South Korea mandates climate disclosures from 2028, but Scope 3 delay sparks effectiveness concerns

South Korea is set to mandate climate-related sustainability (ESG) disclosures for its largest listed companies, beginning in 2028. Companies listed on the KOSPI with consolidated assets exceeding 10 trillion won (approximately $7.3 billion) will be required to report their climate-related risks and opportunities. This requirement will be lowered to companies with over 5 trillion won in assets in 2029, with a further review in 2030 to potentially include those with over 2 trillion won in assets.

The government and the Democratic Party announced the finalized plan for institutionalizing sustainability disclosures, focusing initially on the climate sector due to established international standards. The Financial Services Commission (FSC) had previously proposed different asset thresholds, but the current plan strengthens the requirements based on feedback from institutional investors who need more comprehensive data for diversified investments.

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Institutional investors need sufficient corporate information for diversified investments, but if the standard is set at over 30 trillion won, the number of対象 companies is only 57, which is insufficient.

A significant aspect of the new regulations is the direct integration of sustainability disclosures into the statutory business report under the Capital Markets Act, effective from 2028. This elevates the reporting from a stock exchange requirement to a legal obligation, carrying heavier penalties for false or omitted information, including potential civil liabilities, administrative sanctions, and criminal charges. However, to ease the transition, a three-year grace period will be provided for disclosures, excluding intentional greenwashing, exempting them from penalties under the Capital Markets Act.

Despite these advancements, concerns remain about the delayed mandatory disclosure of Scope 3 emissions. Scope 3 encompasses emissions from a company's entire value chain, including raw material sourcing, transportation, product use, and disposal. This information is considered crucial for assessing a company's overall carbon footprint and its transition risks. The current plan postpones mandatory Scope 3 disclosure for three years, pushing it to 2031 for companies with over 10 trillion won in assets, citing potential burdens on small and medium-sized suppliers. Environmental and civic groups argue that this delay weakens the effectiveness of the ESG system and urge for an earlier implementation, even with the existing 면책 (exemption) measures.

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Scope 3 is key information for gauging a company's total emissions and the risks involved in its carbon neutrality transition. Given that the exemption system has been established, there is a need to expedite the application of Scope 3.