"Korea Focuses Only on Climate Change Disclosure, Overlooking 'Natural Capital'... Participation in Data Assessment and Norm Establishment"

KCCI Report on 'Global Norms and Current Issues in Natural Capital and Response Tasks'

Only four domestic companies, including KB Financial Group, are participating as members in the global natural capital-related forum, the Taskforce on Nature-related Financial Disclosures (TNFD). (Photo by KB Financial Group)

[Asia Economy Reporter Moon Chaeseok] It has been pointed out that our companies and government are unable to keep pace with the global norm-setting speed regarding 'natural capital' in the environmental sector, which corresponds to the E in ESG (Environment, Social, Governance). There is a growing call to quickly establish a data evaluation system and participate in the global norm-setting process. Natural capital refers to resources obtained from nature, such as flora and fauna, marine life, and minerals.

The Korea Chamber of Commerce and Industry (KCCI) stated in its report titled "Global Norms, Current Status, and Response Tasks Related to Natural Capital" on the 9th that "South Korea's response to natural capital risks is lacking compared to major countries" and emphasized that "our government and companies must actively work to conserve natural capital."

Major countries believe that better development of natural capital leads to business opportunities and job creation, while losses in natural capital can cause exhausting issues such as the spread of diseases and conflicts between nations. Therefore, they are strengthening related systems. A representative example is the 'Taskforce on Nature-related Financial Disclosures (TNFD),' scheduled to be released in September next year. The development of TNFD has been supported by the United Nations Development Programme (UNDP), the United Nations Environment Programme Finance Initiative (UNEP FI), and the World Wide Fund for Nature (WWF). Governments from the UK, France, Switzerland, as well as companies and financial institutions, participated in the preparatory committee. This means it has secured support from the Group of Seven (G7) and Group of Twenty (G20). For this reason, TNFD standards are expected to be incorporated into the International Sustainability Standards Board (ISSB)'s disclosure standards (sustainability disclosure standards) in the future. ISSB is an organization established by the International Financial Reporting Standards (IFRS) Foundation.

In addition to the TNFD and ISSB disclosure systems used in the financial sector, environmental agreements must also be observed. The Convention on Biological Diversity's 'Post-2020 Global Biodiversity Framework (GBF),' a biodiversity conservation strategy, is a representative example. The convention is expected to be adopted at the 15th Conference of the Parties (COP15) to the Convention on Biological Diversity, scheduled for the third quarter of this year. Since the European Union (EU), which leads carbon neutrality-related systems such as the carbon border tax, has also adopted the '2030 EU Biodiversity Strategy,' compliance with such conventions is expected to have a significant impact on corporate management. Besides the EU, major countries such as Japan, the UK, and China announced plans to establish and expand biodiversity funds at the first part of COP15 in October 2021.

Seoul Jung-gu Korea Chamber of Commerce and Industry Sangyohui Building exterior. (Photo by Korea Chamber of Commerce and Industry)

South Korea has been criticized for many shortcomings in terms of related sector performance. As urban development centered around the metropolitan area continues to increase, the proportion of biodiversity protection areas is lower than the international standard. The convention recommends that by 2020, protected areas should cover at least 17% of terrestrial areas and 10% of marine areas, but South Korea only achieved the terrestrial protection area target of 17.15% last year. The marine protection area is only 2.46%. As of this month, only four Korean companies?Woori Financial Group, Shinhan Financial Group, KB Financial Group, and POSCO Holdings?are participating in the TNFD disclosure standards development forum, and they joined only this year. Only a few large companies are barely formulating supply chain management strategies considering natural ecosystems.

The KCCI proposed solutions including ▲establishing natural capital data and conducting value assessments ▲participating in global norm-setting ▲and active promotion. Natural capital data should not be limited to specific species but should build a system that encompasses benefit assessments created by ecosystem services such as pollination and soil dilution. Since such data show significant regional variations, securing data tailored to regional characteristics is necessary to ensure credibility, the KCCI advised. It also stated that a system for policy reflection after government quantitative evaluation should be established. This can be done under the 'Act on Conservation and Use of Biodiversity,' which has been in effect since June 2020. The US, UK, and others have already established value assessment systems and reflected them in policies.

There was also a call for the South Korean government to actively engage in the international norm-setting process so that companies can understand regulatory intentions and reduce risks. As of this month, about 400 governments, companies, financial institutions, and international organizations, including the governments of the UK, the Netherlands, Switzerland, France, Australia, Japan, Peru, and Kenya, participate as forum members of TNFD. Among the members, only four are Korean companies. This is why increasing participation from the Korean government and companies is necessary. Since the international community is pushing for mandatory climate information disclosure and companies are focusing their disclosure strategies on climate response, some investors have begun to demand natural capital disclosures as well, highlighting the need to catch up quickly. The KCCI advised, "The government should create legal and institutional conditions to ensure that global norms are successfully established domestically, and companies and financial institutions should prepare in advance for natural capital disclosures."

Promotion efforts must also be strengthened. According to a 2020 government survey, only 32.1% of the public have a vague understanding of biodiversity and biological resources ('9.7% have heard of and know well,' '22.4% have heard of and somewhat know'). In the KCCI and Korea Productivity Center's 'Corporate Survey for ESG Expansion and Establishment,' only 6.7% of companies cited biodiversity as a major future ESG issue. To raise awareness, the KCCI emphasized the need to conduct company-wide promotional programs and properly evaluate performance based on specific goals. Yena Kim, a researcher at KCCI's Sustainable Growth Initiative (SGI), said, "Along with climate change, natural capital conservation is now becoming a core global norm. If the government and companies do not actively participate in natural capital conservation and join international efforts, they may suffer disadvantages in trade with other countries, so the pace of policy implementation must be accelerated."

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