Insights

Toward an “ESG National Assembly” That Enacts a Framework Act on ESG

ㅣ Jong-oh Lee CIO of KoSIF ㅣ

We are living in an era of sustainability. Economies and societies around the world are being reorganized around sustainability, and the ability to respond to environmental, social, and governance issues is becoming directly linked to the competitiveness of companies, financial institutions, and ultimately nations. Although the anti-ESG movement has recently intensified in the United States, ESG has already entered the mainstream. A wide range of laws and institutional frameworks supporting ESG have created a firm foundation for this mainstreaming and made a return to the past increasingly difficult. The European Union is a leading example.

In Korea, the legal and institutional infrastructure needed to advance ESG remains relatively weak and fragmented. This is because Korea has largely responded on an issue-by-issue basis while monitoring regulatory developments in the European Union, the United States, and other jurisdictions. Rather than acting as a rule setter, Korea has positioned itself as a rule follower. Moreover, concerns about corporate burden have made it a slow follower rather than a fast follower in its approach to ESG-related regulation.

Such a strategy can be highly risky in a period of profound transition. If Korean companies and financial institutions fail to transform rapidly, their international competitiveness is likely to decline. In this context, the soon-to-be-convened 22nd National Assembly bears a significant responsibility. It must recognize that Korea is entering a major transition toward a sustainability-centered economy and establish a comprehensive framework of ESG-related laws and institutions. Above all, the ruling and opposition parties should combine their efforts and expertise to enact a Framework Act on ESG.

A Framework Act on ESG would serve as the overall blueprint for building a well-functioning ESG market ecosystem. It should identify the principal participants in that ecosystem—including companies, financial institutions and investors, clients, ESG data and rating providers, assurance providers, consumers of products and services, financial consumers, and government agencies. It should also define how these participants are connected through a network of interests, how they interact, and what roles, responsibilities, and obligations they must fulfill for the ecosystem to function.

A Framework Act on ESG would bring together ESG-related laws and institutions currently dispersed across multiple sectors. It would also make it possible to identify regulatory and institutional gaps, as well as areas where existing frameworks remain disconnected or insufficiently aligned from the perspective of the overall ecosystem. The Act should be designed according to a principle of proportionality that combines strong regulation with substantial support. As ESG requirements are rapidly becoming mandatory worldwide, it is no longer meaningful to view a Framework Act on ESG simply as legislation that would “mandate ESG management.”

At the core of a well-functioning ESG market ecosystem is the flow of capital enabled by ESG information. Mandatory ESG disclosure is therefore essential. Korea released a draft sustainability disclosure standard on April 30, but the scope of application and implementation timeline remain unclear. The ruling and opposition parties should work together to ensure its prompt introduction. Sustainability is not a matter that divides ruling and opposition parties, or progressives and conservatives. Preventing the shared collapse of society must take precedence.

I hope the 22nd National Assembly will become an “ESG National Assembly” that establishes a sound framework of ESG-related laws and institutions, beginning with the enactment of a Framework Act on ESG.