A regional comparison of ESG regulations

Growing awareness of the impact of environmental, social and governance (ESG) standards is pushing companies around the globe to higher levels of accountability and, slowly but surely, Asia is catching up

INDIA

INDONESIA

JAPAN

SINGAPORE

SOUTH KOREA

TAIWAN

THAILAND

INDIA

Environmental, social and governance (ESG) is synonymous with responsible action. In India, the essence and recognition of ESG has been around for some time, but regulation was fragmented and spread across various legislation.

With ESG-related reporting requirements, it has now come under a focused and unified regulatory framework. ESG has formally established a direct correlation in measuring the growth, profitability and value of an enterprise with its sustainability, ethics and responsibility quotient.

While the full implications of regulating ESG performance are yet to be seen, its impact is palpable in the assessment of value and credibility of an enterprise.

REGULATION UPDATE

The Securities and Exchange Board of India (SEBI) prescribed the Business Responsibility and Sustainability Report (BRSR) as the new reporting format in 2021, replacing the previous Business Responsibility Report (BRR) format.

As per regulation 34(2)(f) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, compliance with the BRSR framework is mandatory for India’s top 1,000 listed companies (by market capitalisation). They must submit the requested information in prescribed format according to guidelines that may be issued by the SEBI from time to time.

The SEBI also recently introduced a novel ESG reporting framework called the Business Responsibility and Sustainability Reporting Core (BRSR Core), which brings out critical elements of BRSR and sets out specific parameters for ESG reporting. The disclosures will, over time, create transparency and accountability, enabling the regulators, investors, lenders and stakeholders to have deeper insights about a company.

Other listed entities, including those listing their specified securities on the exchange for small and medium-sized enterprises (SMEs), or SME exchanges, may voluntarily file the BRSR or voluntarily obtain the assurance of the BRSR Core for themselves or for their value chain, as the case may be.

The BRSR is currently divided into three parts, including general disclosures (mandatory); management and process disclosures (mandatory); and principle-wise performance disclosures, which are further segregated into essential (mandatory) and leadership (voluntary) indicators.

While the essential indicators are expected to be disclosed by every entity mandated to file the BRSR, the leadership indicators may be voluntarily disclosed by entities aspiring to progress to a higher level in their quest to becoming environmentally, socially and ethically responsible.

Additionally, a few of the key disclosures sought in the BRSR include:

• Overview of entity’s material ESG risks and opportunities, approach to mitigate or adapt to such risks, along with the financial implications;
• Sustainability related goals, targets and performance;
• Environment-related disclosures covering various aspects including resource consumption usage (energy and water), air pollutant emissions, greenhouse gases emissions, waste generated and management practices, transitioning to circular economy and biodiversity; and
• Social disclosures covering the workforce, communities and consumers, such as gender and social diversity, including measures for differently abled employees, turnover rates, maternity and paternity benefits, welfare benefits to permanent and contractual employees or workers, health and safety training, among others. Disclosures on social impact assessments, rehabilitation and resettlement, corporate social responsibility, as well as disclosures on product labelling, product recall, and consumer complaints in respect of data privacy and cybersecurity.

Listed companies already preparing and disclosing sustainability reports based on internationally accepted reporting frameworks (such as the Global Reporting Initiative, the Sustainability Accounting Standards Board, the Task Force on Climate-related Financial Disclosures or Integrated Reporting) may cross-reference disclosures made under such frameworks to disclosures sought under the BRSR reporting framework.

The SEBI has constituted an ESG advisory committee to assist with strategic advice on ESG-related matters, and recently notified a separate chapter on ESG rating providers (ERPs) under the Securities and Exchange Board of India (Credit Rating Agencies) Regulations, 1999 (CRA regulations).

Pursuant to the CRA regulations, ERPs are now required to register with the SEBI. In the event there are existing rating providers providing ratings in the ESG space, they may continue to do so for a period of six months from the date of enforcement of the CRA regulations, or other period specified by the SEBI.

For the grant of certificate or registration with the SEBI, ERPs are required to fulfil certain stringent criteria.

The substantial list includes: being a company under the Companies Act, 2013; specifying ESG rating activity as the main object in the memorandum of association; not being a credit rating agency or any other intermediary registered with the SEBI; appointing a compliance officer and employing technical and competent professionals to the satisfaction of the SEBI; maintaining positive net worth as specified in CRA regulations; during the past three years from filing the registration application has not been refused a certificate, or been deemed not fit and proper by the SEBI, or subject to any enforcement action for contravention of the Securities and Exchange Board of India Act, 1992 rules or regulations; and granting a certificate would be in the interest of investors.

Every ERP is required to keep and maintain all such documents or information as may be requested by the SEBI from time to time, for at least five years. These include but are not limited to books of accounts, records, agreements, correspondence with clients, ESG notes and ESG audit reports of its clients as specified under the CRA regulations.

In addition, ERPs are required to abide by the code of conduct set out under the seventh schedule of CRA regulations, ensuring adequate levels of confidentiality and transparency, and preventing any conflict of interest while providing the ERP ratings.

SUSTAINABILITY INVESTMENT

There is an increasing focus of investors on sustainability investing, which may be reflected in an increase in total assets and inflows in sustainable funds. ESG-themed funds are also rapidly gaining momentum in India, indicating an increasing focus on, and appetite for, sustainability investing.

