Insights

Korea Must Accelerate Mandatory ESG Disclosure and Amend the Capital Markets Act

ㅣJong-oh Lee, CIO of KoSIFㅣ

Attention is growing over whether the Lee Jae-myung administration will actively pursue the early introduction of mandatory ESG disclosure. Implementation has been delayed for the past three years, leaving even the effective date uncertain. With the new administration now in office, however, expectations are rising that mandatory disclosure will regain momentum. Market participants expect the government to announce a final roadmap and disclosure standards within the year.

“Swiftly advancing sustainability reporting by listed companies” was one of the Lee Jae-myung administration’s election pledges on mandatory ESG disclosure. The commitment, however, remains vague. Key details—including the companies subject to disclosure, the implementation date, and the disclosure channel—have yet to be specified. The scope of application, at least, has become clearer.

In its response to a presidential election policy questionnaire issued by the Korea Sustainability Investing Forum (KoSIF), the administration stated that the requirements would apply to listed companies with total assets of at least KRW 2 trillion. The response also referred to “swift implementation,” but since the meaning of “swift” is subjective, 2027, 2028, and 2029 may all be considered possible implementation dates.

Business associations are calling for mandatory ESG disclosure to begin in 2029. However, given the strong criticism this proposal has received from domestic and international investors and civil society, such a delay appears unlikely. Civil society organizations and global financial investors have generally called for implementation in 2027. Their position is based on the fact that major jurisdictions introduced ESG disclosure requirements between 2025 and 2027, and that Korea must also accelerate its industrial transition. Although implementing disclosure through statutory business reports under the Capital Markets Act would make the 2027 timeline challenging, this is ultimately a matter of government commitment. From a practical perspective, implementation in 2028 currently appears more likely than in 2027.

This year should, in fact, have marked the beginning of mandatory ESG disclosure in Korea. That would have been the case had the Yoon Suk Yeol administration not abandoned and revised the roadmap introduced under the Moon Jae-in administration, which required KOSPI-listed companies with assets of at least KRW 2 trillion to begin disclosure in 2025. The Yoon administration postponed implementation until “after 2026,” accepting arguments from business associations that companies were insufficiently prepared, that the timing was premature, and that disclosure would impose an excessive burden.

Discussions on legislating ESG disclosure have continued for many years. Korea’s first legislative effort dates back to July 2010, during the 18th National Assembly, when lawmaker Park Sun-sook proposed an amendment to the Capital Markets Act. Two related bills were introduced during the 19th National Assembly, three during the 20th, and another three during the 21st. Three bills have also been introduced during the current 22nd National Assembly. Despite 15 years and one month of continued discussion, none has been enacted. The arguments for and against mandatory disclosure remain largely unchanged, and companies that have repeatedly claimed they were unprepared made little meaningful progress during that period. Greater responsibility, however, lies with successive governments. Authorities failed to make a firm decision and remained overly cautious in the face of corporate opposition.

     Mandatory ESG Disclosure Is Essential to Industrial Transition

Mandatory ESG disclosure is inseparable from the Lee Jae-myung administration’s capital-market policy, industrial-transition policy, and response to the climate crisis. Without a strong mandatory ESG disclosure framework, the goal of raising the KOSPI to 5,000 will rest on weak foundations, while industrial transition and climate action are also likely to fall short. This is why the administration must give serious attention to introducing mandatory ESG disclosure at an early stage.

Early ESG disclosure is a foundation for achieving a KOSPI level of 5,000. The Principles for Responsible Investment (PRI) has described the period since the 2000s as the era of sustainable finance. As ESG-related laws and institutional frameworks have developed rapidly, the number of financial institutions incorporating ESG factors into investment decisions—and the number of related financial products—has continued to grow. The PRI currently has 5,170 signatories. According to the Global Sustainable Investment Alliance, global ESG investment assets reached USD 30.3 trillion in 2022, while Deutsche Bank projects that the market will exceed USD 160 trillion by 2035.

What would happen if Korean companies were unable to provide ESG information aligned with international standards? The inflow of foreign capital into Korea’s capital market would be constrained. Given that foreign investors account for close to 30 percent of the domestic stock market, the value and competitiveness of Korea’s capital market would inevitably decline. Continued delays in mandatory ESG disclosure would increase the risk of Korea becoming isolated from the global sustainable-finance market. This would also become a major obstacle to the Lee administration’s goal of raising the KOSPI to 5,000.

