The Financial Services Commission is reviewing a plan to exclude low-carbon industries from Scope 3 reporting under mandatory environmental, social and governance disclosure rules, judging that measuring greenhouse gas emissions across entire supply chains imposes a heavy burden on companies.
Critics have argued that requiring even industries with relatively low carbon emissions to calculate emissions from suppliers and across their supply chains could mean "costs that outweigh the benefits." The FSC is focusing on easing the burden of introducing the system by adjusting which industries fall under the rules while also deferring Scope 3 requirements and offering a safe harbor that limits legal liability.
According to the National Assembly's National Policy Committee, Kwon Dae-young, first vice minister of the Ministry of Economy and Finance, said last month while serving as FSC vice chairman that the government was reviewing a plan to exclude Scope 3 from the scope of disclosure for companies outside high-carbon-emitting industries. He made the remarks at a committee legislative subcommittee session.
The comments came as committee members raised concerns about introducing Scope 3. Rep. Kim Jae-sup of the People Power Party said of Scope 3 that "there are many disputes and differing views overseas as well," adding, "How will it be assessed, and how will it be quantified?" Rep. Cho Jung-hoon, also of the People Power Party, said the related infrastructure, including measurement standards and certification bodies, was not sufficiently in place. "In the environmental field in particular, Scope 3 is almost an impossible area as things stand," he said.
Unlike Scope 1, which covers a company's direct emissions, and Scope 2, which covers emissions from electricity and heat use, Scope 3 measures indirect emissions across the entire value chain — from raw material sourcing to logistics, business travel and the use and disposal of products sold. Because such figures cannot be derived from a company's own data alone, firms must obtain information from suppliers at home and abroad. Concerns have been raised that when large companies request emissions data from suppliers for disclosure purposes, even small and mid-sized firms not subject to mandatory disclosure could face added costs for building measurement systems and calculating data.
The biggest difficulty companies have cited is also securing supply chain data. In a survey of ESG officials at 100 Korean companies by the Korea Chamber of Commerce and Industry, respondents most often cited "difficulty measuring and compiling supplier data" at 63% as an obstacle to ESG disclosure. That was followed by "lack of specific detailed guidelines" at 60%, "shortage of in-house specialists" at 52% and "cost burden from using outside specialist firms" at 46%.
Overseas, the trend has also been toward easing the Scope 3 burden on companies. The U.S. Securities and Exchange Commission excluded Scope 3 from mandatory disclosure. Japan is also said to be designing its system while analyzing overseas rules in order to reduce the burden on companies as it introduces Scope 3.
The FSC's decision to set a separate grace period for Scope 3 also reflects these practical burdens. Mandatory ESG disclosure begins in 2028 for KOSPI-listed companies with consolidated assets of 10 trillion won or more, expanding in 2029 to those with 5 trillion won or more. The government is reviewing expanding the rules in 2030 to companies with 2 trillion won or more. Scope 3 will apply three years later than each company's mandatory disclosure date — from 2031 for companies with consolidated assets of 10 trillion won or more and from 2032 for those with 5 trillion won or more. A tentative schedule applies the rules to companies with 2 trillion won or more starting in 2033.
During the grace period, the government will also expand the infrastructure companies need to actually calculate Scope 3. It plans to prepare Scope 3 emissions calculation guidelines by 2028 for 15 major export industries, including rechargeable batteries, steel, petrochemicals, semiconductors and automobiles. It will also build 1,000 sets of life cycle inventory data by 2028 for use when companies cannot obtain data directly from suppliers.
The FSC has also put in place safeguards to reduce companies' legal exposure. Once ESG information is included in business reports, unlike voluntary disclosure, false or inadequate reporting can trigger legal liability. A safe harbor will therefore apply to information with high uncertainty. It covers forward-looking information on future climate risks, estimated figures such as greenhouse gas emissions, and information received from third parties such as suppliers that companies cannot readily control. If a company discloses in good faith based on reasonable grounds and judgment, it will be exempted from damages and administrative liability even if the information later proves inaccurate, and criminal liability will also be excluded.
Third-party assurance to verify the credibility of disclosures will not be made mandatory immediately. The FSC, judging that assurance practice has not accumulated sufficiently at home or abroad, plans to require assurance from 2030, two years after mandatory ESG disclosure begins. Details such as the scope and level of assurance and entry rules for assurance providers will be fleshed out during revisions to capital markets legislation in line with the implementation schedule.
The National Policy Committee plans to handle the mandatory ESG disclosure measures during the regular parliamentary session. "We will review materials on the benefits and costs of mandatory ESG disclosure for companies and then move quickly," a committee official said.
