Han Jeong-ae (right), policy chief of the Democratic Party of Korea, and Financial Services Commission Chairman Lee Eok-won arrive at the National Assembly members' building on Wednesday for a ruling party-government consultation on the ESG disclosure institutionalization plan. [Yonhap]
Han Jeong-ae (right), policy chief of the Democratic Party of Korea, and Financial Services Commission Chairman Lee Eok-won arrive at the National Assembly members' building on Wednesday for a ruling party-government consultation on the ESG disclosure institutionalization plan. [Yonhap]

The Financial Services Commission will require Kospi-listed companies with consolidated total assets of 10 trillion won ($6.53 billion) or more to disclose sustainability, or ESG, information starting in 2028 — a significant expansion from the previously proposed threshold of 30 trillion won. The asset threshold is set to be halved again the following year, meaning the number of companies directly or indirectly subject to the disclosure requirements could approach roughly 3,200.

Business groups immediately raised concerns, warning that the expanded scope could throw unprepared listed companies into confusion. The question of how to determine intent — a key standard for penalties — is also expected to spark debate.

The FSC announced the plan, titled "Measures to Institutionalize Sustainability (ESG) Disclosure," on Wednesday. The centerpiece of the plan is a substantial expansion of the disclosure scope beyond what was initially proposed.

A draft released for public comment in February had set the 2028 mandatory disclosure threshold at 30 trillion won in consolidated total assets for Kospi-listed companies. The final plan lowers that to 10 trillion won. The threshold is set to drop to 5 trillion won in 2029, and the FSC said it would review expanding the requirement to companies with assets of 2 trillion won or more in 2030.

The number of companies covered will grow substantially as a result. According to the FSC, 107 listed companies will be subject to mandatory disclosure in 2028, and when major subsidiaries are included, the total disclosure scope reaches 291 companies. By 2029, the number of listed companies with mandatory obligations rises to 157, and with 3,014 major subsidiaries included, the total scope reaches 3,171 companies.

If the 2 trillion won threshold takes effect in 2030, a total of 3,749 companies — 259 listed companies with mandatory obligations and 3,490 major subsidiaries — are expected to fall within the disclosure scope. The actual number of subject companies and subsidiaries may change by the time the requirements take effect.

Disclosures will be implemented as statutory filings from the outset, bypassing the Korea Exchange disclosure process entirely. The FSC plans to require ESG disclosures through business reports under the Capital Markets Act starting in 2028, with the disclosures to be filed at the same time as financial statements.

An earlier draft had considered starting with exchange-level disclosures before transitioning to statutory filings after a set period, but the FSC reversed course to reflect demands from global institutional investors, opting instead for immediate implementation through business reports.

Liability protections have also been built in to ease the burden on companies. For the first three years after the system takes effect, companies will be temporarily exempt from civil liability, administrative sanctions and criminal penalties under the Capital Markets Act for their disclosures broadly, in order to encourage active participation.

However, deliberate greenwashing — the misrepresentation of ESG credentials — will still be subject to civil liability and administrative sanctions to preserve the credibility of disclosures. The FSC said it will impose penalties where intent is established.

Scope 3 disclosures, which companies find most burdensome, will be deferred for three years as planned. Scope 3 covers greenhouse gas emissions across the entire value chain, including those from suppliers, and the delay reflects the time needed to build the necessary measurement infrastructure.

FSC Chairman Lee Eok-won, speaking at a ruling party-government consultation held at the National Assembly on Wednesday, said the plan was "more proactive than Japan's" and noted that domestic and foreign investors had called for expanding the disclosure scope and an early transition to statutory filings.

Han Jeong-ae, policy chief of the Democratic Party of Korea, said ESG disclosure "can drive management innovation by requiring companies to identify sustainability-related risks and opportunities — including those related to climate — and to fundamentally restructure their decision-making and risk management frameworks."

Business groups, however, immediately flagged concerns about side effects. A senior official at a major business association said by phone that "the initial draft, which set the threshold at 30 trillion won, was the bare minimum that companies could handle for ESG disclosure — and now that's gone," adding that 107 companies are now directly subject to mandatory disclosure.

The official added that although the requirement is described as taking effect in 2028, companies would in effect need to begin preparing next year, since the 2028 filings would cover fiscal year 2027 data. "Considerable confusion is inevitable," the official said.

The decision to begin with statutory filings rather than exchange-level disclosures was also cited as a source of concern. Although the authorities have promised a three-year exemption from penalties, the pledge to assess intent leaves room for dispute, the official said.

"If it had stayed at the exchange disclosure level, the risk of criminal penalties would have been relatively limited," the official said. "But now that it is a statutory filing, companies cannot ignore the risk of punishment. The three-year exemption is welcome, but how intent will be determined could become yet another source of confusion."

Business groups had also voiced criticism through an official joint statement on Tuesday. Six major economic organizations — the Korea Enterprises Federation, the Korea Chamber of Commerce and Industry, the Korea Employers Federation, the Korea International Trade Association, the Korea Federation of Small and Medium Business, and the Korea Federation of SMEs — said that "if statutory disclosure is implemented immediately, the legal risks stemming from such uncertainty could add to the burden on companies."

Choi Jun-sun, an emeritus professor at Sungkyunkwan University School of Law, said expanding the disclosure scope was "a very poor move," questioning whether South Korea needed to respond so aggressively when the United States is passive on ESG disclosure and only the EU is actively pursuing it. He added that the government "should have monitored changes in overseas regulations and companies' state of readiness before proceeding in stages."


th5@heraldcorp.com