Financial Services Commission Establishes 'ESG Evaluation Agency Guidance' to Enhance Transparency and Reliability

6 Chapters and 21 Articles Including Disclosure of Internal Control and Evaluation System
3-Month Grace Period 'September Implementation'... Legalization in 2025

An autonomous regulatory proposal has been introduced to ensure transparency and reliability in ESG (Environmental, Social, and Governance) evaluations. On the 24th, the Financial Services Commission announced the establishment of the ‘ESG Evaluation Agency Guidance’ to enhance transparency and reliability in the ESG evaluation market.

Three major domestic ESG evaluation agencies (Korea ESG Standards Institute, Korea ESG Research Institute, Sustainvest) have prepared the ESG Evaluation Agency Guidance as a ‘self-regulation’ initiative with support from the government, Korea Exchange, and the Capital Market Research Institute. The purpose is not to regulate specific evaluation methods but to present best practices regarding the necessary procedures and standards when conducting evaluation tasks.

ESG evaluations consider non-financial factors such as environmental (E), social (S), and governance improvement (G). Recently, as ESG investments have become more active and the use of ESG evaluation ratings in financial markets has increased, the importance of ESG evaluation agencies has grown. However, many criticisms have been raised regarding the reliability of ESG evaluation results and the transparency of the evaluation process. For example, when ESG evaluation ratings differ among agencies, it can send conflicting signals about a company’s ESG management activities, potentially weakening the motivation to improve ESG performance. Additionally, potential conflicts of interest between ESG evaluation agencies and companies, as well as a lack of information on ESG evaluation systems, have been cited as factors that undermine the transparency and reliability of the ESG evaluation market.

Against this backdrop, the three agencies prepared the guidance to present best practices for the necessary procedures and standards in ESG evaluation tasks.

Each ESG evaluation agency voluntarily declares whether to participate in the guidance and participates under a comply or explain principle. Considering that the domestic market is still in its early stages of development, a lower level of regulatory approach was applied compared to credit rating regulations.

The guidance consists of six chapters and 21 articles, covering ▲General Provisions ▲Establishment of Internal Control Systems ▲Data Collection and Management ▲Disclosure of Evaluation Systems ▲Conflict of Interest Management ▲Relationships with Evaluated Companies.

Furthermore, the Financial Services Commission plans to form an ‘ESG Evaluation Agency Council’ with the Korea Exchange, Capital Market Research Institute, and others participating as ‘observers.’ The council will compare and analyze the implementation status of the guidance by ESG evaluation agencies and publish the results, while the ESG evaluation agencies will disclose their guidance implementation status.

However, since autonomous regulation may have limited binding force, supplementary measures for substantive operation will also be pursued. Each evaluation agency will disclose its guidance implementation status, and the council (or the exchange) will regularly compare and analyze the implementation status of the agencies and distribute press releases.

The announced guidance is scheduled to be implemented from September 1 of this year after a grace period of about three months, considering the preparation procedures for each agency to comply with the guidance. After operating the guidance until the end of next year, from 2025, the possibility of legal measures such as entry regulations and conduct regulations will be reviewed based on the role and utilization of the guidance and international trends.

A Financial Services Commission official explained, “The financial authorities plan to establish an institutional foundation not only for the ESG evaluation market but also for the entire ESG ecosystem, from ‘ESG disclosure → evaluation → investment.’ We will actively seek directions for institutional improvements through expert consultations and other means.”

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