Insights

Scope 3, the Heart of Climate Disclosure—Is It Something to Put Off for Three Years?

l Dayeon Lee, Head of the ESG Management Department, Korea Sustainability Investing Forum l

"If you can't measure it, you can't manage it."

This is a famous line summarizing one of the core ideas of Peter Ferdinand Drucker, the great management thinker. Since then, the saying has been reworked in various ways in the corporate world to emphasize "execution," including as "If you don't measure it, you can't improve it."

On July 8, the government finalized its "Plan for Institutionalizing Sustainability Disclosure" (commonly known as the ESG mandatory disclosure roadmap), a step forward from the earlier draft (of February 25).

The scope of companies subject to disclosure, originally to begin in 2028 (FY27) with KOSPI-listed companies holding KRW 30 trillion or more in consolidated assets, was expanded to those with KRW 10 trillion or more; the disclosure channel was changed from exchange disclosure to statutory disclosure; and third-party assurance, previously voluntary, is to become mandatory from 2030.

In return, the plan also included a "safe harbor" provision, an exemption applying to all disclosed information for three years, and thereafter to information bearing the characteristics of sustainability, to ease the legal burden on companies.

Compared with the draft, the final roadmap is forward-looking. Part of that impression is a "psychological illusion," since the draft roadmap was in fact so far removed from international sustainability-disclosure trends, but it is forward-looking nonetheless.

Regarding this change in direction, the government stated in its press release and appended materials that it had "reset its strategy from 'waiting' for disclosure conditions to mature to 'leading' them," and that it had "revised the disclosure roadmap in a forward-looking manner in order to 'respond to the information demand' of global institutional investors and to 'support the GX transition.'"

     The "Scope 3" Left Out of the Forward-Looking Revision

Yet there is one item that, compared with the draft, is "not forward-looking": Scope 3 emissions disclosure.

In the final plan, the government kept intact the draft's policy of deferring Scope 3 emissions disclosure by three years from the initial mandatory-disclosure date, to begin in 2031 (FY30). The reasons converge broadly on two points: that Korean companies' capacity and infrastructure to calculate Scope 3 emissions are severely lacking, placing a heavy burden on companies; and that the heavy reliance on estimates could introduce inaccurate information and confuse the market.

Unlike the fuel a company burns directly (Scope 1) or the electricity it purchases (Scope 2), Scope 3 emissions are greenhouse gases that arise across the entire value chain outside the organization.

They occur everywhere from the suppliers providing raw materials to the stage at which consumers use the products sold. These Scope 3 emissions amount to 70~90% of a company's total greenhouse gas emissions. It is therefore no exaggeration to say that without Scope 3 emissions a company's climate risk cannot be fully understood, and that without Scope 3 reductions, climate action ends in failure.

For companies, these Scope 3 emissions are not simply an environmental figure, they are directly tied to money. When the price put on carbon rises, suppliers with high greenhouse gas emissions pass the growing burden on through their delivery prices, and this is reflected in full in the company's costs. Consumers, too, open their wallets for energy-efficient products. A company that fails to manage the carbon in its supply chain and misses this shift sees its future value discounted on both the "cost" and "revenue" sides.

To manage these risks, customers and investors are making "supply-chain carbon management" the language of the market and the order of the market. Customers, especially global companies that have pledged carbon neutrality, demand emissions data from their suppliers, and a supplier that cannot provide it may find its business relationship shaken. Investors, especially global investors, classify their investees' Scope 3 emissions as a climate risk and factor them into their investment decisions. To this end, they are requesting Scope 3 information.

The two things investors dislike most are the absence of information and information being unknown. The absence of information, in particular, signifies a lack of corporate transparency, an omission in disclosure, or unpredictability, and is therefore perceived as "unpredictable uncertainty", an investor's greatest fear, making it fatal.

A company with no Scope 3 information becomes, to an investor, a company whose climate risk cannot be gauged. Accumulated research also shows that companies that transparently disclose their emissions raise capital at lower cost. A company that measures and discloses its Scope 3 emissions ahead of others can get ahead on both capital raising and business relationships. In other words, it is also an opportunity.

     The Weak Logic of the Scope 3 "Three-Year Deferral"

And yet the government has put off this crucial Scope 3 disclosure by a full three years. The reasons for doing so do not outweigh the reasons for not doing so. The justification for the three-year deferral is weak in many respects.

