On September 1, 2023, lawmakers in South Korea proposed a bill entitled the “Act on Human Rights and Environmental Protection for Sustainable Business Management” (the “Bill”) to the National Assembly. This Bill aims to address adverse impacts of business activities by mandating human rights and environmental due diligence (collectively, “due diligence”).

If this Bill is enacted, South Korea will be the first country in Asia to have enacted mandatory due diligence obligations, thus joining Western countries like Germany and France. Indeed, while Japan is currently the only Asian country with a law that addresses due diligence, critically, that law only creates a set of non-mandatory guidelines for businesses.

The Bill emerges at a time when the E.U. is finalizing its Corporate Sustainability Due Diligence Directive, which is expected to significantly change the legal landscape of due diligence both within and outside the E.U. Thus, the Bill – if enacted – will add to the dynamic patchwork of due diligence legislation that is spreading across the globe.

What is the current status of the Bill, and when will it be enacted?  

Before it is enacted, the Bill must pass through multiple stages of the legislative process. Following its introduction in the National Assembly, the Bill has been publicly posted for gathering public opinion. The Bill will be further subject to scrutiny and possible amendment by the relevant standing committee, which will resolve whether or not to present the Bill for a vote at the plenary session. If the Bill is passed at the plenary session of the National Assembly, it will be sent to the government body and to the President for promulgation to be made within 15 days. Currently, it is at the stage of deliberation by the relevant standing committee, the Strategy and Finance Committee.

It is difficult to anticipate when or whether the Bill will be enacted, as the Strategy and Finance Committee review – while acknowledging the necessity of addressing human rights and environmental concerns in global supply chains – indicates various issues with the current version of the Bill. Many of the opinions collected from the public were also opposed to the Bill, stating that the burden for corporations was heavy and ambiguous, and that the sanctions for non-compliance were excessive.

If enacted, which employers will be covered under the Bill?

On its face, the companies covered are as follows:

• Companies registered in Korea with 500 or more employees, or revenue equal to or greater than 200 billion Korean Won (approx. USD 153 million) in the previous financial year. (It is currently unclear if these thresholds refer to global employees and revenue, or only in-country employees and revenue.)
• Foreign companies with Korean branches and operations with 500 or more employees, or revenue equal to or greater than 200 billion Korean Won (approx. USD 153 million) in the previous financial year. (It is currently unclear if these thresholds refer to global employees and revenue, or only in-country employees and revenue.)
• Certain due diligence provisions may still apply to all companies registered in Korea where there is a concern that business activities involve war crimes, genocide, or child labor.

However, when the types of business activities implicated by the Bill are considered, it appears that many more companies are impacted. Indeed, a covered company’s “business activities” triggering due diligence obligations include not only business activities of the company’s own operations, but also those of their business partners like subsidiaries as well as suppliers. “Supply chain” is defined broadly as business relationships that are both direct and indirect, formed at every stage of a company’s value chain from raw material acquisition to final consumption.

Thus, in effect, regardless of its location, even a second- or third-tier (or further attenuated) supplier of a covered company will be subjected to that company’s due diligence practices, meaning that the supplier will have to comply with the covered company’s due diligence requirements in order to continue to do business with that covered company.

If enacted, what will the Bill require of covered employers?

The Bill reflects key elements of due diligence under the United Nations Guiding Principles on Business & Human Rights and the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct:

• Companies must establish and implement due diligence, which includes:
  
  • establishing human rights policies;
  • conducting risk assessments;
  • implementing risk-and-impact monitoring systems;
  • disclosing relevant information to stakeholders;
  • operating grievance mechanisms; and
  • in the event of identifying adverse impacts, developing and executing remedial measures.
• The representative of the company or the authorized head of the business must annually prepare a due diligence plan and report it to the Board of Directors for its approval.
• A human rights and environment company committee (the “Committee”) under the Prime Minister’s office must be established for mediation of business activities and resolution of disputes related to due diligence. The Committee will be authorized to recommend corrective measures or impose corrective orders to non-compliant companies, which can include criminal penalties.  
• The Committee may designate a foreign country or an area within a foreign country as a “high risk/dispute area,” meaning areas of conflict where human rights risks are particularly high, and companies operating into those areas will be required to submit due diligence reports to the Committee.
• The government will create a Human Rights and Environmental Violation Victim Assistance Fund to support victims of adverse impacts, and to enhance the effectiveness of dispute resolution.

What sanctions does the Bill prescribe for non-compliance?

• Five years’ imprisonment or criminal fines of up to 50 million Korean Won for covered companies that:
  
  • fail to fulfill a confirmed corrective order from the Committee; or
  • fail to identify human rights and/or environmental risks arising from business activities that are directly or indirectly linked to war crimes, child labor or operations in a conflict or high-risk area.
• Administrative fines for covered companies that fail to report their plan for the implementation of corporate due diligence to the board of directors; and,
• Compensation to victims for any civil damages arising from a breach of the Bill’s provisions.

How will the Bill impact other Asian countries?

If the Bill is enacted, Korea will join Japan as the first non-Western country to implement a legal framework on due diligence, and the first Asian country to enact mandatory due diligence, thus impacting other countries in the APAC region in two significant ways.  

First, as noted, Korean companies’ suppliers and other business partners in other APAC countries such as Vietnam and India will feel pressure from those Korean companies to adopt and implement human rights policies and practices that are in line with the Bill’s provisions. Second, the Bill – whether enacted or not – may serve as an example to other APAC governments on how to introduce due diligence concepts to their jurisdictions’ businesses.

Indeed, the Bill – along with the Japan Guidelines – signals the start of a shift in the patchwork of due diligence legislation from its current focus on Western companies.