South Korea rolls out plans for ESG disclosure

Big companies listed on the Korea Exchange (KRX) will be required to submit detailed ESG reports from 2025 onwards, according to an announcement made by regulators today. 

Initially, the rules will apply to firms valued at more than ₩2trn ($1.81trn), but will be expanded to all KRX-listed companies in 2030 – approximately 2,500 companies were listed on the exchange as of December 2020. 

The enhanced disclosure rules are the result of a joint regulatory initiative between Korea’s financial regulators, the Financial Services Commission (FSC) and the Financial Supervisory Service, and KRX, the country's sole exchange operator.

The move comes two years after regulators made corporate governance reporting mandatory for large listed companies and applied on a comply-or-explain basis for selected financial firms. Under these requirements, companies are expected to disclose details relating to board independence, shareholder rights protections and audit processes.

According to local reports, the incoming disclosure rules will encompass contingency planning for crises such as COVID-19, labour standards and governance structures, in addition to other ESG information. Detailed guidance on the new regime is expected to be issued by KRX soon.

As part of the initiative, regulators are also exploring measures to “boost the effectiveness” of sanctions in the event of noncompliance.

In addition, regulators will consider revisions to Korea’s 2016 Stewardship Code to strengthen fiduciary duties relating to ESG. Adoption of the voluntary code has increased among local investors since the $600bn National Pension Service, the world’s third largest pension fund, became a signatory in 2018.

Finally, regulators have indicated that proxy advisory services may soon face stricter regulations, particularly with regards to prevention of conflicts of interest and internal control measures.

In an interview today, FSC Vice Chairman Doh Kyu-sang said that the COVID19 crisis and resulting economic uncertainty had “raised the importance of more precise and swift corporate information reporting”.

The new measures will be “promptly” implemented where no legislation is required. For all other areas, amendments to the relevant legislation will be prepared by the FSC for submission to parliament in the third quarter of 2020.

According to the FSC, around 100 KRX-listed companies produce internal reports on ESG but only 20 are publicly disclosed to investors.