CONTENTS
- 1. Climate Change | Concept and Impact on Businesses
- - Major Causes of Climate Change
- - Impact on Business Activities
- 2. Climate Change | Regulatory Environment and the Need for Response
- - Major Regulatory Trends
- - Direction of Response Strategy
- 3. Climate Change | Management and Compliance System
- - Setting Internal Management Standards
- - The Need to Establish Compliance
- 4. Climate Change | Related Laws and Legal Risks
- - Major Applicable Laws
- - Major Legal Risks
- 5. Climate Change | Cases That Require Attention
1. Climate Change | Concept and Impact on Businesses
Climate change refers to the phenomenon in which the average global temperature rises and climate patterns change due to the increase in greenhouse gas emissions.
In recent years, it has come to be seen as more than an environmental concern, reaching into corporate management and legal liability.
Major Causes of Climate Change
Climate change arises from a combination of natural and human factors.
The greenhouse gases released since industrialization, in particular, are regarded as the core cause.
Category | Details |
Natural Factors | Volcanic activity, changes in solar radiation |
Anthropogenic Factors | Use of fossil fuels, industrial emissions |
Major Substances | Carbon dioxide, methane, nitrous oxide |
A company's production, distribution, and energy use are mostly tied to greenhouse gas emissions, so the company can become subject to regulation depending on how it manages them.
As the scope of management has recently grown beyond Scope 1 and Scope 2 to include Scope 3 emissions, the prevailing approach now calls for a response that accounts not for the company alone but for its suppliers and the entire supply chain.
Here, Scope is the standard used to classify the range of greenhouse gas emissions, with categories divided according to the emitting entity and the degree of control.
Category | Details |
|---|---|
Scope 1 | Emissions arising from facilities or equipment that the company directly operates (direct emissions) |
Scope 2 | Emissions arising indirectly from the use of electricity and heat purchased externally |
Scope 3 | Emissions arising across the entire supply chain, including raw material procurement, logistics, distribution, product use, and disposal |
Scope 1 and Scope 2 fall within the company's internal management, while Scope 3 reaches into suppliers and the overall transaction structure, which makes its management far broader and more complex.
For this reason, recent regulations and market standards call for an integrated carbon management system that covers the entire supply chain, going beyond the management of direct emissions alone.
Impact on Business Activities
Climate change affects a company's cost structure, its supply chain, and even its investment environment.
-Increased costs due to carbon emission regulations
-Expansion of supply chain risk and the possibility of delivery restrictions
-Strengthened environmental disclosure obligations and an increased burden of information disclosure
-Changes in the evaluation criteria of investment and financial institutions
How well a company responds to climate change also affects its sustainability rating, the credit assessments made by financial institutions, and its ability to attract investment.
Where this ties into ESG evaluations, a growing number of cases reflect inadequate environmental responses in the assessment of corporate value.
2. Climate Change | Regulatory Environment and the Need for Response
The response to climate change is developing quickly through policy and law.
From a company's standpoint, whether it complies with these rules translates directly into legal risk.
Major Regulatory Trends
At home and abroad, the regulations governing the response to climate change continue to tighten.
• Operation of the greenhouse gas emissions trading scheme
• The EU Carbon Border Adjustment Mechanism (CBAM)
• ESG disclosure and sustainability reporting standards
In many cases, these rules operate not as recommendations but as legal obligations.
Under the emissions trading scheme, a charge applies when the allocated amount is exceeded, and repeated violations can lead to further sanctions.
Foreign regulations also bear directly on exporting companies, and in some cases require the management of carbon emissions per unit of product.
As a result, companies may find themselves having to consider an overall redesign of not only their production processes but also their raw material selection and logistics structure.
Direction of Response Strategy
The response to climate change has grown beyond environmental protection into the realm of corporate compliance.
• Setting reduction targets and establishing implementation plans
• Introduction of renewable energy and improvement of energy efficiency
• Refinement of the environmental information disclosure system
What matters here is building a substantive management system rather than a formal response.
In some cases, where a policy exists on paper but is never carried out, it is not recognized as a genuine regulatory response.
Where internal data management is inadequate, disclosure errors or inconsistent information can arise, and this may lead to additional legal liability.
3. Climate Change | Management and Compliance System
In responding to climate change, building a preventive management system matters more than after-the-fact measures.
When a problem arises and no internal standards are in place, the scope of liability tends to widen.
Setting Internal Management Standards
To manage climate change related risks, a company must put internal standards in place.
