Monitoring system needed to check ESG initiatives, stimulate competition

By Kim Hyun-bin

Business groups, large and small, have been busy promoting their environment, social, and governance (ESG) agenda in recent years as a way of proving they are responsible corporate citizens.

Companies have been rushing to set up ESG committees to face the challenges posed and initiate solutions. However, the committees were found on occasion to have existed in name only with members rarely meeting, plans hitting bureaucratic hurdles, expenses exceeding expectations along with other problems, according to a recent study. Experts say that for most Korean firms, ESG is no different from corporate social responsibility (CSR) initiatives seen in previous years.

According to Leaders Index, which analyzed activities of the board of directors of 169 listed companies with assets of more than 2 trillion won, 88 of them or 52 percent established ESG committees. The 88 companies held a total of 251 meetings in 2021. Each of those companies held 2.9 meetings on average.

Among the 251 meetings, 567 items were brought up, handling an average of 2.2 cases per meeting. However, most issues were unrelated to ESG management.

"Only 31.3 percent of the agenda was directly related to ESG while around 70 percent, or 370 cases, had to do with management activities such as investments, mergers, etc. that could have been handled at the general board of directors meetings," Leaders Index pointed out.

ESG just fancy name for CSR

The recent ESG movement became a hot issue internationally after global financial investment firms increased their stakes in ESG related fields, which has pressured the Korean government to issue guidelines and local conglomerates to follow suit.

However, experts point out, the majority of ESG initiatives that have been launched by local companies are nothing new and are simply an extension of their CSR agendas already set in place.

"Although companies established ESG committees, there is no significant difference from their CSR initiatives from before. Not much has changed," said Kim Jin-sung, a senior analyst at the Korea Corporate Governance Service. "They are not fully aware of what to address as it (ESG) is in the initial stages. That is why they are discussing issues that could be addressed in board of directors meetings."

Looking at the status of ESG committee implementation by industries, household goods, banking, and distribution sectors that are directly related to general consumers represent a high proportion, while industries such as energy, steel, and construction were relatively passive in establishing ESG committees.

All three telecommunication companies ― SKT, KT, and LG Uplus ― established ESG committees. Banks are the next most active sector in ESG committee activities. Of the 10 listed companies with assets of 2 trillion won or more, 8 of them ― except Jeju Bank and Woori Securities ― are operating ESG committees.

The sectors with less than 50 percent of the ESG committee implementation were shipbuilding, machinery, transportation and steel companies.

SK was the most active in ESG activities by approving 41 ESG agenda through 12 meetings followed by Mirae Asset Life Insurance (11 meetings), Hyundai Mobis (10), Hyundai Motor (8), SKC (7), Kia Corp. (6), Hyosung (6), POSCO, SK Telecom, Samsung C&T (5 each).

Although some companies are leading the ESG drives, experts say in the current state, there are no reasons for local conglomerates to invest heavily in such initiatives, as large corporations face limited competition to attract global investors.

"It does not really matter if the Korean companies are involved in ESG or not, since global investors are limited when it comes to which conglomerates to invest in. So it does not really matter if they increase ESG activities to attract investors, which will just result in more expenses," said Kwon Oh-in, a director at the Citizens' Coalition for Economic Justice.

Analysts believe the best way for conglomerates to expand ESG initiatives is to voluntarily take matters into their own hands. But since most Korean companies are not eager to put in the effort, the next best approach is to implement an ESG market monitoring system such as making public access to their ESG efforts mandatory, similar to that of corporate governance issues.

"In the beginning of the Moon Jae-in administration, they tried to make it mandatory for conglomerates to make public their ESG efforts, but such measures were postponed," Kwon said. "I believe we need a system that checks on conglomerates' ESG initiatives to make it easier to compare between conglomerates and stimulate competition in the field."

'Doing our best'

Although ESG management is a fairly recent concept, leading conglomerates say they plan to be more active in the coming years. SK has been leading the ESG efforts among local conglomerates with SK Group Chairman Chey Tae-won backing the drive.

"ESG is the best methodology to pursue sustainable growth for future generations and we have made it our core management philosophy," an SK Group official said. "We plan to further strengthen ESG management, such as board-centered management and the early achievement of net zero through carbon reduction."

Hyundai Motor Group's medium to long-term strategy is to sell a total of 3.07 million electric vehicles (EV) in 2030 transitioning 36 percent of its local sales to EVs.

"All executives and employees will continue to work hard for our establishment as a leading ESG management company," a Hyundai Motor Company official said.

Not included in Leaders Index, LG Holdings said its ESG committee held only two meetings in 2021 but vowed to strengthen its ESG management in the coming years.

"LG has strengthened its executive power by appointing CEOs as a member of the ESG committee, and is also developing the LG ESG index to continuously monitor tasks and performance in each ESG field," an LG Group official said.

Samsung Electronics said its Sustainability Management Committee met four times last year and continues to enhance ESG efforts.

"Samsung Electronics has been continuously strengthening its dedicated organizational system, such as establishing the Sustainability Management Secretariat in major business units and upgrading the Sustainability Management Center to report directly to the CEO," a Samsung Electronics official said.