In Korea and other countries, ESG disclosures are shifting from voluntary initiatives to mandatory initiatives.
 
Internationally, the final versions of the IFRS S1 and IFRS S2 – the sustainability disclosure standards that the International Sustainability Standards Board (the “ISSB”) under the International Financial Reporting Standards (the “IFRS”) announced in June 2023 – will take effect starting from January 1, 2024. The Corporate Sustainability Reporting Directive (the “CSRD”) that the European Commission announced will begin applying to companies, in phases, starting from the fiscal year following January 1, 2024.
 
In Korea, the Government is considering a phased expansion of the mandatory ESG disclosure systems as follows:
 

• Corporate Governance Report Disclosure System: As of 2023, companies listed on the KOSPI Market with total assets of KRW 1 trillion or more (based on their consolidated financial statements) have an obligation to disclose a corporate governance report (Article 24-2 of the KOSPI Market Disclosure Regulations). The scope of companies subject to such obligation will be expanded to (i) companies listed on the KOSPI Market with total assets of KRW 500 billion or more in 2024, and (ii) any other companies listed on the KOSPI Market in 2026.

• ESG Information Disclosure System: The Financial Services Commission (the “FSC”) has been seeking to make ESG information disclosure mandatory for listed companies of a certain size or larger starting from 2026, ultimately expanding the scope of such ESG information disclosure to all listed companies on the KOSPI Market. To this end, the Government is in the process of preparing draft Korean ESG disclosure standards that are in line with global ESG disclosure standards through discussions with the Korea Sustainability Standards Board (the “KSSB”) that is under the Korea Accounting Standards Board.
   

As the mandatory disclosure/standardization of ESG-related information and environmental information with regard to supply chain has become clearly apparent, it is ever more necessary to establish a circular system, under which information about a company’s ESG activities can be collected, verified (in a way that is in compliance with domestic and overseas ESG disclosure standards), and disclosed to the public so that investors can consider such information in making investment decisions. In an effort to establish this corporate information disclosure platform, the Ministry of Environment (the “MOE”) is seeking to amend the system for preparation and disclosure of environmental information (the “Environmental Information Disclosure System”) – which was established pursuant to Article 16-8 of the Environmental Technology and Industry Support Act (the “Environmental Technology Industry Act”) – in a way that enhances consistency with global ESG disclosure standards. Information to be prepared and disclosed by companies through the Environmental Information Disclosure System will serve as basic information for companies to utilize when complying with domestic and global ESG disclosure standards (which includes disclosure of environmental information regarding the supply chain). Therefore, in response to the expected amendment to the Environmental Information Disclosure System, companies need to establish a system in advance for collecting and verifying environmental information that meets the domestic and global disclosure standards and which will allow companies to prepare and disclose information that is reliable and easy to compare.

Details of the major amendments to the Environmental Information Disclosure System are as follows:
 

Reflecting the opinion that the current list of items to be prepared and disclosed includes a large amount of information that is not critically important for investment and places a heavy burden on companies, the Government is pursuing an amendment plan that mandates essential items but excludes or integrates non-essential information into a broader category. The examples are as follows:
 

• Required items: carbon emissions, renewable energy consumption, etc.

• Items to be excluded or integrated: Awards/agreements related to the environment, investment and introduction of technology to reduce environmental pollution, monitoring and management of environmental pollution management facilities, environmental technology/education, publication of environmental (sustainability) reports, response to requests for environmental information from stakeholders, etc.
   

Meanwhile, considering the importance of each item in international environmental regulations, global disclosure schedules, and the preparation level of companies, the Government is also seeking to (i) introduce new items, (ii) clarify the standards for some of the existing items, and (iii) allow certain items that are difficult to prepare or verify to be disclosed in phases.
 

• Items to be newly introduced: Items to be newly introduced include the following: (i) credits earned from reduction of greenhouse gases through external projects, (ii) use ratio and recycling rate of plastic recycled materials, (iii) the current status of places of business owned or leased in areas that are of high sensitivity to biodiversity, and (iv) the amount of circular materials used. However, the Government is considering granting a grace period for items that are somewhat new to companies.

• Advanced items: Advanced items include the following: (i) Scope three greenhouse gas emissions, and (ii) performance indicators related to the K-Taxonomy. The Government is considering clarifying the standards for pre-existing items or allowing companies to disclose information on a gradual basis for items where preparation/verification is difficult.
   

In addition, the mandatory items to be prepared/disclosed will be differentiated in consideration of the size of the company that is required to prepare/disclose information. For example, the Government is pursuing amendments that would minimize the number of mandatory items for unlisted companies and allow such companies to choose whether they would be subject to new items.
 

On October 30, 2023, the MOE held a public hearing regarding the amendment to the Environmental Information Disclosure System. Various groups participated in this hearing, including companies and institutions subject to disclosure requirements under the Environmental Technology Industry Act, investment/appraisal companies, financial institutions, experts, and civic groups. After reviewing various opinions gathered through the public hearing, the MOE plans to prepare a final amendment plan by the end of 2023.
 
As this is linked to the environmental portion of the ESG Information Disclosure System to be announced next year, companies should closely review details of the amendments to the Environmental Information Disclosure System as well as detailed guidelines to be published. Companies are also advised to proactively respond to environmental regulations in Korea and abroad – for example, by establishing a system to collect and verify ESG information that is in compliance with the domestic and global disclosure standards.

[Korean Version]