-Whether greenhouse gas emissions are measured and recorded on a regular basis, and whether they are consistent with documents submitted externally
-Whether the emissions calculation standards (Scope 1, 2, 3) are clearly defined and applied consistently
-Whether reduction targets go beyond mere declarations and are set together with implementation plans and a responsible organization
-Whether a system regularly checks compliance with environmental laws and identifies potential violations in advance
-Whether verification and approval procedures govern disclosure and reporting materials
These standards are not confined to internal regulations. They serve as an important factor in determining legal liability, and the actual operation of the management system, the accumulation of records, and the clarity of role assignments within the organization are all weighed together.
It therefore matters that responsibility for environmental management be clearly assigned and that a regular inspection system be in place.
The Need to Establish Compliance
Climate change related regulations connect to a range of laws, and in some areas the issue can extend beyond an administrative disposition to criminal liability.
A violation of environmental laws does not necessarily end with a single act. It can lead to disclosure problems, claims for damages, and investment restrictions.
When environmental pollution occurs, in particular, the scope of harm tends to be recognized broadly, so the scale of the dispute can grow.
Where appropriate measures were not taken even though the risk was recognized during internal decision-making, a breach of management responsibility or supervisory duty can also become an issue.
In such cases, the conduct may be assessed more severely than mere negligence.
4. Climate Change | Related Laws and Legal Risks
Climate change creates a complex legal structure in which environmental law operates alongside the civil, administrative, and criminal areas.
Major Applicable Laws
The major laws that may apply to climate change and the corresponding levels of sanctions are as follows.
Law | Major Climate Change Related Risks | Level of Sanctions |
|---|---|---|
Framework Act on Environmental Policy | Obligation to comply with environmental standards and policies | No direct penalty provisions (liability arises upon violation of individual environmental laws) |
Clean Air Conservation Act | Installation or operation of an unpermitted emission facility, or failure to install prevention facilities | Imprisonment for up to 7 years or a fine of up to 100 million won |
Water Environment Conservation Act | Violations related to emission facilities, such as the installation or operation of an unpermitted wastewater discharge facility | Imprisonment for up to 5 years or a fine of up to 50 million won |
Carbon Neutrality Framework Act | Failure to submit or false submission of greenhouse gas emissions data or statements, or failure to comply with an improvement order | An administrative fine of up to 10 million won |
Beyond these, other laws such as the Wastes Control Act and the Chemicals Control Act may apply at the same time, and in some cases violations of several laws may arise together.
Under the Clean Air Conservation Act and the Water Environment Conservation Act in particular, when a violation such as operating an unpermitted emission facility or failing to install prevention facilities is confirmed, criminal punishment may be imposed at the same time, and liability may attach not only to the person responsible for managing the worksite but also to the corporation.
Major Legal Risks
The legal risks tied to climate change can be summarized as follows.
• Exceeding greenhouse gas emission standards
• Occurrence of environmental pollution and inadequate management
• Violation of environmental impact assessment procedures
• Omission or false entry in disclosures
Disclosure related problems, in particular, can lead to investor disputes and claims for damages, and they also affect the company's credibility.
5. Climate Change | Cases That Require Attention
Climate change is an area where the reach of regulation and legal liability can expand without a company even being aware of it, and where a company fits one of the situations below, a preliminary review is necessary.
• Is it unclear whether the company is subject to environmental regulation
• Have internal management standards not been systematically established
• Is greenhouse gas emissions management not carried out consistently
• Is there doubt about the accuracy of disclosure or reporting materials
• Is there a possibility of an environment related dispute or investigation
• Did a problem arise before the direction of the response had been settled
Problems related to climate change tend to combine environmental regulation, corporate legal affairs, and administrative procedure, and in many cases a single judgment leads to several legal consequences.
Environmental laws are revised on a relatively short cycle and apply broadly, which makes them difficult to interpret, and the areas of air, water quality, soil, waste, and chemical substance management each form a separate regulatory system.
In responding to regulation, steps such as the submission of materials, proof of the facts, the preparation of written opinions, and administrative adjudication and administrative litigation follow in stages, and the extent of the resulting burden often depends on the direction of the response.
In these situations, it matters to review in advance the environmental legal risks that may arise in the course of business, and to keep a consistent direction of response even after a problem has arisen.
If the current situation has reached a stage that calls for legal review, 🔗Corporate Attorney Legal Consultation is one way to organize the applicable laws and the direction of the response.
