Outlook on Climate Disclosure Systems in 2025 and Response Strategies

Major European countries have recently mandated “climate disclosure” requirements, obligating companies to inform investors and other stakeholders about climate change risks and their responses to those risks. These requirements primarily involve disclosing carbon emissions, climate risks, climate strategy and objectives and ESG performance, among other metrics. The specifics and timing of these disclosure requirements vary by country.

Key disclosure regimes – such as (i) the International Sustainability Standards Board’s (the “ISSB”) International Financial Reporting Standards 2 (“IFRS S2”) and (ii) the European Union (the “EU”)’s Corporate Sustainability Reporting Directive (“CSRD”), as well as (iii) the US Securities and Exchange Commission’s (the “US SEC”) Climate Disclosure Rules^[1] – affect many companies, including those based in Korea. In particular, the year 2025 is significant as it marks the full enforcement of these international climate disclosure standards, along with key developments in Korea’s climate disclosure regulations. To prepare for the full implementation of the climate disclosure requirements, it will be necessary to assess the requirements’ foreseeable impact on companies and identify effective responses.

Details regarding global and domestic climate-related disclosure trends are delineated below.

Global Climate-Related Disclosure Trends

ISSB’s IFRS S2 Climate-Related Disclosure Standards

The ISSB’s IFRS S2 climate-related disclosure standards, announced on June 26, 2023, took effect on January 1, 2024, with a one-year grace period for implementation. The standards require the reporting of Scope 1 and 2 greenhouse gas emissions, as well as climate-related indicators and targets. The ISSB has also recommended that Scope 3 emissions be included in the disclosure requirements when countries establish their climate disclosure regulations.

Scope 1 emissions: “Direct emissions” of greenhouse gases emitted during the production stage of products.
Scope 2 emissions: “Indirect emissions from owned assets,” referring to greenhouse gases emitted during the production of energy used by a company.
Scope 3 emissions: “Indirect emissions excluding emissions from owned assets,” referring to greenhouse gases emitted throughout a company’s value chain.

Full-Scale Implementation of EU’s CSRD

The EU’s CSRD aims to elevate the standard for sustainability reporting to the same level as that of financial reporting. The CSRD has been implemented in phases starting from the 2024 fiscal year, with disclosures required in 2025. From the 2025 fiscal year, it is also set to be applied to local subsidiaries of non-EU companies, meaning that Korean companies with local subsidiaries in the EU will have to directly comply with the reporting obligations under the CSRD. Furthermore, from the 2028 fiscal year, the reporting obligations will be extended to non-EU controlling companies generating revenues that exceed certain thresholds within the EU.

When the applicable companies fulfill their reporting obligations under the CSRD, they should follow the European Sustainability Reporting Standards (the “ESRS”), wherein the first reporting topic related to the “Environment (E)” is specifically the ESRS E1, which addresses climate change reporting standards.

However, on April 3, 2025, the European Parliament endorsed the EU Council’s schedule adjustment (commonly known as the “Stop-the-Clock” adjustment) to postpone the application of the CSRD by two years for unlisted large companies and listed SMEs. The European Parliament also plans to take further legislative measures to simplify CSRD regulations. Therefore, it will be necessary to take into account future legislative developments regarding the CSRD.

US SEC’s Climate Disclosure Rules

The US SEC’s Climate Disclosure Rules were finalized on March 6, 2024 (the “SEC Rules”), but due to recent political changes, their enforcement remains uncertain. According to the original plan, the SEC Rules were set to be implemented in phases, starting from the 2025 fiscal year, based on company size. Korean companies that are publicly traded in the US (currently ten companies) would have been subject to the reporting obligations under the SEC Rules. Also, while not legally mandated, US-listed companies would have had the option to voluntarily disclose Scope 3 emissions, which could indirectly impact Korean companies included in their supply chains.

However, with the inauguration of President Donald Trump’s second term in 2025, the SEC’s policy direction changed sharply. The newly appointed SEC Chair requested the federal appeals court to temporarily halt all legal procedures related to the SEC’s climate disclosure regulation. The Trump administration also issued an executive order to delay the enforcement of the SEC Rules. Therefore, as the SEC Rules are undergoing a review process, their implementation may be delayed, significantly scaled down, or even abolished, making it critical for companies to closely follow related developments in the US going forward.

Climate Disclosure Trends in Korea

Financial Services Commission’s “Sustainability Disclosure Standards”

The Financial Services Commission of Korea has been in the process of establishing domestic “sustainability disclosure standards” that ensure consistency with international disclosure standards through the Korea Sustainability Standards Board (the “KSSB”). On April 30, 2024, the KSSB announced their draft standards and accepted public comments until August 31, 2024. According to public feedback, a significant number of companies appear to agree with the necessity of mandatory climate disclosures, but concerns regarding the inclusion of Scope 3 emissions and the timing of implementation were also expressed.

Currently, these “sustainability disclosure standards” are scheduled to be implemented “after 2026.” The exact timing and details will be determined after consideration of changing situations in other major countries. However, the implementation timeline could be accelerated if the proposed amendment to the Financial Investment Services and Capital Markets Act (the “FSCMA”), which mandates ESG disclosure, is passed by the National Assembly. On the other hand, it is also possible that a more cautious approach to implementation is adopted, particularly in light of recent trends in the US.

If a company fails to fulfill its climate disclosure obligations, or does so inaccurately, it may face sanctions including criminal penalties, administrative measures, administrative fines and penalties imposed by stock exchanges, if found in violation of securities laws of relevant countries.

Additionally, if a company provides false or exaggerated climate-related information, or omits significant details in its disclosures, greenwashing issues may arise, potentially leading to lawsuits and complaints from key stakeholders such as shareholders, investors and Non-Governmental Organizations (“NGOs”). Furthermore, it is important to note that there is a growing tendency to hold individual directors personally liable for failing to uphold their duty of good faith in corporate decision-making concerning climate change.

Climate disclosure requirements may provide new opportunities for well-prepared companies. At a globally critical juncture, where global climate disclosure systems are becoming increasingly prevalent, companies should consider the following strategies:

Impact analysis of global disclosure standards: It will be essential to monitor major international disclosure standards, including the IFRS S2, CSRD and SEC Rules, and to analyze the impact of each standard on companies.
Establishment of a system for the collection and verification of information subject to disclosure: Implementing a system, such as an IT system, that determines the scope of information required to meet each disclosure standard and establishes a method of information collection and verification, will be essential.
Supply chain risk management: It will be essential to build a system capable of analyzing indirect regulatory impacts, as well as securing data related to Scope 3 emissions and effects on biodiversity from business partners.
Transparent disclosure and credibility assurance: Applying external green standards that promote public confidence when determining eco-friendliness will be necessary to reduce the risks of greenwashing. Companies can enhance competiveness by establishing internal control procedures to ensure the accuracy of disclosed data.

In addition to responding directly to the climate disclosure systems applicable to companies, it will also be crucial to evaluate whether necessary strategies are properly established and applied from a supply chain perspective, including those at subsidiaries and major suppliers. This evaluation is essential to effectively respond to the changing business environment and strengthen competitiveness.

^[1] If the US SEC’s Climate Disclosure Rules are implemented as originally intended. Please note that under President Donald Trump’s second administration, all legal proceedings related to their implementation have been temporarily suspended.

[Korean Version]

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