South Korean Industries Face Rising Supply Chain Carbon Risks Amid Global Regulations – Report

A recent report by the Institute for Energy Economics and Financial Analysis (IEEFA), titled “Navigating Supply Chain Carbon Risks in South Korea,” has highlighted rising risks for South Korea’s major industries, especially semiconductors and Artificial Intelligence (AI), due to global carbon regulations. The report warns that expanding international carbon policies are increasing costs and operational risks across global supply chains, demanding urgent strategic changes for South Korea’s export-driven economy.

The report points out that South Korea’s heavy reliance on exports, combined with a relatively carbon-intensive energy mix, leaves its industries particularly vulnerable to external carbon regulations. Most South Korean companies currently focus on Scope 1 and Scope 2 emissions, which cover direct operational emissions and purchased energy. However, they often overlook Scope 3 emissions, which occur throughout the supply chain, both upstream and downstream. This is a critical gap because global buyers, particularly in the European Union (EU) and the United States, are increasingly concerned about the total lifecycle carbon footprint of the products they import. Companies that fail to address these emissions risk losing business and facing reduced investment from environmentally conscious global investors.

The report identifies several key risks. One major risk is exposure to carbon costs. Policies like the EU’s Carbon Border Adjustment Mechanism (CBAM) impose taxes on imports with high carbon footprints, including materials such as steel and aluminum. South Korean companies using these components, even indirectly, may see higher costs of goods sold, reducing competitiveness. Another risk is reputational and counterparty exposure from neglecting Scope 3 emissions. Multinational clients are likely to shift their purchases to lower-carbon suppliers to meet their own net-zero commitments. Accurately tracking and reporting Scope 3 emissions is complex and requires extensive data, creating additional compliance challenges for South Korean firms.

The report emphasizes that simple carbon offsetting is not enough. To remain competitive in global markets, South Korean companies need to decarbonize their supply chains fully. Immediate action is required, including integrating carbon management into core business strategies. Companies should diversify energy sources away from fossil fuels, particularly liquefied natural gas (LNG), and work closely with suppliers to reduce emissions. Without such measures, firms may face market exclusion, financial penalties, and long-term damage to their global standing.

IEEFA concludes that addressing supply chain carbon risks is not just an environmental responsibility but a crucial economic necessity. For South Korea, failing to adapt could jeopardize its position as a global leader in high-tech manufacturing. The transition toward lower-carbon operations is essential for sustaining competitiveness, maintaining access to key export markets, and meeting investor expectations. Strategic decarbonization and proactive engagement with suppliers are central to ensuring that South Korean industries can navigate the growing global focus on carbon reduction while securing long-term growth.