Korea Sustainability Disclosure Standards Draft Forum "Domestic and Foreign Investors Demand Sustainability-Related Corporate Information"

Public Draft Presentation Held on April 30
Participation and Discussion by Industry, Academia, and Investors
Suggestions to 'Alleviate Corporate Burden' Continue

Amid a global consensus on sustainable growth, the Korea Accounting Institute (KAI) Sustainability Standards Board (KSSB), which recently announced the draft of domestic sustainability disclosure standards, held a session to help corporate stakeholders understand and gather their opinions. On-site, opinions were expressed that improvements are needed, such as considering and supporting companies preparing for mandatory disclosures, and establishing concrete agreements and guidelines.

"Investors will obtain information on companies' responses and management of climate risks... Non-climate topics are voluntary disclosures"

Lee Hansang, President of the Korea Accounting Institute (KAI) (center), is taking a commemorative photo with participants at the 143rd KAI Forum on the "Draft Exposure of Korea Sustainability Disclosure Standards," held on the 16th at the Korea Exchange in Yeouido, Seoul.
[Photo by Korea Accounting Institute]

On the 16th, KAI held the 43rd KAI Forum at the Korea Exchange in Yeouido, Seoul, under the theme "Draft of Korea Sustainability Disclosure Standards." In his opening remarks, KAI President Hansang Lee said, "The system regarding disclosure timing and subjects must be promptly established before the final standards are announced. It is urgent to build laws and systems for application," adding, "I hope this will be a time to prepare practical measures and explore systems that support companies' sustainable growth."

The keynote presentation explained the draft sustainability disclosure standards' ▲development background, ▲principles of establishment, ▲structure of the standards, and ▲key requirements. Senior Researcher Hyunseon Hong of KAI explained the background, saying, "There was a strong demand from domestic and international investors for information on corporate sustainability-related risks and opportunities, including the climate crisis," and "standards were needed for comparable and consistent disclosures."

The structure of the disclosure standards consists of 'mandatory disclosure standards (Nos. 1 and 2) that companies must comply with' and 'voluntary disclosure standards (No. 101) that companies can choose to apply.' No. 1 contains concepts and general requirements for disclosing sustainability-related financial information. Here, climate topics are mandatory disclosures, while other sustainability topics outside of climate can be disclosed voluntarily.

Additionally, if a company prepares consolidated financial statements, it must disclose sustainability information not only for the parent company but also for subsidiaries. The disclosure of Scope 3 greenhouse gas emissions is presented as a requirement, but whether it will be mandatory and the timing of such mandate will be decided later after collecting opinions and consulting related government departments. Scope 3 disclosure expands the target to include not only direct and indirect greenhouse gas emissions (Scopes 1 and 2) but also the value chain (Scope 3).

Regarding No. 2, which requires disclosure of information on climate-related risks and opportunities, Responsible Researcher Ha-eun Yoo of KAI said, "This standard does not specify concrete details such as how to operate the business, what goals to set, or what actions to take," but "its purpose is to provide information on how companies manage climate-related risks."

He explained, "For example, one can consider corporate responses to sea-level rise affecting factories and supply chains, or situations where the development of low-carbon products is promoted," adding, "The key elements are governance, strategy, risk management, indicators, and targets. Climate-related risks and opportunities that cannot be reasonably anticipated are excluded, but if any information is omitted because it is not important, the fact and rationale must be disclosed."

Senior Researcher Cha Eoyeon of KAI explained No. 101, saying, "Its purpose is to increase information flexibility by allowing sustainability-related information to be viewed in one place and to encourage the implementation of government policies through disclosure recommendations," and "it was designed to reduce the burden on companies required to disclose according to the standards."

Panel discussion shares ideas such as legal liability deferral... Public consultation until the end of August

During the panel discussion, various opinions were expressed regarding the approach of allowing voluntary disclosure for non-climate topics. First, there was a suggestion that, unlike the current draft, mandatory disclosure should be required for non-climate topics as well, based on a grace period. Partner Miyup Kwon of Samil Accounting Corporation said, "A clear grace period should be set along with support measures," adding, "The draft requires disclosure only of topics important to investors and clients, not all topics. Accordingly, it can be approached with the perception that 'non-climate disclosures are also important information.'"

Professor Junhyuk Jung of Seoul National University Law School said, "This is an issue requiring stakeholder consensus," but added, "Mandatory disclosure with a grace period would help in terms of legal predictability. Predictability must be certain regardless of timing. Therefore, mandatory disclosure is desirable."

On the other hand, there was also an opinion that, as in the draft, only climate topics should be mandatory disclosures, and other sustainability topics should remain voluntary. Executive Director Sangho Jung of Korea Exchange emphasized, "From the perspectives of corporate burden and information usefulness, voluntary disclosure as per the draft is preferable," adding, "Key indicators for non-climate topics have not been finalized. Companies will face difficulties preparing for mandatory disclosure without concrete guidelines." The implication is that non-climate topics should be converted to mandatory disclosure only after stakeholder consensus is reached.

Kim Dongsoo, Director of the Kim & Chang ESG (Environmental, Social, and Governance) Research Institute, said, "Discussion on disclosure items other than climate change does not necessarily have to be voluntary. Even with a grace period, voluntary requirements can be included," adding, "Ultimately, the timing of mandatory disclosure is most important. Rather than deferring disclosure of certain standards themselves, it would be better to legally defer companies' legal liabilities to reduce the disclosure burden."

Additionally, opinions were raised that government support is needed to secure disclosure capabilities, such as expanding dedicated personnel mainly for companies with total assets under 2 trillion won and large companies' Scope 3-related suppliers, and that industry-specific detailed application guidelines are necessary to assist in assessing financial materiality.

During the panel discussion, a Q&A session was held with attendees. When asked whether institutional investors' investment strategies might change, Lee Dongsup, Director of the National Pension Service, said, "From an investor's perspective, the National Pension Service operates its portfolio by asset allocation and stock selection within that," adding, "It will take time to anticipate and measure risks in asset allocation, so it will take time for sustainability disclosure standards to be reflected. However, when selecting stocks within allocated assets, it will have more impact. Currently, ESG evaluations are applied to both stocks and bonds through ratings and scores."

Earlier, on the 30th of last month, KSSB announced the draft of domestic sustainability disclosure standards. This aims to promote the sustainable growth and development of Korean companies and the economy and enable Korean companies to provide high-quality sustainability financial information comparable in global capital markets. The public consultation period for the draft runs for four months from the 1st of this month to August 31st.