If enacted, South Korea could be the first country in Asia to introduce mandatory human rights and environmental due diligence obligations.
On 1 September 2023, the Democratic Party of South Korea (lead by Representative Jung Taeho along with 14 others) formally proposed a Bill on Human Rights and Environmental Protection for Sustainable Business Management that aims to prevent and address adverse human rights and environmental impacts related to business activities (the Bill). The Bill follows the development of similar legislation in Europe, but it is the first of its kind in Asia.
In recent years, there has been a rapidly expanding range of environmental, social and governance (ESG) regulations. These include ESG reporting requirements as well as the introduction of mandatory human rights and environmental due diligence obligations. For example, we have previously reported on the ongoing development of the European Union's Corporate Sustainability Due Diligence Directive (CS3D) here and here.
Similar to proposed European legislation, the Bill proposed in Korea would make human rights and environmental due diligence mandatory.
The Bill follows reports earlier this year that South Korean companies were failing to achieve minimum international standards for human rights protection, despite 12 years of efforts to implement the voluntary UN Guiding Principles for Business and Human Rights (UNGPs).1
According to its proponents, the Bill lays the foundation for realising human dignity and values and contributing to environmental protection.2 It has been introduced to actively respond to international developments and is said to be consistent with South Korea's ranking as the world's sixth-largest trading nation and status in the international community.3
Whilst the introduction of similar obligations has been debated in other jurisdictions across the region, the Bill represents the first formal attempt to introduce mandatory human rights and environmental due diligence legislation in Asia.
Key features of the Bill
Like the CS3D, the Bill draws upon international standards including the UNGPs and the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (OECD Guidelines), which were revised earlier this year). The Bill reflects key elements of corporate, human rights and environmental due diligence under these standards, including requirements for companies to:
- Formulate and internalise human rights commitments and/or policies.
- Conduct human rights and environmental impact assessment.
- Establish and implement a system to manage and monitor risks and impacts.
- Disclose relevant information regarding due diligence.
- Operate effective grievance mechanisms.
The draft Bill is yet to be published in full, but it has been reported that the Bill includes provisions which would:4
- Require companies to establish systems to identify, assess, manage and make disclosures in relation to human rights and environmental risks, by:
- Establishing and operating a human rights environmental due diligence implementation system to fulfil their responsibility to respect human rights and the environment, including a requirement for the company chief executive to annually establish a plan for the implementation of human rights environmental due diligence and report it to the board of directors and obtain its approval (Articles 6 to 9).
- Identifying and managing human rights and environmental risks.
- Preparing human rights and environmental due diligence reports where such risks are identified (Articles 10 to 13).
- Require the government to prepare relevant guidelines and information disclosure standards to facilitate the implementation of human rights and environmental due diligence by companies, to provide support for the establishment of information systems related to consulting, education, and training, and to provide separate support tailored to the obligations and needs of small and medium-sized enterprises (Article 16).
- Grant rights to stakeholders to request access to information related to human rights and environmental due diligence to business enterprises.
- Establish of a Human Rights and Environment Corporate Committee (hereinafter referred to as the "Committee") to determine major matters on corporate activities that respect human rights and the environment and to resolve disputes related to human rights and environmental due diligence (Article 17).
- Establish the grounds on which the Committee may issue corrective orders to companies where they engage in acts that violate the legislation or fail to fulfil their obligations under the legislation (Articles 28 and 29).
- Establish procedural rules to empower the Committee to designate and/or de‑designate conflict or high-risk areas, which will lead to heightened due diligence obligations for operations within those areas (Articles 33 and 34).
- Establish a Human Rights and Environmental Violation Victim Assistance Fund to support victims of human rights or environmental violations and to enhance the effectiveness of dispute resolution (Article 35).
- Establish penalties for companies who fail to fulfil a confirmed corrective order or fail to identify human rights and/or environmental risks arising from business activities that are directly or indirectly linked to war crimes, child labour or operations in a conflict or high-risk area (Article 42).
- Establish grounds for fines to companies who fail to report their plan for the implementation of corporate human rights and environmental due diligence to the board of directors (Article 44).
At this stage, the aims of the Bill appear broadly consistent with the aims and requirements set out so far in the (more advanced) draft CS3D. It will be necessary to consider key similarities and differences in these mandatory requirements in more detail once the draft Bill is published in full, and as both the Bill and the CS3D continue to be developed.
Scope of application
The Bill proposes that the due diligence obligations would apply to South Korean companies with 500 or more employees or revenue equal to or greater than 200 billion KRW in the previous financial year. At this stage, it is not clear whether the proposed due diligence obligations may extend to subsidiaries outside of the jurisdiction, or foreign companies operating in South Korea.
Similar to the CS3D, it is clear that small and medium-sized enterprises are not currently within scope, although the Bill envisages that the scope could be expanded in the future by presidential decree.
It appears some key due diligence obligations may also apply to all companies, regardless of their size, where there is a concern that business activities may be connected with war crimes or child labour.
The due diligence requirements set out in the Bill are proposed to extend beyond a qualifying companies' own operations to its supply chain. The supply chain is defined as all direct and indirect business relationships that are formed at all stages of the value chain, from the acquisition of raw materials to final consumption.
What to expect next
Before it is adopted into law, the Bill must advance through the different stages of the legislative process.5
After a bill is drafted, there will be a period of consultations and deliberations by relevant ministries, the State Council, and the National Assembly, where the bill will be subject to examinations and amendments. If it obtains sufficient approval, it will be transferred to the government for signing and promulgation by the President.
Democratic Party Representative Jung Taeho and a network of civil society organizations, including Korean Transnational Corporations Watch, have urged the National Assembly and the South Korean government to enact the bill as soon as possible.6
It is early days for the Bill, but if enacted, the Act on Human Rights and Environmental Protection for Sustainable Business Management would be a very significant development, making South Korea the first country in Asia to introduce mandatory due diligence obligations.
As the global development of mandatory ESG due diligence laws progresses – in Europe, South Korea and elsewhere – businesses must continue to monitor the extent to which these regulations will align and diverge, and understand how this will impact the scope and nature of their due diligence obligations across their international operations and value chains.
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