The Reserve Bank of India also released a report on 3 May 2023, titled Towards a Cleaner Greener India, with a focus on overall sustainable growth and reduction in carbon emissions. The report addresses the four critical aspects of climate change, namely, the unprecedented scale and pace of climate change, its macroeconomic impacts, and financial stability implications and strategies to mitigate climate risks.

Investors are now moving towards impact investment options, and in response regulators are creating and implementing new innovative strategies including the proposed Green Credit Programme Implementation Rules and Green Mutual Funds.

The government and regulators are using ESG to actively implement responsible action that focuses not only on creating wealth for stakeholders but also safeguarding the interests of non-stakeholders who are otherwise impacted by unchecked gusto of growth at any cost. The responsibility of an entity towards the planet, people and profit is now a clear requirement in any entity’s growth story.

WAVE OF CHANGE

Shardul Amarchand Mangaldas & Co

Express Towers, 23/F, Nariman Point

Mumbai, Maharashtra – 400 021, India

Executive Chairman:
Shardul Shroff

Managing Partners:
Pallavi Shroff and Akshay Chudasama

Tel: +91 22 4933 5555
Email: Connect@AMSShardul.com

www.amsshardul.com

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INDONESIA

Environmental, social and governance (ESG) disclosure requirements in Indonesia are primarily applicable to publicly listed companies and financial institutions, subject to the supervision of the Indonesian Financial Services Authority (Otoritas Jasa Keuangan, or OJK).

Only non-publicly listed companies in the natural resources sector are required to prepare a corporate social and environmental plan. All other private companies are only obliged to include information on their implementation of corporate social and environmental responsibility programmes in their annual reports.

LISTED COMPANIES AND FINANCIAL SERVICES INSTITUTIONS

For publicly listed companies and financial institutions, the relevant ESG disclosure obligations arise from OJK Regulation No. 51/ 2017 and OJK Circular Letter No. 16/2021.

OJK Regulation No. 51/ 2017 Regarding the Implementation of Sustainable Finance for Financial Service Institutions, Issuers (Emiten) and Public Companies generally imposes the obligation for financial institutions and public companies to implement sustainable finance.

This entails mandatory annual submission of a sustainability report, either as part of the company’s annual report or as a standalone report to the OJK.

OJK Circular Letter No. 16/2021 Regarding the Form and Substance of the Annual Report of Issuers (Emiten) and Public Companies governs the form and content of ESG disclosures in annual reports of publicly listed companies with directives.

The annual report shall include, in the company profile section, a list of industry associations (national or international) related to sustainable finance implementation. The annual report shall also disclose actions taken by the company as part of its social and environmental responsibility.

This disclosure is the sustainability report regulated by OJK Regulation No. 51/2017, which must at least include the following information:

• Sustainable strategies;
• Summary of sustainability efforts (economic, social and environmental);
• Brief company profile;
• Board of directors’ remarks;
• Sustainable governance;
• Sustainable performance;
• Written verification of the report and its information from independent parties, if any;
• Readers’ feedback, if any; and
• Company response to feedback in previous year’s report.

Failure to comply with these sustainability report requirements shall subject the publicly listed company or financial institution to administrative sanctions in the form of a reprimand or written warning from the OJK.

The requirements under the above-mentioned OJK regulation and circular letter are not based on international standards. But, in practice, some publicly listed companies have gone above and beyond the requirements under Indonesian law, with reference to international standards such as the Task Force on Climate-related Financial Disclosures (TCFD) in their ESG reports, even though this is not mandatory.

OJK Circular Letter No. 16/2021 merely mentions that, aside from minimum disclosure required under the circular letter, companies can also refer to international standards as necessary and desirable. However, there are no specific plans to implement any particular international standards so far.

NON-LISTED COMPANIES

Non-publicly listed companies utilising natural resources must prepare a corporate social and environmental responsibility plan under Government Regulation No. 47 of 2012 Regarding Corporate Social and Environmental Liability.

Other non-publicly listed companies are regulated by Law No. 40 of 2007 Regarding Limited Liability Companies, amended by Law No. 6 of 2023 (the Company Law). This directs a general obligation to prepare an environmental and social responsibility implementation report as part of annual reporting.

The mandates under the Company Law and Government Regulation No. 47/2012 are very general and do not elaborate on the standard or format of the implementation report, or what information it must contain.

While Indonesia has taken steps to promote sustainable development and responsible business practices, the regulatory framework for ESG compliance is still evolving. This absence of specific guidelines and standards can make it challenging for businesses to determine expectations and requirements for ESG reporting and performance.

Aside from the evolving regulatory regime, other challenges for businesses include: data availability and quality; expertise and capacity of human resources (especially when there are no clear ESG practice standards); and access to finance, where green projects may not have sufficient bankability precedent, making it more difficult to obtain assistance from conventional financing institutions and harder overall to get green projects up and running.

Finally, the lack of clear mandatory regulations for ESG disclosure is another challenge facing non-publicly listed companies for ESG compliance.

CLIMATE TARGETS

Neither public nor non-publicly listed companies are obliged to independently set and meet climate-related targets such as emission reductions or energy transition. Nonetheless, they must all disclose any sustainability-oriented strategies in sustainability reports.

But aside from independently set targets, companies in particular industries will eventually be subject to a government-

determined emissions ceiling. This relates to cap-and-trade and/or cap-and-tax mechanisms for carbon trading schemes that Indonesia plans to put in place. For example, the Ministry of Energy and Mineral Resources plans to issue an emissions ceiling technical approval for coal-fired power plants. Companies subject to this emissions ceiling must ensure their greenhouse gas emissions comply with the determined ceiling.

