Financial Services Commission and Korea Accounting Standards Board Prepare Korean Opinions for Establishing ESG Disclosure Standards

[Asia Economy Reporter Lee Jung-yoon] Regarding the International Sustainability Standards Board (ISSB) global ESG (Environmental, Social, and Governance) disclosure standards development and the public consultation on the IFRS (International Financial Reporting Standards) sustainability disclosure standards exposure drafts, the Financial Services Commission and the Korean Accounting Standards Board have prepared Korea's position.

According to the Financial Services Commission on the 26th, the opinion letter included the need to increase flexibility in applying the standards by addressing corporate burden factors in terms of timing, location (channel), scope of information provision, and the timing of the standards' enforcement, as well as providing specific guidelines and examples, easing disclosure requirements, and granting sufficient preparation periods.

The main points included an opinion that, regarding the materiality assessment of IFRS S1 general requirements, sustainability-related information, which is mainly qualitative, differs from financial information in that it is difficult to apply quantitative judgment criteria; therefore, specific and detailed explanations need to be provided.

Regarding disclosures on the current and expected effects on financial statements and business models, it was suggested that companies be given sufficient preparation time and that specific guidelines and examples be provided. Reporting companies should be allowed a grace period at initial application to apply the standards gradually or have exceptions that allow flexible application by country.

For reporting frequency, it was proposed to relax the standards to "reporting within a certain period" and to encourage simultaneous reporting through national policies. For the location of information, it was suggested that companies be allowed to choose between general purpose financial reporting or separate formats.

Regarding IFRS S2 climate-related disclosures on climate resilience, it was proposed to provide more detailed guidelines and examples on how to perform assessments and to consider additional guidance to reduce practical burdens.

Regarding industry-wide indicators, since disclosing Scope 3 emissions imposes a significant burden on companies, further review is necessary, and an industry-specific approach was proposed. Scope 3 includes indirect carbon emissions throughout the value chain, such as supply chains and the use and disposal of sold products.

For industry-based indicators, opinions were also provided on financial asset portfolio emissions, which are emissions caused by financial institutions' loans and investments in investee companies. Since there is no single optimal methodology, it was suggested that more detailed information be disclosed to enhance the usefulness and comparability of the information.

Additionally, regarding the effective dates common to IFRS S1 general requirements and IFRS S2 climate-related disclosures, it was proposed that sufficient preparation time is necessary due to the need for companies to build disclosure systems and for the improvement of national disclosure environments.

Earlier, on March 31, ISSB announced exposure drafts for IFRS S1 general requirements and IFRS S2 climate-related disclosures. ISSB is collecting feedback from global stakeholders until July 29 and plans to announce the final standards for these two standards by the end of this year after review.

Accordingly, before submitting Korea's opinions to ISSB, the Financial Services Commission and the Korean Accounting Standards Board conducted a public consultation process. The Sustainability Disclosure Standards Advisory Committee discussed the domestic business environment, corporate acceptability, and information usefulness related to the exposure drafts. In addition, opinions from related ministries such as the Ministry of Trade, Industry and Energy and the Ministry of Environment were collected, and a joint meeting was held to establish the government's position. External stakeholders also submitted opinions through public channels such as the Korean Accounting Standards Board website.

A Financial Services Commission official stated, "We will continue to participate in global discussions on sustainability disclosures through supporting Korean members of ISSB, international cooperation with ISSB, and participation in SSAF, ISSB's official advisory body. We will prepare measures to improve the ESG disclosure system by comprehensively considering ISSB's final disclosure standards, trends in major overseas countries, and opinions from domestic stakeholders including the industry."

He added, "Our companies also need to steadily build ESG management and disclosure capabilities to smoothly adapt to the global standards development and regulatory strengthening movements, and the government will continue to support this."