south Korea

A. ESG Reporting

1. Are there legal or regulatory requirements for companies to make ESG disclosures in your jurisdiction?

There is a voluntary disclosure regulation on the publication of sustainability reports by listed companies. Under Article 8, Paragraph 7(e) of the Enforcement Rules of KOSPI Market Disclosure Rules of the Korea Exchange (KRX), sustainability reports are included as voluntary disclosure items. Accordingly, listed companies are currently publishing sustainability reports voluntarily. In 2021, KRX released the “ESG Disclosure Guidelines” to encourage companies to voluntarily disclose ESG information.

Korea Composite Stock Price Index (KOSPI) constituents are required to issue corporate governance reports covering 10 core principles of corporate governance.

2. What are the key legislative and regulatory sources for ESG disclosure requirements and to whom do they apply?

As major economies enhance their ESG disclosure requirements, the South Korean government is also developing disclosure requirements to assist domestic companies in complying with the escalating global ESG standards.

Although the announcement of details of the ESG disclosure system and the timeline for its introduction have been delayed, the Korea Sustainability Standards Board (KSSB) released draft ESG disclosure standards (KSSB Disclosure Standards) in April 2024. The final KSSB Disclosure Standards will be released by the end of the year and are expected to be implemented after 2026.

3. Are the requirements mandatory or do they apply on a comply-or-explain basis?

The corporate governance report mentioned above adopts a comply-or-explain approach. Other than this, there are currently no ESG-related disclosure requirements that apply on a mandatory or comply-or-explain basis.

4. Which aspects of ESG do the requirements focus upon?

The “ESG Disclosure Guidelines” released by KRX require disclosure of environmental, social and governance aspects.

The draft KSSB Disclosure Standards consist of three parts:

(a) No. 1 (General Requirements for Sustainability-related Financial Information Disclosures);

(b) No. 2 (Climate-related Disclosures); and

(c) No. 101 (Additional Disclosures for Policy Purposes).

The first two standards are mandatory for companies, while the third is optional. Under standard No. 2, companies are required to prioritize and disclose climate-related information among ESG factors.

Companies may select and disclose information about sustainability-related risks and opportunities other than climate-related information.

5. Are the disclosure requirements based on international standards? If so, which one(s)?

The “ESG Disclosure Guidelines” published by KRX summarize and provide companies with key ESG factors based on GRI.

The draft KSSB Disclosure Standards are based on IFRS S1 and S2 and have been modified to reflect the circumstances of domestic companies. The KSSB has stated that it established these disclosure standards to provide useful information to investors, considering international harmonization and acceptability to companies.

In addition, many companies voluntarily adopt a variety of international reporting standards, such as GRI, SASB, TCFD, and others.

6. How do the disclosure requirements approach materiality (e.g. single or double materiality)?

The draft KSSB Disclosure Standards are based on the ISSB Standards and therefore adopt a single materiality approach, requiring disclosure of information for investors.

The definition of “material information” in the KSSB Disclosure Standards is consistent with the definition in K-IFRS, the accounting standards aligned with IFRS by the Korea Accounting Standards Board. Accordingly, the KSSB Disclosure Standards state that information is material if omitting, misstating or obscuring that information could reasonably be expected to influence decisions that primary users of reports make on the basis of those reports.

7. Are there requirements for the disclosure of GHG emissions? If so, please specify the scope (e.g. Scope 1, Scope 2 and/or Scope 3), to whom they apply and whether there are requirements on the measurement methodology.

Given that sustainability reporting is currently voluntary, disclosure of GHG emissions is not mandatory.

Additionally, in accordance with Article 16, Paragraph 8 of the Development of and Support for Environmental Technology Act, all central administrative agencies, local governments, public institutions, national and public universities, local public corporations, regional public corporations, local medical centers, management companies under Article 27, Paragraph 1 of the Framework Act on Low Carbon, Green Growth, listed companies with total assets of KRW 2 trillion or more on a consolidated basis, and green companies (as designated by the Minister of Environment for their efforts in reducing pollutants, saving resources and energy, and improving environmental performance) are required to register and submit environmental information through the Environmental Information Disclosure System. The system categorizes disclosures into mandatory and voluntary topics, and disclosure of GHG emissions (Scope 1, 2, and 3) is voluntary. However, according to an announcement in October 2023, Scope 1 and 2 will become mandatory disclosures in the future, whilst Scope 3 will be phased in gradually. See expected enhancements to the system mentioned in section A.12 below.

8. Are there requirements to obtain independent assurance of any ESG disclosures? If so, what is the scope of such requirements? 

There are no national laws or regulations that directly require third-party verification or assurance of the content of ESG disclosures; however, most companies choose to pay for third-party assurance at their own expense.

9. For companies not subject to mandatory or comply-or-explain ESG reporting, are voluntary ESG disclosures customary?

Yes, many companies voluntarily disclose their ESG information using various global initiatives and guidelines (GRI, SASB, TCFD, etc.), and the number of companies publishing sustainability reports has increased significantly. According to the KRX ESG portal, 131 companies had published sustainability reports in 2022, and this number increased to 161 in 2023.

10. Has your jurisdiction issued or adopted a taxonomy on sustainable activities? Is it mandatory and what is its scope of application?

In April 2021, the Ministry of Environment established the Korean Green Taxonomy (K-taxonomy) under the Environmental Technology and Environmental Industry Support Act. In December 2021, the Ministry released the “The Korean Green Taxonomy (K-Taxonomy) Guideline”, which outlines principles and criteria for categorizing green economic activities within the K-taxonomy framework. Whilst this guideline is not legally binding, it sets out the standards for identifying green economic activities.

The guidelines were revised in December 2022, adding nuclear power and climate change adaptation-related economic activities to the list of green economic activities, and a detailed K-Taxonomy explanation document was released.

11. Are there plans to adopt or incorporate the ISSB’s IFRS S1 and/or S2 standards? If so, please indicate the extent of alignment, to what extent the standards will be mandatory, to whom they will apply and the timeline.

As mentioned above, the draft KSSB Disclosure Standards are based on IFRS S1 and S2 and are currently in draft form.

Regarding the scope and timeline, in January 2021, the Financial Services Commission announced plans to implement ESG disclosure requirements in a phased manner. Specifically, it stated that these requirements would apply to listed companies of a certain size (e.g., more than KRW 2 trillion in assets) starting in 2025, and to all listed companies on the KOSPI from 2030. However, in October 2023, mandatory ESG disclosure requirements under the KSSB Disclosure Standards were postponed to 2026 onward, and the asset size classification of applicable companies and the specific timing of the introduction will be determined later.

12. Other upcoming developments / direction of travel

(a) KSSB Disclosure Standards Exposure Draft Released (April 2024)

KSSB is currently conducting a consultation to collect opinions from various stakeholders till August 2024.

(b) Environmental Information Disclosure System Reorganization (scheduled to be released in October 2023, but has been delayed)

Key revisions include:

(i) changing the reporting entity from a site-by-site basis to a corporate entity to align with global ESG standards;

(ii) enhancing the provision of environmentally responsible investment information based on the K-taxonomy; and

(iii) mandatory disclosure of essential items such as GHG emissions (Scope 1 and 2 only; Scope 3 will be phased in), with non-core information excluded or consolidated.