Companies that do not comply will face a carbon tax (which is yet to be implemented), or will need to purchase emission reduction credits from other companies to offset their excess emissions.

Other than the emissions ceiling there is no mandatory requirement for companies to set, meet and/or disclose climate-related targets.

DECARBONISATION

Indonesia targets reducing carbon emissions unconditionally by 31.89%, or conditionally by 43.2%, compared to “business as usual” CO2 emissions.

This target is included in the country’s enhanced Nationally Determined Contributions (NDC), the transition toward a second NDC aligned with the Long-Term Low Carbon and Climate Resilience Strategy 2050, a vision to achieve net-zero emissions by 2060 or sooner.

To achieve the greenhouse gas emissions target, the government is working on regulations and infrastructure to establish carbon trading markets, where both compliance and voluntary carbon markets are contemplated. The compliance carbon market would initially be limited to coal-fired power plants and later expand to other types of power plants from 2025.

The expected carbon exchange shall be licensed by the OJK, which is mandated to prepare the necessary regulations to implement carbon trading. In short, as currently contemplated, the carbon exchange will be a system that:

• Regulates carbon trading;
• Records ownership of carbon units;
• Develops carbon trading infrastructure;
• Regulates state revenue deriving from carbon trading; and
• Administers and oversees carbon trading transactions.

As the OJK develops logistics and legal infrastructure to implement the carbon exchange, the imposition of a carbon tax for coal-fired power plants – originally set to take effect by 1 April 2022 – is now planned to be introduced in 2025. Other emission sectors will also be subject to a carbon tax but the government has yet to determine the exact industries it will impact.

The mutual recognition agreement or mechanism between the Indonesian Ministry of Environment and Forestry and non-domestic carbon credit certification bodies is still being finalised, pending which, international carbon trading with carbon credits issued by non-national certification bodies is, for all intents and purposes, barred.

GREENWASHING

SSEK Law Firm

14/F Mayapada Tower I

Jl. Jend. Sudirman Kav. 28

Jakarta, 12920 Indonesia

Tel: +62 21 2953 2000, 521 2038
Email: ssek@ssek.com

www.ssek.com

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JAPAN

Environmental, social and governance (ESG) regulations have become increasingly important in the world of finance and investment in recent years. These regulations have also been gaining momentum in Japan with the government and the financial industry taking steps to promote sustainability and social responsibility.

Japan has been introducing several regulations and initiatives aimed at addressing environmental issues, improving social welfare and enhancing corporate governance. This article summarises the ESG regulations in the country.

CLIMATE CHANGE

Under the Act on Promotion of Global Warming Countermeasures, companies that emit more than a certain amount of greenhouse gases (Specified Emitters) are required to calculate and report their greenhouse gas emissions each fiscal year to the minister in charge of the business, as mentioned in article 26 of the act.

The Specified Emitters are required to report direct and indirect emissions, which is similar to requirements under scope 1 and scope 2 of the Greenhouse Gas Protocol. Article 29 of the act explains that the reported information is compiled and published through the Ministry of the Environment and the Ministry of Economy, Trade and Industry, and covers emissions from companies and all of their business facilities. Companies that fail to report, or make a false report, are subject to a fine (articles 75 and 73).

A specified emitter may submit a request to abstain from publishing one of its business facilities’ emissions information when it considers that there is a risk that its rights, competitive position or other legitimate interests could be harmed by such publication (article 27).

Furthermore, article 25 of the Act on Rationalising Energy Use requires companies that have factories and use a certain amount of energy (Specified Business) to prepare medium and long-term plans for achieving the targets for rationalising the use of energy and shifting to non-fossil energy. Article 16 of the act also requires a specific business to submit periodic reports on the use of such energy to the ministry in charge of the business. When the ministry finds the efforts of a Specified Business are significantly insufficient, the ministry may give the Specified Business advice or instructions. If the Specified Business fails to follow the instructions, the ministry may publicise the finding (articles 17 and 18).

The government may require manufacturers of automobiles, home appliances, building materials, etc., to achieve energy consumption efficiency targets for their products, and may make recommendations if efficiency improvements are insufficient (articles 149 and 150).

The environmental value of renewable energy is being traded as a certificate, Japan has three types of certificates: J-credit (derived from renewable energy); green electricity certificates; and non-fossil certificates. These certificates are used in corporate power purchase agreements and in various reporting systems including Renewable Energy 100, the Carbon Disclosure Project and the above-mentioned statutory reporting system. Also, a new emissions trading system was launched in the Japan-led initiative Green Transformation League in April 2023.

WASTE MANAGEMENT

Article 14 of the Waste Disposal and Public Cleansing Act requires companies licensed by the prefectural governor to collect, transport or dispose of waste material on a regular basis. Companies could be criminally liable if they conduct such operations without a licence (article 25). When companies dispose of the waste they generate, they must either dispose of it by themselves or outsource the disposal to a licensed contractor (article 12).

A penalty applies if companies outsource waste management works to an unlicensed contractor (article 26). Article 12 of the act also sets out detailed treatment and outsourcing standards for waste disposal, as well as how the flow of waste material up to final disposal is to be managed through the manifest system.

Under the Act on the Promotion of Effective Utilisation of Resources, 10 industries and 69 items that require the making of special reduce, reuse, recycle (3R) efforts are designated, and specific details are given on 3R measures that business operators should voluntarily work on at the product manufacturing, designing or labelling stages.

