[Free Speech] Concern That ESG Disclosure Rules Could Hamper Businesses

The ESG boom in corporate management paradigms emerged around 2021. With “sustainable development” treated as an important value, ESG has been used to assess not only companies’ financial performance but also their non-financial performance. Recently, several countries around the world have made ESG disclosure mandatory, and South Korea is also turning it into a legally binding requirement. However, no matter how good a management strategy may be, if it is driven not by voluntary action but by “obligation,” it cannot produce proper results. If we truly want sustainable development, companies must be given autonomy in ESG management.

Corporate ESG management is now moving beyond a recommendation and becoming a “regulation.” Companies are being required to disclose ESG-related information. In Europe, ESG-related reporting became mandatory in 2018 for companies employing more than 500 people, and the United Kingdom decided to phase in mandatory ESG disclosure for all companies by 2025. Korea has also announced mandatory disclosure. The Financial Services Commission stated that it would require ESG information disclosure in Korea starting in 2025. Companies will have to disclose sustainability management reports. The phased plan is to begin in 2025 with listed companies holding assets of 2 trillion won or more, and then expand the requirement in 2030 to all KOSPI-listed companies.

However, if “coercion” by the government is imposed, the original goal may be lost. A paradox may arise in which companies become so preoccupied with meeting government-mandated standards that they lose sight of the ultimate value of “sustainable development.” The conditions and circumstances of each company vary widely. But if the government standardizes regulations uniformly, these firms will creak along trying to force ill-fitting gears to turn just to satisfy the government’s preferences. In fact, in the United States, controversy over Anti-ESG sentiment has emerged among shareholders opposing normative ESG activities. Amid continued supply-chain instability, high inflation, and high interest rates, fundamental questions have been raised as to whether allocating corporate resources to social contribution activities such as animal welfare is really for “sustainable development.”

ESG management is “necessary” for companies, but it must not become a “mandatory requirement.” It is certainly necessary for sustainable development that companies contribute to society and act responsibly. But if this is carried out not through voluntary action within the company but under government regulation, its effects will be minimal. It is like how studying is necessary, but forcing a child to study by parental pressure alone, without voluntary motivation, does not produce results.

Corporate autonomy in ESG management should be recognized, and the government should step back. The state should not design and impose ESG management strategies, but only support companies’ ESG management. Companies should be able to decide for themselves the details, such as which of the E, S, and G factors to emphasize and to what “degree” they will pursue ESG management. In the process of building a sustainable society, I hope we do not shackle companies.

Hyerin Park, Intern Researcher, Center for Free Enterprise (CFE)

Original title: [자유발언대] ESG 공시 규제, 기업 발목 잡을까 우려

Author: Hye-rin Park

Date: 2023-10-20

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&pn=5&idx=26084