On July 15, Oh Gi-hyoung, Chair of the Special Committee on KOSPI 5,000, announced a legislative and policy roadmap for capital-market reform. The roadmap included strengthening the ESG disclosure system as a policy for improving capital-market discipline and utilizing the National Pension Service’s Stewardship Code as a measure to reinforce the foundations of the capital market. The expansion of ESG-related investment exclusions by global financial institutions is another concern. According to the Financial Exclusions Tracker, as of 2024, 93 financial institutions across 17 countries had excluded 5,536 corporate groups in 135 countries from investment. When subsidiaries are included, the number of excluded companies rises to 66,708. Korean companies are not exempt from this trend.

Among Korean companies, 99 corporate groups and 223 entities when subsidiaries are included have been placed on investment exclusion lists. Climate-related harm and involvement in fossil fuel businesses accounted for 48 percent of these exclusions. This demonstrates that companies that fail to strengthen their ESG competitiveness may be more likely to attract short-term speculative capital rather than stable, long-term investment. Such a shift could create greater uncertainty for their long-term business strategies.

     As an Export-oriented Economy, Korea Must Move Quickly on ESG Disclosure

Korea is an export-oriented country with a high proportion of manufacturing industries. As of the end of 2024, China accounted for 19.5 percent of Korea’s exports, followed by the United States at 18.7 percent, the European Union at 10.0 percent, and Japan at 4.3 percent. Some business organizations cite this industrial structure to argue against the early introduction of mandatory ESG disclosure, calling for weaker standards and a narrower scope of covered companies. In fact, however, Korea’s industrial structure is a compelling reason to introduce ESG disclosure sooner and build more comprehensive supporting infrastructure.

Global supply chains are being reorganized around ESG issues at both the national and corporate levels, with ESG requirements increasingly being used as trade barriers. The EU and UK Carbon Border Adjustment Mechanisms, the EU Corporate Sustainability Due Diligence Directive, the proposed Foreign Pollution Fee Act and Clean Competition Act in the United States—which have received support from both Republicans and Democrats—and the Uyghur Forced Labor Prevention Act are all examples of government-led trade measures and supply-chain restructuring. In addition to government regulation, global companies are voluntarily incorporating ESG requirements into their supply-chain management. RE100, which brings together 444 global companies, is a leading example of corporate-level supply-chain transformation.

Some argue that Korea should delay disclosure as long as possible and weaken its standards, citing the second Trump administration’s anti-climate and anti-DEI policies and the European Union’s Omnibus Package to simplify sustainability regulations. This is a serious misconception. Despite its anti-ESG policies, the Trump administration may selectively use ESG-related measures whenever they support its “America First” agenda. The European Union, meanwhile, is adjusting the pace of implementation after already building extensive ESG infrastructure. Korea, where such infrastructure remains significantly underdeveloped, should not make the mistake of drawing a direct comparison with the EU.

According to its campaign pledges, the Lee Jae-myung administration seeks sustainable growth through a just energy transition and industrial transformation. Disclosure is an essential precondition and catalyst for that transition. ESG disclosure, and climate disclosure in particular, is not simply about making information public. It is itself part of the transition process. Publicly available climate information enables more effective capital allocation, supports the development of green technologies and industrial transformation, and accelerates the shift toward a low-carbon and decarbonized economy.

The world is facing an era of profound transition, and the ultimate outcome of that transition must be greater sustainability. For Korea to navigate this transformation, it must promptly establish a market framework in which all ESG market participants can benefit. ESG information is the core infrastructure that enables this market to function. Without the prompt introduction of mandatory ESG disclosure, Korea cannot advance its ESG market.

The government must announce an accelerated ESG disclosure roadmap, including plans for disclosure and assurance, by October this year. The roadmap should require listed companies with assets of at least KRW 2 trillion to disclose information in accordance with international standards through statutory business reports beginning in 2027, based on the 2026 financial year. To achieve this, the Capital Markets Act must be amended within this year, followed by revisions to the relevant enforcement decree by the first half of next year.

The previous administration failed to finalize the ESG disclosure roadmap because it was overly cautious in responding to corporate opposition. The result was a significant loss of time. The Lee Jae-myung administration must not repeat that mistake. In an era of transition, speed matters as much as direction. Korea must make up for the time lost through repeated delays. It must decisively move away from the follower strategies pursued by previous governments and adopt an approach that positions Korea as a leader in ESG. This is necessary to fundamentally strengthen the competitiveness of Korean companies—and to achieve the “real growth” envisioned by the Lee administration.