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Korea's FSC weighs exempting low-carbon industries from Scope 3 supply-chain reporting
Korea's Financial Services Commission is reviewing an exemption from Scope 3 reporting, due from 2031, for companies outside high-carbon industries. The rules reach only large KOSPI issuers, so the carve-out would spare a subset of them the supplier-data work that companies rank as the hardest part of disclosure.
The Investor · Invest desk
What happened
- Kwon Dae-young, then FSC vice chairman, told a National Assembly subcommittee last month that the government was reviewing the exemption for firms outside high-carbon industries.
- By 2028 the government plans Scope 3 calculation guidelines for 15 major export industries, including batteries, steel, petrochemicals, semiconductors and cars.
- The US Securities and Exchange Commission excluded Scope 3 from its mandatory disclosure rules, and Japan is reportedly designing its own system to limit the corporate burden.
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Why it matters
- cost Small and mid-sized suppliers outside the rules would stop getting emissions-data requests from exempted customers, along with the cost of building measurement systems to answer them.
- exposure Investors in exempted sectors would see direct and electricity-and-heat emissions only, without the raw-material, logistics, travel and product-use emissions that Scope 3 captures.
- decision Large issuers that may fall outside the high-carbon list can delay building supplier-data systems until the FSC settles which industries stay in.
Companies rank fees fourth among their disclosure problems. The Korea Chamber of Commerce and Industry asked ESG officials at 100 companies what stood in the way of disclosure [7]. Supplier data topped the list at 63%, ahead of a lack of detailed guidelines at 60% and a shortage of in-house specialists at 52% [7]. The cost of outside specialist firms came fourth, at 46%, 17 points behind the supplier-data problem [1]. For an industry that wins the exemption, the supplier-data problem goes away entirely. The report does not estimate the savings, say which industries count as high-carbon, or give the number of companies in each asset tier.
The group that could benefit is also much smaller than Korea's listed market. Mandatory ESG disclosure starts in 2028 with KOSPI companies holding at least 10 trillion won in consolidated assets and reaches the 5 trillion won tier in 2029 [3]. The government is reviewing a 2 trillion won tier for 2030 [3]. A low-carbon carve-out would come out of that pool of large issuers. Listed companies below 2 trillion won are not scheduled for mandatory Scope 3 reporting with or without it [3].
The exemption would have no effect before 2031, when Scope 3 begins for the largest tier [4]. The phase-in ends with the 2 trillion won tier in a tentative 2033, five years after the first mandatory reports [2]. In the meantime the government is working on compliance costs for the firms that stay in. It plans 1,000 sets of life cycle inventory data by 2028 for companies that cannot get figures from suppliers [6]. It is also offering a safe harbor that limits legal liability, since ESG data in a business report, unlike a voluntary disclosure, can expose a company to liability if it is false or inadequate [12].
Kwon's remarks came as committee members raised concerns about introducing Scope 3 [14]. Rep. Kim Jae-sup of the People Power Party said of Scope 3 that "there are many disputes and differing views overseas as well," adding, "How will it be assessed, and how will it be quantified?" [10] Rep. Cho Jung-hoon, from the same party, said measurement standards and certification bodies were not sufficiently in place [11]. "In the environmental field in particular, Scope 3 is almost an impossible area as things stand," he said [11].
If the FSC draws the high-carbon line wide, most of the 10 trillion won tier stays in and the exemption changes little. A narrow line would take a large share of the biggest issuers out of Scope 3. The review could also stall. Kwon Dae-young has since left the FSC to become first vice minister of economy and finance [2].
I think the exemption, if adopted, is a late and narrow cut in what large companies spend. Nobody has to produce mandatory Scope 3 figures before 2031 [4], and outside fees rank fourth among the obstacles companies named [7]. The counter-case is that supplier data is the obstacle ranked first, and an exempted company never has to collect it. The counter-case wins if the FSC's list leaves most of the 10 trillion won tier exempt.
What to watch
- The FSC's definition of high-carbon industries, and whether it tracks the 15 export industries getting Scope 3 calculation guidelines.
- Whether the government confirms the 2 trillion won tier for 2030; that decision sets how many companies face Scope 3 from 2033.
- Whether the FSC keeps the exemption under review now that Kwon Dae-young has moved to the finance ministry.