KLRI : KOREA LEGISLATION RESEARCH INSTITUTE

I. Background and Purpose

▶ The background of the study

○ The financial crisis, environmental pollution, climate change, and the COVID-19 pandemic have intensified the gap between the rich and the poor, social conflict and inequality around the world, and "sustainable finance" has been highlighted as an attempt to solve the problem by adjusting capital flows.

○ Investors, businesses, and policymakers have come to recognize the need to make investment decisions based on sustainable economic activity information, and in addition to the existing eco-friendly economic activity classification system, Green Taxonomy, calls for social taxonomy to be established as a criteria for determining social contributions.

▶ The purpose of the study

○ The European Union's ESG regulatory framework is expected to affect domestic ESG regulations if even Korean companies are included in the EU supply chain.

○ Discussions are underway to expand and materialize the taxonomy   category to the social domain. In order to pay attention to changes in regulations aimed at socially sustainable finance, and to use them as an opportunity to strengthen competitiveness, I would like to identify the main contents of the proposed social classification system, draw implications, and suggest our social classification system.

 

II. Main contents

▶ History and Operation System of EU Social Taxonomies

○ The UN seeks to achieve UN SDGs by addressing urgent social issues such as economic inequality, racism, gender discrimination, worker rights and public health issues through the 2030 Agenda and the 'Sustainable Development Goals (SDGs).

○ It is essential to increase the inflow of capital through sustainable investment, and the establishment of an EU taxonomy was proposed as one of the EU's Action Plan on Financing Sustainable Growth in 2018

   - A common definition and measurement of what is sustainable when an investor makes an investment decision, the 'social taxonomy' is a criterion for identifying items that can be considered socially 'sustainable'.

○ International agreements, principles, and guidelines of the UN, OECD, and ILO dealing with human rights and workers' rights served as the basis for establishing a social classification system, from which various social topics were extracted.

○ It is also intended to reduce the administrative and cost burden by expanding the scope of the existing taxonomi regulations to the social area and establishing a social taxonomi system according to the structure of the green taxonomi so that market participants can easily accept the social classification system.

▶ EU Social Taxonomy Key Content

○ The 'social classification system' proposes expanding the existing classification system focused on the environment to other social areas, including human rights, and aims to prevent social washing by classifying socially sustainable economic activities and to promote investment in economic activities that actually contribute to achieving social goals.

○ Establish three social objectives that connect with different stakeholders (workers, end users, communities and societies) affected by business activities, and positively contribute to stakeholder life and economic activities by relating various detailed objectives to each bottom.

  - Ensuring quality jobs: Creating quality jobs, prohibiting equality and discrimination in the workplace, guaranteeing human rights of workers in the value chain, respecting rights, etc.

  - Adequate living standards and welfare: Prevention of health or safety risks and meeting basic human needs.

  - Inclusive and sustainable communities and societies: equality and inclusive growth, land rights, indigenous rights, respect for community rights

○ The social classification system aims to gradually veryfy "setting social goals → classifying the types of 'substantial contributions' to achieving goals → applying 'do no significant harms' criteria to other goals → applying minimum safety standards such as international norms“

  - Unlike science-based Green Taxonomy, social taxonomies will focus on qualitative indicators, but will be able to derive quantitative standards from internationally agreed norms.

○ Judgment on socially sustainable activities or harmful activities is established at the national level, so it can vary from country to country and heal various disputes. In order for the social classification system to work effectively, the criteria for 'substantial contribution' and 'do no significant harms' must be developed in more detail.

 

III. Expected Effects

○ The EU Social Taxonomy (classification system) targets areas with complex social and economic relationships, and due to differences in    geographical and political situations, the current discussion is in the process of establishing a classification system, setting principles, and discussing detailed standards in the future.

○ By referring to the proposed EU social taxonomic goals and sub-goals, we categorize our legal sector that matches them, and illustrate related laws. Inductive extraction of social goals and sub-goals from these laws will be a meaningful work to establish the framework of domestic social taxonomies. Concrete work such as establishing goals and sub-goals for each stakeholder, developing related cases, and preparing detailed standards will be left as tasks for follow-up research.