KLRI : KOREA LEGISLATION RESEARCH INSTITUTE

Ⅰ. Backgrounds and Purposes

○ The purpose of a company is newly defined to include responsibilities to all stakeholders beyond the pursuit of profit.

○ In line with this, the role of companies has evolved from a passive role of social responsibility to an active role that creates social value.

○ Recent corporate activities are responding to the demands of the times for social value creation by introducing E.S.G. management that pursues environmental, social, and transparent governance.

○ The basic premise of E.S.G. is compliance. In addition to complying with laws and regulations, the company must also comply with regulations such as codes of conduct, and manage risks as well.

○ To ensure that compliance (compliance with laws) can function effectively and effectively, it is intended to identify institutional and practical issues, suggest improvement measures, and introduce legal trends in major countries and provide them as legal data.

○ It is expected that the company's E.S.G. management will take a step forward by activating the compliance system that supports corporate compliance and ethical management.

 

Ⅱ. Major Contents 

▶ Governance and compliance for E.S.G. management

○ Recently, corporate risk has appeared in various forms in a wide range of areas that go beyond the level of internal control. In order to reduce and control corporate risk, it is important for investors to determine whether the company is operating correctly based on the basic premise of compliance in the best decision-making process. Will have to look more carefully.

○ Recent statistics show that Korea is ranked 8th out of 11 countries in terms of governance level compared to other Asian countries.

○ Compliance is becoming more and more complicated as there are laws regulating risk risk in each area.

- As for the actual operation status, the appointment of compliance officers and compliance officers has gradually increased since the introduction of the compliance system, but it is evaluated that they do not perform active functions.

- There are various reasons, such as ineffectiveness, excessive operating costs, and no penalties.

- Despite this reality, the need for infrastructure expansion and effective operation for E.S.G. policies is further emphasized.

▶ Major Compliance Issues

○ After reviewing the legal issues of compliance, the amendments to the Commercial Act, Financial-Related Act, and Fair Trade Act submitted to the 21st National Assembly include many compliance-related matters. Although effective legislative improvement is being promoted by suggesting management obligations, there are also criticisms that sophistication is required in terms of effectiveness.

○ In the practical aspect of compliance, it is necessary to improve the governance structure so that working-level employees can perform their work independently, as there are many cases where working-level personnel must pay attention to the management. At the same time, it is the common opinion of practitioners that it is necessary to establish a system to respond well to the changes in the corporate environment that require E.S.G. management on the basis of compliance.

▶ Trends in compliance-related laws in major countries

○ By examining the relevant laws and regulations of the United States, which is the origin of compliance, and briefly introducing the compliance laws of Australia and Singapore, which are dominant countries in the governance structure in Asia, it is intended to derive parts that can be referenced from each introduced legislation or system.

○ In addition, by reviewing ISO and World Bank guidelines and programs, global standards related to compliance are reviewed.

▶ Measures to improve the compliance system

○ In order to strengthen effectiveness in the institutional aspect, incentives should be given to companies with good compliance and disciplinary action should be taken against companies that are not sincere.

○ Practitioners in charge of compliance work hope to present clear standards and various incentives for each industry (compliance is appropriate for the size of the scale, and various incentives are presented to simplify the procedure for venture companies' funding participation, ease the capital, etc.)

Ⅲ. Expected Outcomes

○ Securing the effectiveness of the compliance system.

- Find ways to reduce the burden on companies by enhancing the coherence between various compliance systems and to pursue synergy between each system.

- Search for ways to improve compliance effectiveness through analysis of overseas legal trends, and support for legalization of E.S.G. Supporting management to move forward.

○ E.S.G. Creating social value through strategy.

- As interest in E.S.G. is growing worldwide and E.S.G. is highly likely to be highlighted as a major factor in the future national credit rating evaluation, it is provided as basic data for improving the relevant legal system for ethical and responsible management of companies.