Research Report
E.S.G. Legislative Basic Study (Ⅲ): How to Improve Domestic Legislation to Ensure Alignment with Global Sustainability Disclosure
I. Background and Purpose of Research
▶ On June 26, 2023, the International Sustainability Standards Board (ISSB) finally confirmed and announced the drafts of IFRS S1 'General Requirements' and IFRS S2 'Climate-related Disclosures.'
○ The approved indicators are limited to certain aspects of the environment (E), specifically Scope 1 (General Requirements) + Scope 2 (Climate Disclosures), and the announcement of the standards for Scope3, which extends to cooperative partner companies, has been postponed.
▶ As global E.S.G. disclosure standards are being established, focusing mainly on measurable areas within the environment (E) field, such as S1 + S2, there is a need to provide standards based on current law for companies to determine which information should be collected, analyzed, and disclosed in the context of E.S.G. disclosure.
○ The integration trend of global disclosure indicators related to sustainability is expected to expand into the social (S) and governance (G) fields, making it urgent for domestic companies to establish systems to prepare for E.S.G. disclosure domestically and internationally.
▶ Although the Financial Services Commission of ROK initially announced plans to make E.S.G. disclosure mandatory for KOSPI-listed companiesabove a certain size starting in 2025 to ‘after 2026.’
○ However, countries in the Asia-Pacific region, including Singapore, Malaysia, and Vietnam, are swiftly aligning with international trends by already mandating sustainability disclosure for companies. Consequently, there is a need for regulatory alternatives that consider factors such as
the size and industry type of domestic companies and whether they are export-oriented.
Ⅱ. Contents
▶ This study introduces the two most significant developments in the global sustainability disclosure trend.
○ First, it outlines the structure and key content of the European Sustainability Reporting Standards (ESRS), which are gradually being confirmed under the CSRD regime in Europe.
○ Second, it reviews the general principles of sustainability disclosure and the trends in the reporting system with a particular focus on S1 + S2 in the environment field (E), which has been established by the International Financial Reporting Standards (IFRS).
- This study, however, does not delve into the U.S. Securities and Exchange Commission (SEC)'s climate disclosure (draft) pursuing to address it in subsequent research.
▶ Subsequently, this study examines whether collecting, measuring, and disclosing E.S.G. information according to global standards complies with domestic laws. In particular, it analyzes whether there are points of conflict within the current legal framework.
○ Given that global sustainability disclosure standards have recently been reviewed with a primary focus on environmental (E) factors, the study compares ｢K-ESG Guidelines Ver.1.0｣and ｢K-ESG Guidelines for Responding to Due Diligence Directive｣issued by the Ministry of Trade, Industry, and Energy (MOTIE) with relevant domestic laws in Korea.
- In sum, this study conducts a comprehensive survey and analysis of laws related to relevant indicators to estimate the information that companies need to prepare for the disclosure of those indicators.
- Our findings suggest that the two guidelines exhibit significant similarities in content, which raises the possibility of adding unnecessary confusion and burden to the domestic market, companies subject to those guidelines, and investors, especially when the integration of global sustainability disclosure standards is still ongoing.
▶ Finally, this study identifies the obligations imposed by domestic laws on companies disclosing E.S.G. information, uncovering potential conflicts and issues. It aims to suggest improvement tasks for the legal system and ultimately provide legislative policy alternatives.
○ While the global integration of sustainability disclosure standards is meaningful for the institutionalization of E.S.G. disclosure, the effectiveness of the system will depend on the degree of alignment with local standards. Therefore, this study focuses on identifying legal obligations and points of conflict for domestic companies in the environmental (E) domain among global sustainability disclosure integration standards.
- Specifically, the study examines legal obligations in three areas: 1)measuring greenhouse gas emissions, 2)water and waste management, and 3)circular resource management, analyzing the limitations and issues these may present during the measurement and reporting process according to global sustainability disclosure standards.
Ⅲ. Expected Effects
▶ This study aims to provide an accurate and comprehensive understanding of recent trends in the global integration of major sustainability disclosure standards as of August 2023, such that future studies may utilize the findings from this study, as policy and practical resources.
▶ By assuming the integration trend of global sustainability disclosure standards in the E.S.G. institutionalization process, the study evaluates whether it aligns with the domestic legal system. It aims to identify improvement points for companies preparing for efficient and systematic sustainability disclosure preparation for companies gradually, ultimately providing suggestions for legislative improvements and appropriate legislative policy alternatives.