ESG international disclosure standard proposals were announced this year by the International Sustainability Standards Board (ISSB) under the International Financial Reporting Standards (IFRS). The exact title is ‘IFRS Sustainability Disclosure Standards.’ Established at the 26th UN Climate Change Conference (COP26) held in Glasgow, UK in 2021, ISSB has been working to establish sustainability disclosure standards. As ESG-conscious management and investment have gained importance, information disclosure criteria proposed by organizations such as the Global Reporting Initiative (GRI) and the Task Force on Climate-Related Financial Disclosures (TCFD) have attracted attention. The ISSB stated that it established the standard based on these existing mixed frameworks. Notably, it stands out that the TCFD recommendations, which companies were already using, were fully integrated and unified into the standard. Why are efforts being made around the world to create sustainability disclosure standards? First, it is necessary to examine why companies disclose information.
Why Do Companies Disclose Information?
Disclosure is a system that regularly or occasionally reveals information such as a company's operational performance, financial condition, and governance, allowing stakeholders such as employees, shareholders, creditors, and general investors to accurately understand the reality of the enterprise. The types and scope of information to be disclosed are defined under the 'Capital Markets Act'. Ultimately, it is a protective system established institutionally by the state so that members of society can support and invest in companies based on accurate judgments. However, while traditional disclosure focused on the financial performance of corporate activities, 'ESG disclosure' requires companies to reveal metrics showing their impact on the environment and society leading up to those financial outcomes. The ESG disclosure standard aims to standardize the indicators used in this process. Of course, these indicators will only shine if they are effectively put into practice.
Must the IFRS Sustainability Disclosure Standards Be Followed?
Not necessarily. Standards are just standards, and actual adoption and implementation are decided independently by each country. Therefore, ISSB formulated the disclosure standards with 'inter-operability' in mind. This means they made effort to align as closely as possible with existing disclosure systems established or used by major countries. On July 31, the EU officially adopted the European Sustainability Reporting Standards (ESRS), which are 'aligned at a very high level' with ISSB disclosure standards, and will apply them to EU-listed companies and companies with over 500 employees starting January 1, 2024. The U.S. Securities and Exchange Commission (SEC) is also scheduled to finalize its climate disclosure standards by April 2024.
When Will South Korea Adopt It?
Relatively late. For all companies listed on the KOSPI market, full adoption begins in 2030. Large corporations were initially scheduled to start mandatory disclosure earlier in 2025, but this was delayed by one year at the request of industry, postponing it to 2026. Consequently, opinions exist that South Korea is lagging behind other developed nations. As explained earlier, disclosure systems exist to help stakeholders make informed decisions. We need to reflect on whether disclosure systems should be considered primarily around stakeholders or around companies.
by Editor N