Insights

The Present and Challenges of Korean ESG

The Direction of Sustainable Finance according to Karl Chun Seung Yang, Executive Director of KoSIF

While ESG has become an essential mandate for corporate management, anxiety over "where to go" is deepening amidst rapidly changing global standards and geopolitics. In times like these when baselines are shifting, it is crucial to retrace the path we have walked and reflect on what we must not lose sight of.

Since its founding in 2007, the Korea Sustainability Investing Forum (KoSIF) has consistently stood at the frontlines during every turning point that reshaped the market landscape over the past two decades. As we move past the era of declarations and stand on the cusp of an actual transition, we sat down with Executive Director Karl Chun Seung Yang, who has personally driven this movement on the ground. Together, we look back at the defining moments of Korean ESG and contemplate the next challenges ahead of us.

Key Topics Covered in This Article

• • The defining "inflection points" of the Korean ESG landscape
• • An evaluation of the 2035 Nationally Determined Contribution (NDC)
• • Implications of the Financial Services Commission's mandatory ESG disclosure roadmap and transition finance guidelines
• •Understanding "ESG Capitalism"
• •The future direction of the Korean economy and financial system

    Q. Since 2007, when the concept of ESG first surfaced, KoSIF has taken the lead in researching and expanding it. Looking back at your activities, what do you consider to be the defining "inflection points" in the landscape of Korean ESG?

First and foremost, it was introducing CDP (formerly the Carbon Disclosure Project) to South Korea in 2008. Driven by financial institutions, CDP is the world's unique independent environmental disclosure platform. It requests corporations to disclose environmental information spanning climate change, water, forests, and biodiversity, and integrates this data into investment decision-making.

Prior to 2008, South Korea was grouped into the broader Asia-Pacific region (excluding Japan) for corporate disclosures. Considering the scale of Korea's economy and corporate activities, we determined that a dedicated framework was necessary. Consequently, KoSIF pushed for the introduction of CDP to Korea and persuaded the Association for Sustainable & Responsible Investment in Asia (ASrIA)—the executing agency at the time—to launch a dedicated Korea program. Today, approximately 700 domestic companies disclose climate and environmental information to investors through it. I take great pride in the fact that the CDP, operated by our forum, is contributing substantially to raising corporate climate responses and climate disclosure capabilities.

Second was our contribution to establishing the legal foundation that enables the National Pension Service (NPS) to take ESG into account. Recognizing the massive influence the NPS wields over the capital market and corporate behavior, our forum continuously supported relevant legislation. This bore fruit in 2015 when we helped amend the National Pension Act, laying the groundwork for the NPS to consider ESG factors during fund management.

Third was organizing the nation's very first "Coal-Exit Financial Institution Coalition" in 2018, transforming divestment from coal into a major agenda for Korean society. In 2021, ahead of the P4G Seoul Summit (Seoul Green Future Summit), we led 112 financial institutions to declare coal-exits, support the TCFD, and join the CDP through the "Climate Finance Support Declaration for Achieving Carbon Neutrality." This effectively spearheaded the mainstreaming of climate finance in Korean society.

    Q. Last November, South Korea finalized its 2035 Nationally Determined Contribution (NDC) at a 53% to 61% reduction compared to 2018 levels. What are your thoughts on this target?

Looking at the numbers alone, it reads as an "upgraded target." However, the value of a policy is judged not by mere figures, but by its "pathway" and "implementation." While the government undoubtedly weighed various elements to determine this target, the current national reduction target leaves three major regrets.

First is the range-based target of 53% to 61%. Such a broad range merely leaves political wiggle room, and the market typically operates based on the lower bound (53%). We need a mechanism that locks in a single, definitive figure alongside annual carbon budgets for every five-year period leading up to 2050, accompanied by an automatic adjustment system that triggers if deviations exceed a certain threshold. Ultimately, it is the credibility of the pathway, not the target itself, that moves capital.

Second, the "map" for the power sector transition is blank. If a concrete pathway detailing "where, what, and by when" remains invisible, it is difficult for corporations and financial institutions to move. The government must move beyond simply listing tools across various sectors—such as power, industry, buildings, and transport—and clearly quantify specific goals as soon as possible.

Finally, the just transition of industry must not be a mere slogan; it must be presented as a "project pipeline". The government should disclose Best Available Technology (BAT) deployment curves for each sector—such as steel (hydrogen reduction), cement (clinker reduction and alternative fuels), petrochemicals (electrification and heat recovery), and semiconductors/batteries (procuring carbon-free energy). It should design a package of policy finance, guarantees, tax incentives, and green premiums to provide differential support based on reduction performance per ton. What we need instead of declarations is a scheduled timeline for assembly line replacements and a structured financing framework.

Alongside this, demand management and a just transition must be discussed in tandem. In particular, the principle of "leaving no one behind" must be backed by budgets and institutional systems, not just rhetoric. Climate response governance also needs a redefinition. The National Committee on Climate Crisis Response must be granted sufficient authority and responsibility to act as a "pathway manager," a "data hub," and a "fiscal coordinator," making it the core engine driving the transition.