In addition, other recycling laws – such as the Act on the Promotion of Sorted Collection and Recycling of Containers and Packaging, the Act on Recycling of Specified Home Appliances, the Act on Promotion of Recycling of Small Waste Electrical and Electronic Equipment, the Act on Recycling of End-of-Life Automobiles, the Act on Recycling of Construction Materials and the Act on Promotion of Recycling and Related Activities for Treatment of Cyclical Food Resources – are applied according to the nature of individual items.

SOCIAL ASPECTS

Regarding business and human rights issues, the Japanese government formulated its own national action plan in relation to business and human rights in October 2020, in accordance with the UN Guiding Principles on Business and Human Rights. In Japan, there is no legislation to date on business and human rights, or human rights due diligence. However, it was reported in April this year that the Japanese government, holding the G7 Summit presidency, will begin its internal consideration regarding the enactment of a law on human rights due diligence. Since the discussion is at an early stage, the details of what the legislation will entail are not yet known.

The Japanese government has issued the Guidelines on Respecting Human Rights in Responsible Supply Chains in September 2022, based on the result of a survey on the status of human rights efforts in the supply chains of Japanese companies, which was released in November 2021. These guidelines were established to serve as a reference for Japanese companies to implement human rights due diligence in their supply chains.

Furthermore, in April this year, the government published the Reference Material on Practical Approaches for Business Enterprises to Respect Human Rights in Responsible Supply Chains to provide detailed explanations and case studies on the formulation of human rights policies, and the identification and assessment of negative impacts on human rights, which are the first step for companies that implement initiatives in accordance with the guidelines.

When conducting business activities, a company needs to consider the various rights of its stakeholders, including employees, suppliers, customers and members of the local community. Traditionally, Japanese companies have focused on protecting the rights of their employees. However, companies nowadays also need to consider the rights of their own employees and also the employees of companies in their supply chain.

In Japan, the Labor Standards Act is the law governing employment and labour relations. The Labor Standards Act establishes rules regarding working conditions for workers and regulates them so that, among others, problems of child labour and forced labour do not arise.

There are also movements in Japan related to the rights of minorities. A new bill to eliminate discrimination against sexual minorities passed during the latest session of the parliament. The bill aims to eliminate discrimination by improving the understanding of LGBT people and promoting the understanding of the LGBT community to the public.

GOVERNANCE AND DISCLOSURE

TMI Associates
23/F, Roppongi Hills Mori Tower, 6-10-1
Roppongi, Minato-ku
Tokyo 106 6123, Japan
Tel: +81 3 6438 5511

Email: info@tmi.gr.jp
www.tmi.gr.jp

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SINGAPORE

Environmental, social and governance (ESG) standards are rapidly gaining prominence regionally and internationally, as regulators equip their jurisdictions with appropriate guidelines targeted at meeting ESG objectives and preventing an increase in undesirable practices such as greenwashing.

In Singapore, there have been a number of recent developments, with more to be anticipated in view of global trends and best practices.

DISCLOSURE REQUIREMENTS AND GREEN FINANCING

From the financial year 2022, the Singapore Exchange (SGX) has mandated all issuers to include climate-related reporting in their sustainability reports, which is based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

Initially, the climate reporting will be on a “comply or explain” basis, which requires companies refusing to disclose their social and environmental impact and performance to give an explanation. However, climate-related reporting will become mandatory for issuers in specific industries from the financial years 2023 and 2024.

The SGX has introduced a phased approach to mandatory climate reporting by industry, based on the TCFD’s recommendations. Industries are prioritised based on those identified as having the highest climate-related risks, given the greater urgency for issuers in these specified sectors to conduct mandatory climate reporting.

For the financial year 2023, climate reporting is mandatory for issuers in the financial industry; the agriculture, food and forest products industry; and energy industry. For the financial year 2024, mandatory reporting will extend to the materials and buildings, and transportation industries.

In July last year, the Monetary Authority of Singapore (MAS) also published a circular on the Disclosure and Reporting Guidelines for Retail ESG Funds. It required fund managers to reveal the investment’s ESG focus and relevant criteria, methodologies or metrics, and the sustainable investing strategies of retail funds being sold with an ESG label, effective from January 2023. This addresses greenwashing, which involves deceptive activities by companies to convince customers that they are environmentally compliant.

The guidelines specify that the name of the ESG fund should not be misleading, and should reflect its sustainable focus in its investment portfolio or strategy. Funds must ensure that at least two-thirds of their net asset value are invested in accordance with their stated ESG investment strategy.

Separately, the Green Finance Industry Taskforce (GFIT), established by the MAS, has suggested a classification system or taxonomy for Singapore-based financial institutions aimed at identifying activities considered as green or transitioning towards green. The inclusion of transition activities allows for a gradual move towards greater sustainability, while considering starting positions and supporting inclusive economic and social development.

The GFIT released its third consultation paper in February 2023 to gather opinions on the specific thresholds and requirements for the classification of green and transitioning activities in five sectors: agriculture and forestry or land use; industrial; waste and water; information and communications technology; and carbon capture and sequestration.

Among other matters, the consultation sought feedback on its Do No Significant Harm criteria, which indicates that activities that contribute significantly to mitigating climate change should not be carried out in a way that negatively impacts the other four environmental objectives, namely climate change adaptation, protecting healthy ecosystems and biodiversity, promoting resource resilience and circular economy, and pollution prevention and control.