First, Scope 3 is already operating in the market regardless of whether domestic rules and regulations exist.

The government cites the calculation burden on companies, especially small and medium-sized suppliers, as one reason for the deferral, but that burden was not created by domestic regulation. Global investors demand emissions data from companies, global clients demand it from suppliers, companies subject to the EU's CSRD (Corporate Sustainability Reporting Directive) request data from the companies in their supply chains, and companies subject to CBAM (the Carbon Border Adjustment Mechanism) must declare the emissions embodied in their products. Even companies that are not first-tier suppliers end up undertaking these calculations anyway in order to make second- and third-tier deliveries. The problem is that deferring for three years at home will not make this market demand disappear. Covering your eyes does not make the reality go away. On the contrary, without a unified domestic standard, companies bear an even greater burden, having to respond separately to a variety of different overseas requirements.

Second, major companies are already prepared, to some degree, to calculate Scope 3 emissions.

The government says the infrastructure to calculate Scope 3 emissions is still inadequate. But emission factors and databases already exist. They do, of course, need to be enhanced, and the Ministry of Climate is building an enhanced LCI (Life Cycle Inventory) database of around 1,000 datasets by 2028. This is to allow secondary data to be used as a substitute where it is difficult to collect data directly from suppliers. Korea's major companies have already been preparing for this. According to the "2025 CDP Report," 222 of 287 Korean companies said they already calculate Scope 3 emissions, and 149 of those had even obtained third-party verification, all of this before the government even announced its sustainability disclosure roadmap.

Third, if disclosure is deferred by three years to begin in 2031, a considerable number of companies will remain in a state of absent Scope 3 information for a long time.

One representative misconception about disclosure is the belief that all companies subject to mandatory disclosure by 2030 must complete Scope 3 disclosure in 2031. Because Scope 3 is also structured to be phased in with a three-year lag by disclosure tier, if companies with KRW 10 trillion in assets are covered in 2031, those with KRW 5 trillion in 2032, and those with KRW 2 trillion designated for mandatory disclosure in 2030, then a KRW 2 trillion company will not disclose Scope 3 until 2033. In other words, obtaining Scope 3 information for companies on the scale of the KOSPI 200 would take as long as about seven years.

The problem is that other countries are not doing this. The ISSB (International Sustainability Standards Board), the body under the IFRS (International Financial Reporting Standards) that set the sustainability disclosure standards, recommended a one-year deferral in the first year of mandatory disclosure, and the European Union is already implementing Scope 3 disclosure under the CSRD. In the United States, federal-level climate disclosure has for now fallen through, but it is proceeding at the level of some state governments, California, for instance, will implement it starting in 2027. A considerable share of Korean companies will inevitably remain vulnerable for a long time to the risks arising from customer and investor demands for Scope 3 disclosure. This means that customers' supply chains and investors may increasingly turn to competing firms in rival countries whose information is more transparent than that of Korean companies. It is a matter of corporate competitiveness.

Finally, there is the safe harbor that the government put in place to ease companies' legal burden, so there is no need to defer for three years. Scope 3 information has the characteristic of being third-party-provided information that cannot be predicted, estimated, or controlled.

Therefore, even if disclosed information turns out to be inaccurate, it is naturally exempt as long as the company shows reasonable grounds for its assumptions and how it made its calculations. This means that, absent deliberate deception, a company will not be penalized for greenwashing or ESG washing. Investors, too, know that disclosed Scope 3 information is not perfect information, and they interpret it and reflect it in their investment decisions accordingly.

If there were no safe harbor system, the three-year deferral might be justified. But it is so hard to accept that one can only ask, "Why bother, when there's a safe harbor?" A one-year deferral is sufficient. In fact, the most reasonable approach is to give companies time to build capability, many of them detecting problems early through trial and error, seeking solutions, and improving. Throughout this process, the government must spare no effort in providing full-fledged support through policy, administrative, and financial means.

     Scope 3 Will Come Back as a Bill

The government said it would "lead" the maturing of disclosure conditions rather than "wait" for them. So why is it applying a "waiting" strategy to Scope 3 for a full three years? It is a contradiction. There is a need to send a strong signal so that companies can swiftly demonstrate the "execution" of measuring Scope 3. I would like to offer the government the following, reworked in "Peter Drucker style":

"If you don't measure it, you can't manage it; if you don't manage it, there is no improvement; and if you don't improve it, one day it will come back as a bill."