Martial Arts, Europe's Push for Mandatory ESG Management Legislation: "Companies Should Be Encouraged to Participate Voluntarily"

Submission of Opinion Letter to the EU Commission on Behalf of the European Korean Business Association

[Asia Economy Reporter Kim Heung-soon] Recently, the European Union (EU) has been pushing for legislation that mandates human rights and environmental due diligence in corporate supply chains, raising concerns among Korean companies operating locally.

The Brussels branch of the Korea International Trade Association (KITA) announced on the 8th (local time) that it submitted a statement of opinion to the EU Commission on behalf of the 'European Korean Business Association,' representing over 300 Korean companies operating in Europe, expressing these concerns.

In the statement, KITA pointed out that "in the current business environment where global value chains (GVC) are intricately intertwined, it is practically impossible for primary contractors to individually verify whether all their suppliers comply with regulations." It added, "It is preferable to encourage voluntary participation of companies through promoting Environmental, Social, and Governance (ESG) management."

KITA also emphasized that "the mandatory obligations pursued by the EU would excessively increase companies' administrative and legal risks and could infringe upon the management autonomy of subcontractors," urging that "various alternatives should be considered first by utilizing guidelines proposed by international organizations."

According to the legislative recommendation presented by the European Parliament on the 27th of last month, companies will be obligated to identify, report, and improve any human rights or environmental violations throughout their supply chains. Violations may result in fines or compensation for damages. The scope of application is expected to include not only companies based in the EU but also those seeking to enter the EU market. The EU Commission plans to present a draft law within the second quarter of this year after collecting stakeholder feedback by this date.

In response to this movement, BusinessEurope, a leading European economic organization, expressed opposition on the 21st of last month, stating that "this measure imposes excessive burdens on companies." On the other hand, the European Brands Association (AIM), which includes companies such as Nike and Unilever, supports the legislation, leading to forecasts that this measure could become a new non-tariff barrier to entering the EU market.

Jo Bit-na, head of KITA's Brussels branch, advised, "Considering the EU's emphasis on corporate social responsibility and sustainability, this legislation appears highly likely to be enacted. Since it could represent another cost and regulation, our companies should closely monitor the draft law scheduled for the second quarter and establish future response strategies."

This content was produced with the assistance of AI translation services.