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Korean Companies Embrace ESG

susie October 21, 2022 0 Comments

Following the global trend, Korea too started viewing ESG as an important factor of business from early 2010s onwards and revised regulations on posting and disclosing environment related information. According to a recent survey, finance was the single largest industry that led the promotion of ESG projects (25.6%). Efforts of five major financial institutions of Korea in integrating ESG factors into business strategies highlight the industry’s transitory efforts. One outcome of this effort is the increasing trend of ESG-related funds and bonds, expected to generate earnings based on efficient management of implicit costs and assets deployed.

Due to the current market volatility, this investment sentiment has been slightly curbed. However, the rise of oil prices and the unstable supplies of natural gas have raised awareness about sources of renewable energy. This has opened a new door for ESG projects in financial institutions. ESG has become an inevitable trend among businesses, business models and portfolio restructuring.

The major socio-political polices led by the Korean government are K-SDGs (Korean-Sustainable Development Goals), K-New deal, and establishing presidential advisory bodies for national sustainability projects.

First, the K-SDGs are 17 goals that respond to UN’s SDGs. K-SDGs are divided and allocated to government departments. Next, the ministry would cooperate with experts and local governments to set up specific legislations to achieve K-SDGs.

K-New Deal is a recent national development project to overcome recession through promoting an employment safety net, digital innovations and green energy generation. Such directions of the previous government overlapped with ESG trend. However, K-New Deal was continuously criticized for lack of effectiveness.

In the current government, K-New Deal business was announced as the first target to restructure its large expense (34 trillion won planned this year). For instance, investment in businesses areas that K-New Deal focused upon and tax concessions for related funds were curtailed.

But this does not indicate Korean government’s lack of interest in ESG. National policy has always targeted sustainable economic growth but has been reformed after the change of regime. ESG has been and will remain a considerable topic among Korean industries.

The apparent surge in action on the ESG front notwithstanding, there have been setbacks. First is that there is no designated department to assess firms’ ESG performances. This leads to confusion in investor judgement on deciding which firm to invest in.

Second is the effectiveness of major policies. At this moment, the government encourages spread of ESG management with provision of consulting and benefits (e.g., lower interest loans and extension of credit) to SMEs with excellent ESG performance. However, lack of human resources and assets makes it difficult for SMEs to undertake ESG projects the way larger enterprises can.

Overall, the integration of ESG into Korea’s national development has a long way to go, and the effectiveness of current polices seems insufficient at this moment.