"Did We Protect Human Rights Well?" Government Supports Industry-Specific Consulting Packages Amid EU Surveillance Strengthening

On the 24th, Bang Gi-seon, 1st Vice Minister of Strategy and Finance, Presided Over the '2nd Public-Private Joint ESG Policy Council' at the Korea Fiscal Information Service

Ahead of the European Union (EU)'s mandatory supply chain due diligence, the government is strengthening support for small and medium-sized enterprises (SMEs) with limited capacity to respond. This is because significant impacts are expected mainly on South Korean export companies, while SMEs that make up the partner companies are inadequately prepared. To alleviate the cost and manpower burden on these companies, the government plans to provide industry-specific consulting for supply chain due diligence by bundling prime contractors (large enterprises), first-tier (mid-sized companies), and second-tier partner companies (SMEs) as a package.

On the 24th, Bang Ki-seon, First Vice Minister of the Ministry of Economy and Finance, chaired the '2nd Public-Private Joint ESG Policy Council' at the Korea Fiscal Information Service and discussed joint support measures for companies to respond to supply chain due diligence with related ministries. This is in preparation for the risks that will arise as the EU imposes ESG due diligence obligations not only on prime contractors but also on partner companies for EU and non-EU companies above a certain size.

After the directive takes effect, EU member states will enact domestic laws focusing on human rights (violations of international human rights conventions such as forced labor, child labor, human trafficking, wage exploitation), environmental pollution (violations of international environmental conventions related to biodiversity, chemicals, hazardous waste, etc.), and climate change (business strategies to achieve the Paris Agreement goal of limiting warming to 1.5 degrees). These laws will apply to companies of different sizes within 3 to 5 years. Companies found to have issues in the due diligence results may face fines or civil liabilities. SMEs also face the risk of being excluded from supply chains.

In response to these changes, the government plans to support industry-specific consulting by prime contractors as a 'package' starting next year, rather than supporting individual companies. Although many SMEs participating as partner companies of large enterprises are included in supply chain due diligence, about half (47%) of these partner companies have no separate preparation measures. According to the Korea Chamber of Commerce and Industry, these companies mainly respond through consulting by external organizations and lack dedicated personnel or teams for due diligence response. The government will provide customized comprehensive consulting that enables prime contractors (large enterprises), first-tier (mid-sized companies), and second-tier partner companies (SMEs) to jointly respond to on-site inspections.

A platform to enhance due diligence response capabilities will also be established. When partner companies subject to due diligence input ESG and related management information into the platform, multiple prime large enterprises can easily assess their due diligence response capabilities. For SMEs, this reduces the burden of repeatedly submitting similar documents while dealing with multiple large enterprises. For large enterprises, it alleviates the cost burden associated with the significant time required to collect ESG data from partner companies.

For SMEs lacking manpower resources, the government is also considering operating a 'Public-Private Joint Comprehensive Support Group' to resolve due diligence difficulties. Unlike existing government support projects that rely on voluntary applications from companies, public-private joint experts will be deployed in advance to proactively identify target companies. Additionally, the government will develop and operate supply chain due diligence training courses to help companies overcome ESG-related manpower shortages and strengthen expert training. Furthermore, a process will be established that allows prime contractors, who are the due diligence subjects, and partner companies, who are the due diligence targets, to jointly respond using self-diagnosis systems and other tools.

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