    Q. Recently, the Financial Services Commission (FSC) unveiled its mandatory ESG disclosure roadmap, transition finance guidelines, and climate finance activation plans as part of its productive finance initiative. How do you view this policy direction?

Regarding the mandatory ESG disclosure roadmap, I personally find it highly regrettable. The government's plan mandates climate disclosures starting in 2028 (for fiscal year 2027) targeting KOSPI-listed companies with assets worth 30 trillion KRW or more, while granting a three-year grace period for Scope 3 emissions, delaying them until 2031. Furthermore, the disclosure channel is set to begin via exchange disclosures before eventually transitioning into legally mandatory disclosures.

While this is slated to be finalized in April following public feedback on the draft, it is difficult to shake the impression that the overall policy momentum is slow. Given that the initial target encompasses a mere 58 companies, this roadmap falls far behind Japan—our competitor in the global supply chain. At a time when more than 200 companies are already voluntarily publishing sustainability reports, a policy that delays mandatory disclosure is an anti-business measure that risks turning first-rate corporations—who are fully prepared to compete in overseas markets—into third-rate companies. To secure competitiveness under a climate economy system, industries, corporations, and finance must collectively alter their DNA toward a climate-friendly direction. It remains highly questionable whether the current loose disclosure roadmap can sufficiently catalyze such a transformation.

Climate disclosure fundamentally signals a "transition" into a low-carbon economy. Transition finance relies heavily on corporate climate information. Although the FSC announced plans to scale up climate finance to 790 trillion KRW between 2026 and 2035 and released transition finance guidelines, the mandatory disclosure targets for the climate information that underpins financial institutions' investment choices remain highly restricted. This feels like an inconsistent approach where the front and back do not align.

What matters most in transition finance is preventing carbon lock-in and greenwashing. Furthermore, as the government sets its sights on securing a "Korea Premium" beyond simply hitting a KOSPI 5,000 milestone, the disclosure framework needs to be engineered in a way that sharpens corporate climate competitiveness. I sincerely hope these aspects are fully reflected in the final announcement in April.

Transition finance does not operate as an isolated policy. It requires an integrated approach where disclosure, finance, and industrial policies operate in unison. It can only function properly when mandatory ESG disclosures are legislated early on, carbon pricing is implemented, an industrial restructuring roadmap is carved out, and appropriate regulations on financial practices are executed with consistency.

    Q. You proposed "ESG Capitalism" as a new form of capitalism. Could you explain what this concept entails?

The core of "ESG Capitalism" is not a complete rejection of capitalism, but rather a redesigning of its rules of engagement around sustainability. In short, it means that ESG must position itself not merely as a tool for driving corporate profits, but as a fundamental market rule that governs the entire economy.

We are currently living in an era where the very "conditions of survival" are under threat. While we have achieved spectacular technological advancement and economic growth, the reality is that humanity's life-support systems are faltering due to the climate crisis and ecological degradation.

As I noted in my recent book, ESG Capitalism, I believe capitalism has developed over the past 250 years by relying on a few central myths: the myth of infinite capital substitution, absolute decoupling, the omnipotence of market prices, the omnipotence of technology, and the equation of GDP with welfare. Crucially, natural capital—such as climate, biodiversity, and the absorption capacities of freshwater and soil—cannot recover once it crosses a tipping point. The costs of crossing those boundaries increase exponentially. Given these limitations, a fundamental reassessment of how our economic system operates is imperative.

    Q. Ultimately, this discussion seems tied to the future direction of the South Korean economy and its financial system.

Exactly. I believe the climate crisis and severe inequalities we face today are direct outcomes of our current economic system. Under the conventional framework, environmental destruction and social costs were never properly internalized within economic operations; instead, that burden was shifted onto society as a whole.

Therefore, the ESG capitalism I propose means internalizing Environment, Social, and Governance not as a matter of corporate ethics or public image, but as a core operational principle of the economic system. In other words, ESG must become the standard for capital allocation and corporate management—shaping investment choices, capital costs, corporate valuations, supply chain management, and business strategies—rather than existing as a mere report or an evaluation metric.

When this happens, companies will compete while accounting for environmental risks, social responsibility, and long-term sustainability, rather than chasing profits in isolation. Ultimately, ESG capitalism is not about abandoning capitalism; it is a new economic paradigm aimed at upgrading its rules so that capitalism can operate sustainably.

Now that Korean ESG and sustainable finance have entered the stage of institutionalization, what matters is not the declaration itself, but creating the pathways and systems that link it to actual implementation. Only when disclosures, finance, and policy mesh organically can the transition truly become a reality.

In this first installment, we explored Karl Chun Seung Yang’s insights focusing on the present status and upcoming challenges of Korean ESG. In Part 2, we will look into the critical awareness that led to the founding of KoSIF, alongside its vision as it approaches its 20th anniversary.