South Korea’s ESG Regulations: What Companies Need to Know

South Korea has been progressively integrating Environmental, Social, and Governance (ESG) considerations into its corporate regulatory framework. This movement reflects a global trend towards sustainable and responsible business practices. For companies operating within South Korea, understanding the evolving ESG regulations is crucial for compliance and strategic planning.

1. Evolution of ESG Regulations in South Korea

The Financial Services Commission (FSC) has been at the forefront of introducing ESG disclosure requirements for listed companies. Initially, the FSC planned to implement mandatory ESG disclosures starting in 2025 for KOSPI-listed firms with assets exceeding 2 trillion won. However, in October 2023, the FSC announced a deferment of this mandate to 2026 or later, citing the need to align with global standards and provide companies ample preparation time.

In April 2024, the Korea Sustainability Standards Board (KSSB), under the Korea Accounting Standards Board, released draft sustainability disclosure standards. These standards emphasize the disclosure of climate-related information, focusing on governance, strategy, risk management, and metrics. Notably, while climate-related disclosures are mandatory, information on other sustainability aspects remains voluntary.

2. Key ESG Disclosure Requirements

The reformed Environmental Information Disclosure System, effective from January 1, 2024, mandates that listed companies with consolidated assets of at least 2 trillion won disclose:

• Greenhouse gas emissions (Scope 1 and Scope 2)
• Renewable energy consumption
• Use and recycling rates of plastic renewable materials
• Water usage in water-stressed areas

The Ministry of Environment is also considering expanding these requirements to include Scope 3 emissions and other environmental metrics in the future.

3. Legal Developments Impacting ESG

In a landmark decision in August 2024, South Korea’s Constitutional Court ruled that the nation’s climate change law failed to protect basic human rights due to the absence of specific emission reduction targets between 2031 and 2049. The court mandated revisions to the carbon neutrality act by February 2026, emphasizing the need for clearer and more actionable climate policies.

4. Sector-Specific ESG Considerations

• Energy Sector: The South Korean government announced plans to reduce subsidies for biomass energy, responding to criticisms linking biomass production to deforestation. Subsidies for certain state-owned plants co-firing coal and biomass are set to end within the year, with a complete phase-out for dedicated biomass plants by 2027.
• Automotive Industry: Following incidents of electric vehicle (EV) fires, the government is advancing an EV battery certification program to ensure safety. Automakers will be required to disclose battery brands used in their vehicles, and new safety regulations for EV charging stations are being implemented.

5. Preparing for ESG Compliance

Companies should proactively engage in the following to align with South Korea’s ESG regulations:

• Stay Informed: Regularly monitor updates from regulatory bodies such as the FSC and KSSB to stay abreast of evolving ESG requirements.
• Enhance Data Collection: Develop robust systems to gather and report data on greenhouse gas emissions, energy consumption, and other relevant ESG metrics.
• Integrate ESG into Corporate Strategy: Align business operations with ESG principles, focusing on sustainability and social responsibility to meet regulatory expectations and stakeholder demands.
• Engage Stakeholders: Communicate transparently with investors, customers, and other stakeholders about ESG initiatives and performance.