosure. Therefore, it is necessary to establish an effective climate data collection and disclosure system by analyzing the level of demand as well as similarities and differences between each disclosure standard. In particular, in establishing a climate disclosure system, even if the relevant standards give a certain level of autonomy to companies, companies should be able to provide stakeholders (such as investors) with objective grounds for the selection and exclusion of important topics. Therefore, it is necessary to prepare a systematic and reliable “materiality assessment” process.