Especially in a situation where ESG-related disclosures are becoming key evaluation criteria for investors and regulatory bodies, it is necessary to prepare ICFR and internal controls, which have previously focused on financial reporting, to play a vital role in ensuring the reliability and transparency of the data used in ESG-related disclosures.

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ESG-related regulations are being strengthened world-wide, with increasing legal requirements specifically targeting the global automotive industry.

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For example, despite the somewhat relaxed provisions in the recently announced Omnibus Package, the European Union (EU)’s sustainability reporting requirements remain quite diverse and complex. Additionally, the U.S. Securities and Exchange Commission (SEC) ESG disclosure regulations are becoming institutionalized despite adjustments in direction from the second Trump administration.

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Hyundai Motor Company, as a global market leader, must proactively respond to these regulatory changes to maintain market competitiveness, and its ICFR organization must continuously review the appropriateness of ESG disclosures.

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Major institutional investors are considering ESG performance as an important factor in investment decisions and demanding external verification to enhance the credibility of ESG disclosures.

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Global Asset Management companies, such as BlackRock, are actively monitoring ESG risks of their portfolio companies, and there is an increasing number of investments withdrawals from companies that do not comply with ESG standards.

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Accordingly, it is expected that the reliance on controls managing and operating ESG-related disclosures and information will increase, and the role of ICFR organizations may also expand to meet the investor’s expectations.

ESG Reporting Risks and the Role of ICFR

ESG Reporting aims for reliability based on accuracy, like Financial Reporting.
However, unlike the information used for Financial Reporting, ESG information consists of various criteria and indicators, making it difficult to maintain consistency and accuracy in the absence of clear global standards.

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Furthermore, if there is a discrepancy or incomplete management of ESG data used for the actual management and operation of a company, this could pose a risk that goes beyond simple reporting errors and expand into issues of corporate reliability and legal liability.

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​Therefore, a company's ICFR should be designed and operated with caution, with the purpose of proactively managing ESG-related risks and enhancing the reliability of reporting.

Areas Where the Role of ICFR Should Be Considered

1. Review of ESG Data Accuracy: The indicators used in ESG reporting must be thoroughly checked to ensure they reflect actual operations. In the case of HMC, it should closely analyze whether key ESG items, such as carbon emissions, eco-friendly vehicle sales ratios, and labor environment improvement efforts, are in line with global standards in the relevant industry, and whether appropriate information is collected according to the company’s ESG policies.
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2. Verification of Consistency with Financial Information: It is necessary to design and operate controls that comprehensively analyze and review the accuracy, relevance, and consistency of information through internal control processes to ensure that ESG reporting content does not conflict with existing financial reporting content or create dual interpretations.
   For this purpose, it is possible to identify the relevance between controls that have been designed and operated as "Internal Controls over Financial Reporting (ICFR)" for financial reporting purposes and important information needed for ESG reporting purposes, and to analyze whether new controls are needed or whether existing controls can be utilized by adding components.
    

3. Materiality Assessment: Considering HMC’s business environment and future strategies as a global leading company, it is necessary to select important elements among ESG-related information that substantially impact investors and various stakeholders. This sometimes considers not only quantitative factors but also various qualitative and complex factors. Therefore, it is essential to establish a meaningful ESG strategy linked to Hyundai Motor Group's actual management decision-making rather than simply following trends. Based on this, it is necessary to periodically perform materiality assessments similar to risk assessments in ICFR.
    

4. Support ESG Control Process: Internal Control system should be applied using a consistent COSO framework to manage ESG risks effectively, and it should promote effective operation through periodic reviews and continuous improvement. Through this preparation process, companies can establish a control environment that can provide information that meets ESG policies targeted by the company and disclosure standards required by relevant jurisdictions.
    

5. ESG Governance Enhancement Consultation: There is a need for an advisory group with expertise to support the Board and management in clearly setting ESG strategies and implementing them at the company level, as well as an ICFR organization that can actively reflect and implement identified contents through these activities.
   For HMC to effectively manage ESG risks and provide reliable ESG information, the ESG policies and related KPIs should be regularly shared with employees and various stakeholders, and make sure the ICFR organization accurately understands these to performs a more active role.
   It is important to regularly conduct internal checks on controls for ESG-related risks identified through risk assessments and continuously improve the control environment. Applying COSO's internal control framework to ESG management would enable a more systematic approach.

ESG now has a meaning beyond simple reporting and has become a key element of corporate sustainability and long-term value creation. This is no exception for Hyundai Motor Company.

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Therefore, HMC’s ICFR Organization must effectively manage ESG risks related to the company's sustainability through a clear understanding of the company’s ESG policies and a well-structured management system, enhance the reliability of ESG disclosures, and proactively respond to changes in the global market.

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​Now, HMC’s ICFR should prepare to play a key role in securing leadership in global best practices in ESG management, going beyond simple financial control functions.