On 28 June 2023, the GFIT released its fourth and final consultation on the thresholds and criteria for financing the early phase-out of coal-fired power plants under the Singapore-Asia Taxonomy. The criteria will be finalised and launched for use after the final round of consultation closes on 28 July 2023.

The MAS’ Environmental Risk Management Information Papers, released in May 2022, showcase the best practices followed by insurers, banks and asset managers in managing environmental risk, and highlight areas that require further work. The papers also identified various areas where financial institutions face challenges, including developing risk assessment methodologies, finding talent in sustainable finance, and establishing risk management practices when the financial institution relies on their parent company to set policies and procedures at a group level, especially if the financial institution’s headquarters are located outside Singapore.

GREENWASHING

In Singapore, the Consumer Protection (Fair Trading) Act (CPFTA) safeguards consumers from deceptive claims, including those associated with greenwashing. Additionally, the Advertising Standards Authority of Singapore (ASAS) has issued guidelines under the Singapore Code of Advertising Practice (SCAP) to ensure that advertisers accurately and sufficiently back up any claims. The ambit of protection under the CPFTA also extends to financial products and financial services regulated by the MAS, broadening the act’s applicability to various products purporting to meet ESG-related objectives.

The Misrepresentation Act states consumers can seek damages from merchants if they believe they entered into a business transaction as a result of a misrepresentation. However, the act only covers damages arising from contractual agreements, and cases of greenwashing are not limited to those that occur in the context of a contractual relationship.

Consumers who come across suppliers making claims that are misleading or considered greenwashing can seek assistance from the Consumer Association of Singapore. In severe cases, the supplier can be reported to the Competition and Consumer Commission of Singapore (CCCS), for further investigation.

As for the SCAP, the ASAS can issue sanctions in respect of advertisements found to have breached the SCAP.

In general, Singapore’s National Environment Agency (NEA) holds the primary responsibility for maintaining a clean and sustainable environment, and is responsible for promoting sustainability and resource efficiency. The NEA also oversees Singapore’s carbon tax regulation, the Carbon Pricing Act, which was issued in January 2019. The act’s accompanying regulations are being amended and details will be provided in due course, with all legislative amendments to take effect from January 2024.

DEVELOPMENTS IN OTHER JURISDICTIONS

Clyde & Co
12 Marina Boulevard, #30-03
Marina Bay Financial Centre Tower 3
Singapore 018982

Tel: +65 6544 6500

Email: singapore@clydeco.com

www.clydeco.com

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SOUTH KOREA

South Korea has established a comprehensive regulatory framework to address environmental, social and governance (ESG) concerns. The Framework Act on Carbon Neutrality and Green Growth for Coping with Climate Change Crisis serves as a legal foundation to mitigate the severe impacts of the climate crisis and facilitate the transition to a carbon-neutral society. Social laws focus on labour rights, fair trade and consumer protection, while governance laws emphasise transparency, accountability, and responsible investment practices.

South Korea has been expanding companies’ ESG responsibilities by developing frameworks and guidelines in response to the growing global attention to ESG issues. These frameworks assist businesses in integrating ESG considerations into their operations and decision-making processes. Regulations mandating disclosure have also been implemented to enhance transparency and provide stakeholders with the necessary information. The country is also considering legislative measures to ensure that companies operating within its jurisdiction conduct thorough due diligence to address human rights abuses and environmental risks in their supply chains.

ENVIRONMENTAL LAWS

South Korea’s environmental regulatory framework consists of the Framework Act on Environmental Policy, which serves as the primary law with a constitutional nature, along with more than 70 specific environmental laws that target various pollution sources. Within this extensive framework, several key individual laws are closely aligned with ESG principles and are worth discussing in detail.

Air, water and soil. Air and water quality are regulated by the Clean Air Conservation Act, the Framework Act on Water Management, and the Water Environment Conservation Act. The Soil Conservation Act regulates matters relating to soil pollution, prohibits the disposal of pollutants and imposes liability for soil contamination.

Waste and resource circulation. Collection, transportation, storage, recycling and disposal of solid and hazardous waste are controlled by the Wastes Control Act, the Act on the Promotion of Saving and Recycling of Resources, and the Framework Act on Resources Circulation.

Chemicals. The Act on the Registration and Evaluation etc. of Chemical Substances (K-REACH) regulates the market entry of a chemical substance. The Chemical Substances Control Act regulates the use of chemicals once they are introduced into domestic markets. Also, the Consumer Chemical Products and Biocides Safety Control Act (K-BPR) imposes safety and labelling standards for certain consumer chemical products, and requires manufacturers and importers of biocidal products to obtain prior approval for their use.

Climate change and energy use. Korea has established the Emissions Trading Scheme (K-ETS) under the Act on the Allocation and Trading of Greenhouse Gas Emission Permits, implementing a market-based approach that prices greenhouse gas emissions and enables the trading of emissions permits. The Energy Use Rationalisation Act aims to enhance energy efficiency and mitigate the environmental impact of energy consumption.

Others. In addition to those mentioned above, there are other environment-related laws such as the Act on the Conservation and Use of Biological Diversity and the Act on the Promotion of Purchase of Green Products.

SOCIAL LAWS

Competition protection. The Monopoly Regulation and Fair Trade Act serves as the primary legislation governing illegal cartel behaviour and unfair trade practices. In addition, the Act on Fair Labelling and Advertising, the Fair Transactions in Subcontracting Act, the Fair Agency Transactions Act, and the Act on Fair Transactions in Large Retail Business aim to promote fair competition and sound business practices.

