South Korea has been considerably broadening its mandatory disclosure regime, mandating that a much larger proportion of companies disclose environmental, social and governance (ESG) data based on the International Sustainability Standards Board (ISSB) standards. The Financial Services Commission (FSC) released its finalized roadmap, which is a significant policy change that enhances Korea sustainability reporting, corporate sustainability requirements, ESG disclosure, and KSSB reporting for listed companies throughout Korea.

The new roadmap follows institutional investors' calls for broadening the reporting to give greater consideration to the increasing value of sustainability information in investment decisions. The shift brings South Korea into a group of jurisdictions tightening up the reporting requirements that include data on environmental, social and governance factors as other leading economies, such as the UK, review or loosen such reporting requirements.

Expanded Coverage from 2028

According to the finalized roadmap, the 2028 transition period for mandatory reporting on sustainability will be for companies with assets over KRW 10 trillion (USD 6.7 billion) based on their 2027 financial year data. This is a significant expansion from the draft proposal that was issued earlier this year that would have first been applied to companies with assets of more than KRW 30 trillion.

The reporting obligations will expand even more starting in 2029 for firms with assets of at least KRW 5 trillion (USD 3.4 billion). The FSC also noted that it will be looking at disclosure practices and market readiness in 2028 and 2029, and will consider another reduction in the reporting threshold, from 2030 onwards, if it meets those criteria.

The wider coverage is likely to significantly expand the number of companies reporting. The proposed changes to the roadmap would have affected only a handful of Korea's largest companies; the new roadmap will impact more than 290 companies in 2028 and over 3,100 companies in 2029. The threshold for reporting would be lowered if it were lowered further.

The rules and regulations have been aligned with the ISSB standards as a guide to reporting.

The reporting requirements will be determined by sustainability disclosure standards that have been developed by the Korea Sustainability Standards Board (KSSB) and are finalised earlier this year. The standards are aligned with the framework of the International Sustainability Standards Board (ISSB) of the IFRS Foundation.

The KSSB standards consist of General Requirements for Sustainability-related Financial Disclosures and Climate-related Disclosures, which are based on the ISSB's IFRS S1 and IFRS S2 standards. The standards mandate disclosure of relevant information to help investors make decisions about sustainability risks, opportunities and climate-related impacts that may affect a company's financial performance.

South Korea believes that the adoption of the new rules will help investors better trust ESG disclosures and will help enhance the comparability of corporate sustainability reporting.

There are transitional relief measures for businesses.Businesses can benefit from transitional relief measures.

The FSC is mindful of the difficulties of complying with the new reporting requirements and has provided a number of transitional relief measures.

One of the most important provisions is the delay of the required reporting of Scope 3 GHGs for the first three years after the reporting begins. The delay will allow companies enough time to put in place systems and methodologies to measure emissions across their value chains, the regulator said.

During this timeframe, smaller businesses not regarded as high-carbon emitters will also not have to report Scope 3 emissions.

The roadmap also offers protection for the 3 years of implementation from damages claims and administrative sanctions and criminal prosecutions for the content of sustainability disclosures. It is important to note, however, that the FSC will remain vigilant against companies with clear intention to engage in greenwashing or to actively misreport their sustainability performance and will continue to impose strict enforcement measures such as administrative sanctions and compensation claims where suitable.

The auditor's report and voluntary reporting.

The FSC additionally announced that sustainability reports will be required to be third-party verified, starting from 2030. The postponement of the introduction of assurance requirements will give companies and assurance providers enough time to ready themselves for independent verification procedures.

Prior to the enacting of the mandatory reporting regime, companies will be urged to voluntarily disclose sustainability reports via the Korea Exchange (KRX). The exchange’s voluntary disclosure platform will be enhanced to help companies who are not subject to mandatory disclosure start to meet the KSSB disclosure standards in advance of the regulatory deadline.

The role of the government in supporting ESG Readiness.

The FSC also underscored a number of government initiatives that aim to enhance the capacity of companies to report on their sustainability.

The Ministry of Climate, Energy and Environment (MCEE) is preparing to create an integrated climate risk platform that will help businesses identify and manage climate risks. The ministry is also developing guidance on Scope 3 emissions, which will apply to 15 key export sectors, assisting companies to adopt more uniformity in emissions reporting.

The government is also planning to offer ESG management consulting and hands-on guidance on sustainability disclosure process to help companies get ready for the new domestic and international regulations related to climate change disclosure.

The approved roadmap reflects South Korea's desire to deepen sustainability transparency in the company and to link sustainability reporting with international disclosure principles, and offers companies phased implementation steps to help them achieve full ESG reporting.