KITA Said, “Need to Induce Voluntary Participation of Companies” Regarding the Legalization of European ESG Management Requirements

 - The Korea Business Association in Europe submitted a statement of opinion to EU Committee on 8^th... concerned about the law becoming a new non-tariff barrier for entry -

The Brussels Branch of the Korea International Trade Association (Chairman: Kim Young-ju) recently announced that the organization had submitted a statement of opinion on the position of Korean companies that have entered the region in relation to the recent legislation of the European Union’ mandatory due diligence requirements on human rights and the environment in their supply chains.

In the statement under the name of the Korea Business Association in Europe (the Secretariat, Brussels Branch of the Korea International Trade Association), representing more than 300 Korean companies that have expanded into Europe, the Korea International Trade Association said, “In the current business environment in which the Global Value Chain (GVC) is intricately entangled, it is virtually impossible for a company to check each supplier's compliance with regulations,” and pointed out, “It is desirable to induce voluntary participation of companies by encouraging environmental, social, and governance (ESG) management.

Also, “The mandatory obligations promoted by the EU not only excessively increase the administrative and legal risks of companies, but also have the potential to violate the management autonomy of subcontractors,” and added, “Various alternatives should be considered first by utilizing guidelines provided by international organizations.”

On January 27^th, the European Parliament adopted a legislative recommendation to legally require companies to protect human rights and the environment in their supply chains. The EU Commission will propose the draft in the second quarter of this year after collecting stakeholder opinions until February 8^th.

The report adopted by the European Parliament proposes that companies are legally required to identify, address, and remedy risks to human rights and the environment throughout the supply chain and in case of violation, penalties or compensation for damage will be claimed. The rules will be applied not only to EU-based companies, but also to companies seeking to enter into the EU market.

In response to the move, BusinessEurope, Europe's leading economic organization, said in a statement released on the 21st that the move would create an excessive burden on companies. On the other hand, as the European Brand Association (AIM), which has Nike and Unilever as members, supports the legislation, it is anticipated that this action will become a new non-tariff barrier for entry into the EU market.

Cho Bit-na, head of Brussels Branch of the Korea International Trade Association, said, “Given the EU's emphasis on corporate social responsibility and sustainability, the law seems likely to be legislated,” and advised, “This can be additional cost and regulation and Korean companies need to keep an eye on the draft legislation scheduled for the second quarter and develop strategies for the future response.” In addition, “The Korea International Trade Association plans to actively respond by providing information on future legislation trends and devising countermeasures of companies through close cooperation with Korean companies and embassies in the region.”