Product safety and consumer protection. The Framework Act on the Safety of Products, the Framework Act on Consumers, the Electrical Appliances and the Consumer Products Safety Control Act, the Product Liability Act, and the Food Sanitation Act are key laws that provide a framework for ensuring product safety and consumer protection.

Labour. The Labour Standards Act is the basis for regulating labour relations, while the Occupational Safety and Health Act and the Serious Accidents Punishment Act establish regulations to ensure the well-being and safety of employees in the workplace.

Human rights. The Korean Criminal Code, the National Human Rights Commission of Korea Act, and the Child Welfare Act are key laws that contribute to the preservation and safeguarding of human rights. The draft of the Framework Act on Human Rights Policy was proposed by the government in 2021 to provide a stronger legal basis for the National Human Rights Basic Plan and to integrate international standards into domestic policies, and the legislation is currently in progress.

Data protection. The Personal Information Protection Act safeguards the privacy and personal information of individuals by regulating the collection, use and disclosure of personal data. The Act on Promotion of Information and Communications Network Utilisation and Information Protection focuses on protecting data transmitted through information and communication networks. The Credit Information Use and Protection Act aims to safeguard privacy through the systematic management of credit information and prevention of its misuse.

GOVERNANCE LAWS

Duties of agents. The Commercial Code governs the duties of directors and auditors in corporations. The Criminal Code regulates offences such as occupational embezzlement and breach of trust committed during the course of their duties.

Disclosure. Transparency, accountability and fairness in financial reporting and other disclosures are governed by key laws such as the Financial Investment Services and Capital Markets Act, the Regulations on Disclosure in the Securities Market, and the Act on External Audit of Stock Companies

Business groups. Activities of conglomerates or large business groups commonly referred to as chaebols are regulated by the Monopoly Regulation and Fair Trade Act, and the Act on Corporate Governance of Financial Companies.

Anti-corruption. The Act on the Prevention of Corruption and the Establishment and Management of the Anti-corruption and Civil Rights Commission, the Improper Solicitation and Graft Act, and the Act on Combating Bribery of Foreign Public Officials in International Business Transactions are key laws that regulate corruption.

EXPANDED ESG RESPONSIBILITIES

The K-taxonomy is a framework to foster sustainable investment built under the Environmental Technology and Industry Support Act. Following the initial draft announcement in December 2021, an amended version was published in December 2022, incorporating additions related to nuclear power. The new Green Bond Guidelines were implemented in January 2023 to enhance the credibility of investments in green bonds and promote the active growth of the green bond market by preventing the issuance of greenwashing bonds.

Although greenwashing practices that exaggerate a company’s ESG performance are regulated under the Act on Fair Labelling and Advertising, and the Environmental Technology and Industry Support Act, the actual imposition of fines and penalties has been limited due to the challenges in determining specific criteria in practical terms. Recognising this issue, the Fair Trade Commission and the Ministry of Environment are working on revising regulations and developing guidelines to establish clear criteria for identifying greenwashing practices.

DISCLOSURE REGULATIONS

In 2021, the Financial Services Commission introduced a sustainability reporting rule that will be implemented in phases. By the end of 2025, it will apply to Korea Composite Stock Price Index (KOSPI) entities with assets exceeding KRW2 trillion (USD760 billion), and will be extended to all KOSPI entities by the end of 2030. The ESG disclosure system road map is expected to be announced within this year, which will outline the companies subject to mandatory reporting and provide details on the criteria and standards for disclosure.

The Environmental Technology and Industry Support Act requires companies to disclose their environmental management systems, goals and performance related to resource and energy conservation and the reduction of environmental pollutants beginning in 2022. The Korea Exchange has also issued the Guidelines on Corporate Governance Reports for listed companies. Since 2022, companies listed on the KOSPI with total assets of KRW1 trillion or more have been mandated to prepare and disclose corporate governance reports.

VOLUNTARY DISCLOSURE

Lee & Ko
Hanjin Building, 63 Namdaemun-ro
Jung-gu, Seoul 04532 South Korea

Tel: +82 2 772 4000

Email: mail@leeko.com

www.leeko.com

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TAIWAN

Taiwan’s climate agenda has sparked attention recently. The Greenhouse Gases Reduction and Management Act, the primary regulatory framework for controlling greenhouse gas emissions in Taiwan, has undergone a comprehensive reform and was officially renamed the Climate Change Response Act (CCRA) on 10 January 2023. This renaming signifies a pivotal shift in Taiwan’s approach, extending beyond solely targeting greenhouse gas emissions to encompass a holistic strategy for combatting climate change.

Specific industries are now required to meticulously account for, report and verify their greenhouse gas emissions. The Environmental Protection Administration of Taiwan delineates a list of industry-specific businesses classified as major greenhouse gas emission sources, called The Businesses Subject to Accounting and Registration of Greenhouse Gases Emission Sources, and mandates these businesses to report their greenhouse gas emissions. Any business that exceeds 25,000 tonnes of greenhouse gas emissions per year must also submit an annual report detailing its emissions from the preceding year.

2050 PATHWAY

Taiwan has witnessed a growing recognition of environmental, social and governance (ESG) factors and their profound impact. The government’s commitment to promoting renewable energy, decarbonisation and green finance, and achieving the net-zero goals outlined in Taiwan’s Pathway to Net-Zero Emissions in 2050, has gained significant momentum. A noteworthy example of this commitment is the Green Finance Action Plan, which has undergone regular updates since 2017, with quarterly reviews. Recently, the plan reached its third iteration and successfully completed its review in the final quarter of 2022.

