South Korea’s FSS Introduces New ESG Rating Guidelines to Enhance Transparency

On January 15, 2023, South Korea’s Financial Supervisory Service (“FSS”) issued new guidelines (the “Guidelines”) (Korean language only) to enhance transparency on the methods and procedures used by credit rating agencies to perform ESG bond certification evaluations. In announcing the Guidelines, the FSS noted that, prior to their introduction, there were no specific rules or regulations in South Korea covering the ESG certification process. The FSS also indicated that currently it is difficult to compare ESG ratings performed by different agencies due to the lack of consistent standards and that the Guidelines are intended to improve the comparability and utility of related evaluation reports.

We set out below some of the highlights of the Guidelines:

• The Guidelines reflect the International Organization of Securities Commission’s recommendations for regulating ESG ratings and data product providers including those relating todocumenting the rating procedure and strengthening the independence of evaluators.

• The FSS has also supplemented the Guidelines with local features including the disclosure of minimum investment ratios required for ESG bond recognition and the introduction of a validity period of the certification.

• Credit rating agencies will be subject to certain requirements including verifying the use offunds when undertaking ESG bond certification evaluations. The FSS expects that this aspect of the Guidelines will help prevent greenwashing. 

The Guidelines will be implemented as Korea Financial Investment Association best practice and will become effective from February 1, 2023.

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