Businesses in South Korea, Asia’s No. 4 economy, are voicing concerns about the government’s plan to mandate companies to disclose their Scope 3 greenhouse gas emissions, which include both upstream and downstream emissions of an organization’s activities across its entire value chain, from 2026.
The regulations will require all listed companies to disclose their Scope 3 greenhouse gas emission sources starting in 2026.
Scope 3 emissions, also referred to as value chain emissions, include emission sources from activities of assets not owned or controlled by the reporting organization on top of the organization’s scope 1 and 2 emissions. They often represent the majority of an organization’s total greenhouse gas emissions.
If Korea’s top 30 conglomerates adhere to Scope 3 disclosure standards from 2026, they would together spend several trillion won, or multi-billions of dollars, in doing so for the next four years, the KEF said in the report, demanding the government to revisit the issue.
In response to a survey conducted by the KEF on Scope 3 disclosure rules, 215 listed companies -- under the country’s top 30 conglomerates -- forecast they would spend about 12 billion won ($9 million) each over the next four years to prepare the new climate disclosure regulations, according to the KEF report.
They also project that each company will spend up to 60 billion won on data collection of the life cycle assessment of each material. On top of this, companies have to bear the brunt of third-party assessment costs.
Especially, Korea’s export-oriented industries, such as the auto, electronics, battery and petrochemical sectors, are expected to take a bigger hit from the rule, considering that their major parts contractors are located in China, Southeast Asia, India and Latin America, notorious for their inferior environmental, social and governance (ESG) infrastructure and the lack of credible data.
“It is almost impossible to obtain valid greenhouse gas emission data from our contractors in Southeast Asia and Latin America,” said an unnamed official from a Korean conglomerate. “They just ask us to teach them to calculate it if we ask for data.”
(Courtesy of Getty Images) LEGAL RISK
If companies report their Scope 3 emissions based on such invalid data, they will be faced with legal challenges. This is because the organization’s balance sheet changes with any amendment in the amount of greenhouse gas emissions.
According to the London School of Economics and Political Science’s Grantham Research Institute on Climate Change and the Environment, the total number of lawsuit cases filed against corporations by countries has grown to 233 since the Paris Agreement in 2015.
Of them, 60% were related to the accusation of greenwashing, or misleading the public to believe that it is doing more to protect the environment than it is.
Many companies across the globe oppose the idea of following the EU’s strict climate disclosure standards mandating companies to unveil Scope 3 emissions.
The world’s top two economies – the US and China – either exclude the Scope 3 disclosure rule or make it optional.
In February, the US Securities and Exchange Commission (SEC) dropped a requirement for US-listed companies to disclose Scope 3 emissions, which was included in its original draft of the rules published in March 2022.
Korea’s FSC will finalize its decision on the country’s climate disclosure regulations and adoption schedule later this year.
Write to Jin-Won Kim at jin1@hankyung.com Sookyung Seo edited this article.
