Economic Organizations Oppose "ESG 4 Laws"... Concern Over Mandatory ESG for All Companies

"Concerns Over Arbitrary Criteria Application... Careful Review Needed for Amendments"

[Asia Economy Reporter Minwoo Lee] Economic organizations have publicly opposed the so-called 'ESG (Environmental, Social, and Governance) Four Laws' that former Democratic Party leader Lee Nak-yeon spearheaded. The concern is that unconditionally enforcing ESG could harm financial soundness and corporate management efficiency.

On the 2nd, major economic organizations including the Korea Employers Federation, the Federation of Korean Industries, the Korea Listed Companies Association, the KOSDAQ Association, and the Korea Association of Mid-sized Enterprises announced that they submitted a joint opinion letter from the business community regarding the 'ESG Four Laws' to the relevant committees, the Health and Welfare Committee and the Planning and Finance Committee.

The economic organizations stated, "Recently, there has been a tendency in many areas of society to overlook inefficient outcomes as long as ESG is prioritized," adding, "With ESG becoming the biggest issue for companies, businesses have no choice but to consider not only the intrinsic value of ESG management but also efficiency as an important factor."

The ESG Four Laws, proposed by former leader Lee Nak-yeon, are partial amendments to the Public Institution Operation Act, the National Finance Act, the National Pension Act, and the Procurement Business Act. These amendments require that environmental (E), social (S), and governance (G) factors must be considered in the management activities of public institutions, the operation of public pension funds, and public procurement procedures, and that the degree of effort be reflected in evaluations.

The economic organizations pointed out that these amendments risk undermining core values such as the ‘profitability’ of fund management and operation, the ‘fairness and efficiency of procurement projects’ in public procurement, and the ‘financial soundness’ of public institution operations. Since the amendments could force companies to comply with ESG when managing funds and selecting business partners, they urge that efficiency must also be considered when evaluating ESG factors.

Specifically, regarding the amendment to the National Pension Act, the economic organizations criticized that the purpose of fund management and operation is solely ‘profitability,’ and that changing the term to ‘sustainability’ does not expand or broaden this concept. They stated, "Major overseas pension funds also define their operational purpose solely as ‘the interests of pension beneficiaries’ and ‘maximizing returns,’" emphasizing, "The purpose of fund management and operation should not be swayed by policy considerations but must be managed and operated to guarantee maximum benefits to the pension beneficiaries, the public."

They also criticized the amendment to the National Finance Act, arguing that it is premature to mandate ESG considerations for all funds when internationally unified disclosure and evaluation standards for ESG have not yet been established. They expressed concern that this could lead to arbitrary evaluations of companies indirectly or directly affected by fund operations.

Furthermore, they requested careful review of the amendments to the Procurement Business Act and the Public Institution Operation Act.

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