In light of the prevailing circumstances, the rebranding of the CCRA signifies Taiwan’s unwavering commitment to decarbonisation, with the ultimate objective of achieving net-zero greenhouse gas emissions by 2050.

The Environmental Protection Administration is expected to promulgate and announce 12 sub-regulations associated with the CCRA in the second half of 2023, and in 2024. These regulations will address critical aspects such as carbon inventory, carbon fee collection, registration management, certification and inspection institutions, and the management of greenhouse gas funds. The government’s primary objectives remain centred on promoting green energy, decarbonisation and green finance, and realising the goals outlined in the 2050 pathway.

POLICY GUIDANCE

As part of the net-zero efforts, the Financial Supervisory Commission of Taiwan has been diligently formulating guidelines on sustainable economic activities. These guidelines aim to aid investors and stakeholders in discerning sustainable practices and defining activities that significantly impact the environment, while thwarting greenwashing attempts.

Given Taiwan’s prominent role as an export-oriented island and a crucial player in the global supply chain, the integration of ESG principles into business practices has become increasingly vital to meet the stringent requirements imposed by global brands.

Consequently, the demand for a robust framework that guides companies through this transition, effectively meeting the escalating expectations surrounding ESG matters, is imperative. It is foreseeable that the focus on ESG issues will continue to escalate and ultimately become ubiquitous across industries.

With regard to the disclosure of ESG-related information, the Financial Supervisory Commission has formulated the Taipei Exchange (TPEx) Rules Governing the Preparation and Filing of Sustainability Reports by Listed Companies.

This regulatory framework obliges listed companies to submit annual ESG reports. In a significant development in September 2022, the TPEx introduced ESG performance indicators to strengthen the disclosure of ESG information. This step enables stakeholders to gain a comprehensive understanding of a company’s operations, accomplishments and plans for sustainable development.

Additionally, listed companies on the TPEx are now required to issue ESG reports based on the guidelines set out by the Global Reporting Initiative, and are urged to refer to the standards published by the Sustainability Accounting Standards Board and the Task Force on Climate-related Financial Disclosures.

The Corporate Governance 3.0 – Sustainable Development Roadmap underscores the promotion of stewardship-related information disclosure by institutional investors, fostering enhanced governance within listed companies.

The Green Finance Action Plan 3.0 also encourages financial institutions and enterprises to incorporate guidelines for recognising sustainable economic activities into their strategic planning and investment and financing evaluations.

Overall, the Financial Supervisory Commission is actively developing guidelines on sustainable economic activities to assist investors and stakeholders in identifying sustainable practices. These guidelines aim to define environmentally impactful activities while preventing instances of greenwashing.

As ESG principles continue to gain prominence in daily business operations, concerted efforts are being made to ensure that ESG and sustainability values are accurately reflected.

To enhance ESG transparency, the government plans to establish a consolidated ESG platform for public companies in 2024. The mandatory reporting and disclosure framework for ESG information, based on guidelines from the Global Reporting Initiative, continues to be a significant focal point for companies and financial institutions in Taiwan.

With the implementation of the Sustainability Finance Evaluation scheme, it is anticipated that more financial institutions will voluntarily participate in evaluation, thus fostering a mature investment market with robust ESG-related information disclosure.

WHAT THE FUTURE HOLDS

Lee and Li

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THAILAND

Thailand is no exception to the trend of environmental, social and governance (ESG) topping corporate boardroom agendas worldwide in recent years. With heightened focus on climate change, the climate-related regulatory landscape has shifted significantly, in particular with ESG regulatory developments. This article focuses on Thailand’s recent environmental-related regulatory developments.

CLIMATE COMMITMENT

Thailand’s climate commitment has seen some key developments, notably with its second updated Nationally Determined Contribution (NDC), submitted to the UN Framework Convention on Climate Change (UNFCCC) Secretariat in November 2022.

With the updated NDC, Thailand raises its ambition to reduce greenhouse gas emissions from 20-25% to 30%, based on projected business as usual in 2030. With adequate technical and financial support, the contribution could be increased to 40%.

The NDC Sectoral Action Plans identify greenhouse gas emissions reduction targets, measures and responsibilities of relevant agencies in five main sectors, namely energy, transport, industry, waste and agriculture.

KEY PLAYERS

Achieving each goal under the NDC requires collaborative efforts and comprehensive measures for greenhouse gas emission reduction. These goals require the involvement of various government agencies including the Ministry of Natural Resources and Environment (MONRE), Ministry of Industry (MOI), Ministry of Energy (MOE), and Ministry of Transportation (MOT).

