CONTENTS
- 1. Overview of the Case in Which ESG Risk Was at Issue
- - Background to How the Fair Trade Commission Sanction Led to ESG Risk
- - The Prominence of “Governance Risk” in a Comparison Among Large Retail Companies
- 2. Key Points in Assessing ESG Risk
- - Implications of This Matter
- 3. Methods for Preventing ESG Risk
- - Step-by-Step Response After a Fair Trade Commission Sanction
- 4. How to Respond to Fair Trade Commission Sanctions Within ESG Risk
- - Assistance from a Daeryun Law Firm LLP Corporate Attorney
1. Overview of the Case in Which ESG Risk Was at Issue
The starting point of this matter, in which ESG risk was at issue, is a sanction imposed by the Fair Trade Commission.
The Fair Trade Commission found that Company C and certain of its affiliates had used total return swap (TRS) contracts to provide a credit-enhancement effect to an affiliate in a state of capital erosion, and, treating this as unfair intra-group support under the Monopoly Regulation and Fair Trade Act, imposed a corrective order and a penalty surcharge.
This sanction history was reflected as a principal ground for the downgrade of the governance (G) grade in the 2025 ESG evaluation conducted by the Korea Institute of Corporate Governance and Sustainability.
As a result, although Company C maintained its existing grades in the E (environmental) and S (social) areas, the downgrade of its G grade lowered its integrated ESG grade from A to B+.
Recently, as compliance with legal and institutional requirements, including fair trade, labor, internal control, and board operations, has been directly reflected in ESG evaluations, ESG has become a framework for managing risk across the whole of corporate management.
Similar to this matter, there have been past cases in which an ESG grade actually declined following a Fair Trade Commission sanction.
The Korea Corporate Governance Service (KCGS) once lowered the integrated ESG grade of Company H, which received a penalty surcharge from the Fair Trade Commission for unfair intra-group support to an affiliate, from A to B+, and Company E, which was related to the same case, also saw its governance (G) grade fall from C to D.
In addition, in the case of the three telecommunications carriers on which the Fair Trade Commission imposed large penalty surcharges for violations of the Act on Fair Labeling and Advertising, their individual social (S) ESG grades were each lowered by one level on the ground that their management of fair-competition and consumer-protection risk was inadequate.
In this way, depending on whether the type of violation falls within governance, transaction practices, or consumer protection, a Fair Trade Commission sanction translates directly into a downgrade of the G or S grade in ESG, and the resulting structure, in which the integrated ESG grade is also affected, has already become a reality.
These cases show that, if a company responds complacently to fair-trade risk, this may expand into a medium- to long-term reputational and capital-market risk in the form of a decline in its ESG evaluation.
Background to How the Fair Trade Commission Sanction Led to ESG Risk
In an ESG evaluation, governance (G) treats as core indicators a company's legal and institutional control capabilities, such as board operations, internal control, compliance management, and the ability to manage affiliates.
A Fair Trade Commission sanction is, in turn, interpreted as a negative signal regarding the following matters.
- Whether the internal control system functioned properly
- Whether risky affiliate transactions were blocked in advance
- Whether the oversight functions of the board and management actually operated
The Prominence of “Governance Risk” in a Comparison Among Large Retail Companies
In a situation where comparable large retail-group companies maintained grades of A or higher, the fact that only Company C was downgraded shows that ESG risk can become even more prominent within a relative-evaluation structure.
This suggests that ESG risk can be amplified not only by the absolute degree of illegality but also by the level of management relative to peer companies.
2. Key Points in Assessing ESG Risk
1. The Link Between Fair Trade Commission Sanctions and Governance (G) Evaluation
From the perspective of an ESG evaluation body, a Fair Trade Commission sanction serves as a basis for concluding that the company's governance failed to control legal risk in advance.
In particular, in the case of a holding company, a higher level of management and supervisory responsibility is required than for an individual affiliate, so the ESG risk that the same sanction poses to a holding company is far greater.
2. Why “Formalistic ESG” Is Evaluated as a Risk
Even where the institutional form is in place, such as the establishment of an ESG committee within the board and the creation of a dedicated ESG organization, if fair-trade risk arises in an actual high-risk transaction, the market and evaluation bodies may perceive this as formalistic ESG.
ESG risk is judged by the actual decision-making process and control outcomes rather than by declarations or organizational charts.
Implications of This Matter
The significant meaning of the case in which Company C's ESG evaluation declined due to a Fair Trade Commission sanction is that a single legal risk can shake the entire ESG evaluation.
ESG risk is no longer confined to environmental accidents or labor issues, and failures in fair trade, governance, and internal control are operating as core variables.
