ESG disclosures in Korea will be mandatory for companies with more than 2 trillion won in assets starting in 2025, but even large companies are still struggling to prepare.
The Korea Chamber of Commerce and Industry (KCCI) surveyed ESG executives from 100 Korean companies -- 59 large companies and 41 mid-sized companies -- on July 7-14 for their opinions on the Korean ESG disclosure system. The survey found that 56.0 percent of them said that it is appropriate to postpone the mandatory ESG disclosure schedule for at least one year and set a liability exemption period for a certain period of time (2-3 years).
The exemption period sets companies free from responsibility for ESG disclosures for a period of time until clear standards for measuring and verifying emissions are established.
Among the respondents, 27.0 percent said that it will be appropriate to make it obligatory for companies with more than 2 trillion won in assets to implement ESG disclosures beginning from 2025 and other listed companies beginning from 2030 and exclude KOSDAQ companies, while only 14.0 percent answered that the system should be moved up to 2027 for companies with more than 1 trillion won in assets and include KOSDAQ companies with more than 500 billion won in assets.
The majority of companies (88.0 percent) recognized that ESG disclosures are important. The two biggest reasons for ESG disclosures include providing important information to stakeholders (46.6 percent) and identifying risk and opportunity factors for investment decisions (30.7 percent).
Currently, 53.0 percent of the companies implement ESG disclosures on their own, 26.0 percent are in the process of preparing for them, and 21.0 percent are not preparing at all. Current voluntary ESG disclosures represented by sustainability reports differ from mandatory disclosures in that companies are free to choose which items are disclosed and do not take responsibility for disclosed information.
Preparations for ESG disclosures were found to be insufficient. Of the companies currently making voluntary ESG disclosures, 90.6 percent reported that they are utilizing external professional organizations, while only 9.4 percent are making disclosures using only internal personnel. Only 14.0 percent of the companies have their own computerized ESG systems for disclosures.
Companies investing between 100 million won and less than 200 million won in ESG disclosures took the lion’s share of 50.9 percent, while 28.3 percent spend more than 200 million won.
With reference to SCOPE 3 greenhouse gas emissions, many companies pointed out a lack of resources. Nearly half (44.0 percent) of the respondents do not disclose their SCOPE 3 emissions, with 32.0 percent currently disclosing them and 24.0 percent preparing to disclose them.
More than half (61.0 percent) of the companies in the survey suggested that the overall timeline should be delayed. Large companies in particular emphasized that SCOPE 3 disclosures is a real challenge even for large companies. 30.0 percent of the respondents said that all items should be mandatory starting from 2027, while 8.0 percent said that they should start with two or three items that are not burdensome and then gradually expand disclosures.
While experts predict that a domestic ESG disclosure system will be established based on the ISSB disclosure standards in Korea, 74.0 percent of the respondents said they would like to ease burdens on companies by adapting to domestic conditions rather than fully adopting the ISSB standards. Only 26.0 percent of the respondents insisted that the ISSB standards be fully adopted for listed companies.
The companies expressed a great deal of concerns about consolidated disclosures that include all ESG information, including subsidiaries. A total of 77.0 percent of the respondents said that only individual company information should be disclosed and that the expansion of such information disclosures should be considered later. This was much higher than the number of the respondents (22.0 percent) who insisted that all subsidiaries should be included. A full 65.0 percent of the respondents said that companies should be allowed to create climate risk scenarios included in the ISSB disclosure standards.
Fully 63.0 percent of the companies in the survey cited difficulties in measuring and aggregating data from their partners and subcontractors and 60.0 percent of them a lack of specific detailed guidelines as the most common challenges for their ESG disclosures. This was followed by a lack of internal experts (52.0 percent), cost burdens from using external experts (46.0 percent), and a lack of IT and specialized systems for disclosure (37.0 percent).
“Mandatory ESG disclosures is a policy that should be promoted to boost the global competitiveness of Korean companies,” said Woo Tae-hee, vice chairman of the KCCI. “However, in order for ESG disclosure to lead to Korean companies’ sustainable growth rather than regulations impeding their sustainable growth, a sufficient grace period should be given and clear and simple standards should be provided.”