Insights

Counterarguments to the Korea Enterprises Federation’s Claims Regarding Sustainability Disclosure

On April 30, the Korea Sustainability Standards Board (KSSB) under the Korea Accounting Institute unveiled the draft version of the domestic sustainability disclosure standards. The board announced that it would gather feedback from stakeholders until August 31 and finalize the standards by the end of the year. This draft, which references the standards set by the International Sustainability Standards Board (ISSB), comprises general requirements, climate-related disclosures, and additional disclosure standards. Although critical details such as the implementation timeline, disclosure methods, and disclosure scope remain undecided, they are slated to be determined by the year's end following public opinion convergence.

In response, the Korea Enterprises Federation (KEF) announced the business community's official stance on the KSSB exposure draft on June 21. Citing the need for an ample preparation period based on corporate readiness, the federation demanded that the implementation timeline be postponed to 2029 or later, that the disclosure method be kept voluntary, that Scope 3 emissions be excluded from greenhouse gas calculations, and that additional (optional) disclosure standards be entirely deleted. Let us examine each of these claims point by point.

1. Regarding the Implementation Timeline

The federation argues that corporations require a preparation period of at least five years. However, by their own admission, 48.5% of companies desire implementation prior to 2027, 22.3% favor 2028 or later, and only 27.2% ask for 2029 or later. Given that the fundamental purpose of sustainability disclosure is to enhance accounting transparency, elevate corporate value, and reduce capital procurement costs by opening up corporate risks and opportunities, the KEF's argument for postponement is self-contradictory. It seeks to strip away opportunities from the 70.8% of companies that are already prepared, simply to cater to the 27.2% of laggards.

2. Regarding the Disclosure Method

The federation asserts that corporate burdens should be eased by maintaining voluntary disclosures rather than introducing legally binding mandatory disclosures, which pose a heavy burden. However, the reason why the vast majority of advanced economies, including the European Union (EU), are opting for mandatory disclosure is that climate change-induced risks are escalating and heavily impacting corporate value. Disclosing this information is absolutely critical for investor protection, reinforcing corporate environmental responsibility, and driving sustainable management. Consequently, even if our corporations utilize voluntary disclosures domestically, they will inevitably face compulsory demands for information disclosure from overseas investment institutions.

3. Regarding the Exclusion of Scope 3 Emissions Data

The federation claims that Scope 3 emissions should be excluded from disclosures because measuring emissions across the entire supply chain is practically impossible. Scope 3 emissions refer to all indirect greenhouse gas emissions that occur within a company's value chain, encompassing raw material production, product transportation, consumption, and disposal. Seeing that these emissions account for approximately 60% to 80% of a company's total carbon footprint, they represent a decisively critical element in climate risk management. This is precisely why disclosing Scope 3 emissions is indispensable for resolving climate issues and protecting investors. For this reason, not only the EU but also several states in the U.S.—including New York, Illinois, and California—have either legislated or are actively pushing for mandatory Scope 3 emissions disclosures.

4. Regarding Additional Disclosures

Additional disclosures refer to the reporting of other sustainability-related information that aligns with government policy objectives, which companies are permitted to disclose at their own discretion. While the federation is demanding its abolition, because it is left entirely to corporate discretion, it does not seem to warrant any particular commentary.

The fundamental purpose of introducing sustainability disclosure standards is to provide information regarding sustainability-related risks and opportunities, thereby enabling informed decisions on resource allocation to corporations. Climate-related disclosures are heavily emphasized because resolving climate issues sits at the very heart of global sustainability, making it exceptionally important and urgent.

In other words, the ultimate goal of implementing climate disclosure standards is greenhouse gas reduction and resolving the climate crisis. Therefore, the federation's insistence on delaying the climate disclosure timeline or excluding Scope 3 emissions directly contradicts the very intent behind introducing the system.

There is a saying: "If you can't avoid it, enjoy it." There is virtually no benefit left for our corporations—who enjoy the full fruits of the global market—by attempting to dodge a global trend. If the federation genuinely wishes for our companies to secure a competitive edge, instead of arguing to delay the implementation timeline, shouldn't they instead urge for a swift adoption so that our industries can receive this preventive vaccine ahead of others? We look forward to a wise and resolute decision from the authorities.

July 25, 2024

Karl Chun Seung Yang, Executive Director of the Korea Sustainability Investing Forum