The Financial Services Commission (FSC) and the ruling Democratic Party of Korea finalized a "sustainability disclosure institutionalization plan" at a party-government consultation meeting on the 8th, mandating environmental, social and governance (ESG) disclosures for KOSPI-listed companies with consolidated assets of 10 trillion won or more. The scope was expanded dramatically from the government's initial draft, which targeted "companies with 30 trillion won or more." Companies had proposed a transition to statutory disclosure through business reports only after a period of voluntary operation via Korea Exchange (KRX) disclosures. But the party and government concluded that statutory obligations would be imposed immediately, without any buffer period. ESG disclosure is a system that makes environmental information such as greenhouse gas emissions, labor-management issues, and governance-related risk factors public to investors and the general public.
Under the finalized plan, 291 companies will be subject to ESG disclosure requirements starting in 2028, expanding to 3,171 companies in 2029 and 3,749 companies in 2030. The government's rush to mandate ESG disclosure has put companies under immediate pressure starting as early as next year. Although the system takes effect in 2028, companies must disclose information covering their 2027 ESG performance. Companies, already facing intensified regulatory pressure from the revised Commercial Act and the "Yellow Envelope Law," must now shoulder the additional burden of ESG disclosures, including mandatory climate reporting, which entails substantial costs.
The government decided to exempt companies from penalties for the first three years of implementation, while still applying sanctions for deliberate manipulation of figures, such as so-called "greenwashing." But the standard for "intentionality" is ambiguous, raising concerns of considerable confusion. Moreover, ESG disclosures must include greenhouse gas emissions not only of subsidiaries but also of suppliers, which critics say could violate the Fair Trade Act and the Subcontracting Act. In addition, the reality is that companies with overseas partners and subcontractors have difficulty compelling them to provide such information. This is why companies, while agreeing on the need to introduce ESG disclosure, worry about mounting cost burdens stemming from legal risks.
With anti-ESG sentiment growing in advanced economies including Europe, Korea's rushed regulation could end up backfiring. The government must not push statutory ESG disclosure at breakneck speed, but instead prepare detailed guidelines and complementary measures to prevent overregulation. Companies, for their part, must strengthen their capacity to manage non-financial performance and environmental and governance risk factors to build a foundation for sustainable growth.