From a company's standpoint, a shift in perception is needed, recognizing a Fair Trade Commission sanction not as a one-time administrative sanction but as a long-term ESG risk, a decline in investor confidence, and a fall in corporate value.
3. Methods for Preventing ESG Risk
The core of preventing ESG risk is building a framework that manages legal risk proactively from an ESG perspective.
First, strengthening prior review of affiliate transactions and financial transactions.
TRS arrangements, payment guarantees, fund lending, and intra-group transactions should undergo prior legal review from the perspectives of the Monopoly Regulation and Fair Trade Act, the Commercial Act, and the Financial Investment Services and Capital Markets Act, and risk should be assessed on the basis of economic substance rather than the mere contractual structure.
Second, structuring the substantive involvement of the board and the compliance organization.
For important transactions, keeping records of legal-risk review reports, ESG impact assessments, and the decision-making of the board or its committees becomes the key evidence for preventing ESG risk.
Third, securing consistency between ESG disclosure and internal control.
Where the ESG policy disclosed externally is inconsistent with the internal decision-making structure, that inconsistency itself can operate as an ESG risk.
Step-by-Step Response After a Fair Trade Commission Sanction
If ESG risk has already materialized, the response should proceed in parallel across legal, evaluation, and trust management.
First, a legal response to the Fair Trade Commission sanction.
The primary response is to contest, through administrative litigation, whether the corrective order and penalty surcharge involve a mistake of fact, an error in the application of law, or an abuse of discretionary power.
Second, a response from the perspective of ESG evaluation bodies and investors.
Apart from the legal dispute, unless improvements to internal control, the establishment of a recurrence-prevention system, and a plan to improve governance are clearly presented, ESG risk may persist.
Third, realigning internal compliance.
The fair-trade compliance program (CP), affiliate-transaction guidelines, and the board reporting system should be redesigned with a focus on substance.
4. How to Respond to Fair Trade Commission Sanctions Within ESG Risk
A Fair Trade Commission sanction refers to an administrative or criminal sanction, such as a corrective order, a penalty surcharge, or a referral for prosecution, that the Fair Trade Commission imposes for a violation of the Monopoly Regulation and Fair Trade Act.
This not only deters unlawful conduct but also has a direct effect on a company's market credibility and governance evaluation.
A response to a Fair Trade Commission sanction is divided into the investigation stage (submission of materials and management of statements), the deliberation stage (disputing the legal reasoning and economic effects), and the post-disposition stage (administrative litigation, stay of execution, and management of external risk), and if the initial response fails, ESG risk is likely to expand.
Category | Main Response Measures |
Initial Response to the Investigation | Upon notice of the commencement of a Fair Trade Commission investigation, immediately ascertain the facts and form an internal response task force (TF) |
Management of Material Submission and Statements | Respond after legal review of the scope, timing, and method of submitting materials |
Response on the Determination of Illegality | Legal review of the relevant transaction structures (TRS, intra-group transactions, support conduct, and the like) |
Response to Corrective Measures and Penalty Surcharges | Review of the legality of the corrective order and the basis for calculating the penalty surcharge |
Submission of Opinions and Supplementary Briefs | Submission of opinions centered on the facts, economic analysis, and legal reasoning |
Filing of Administrative Litigation | Filing of a revocation lawsuit against the corrective order and penalty surcharge |
ESG-Linked Risk Management | Review of the effect of the Fair Trade Commission sanction on the ESG (G) grade |
Subsequent Recurrence Prevention | Reorganization of the intra-group transaction and fair-trade compliance framework |
Assistance of an Attorney | Response by an attorney with experience in corporate, fair-trade, and administrative litigation matters |
Assistance from a Daeryun Law Firm LLP Corporate Attorney
Corporate attorneys at Daeryun Law Firm LLP, drawing on their experience in responding to Fair Trade Commission investigations and sanctions, establish defense strategies that can reduce legal risk.
They also work with administrative attorneys to analyze in detail the unlawful elements of a disposition at the administrative litigation stage, seeking a substantive reduction of the burden.
In addition, they review a company's governance, compliance, and ESG framework and propose structural improvements so that the same ESG risk does not recur.
In particular, Daeryun provides strategic assistance that can turn ESG risk into an opportunity for long-term restoration of trust rather than a crisis, through a one-stop response service linking fair trade, corporate governance, and administrative litigation.
ESG risk is now a core management risk directly tied to corporate survival, not an optional matter for management.
This is why the assistance of an experienced corporate attorney, from advance prevention to post-occurrence response, matters.
If you would like to seek advice on ESG management, you are welcome to make a 🔗corporate attorney legal consultation reservation at any time.
