A new task force is being created to develop ESG fund disclosure standards and prevent greenwashing in South Korea’s securities market.
South Korea’s integrated financial regulator, the Financial Supervisory Service, has launched a capital market task force to devise new environmental, social and governance fund disclosure standards.
The body, which was unveiled on April 11, aims to develop a framework for ESG investment targets and strategies and create benchmarks associated with fund manager capabilities and conduct.
The task force comprises seven Korean asset management groups, selected according to the volume of ESG funds under management, as well as industry umbrella group the Korea Financial Investment Association and public research entity the Korea Capital Market Institute.
In a published statement, the FSS said it wants to nurture a sustainable capital market that meets the highest global standards. In doing so, the regulator hopes to address existing “investor information asymmetries” with respect to ESG allocations and to help prevent greenwashing in the securities market. The task force is due to draft the framework over April and May before publishing a final standard by July.
Appetite for sustainable investments in South Korea is growing, even if the sector remains relatively small compared with other investment allocations. According to the Korea Capital Market Institute, there are a total of 52 ESG-themed funds that are managed in the country, with net assets under management of roughly Won2.5tn ($1.9bn).
New guidelines for rating agencies
The FSS announcement follows a string of other regulatory and legislative efforts to improve the country’s broader ESG business and investment framework. In January, the FSS introduced a set of new guidelines for rating agencies to use when conducting ESG bond certifications.
A month later, South Korea became one of the first countries in east Asia to introduce draft legislation to clamp down on greenwashing, including financial penalties for companies making misleading claims about their sustainability initiatives.
“South Korea is making important progress on the implementation of new legislative and regulatory initiatives to boost its ESG credentials. The pace of change has really picked up over the last two years,” said Yong Sik Ok, president of the International ESG Association in South Korea.
Even so, serious challenges lie on the horizon for South Korean corporates and financial institutions alike. In January, the country’s Financial Services Commission introduced a mandatory ESG disclosure regime for listed companies that have a minimum of Won2tn in total assets, which will come into effect in 2025. Only some of these entities are currently equipped to deal with this change.
“Introducing ESG programmes, as well as new reporting and disclosure requirements, will not be easy for some South Korean companies and financial institutions,” said Ok.
“But the private sector is gradually turning a corner in this regard, and I expect to see sustainability practices increasingly embedded across a wide range of businesses,” he added.