Many other public organisations and the private sector also have an important role to play and have taken significant steps in driving the country toward a low-carbon society. The main bodies responsible for current climate change-related activities include:

• Policy level. The Office of Natural Resources and Environmental Policy and Planning (ONEP), under the MONRE, is the national focal point for climate change policy, with the authority to propose and formulate policies and strategies to tackle national climate change issues and to conduct studies, research and development on climate change. The MONRE is establishing a new department with a specific mission on climate change, merging the Department of Environmental Quality Promotion and some sections of the ONEP under the name Department of Climate Change and Environment.
• Industrial sector. The MOI is the main agency overseeing industrial activity. Specifically, the Department of Industrial Works, under the MOI, is the main body regulating the activities of factories, including emission monitoring and waste management. Pollution control is the responsibility of the Department of Pollution Control, within the MONRE.
• Energy sector. The MOE is the main agency overseeing energy-related businesses, including the petroleum industry and power plants. The MOE also regulates the activities of major state-owned enterprises such as the Electric Generation Authority of Thailand, which is authorised to certify renewable energy production.
• Transportation sector. While the MOT plays a vital role in setting out a plan for emission reduction in the transport sector, the Ministry of Finance has also played a crucial role in revising tax schemes for vehicles. Future excise tax rates for internal combustion engine vehicles, now based on the amount of CO2 emissions, will become higher than zero-emission vehicles (ZEVs).
• Forestry and agricultural sector. Forest-related activities are overseen by three agencies in the MONRE: the Royal Forest Department; the Department of National Parks, Wildlife and Plant Conservation; and the Department of Marine and Coastal Resources. Land registration and the allocation and management of certain agricultural land plots are overseen by the Ministry of Interior and the Agricultural Land Reform Office, respectively.
• Domestic carbon credits scheme. The Thailand Voluntary Emissions Reduction Programme (T-VER) – developed by a public organisation, the Thailand Greenhouse Gas Management Organisation (TGO) – aims to promote and support all sectors to participate in the reduction of greenhouse gas emissions and trade carbon credits in domestic market voluntarily. The TGO developed T-VER based on the Clean Development Mechanism experience, and in line with ISO14064-2 and ISO14064-3. In this regard, the TGO has set down rules and procedures for project development, greenhouse gas emission reduction methodology, project registration and certification of carbon credits.

RECENT DEVELOPMENTS

The government has adopted a holistic approach, focusing on areas that can effectively contribute to emission reduction. Recent developments on key regulatory frameworks to achieve climate change goals include:

• Climate Change Bill. The ONEP is pushing ahead with the second draft of the Climate Change Bill for more serious and comprehensive climate management. This will include: provisions on climate change impact or risk assessment of large-scale government projects; a central database on greenhouse gas emissions and area-based risk of climate change; and appropriate mechanisms to provide economic incentives for greenhouse gas reduction among the private sectors. The bill also imposes a reporting obligation on certain entities, such as government agencies, designated factories and buildings, and factory operators per the factory law, to report their emissions every year.
• Forestation. Several pieces of legislation have been issued and amended to encourage forestation. These include regulations issued by forestry-related authorities to facilitate a carbon credit sharing mechanism under joint forestation projects between the private and public sectors, and more relaxed criteria of woody plant number per unit area, in which use of land under the Land and Building Tax Act, 2019 will be categorised as agriculture use, enjoying the lowest tax rate.
• Waste management. The “polluter pays” principle will soon be introduced to the waste management regime under the Factory Act, 1992, imposing higher responsibility standards on waste generating factories in terms of waste management control and reporting obligations.
• Electric vehicles (EVs). A number of governmental measures have been approved to promote the domestic use and production of EVs under the main “30@30” policy under the national EV roadmap, which aims to raise the proportion of ZEVs to 30% of all domestic vehicle production by 2030. The Thai government has already approved a package of incentives including exemption and reduction of import duty and excise tax on EVs, as well as conditional subsidies for EV manufacturing companies that can start domestic production in 2024 or 2025.
• Thailand taxonomy. The Bank of Thailand has recently launched and has continued to develop a national taxonomy, a standardised classification for businesses when assessing the environmental impact of their activities, on a voluntary basis to promote and support the transition to environmentally friendlier economic activities for climate change mitigation purposes. Its first phase, announced in June, focuses on activities in the energy and transportation sectors, the largest greenhouse gas emitters.
• Enhanced quality standard for carbon trading. The TGO is upgrading the standard of T-VER from the conventional standard T-VER to premium T-VER based on the core carbon principles for high-quality carbon credits, and applied rules and conditions from the article 6 mechanism under the Paris Agreement and Verified Carbon Standard administered by non-profit organisation Verra. Premium T-VER is another option for project developers to develop projects that meet the requirements of international standards and eligibility for international offsetting schemes, such as the Carbon Offsetting and Reduction Scheme for International Aviation.
• FTI-X trading platform. The Federation of Thai Industries (FTI), in collaboration with the TGO, launched the renewable energy and carbon credit trading platform, FTI-X, earlier this year. The platform enables the trading of three assets, including carbon credits of T-VER, Verra and gold standard, electricity units generated from renewable energy, and an International Renewable Energy Certificate.

PRESSURE ON BUSINESS

Despite no direct carbon tax regime currently in place, with growing commercial pressure from investors, headquarters, customers and consumers – particularly those located in other jurisdictions with more mature and concrete ESG laws, such as the EU – many business operators will have to comply with the ESG requirements if they have not already voluntarily adopted ESG as a strategy to increase corporate competitiveness. Thai suppliers will do well to prepare themselves for developments to come.

PRIVATE SECTOR’S ROLE

Currently, demand for carbon credits for T-VER projects mostly comes from the Thailand Carbon Offsetting Programme, the domestic offset programme. Carbon credits are used to offset greenhouse gas emissions of organisations, products, events and individuals. However, T-VER credits can be sold internationally to organisations or companies, depending on their objectives and eligibility criteria.

The private sector have been playing important roles, either as project developers implementing greenhouse gas reduction projects and generating carbon credits for sale in the market, or as credit buyers for compensation for their emissions.

Baker McKenzie

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