The South Korean government has finalized a roadmap for mandatory sustainability (ESG) disclosures after more than five years of discussions. The scope of the requirements has been significantly expanded, and the implementation method will shift from exchange disclosures to legal disclosures in business reports, accelerating the introduction of the system. To alleviate corporate burdens, measures such as a three-year exemption and a delay for Scope 3 disclosures have also been established. However, there are concerns that large companies required to disclose information may still face significant challenges.
On July 8, the Financial Services Commission announced the final plan for the 'Institutionalization of Sustainability Disclosure' following a government meeting. The government explained that the direction of this plan has shifted from a strategy of waiting until disclosure conditions mature to a strategy of proactively leading disclosures. The aim is to provide timely information necessary for global institutional investors' investment decisions and to enhance corporate responses to climate and energy risks.
The most significant change is the expansion of the disclosure target. ESG disclosures will begin in 2028 with KOSPI-listed companies that have consolidated assets of over 10 trillion won, expanding to companies with over 5 trillion won in 2029. After evaluating the operational performance for 2028-2029, a decision will be made in 2030 regarding whether to include companies with consolidated assets of over 2 trillion won.
The scope of application has been significantly broadened compared to the proposal from February. Initially, the plan was to start with companies having consolidated assets of over 30 trillion won in 2028 and then expand to those with over 10 trillion won. However, the final plan lowers the initial target to 10 trillion won. The Financial Services Commission noted that this change reflects feedback from global institutional investors who indicated that a significant number of KOSPI 200 companies should be included in the disclosure requirements.
As a result, the number of companies subject to disclosure is expected to increase to 107 in 2028, 157 in 2029, and 259 in 2030. The number of major subsidiaries included in the disclosure scope is projected to rise from 184 to 3,014, reaching 3,490.
The method of disclosure has also changed. The initial draft proposed implementing mandatory disclosures through exchanges before transitioning to legal disclosures in business reports after a certain period. However, the final plan will apply business report disclosures under the Capital Markets Act immediately starting in 2028. This decision aims to enhance the timeliness and usability of information by ensuring disclosures occur through the same channels and timelines as financial statements.
With the shift to legal disclosures, a safe harbor provision will be introduced to ease corporate burdens. For the first three years of implementation, companies will be temporarily exempt from liability for damages, administrative sanctions, and criminal responsibility related to disclosure information. However, intentional greenwashing will be excluded from this exemption. A safe harbor provision will apply to forward-looking and estimated information, as well as third-party information that cannot be controlled, provided that companies disclose it in good faith based on reasonable grounds and assumptions.
The disclosure of Scope 3 emissions, which poses a significant burden on companies, will be delayed by three years as per the existing plan. Consequently, companies with consolidated assets of over 10 trillion won will be subject to this requirement starting in 2031, while those with over 5 trillion won will follow in 2032. The government explained that this measure considers the difficulty of obtaining data from partner companies in the domestic industrial structure, which is primarily manufacturing-based.
Before the implementation of the system, the government will establish a joint support system among relevant ministries. A pilot test involving the Korea Accounting Standards Board and representatives from major industries will be conducted to accumulate disclosure cases, and a Korean-style climate risk integrated platform is planned for 2028. The Ministry of Environment will prepare guidelines for calculating Scope 3 emissions for 15 major export industries, while the Ministry of Trade, Industry and Energy will develop an industrial supply chain ESG platform that allows multiple companies to utilize ESG information inputted by partner companies.
Further procedures remain. The Financial Services Commission plans to prepare an amendment to the Capital Markets Act, which includes mandatory disclosures and the introduction of third-party certification, aiming for passage in the National Assembly within the year. Third-party certification for the reliability of disclosure information is expected to become mandatory starting in 2030. The specifics regarding the format and content of disclosures in business reports, the qualifications of certification agencies, and the scope and level of certification will be gradually detailed through discussions involving the Financial Supervisory Service, relevant ministries, and private experts.
* This article has been translated by AI.
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