[Asking About the Future of the Korean Capital Market] ESG Disclosure... Global Trend vs Significant Burden on Korean Companies

③-⑵Financial Authorities Push for Mandatory ESG Disclosures
Business Community Concerns Over Disclosure Scope and Litigation Risks
Financial Investment Industry Sees Opportunity to Increase Korean Investment Share

Editor's NoteAt the beginning of this year, financial authorities focused their policy efforts on enhancing corporate value by promoting the 'Corporate Value-Up Program' to resolve the domestic stock market undervaluation phenomenon (Korea Discount). After the Value-Up Program was unveiled in May, the domestic stock market saw a brief rise centered on beneficiary stocks, but it peaked in July and has been on a downward trend since. Following the U.S. presidential election, uncertainties surrounding the second Trump administration's policies and concerns over the deterioration of the Korean economy due to strong dollar pressures have led to a precarious situation, including the collapse of the KOSPI 2400 level. As concerns over foreign exchange losses due to the high exchange rate intensified, the outflow of foreign investors has accelerated. Asia Economy conducted a relay interview with overseas institutions to explore what changes are necessary for foreign investment funds to flow into Korea. Through this, we seek solutions to expand foreign investors' inflow into the Korean market and examine policy tasks that need to be addressed.

Experts say that regarding the ESG (Environmental, Social, and Governance) disclosure system scheduled to be implemented after 2026, the level of information disclosure and the introduction schedule should be differentiated according to company size and industry characteristics. However, opinions differ between the financial investment sector and the business community on the necessity of introducing ESG disclosures. The financial investment sector views ESG disclosure as a means to enhance the transparency of Korean companies and as an opportunity for global investors to increase their investment proportion in Korea. In contrast, the business community expresses reluctance due to the considerable costs and time required to build the infrastructure for ESG disclosure and concerns over litigation risks.

Kim So-young, Vice Chairman of the Financial Services Commission, is delivering opening remarks at the "Domestic ESG Disclosure Standards On-site Meeting" held on the 14th at the Korea Chamber of Commerce and Industry in Jung-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

The Financial Services Commission announced in October last year that the mandatory timing for ESG disclosure would be postponed to after 2026, considering the ESG disclosure schedules of major countries, with the specific timing to be decided later through consultations with relevant ministries. A draft disclosure standard was released last April, and the Financial Services Commission collected opinions from stakeholders including the business community and investors. As a result of gathering opinions, most companies agreed on the necessity of climate disclosure but expressed concerns about the scope of disclosure targets, greenhouse gas emissions, disclosure burdens, and the possibility of lawsuits after disclosure.

Kim Chun, Head of Policy at the Korea Listed Companies Association, said, "Value-up disclosures are currently not mandatory. ESG disclosures are more challenging and mandatory," adding, "Mandatory disclosures can lead to administrative sanctions and criminal penalties. The burden on companies cannot be taken lightly." He continued, "There are fundamental aspects such as data reliability that companies cannot handle, and since ESG disclosures may vary by industry, it is expected that system construction will take at least three years."

Yoon Cheol-min, Head of ESG Management at the Korea Chamber of Commerce and Industry, also pointed out, "For large companies, it is difficult to control data from small and medium-sized partner companies, and there is also litigation risk," adding, "Before mandatory implementation, clear standards on disclosure content, criteria, and timing must be established so that corporate practitioners can work accordingly."

Contrary to the business community's concerns, the financial investment sector expressed that the introduction of ESG disclosure aligns with global trends and helps attract investment. Sagong Chang-han, Head of Schroder Investment Management, emphasized, "The development of disclosure systems can lead global investors to highly evaluate the transparency of Korean companies and increase their investment proportion in Korea."

Lee Young-jin, Director at S&P Global, stated, "It is necessary to properly communicate ESG performance to global investors and secure trust through this," adding, "Also, if companies disclose the expected range of financial losses due to climate risks, it can be very important information for investors." He further noted, "So far, information on small and medium-sized enterprises has been insufficient, but this expanded disclosure will provide more ESG information of Korean companies to domestic and foreign investors."

There were also opinions that when introducing ESG disclosure, detailed content and standards should be prepared reflecting industry-specific characteristics. Director Lee said, "Instead of applying the same evaluation criteria to all companies, indicators should be created reflecting the special conditions of industries such as manufacturing and services," emphasizing, "Only then can the ESG disclosure system serve as a guideline for companies' sustainable growth and provide data that helps investors' decision-making."

The Korea Exchange plans to do its best to support the system's establishment. A Korea Exchange official said, "We will strive to build market infrastructure so that companies can smoothly fulfill their obligations and investors can utilize disclosure information, and we will work to activate voluntary sustainability report disclosures before mandatory disclosure is introduced," adding, "We will analyze and provide ESG disclosure cases from major European countries and discover cases such as greenhouse gas emissions that other companies can refer to, and prepare industry-specific disclosure guidelines in the future."