[인터뷰]”ESG’s government that hasn’t played its part, it’s still time to go head to head with companies

[이데일리 이정훈 기자] “The mandatory disclosure of ESG (environmental, social, and governance) is late, but the financial authorities are in a hurry without giving companies enough time to prepare. In addition, the Korean government has not properly provided information to companies about various regulations and systems introduced by other countries at the ESG level. Even now, we have to share information and head-to-head with companies.”

Jaehyuk Lee, Professor of Korea University (Photo = Reporter Bang In-kwon)

As a professor at the Department of Business Administration at Korea University, Lee Jae-hyuk is the director of the social enterprise center and the head of the sustainability management research group, a founding member of the Institute for Sustainable Economics and Social Development, a member of KOTRA’s global CSR project review committee, and a member of the public-private joint task force for win-win cooperation with small and medium enterprises. In an interview with E-Daily on the 17th, the professor emphasized that such a role of the government is required for domestic companies to properly prepare and internalize ESG.

Professor Lee also expressed doubts about the National Pension Plan’s plan to invest 50% of the total assets by next year from the perspective of ESG, while expressing doubts about whether it would be possible to raise the return on investment and prepare appropriate evaluation criteria, he cautioned that he should take the time to prepare.

The following is a question and answer with Professor Jaehyuk Lee.

-Are Korean companies accepting ESG well?

△It seems that Korean companies are also basically familiar with the importance of ESG. Experts are being recruited, ESG experts are recruited within the board of directors, and a separate committee is also created. Looking at this, it seems that they understand ESG to some extent. However, as companies face different situations, each company must have different ESG strategies, but so far they are generally similar. Of course, it is still at the stage of internalizing ESG, so it will be time to consider how well it is accepted. First of all, I would say that there is progress in understanding ESG. Now you are at the level of putting on the first button.

-It is urgent for companies to properly disclose information related to ESG.

△ The Financial Services Commission plans to make it mandatory for KOSPI-listed companies with assets of 2 trillion won or more from 2025 and expand to all listed companies in 2030. Looking at this in itself, it cannot be said that our legislativeization or introduction of the system is by no means quick. Therefore, some point out that this should be accelerated. However, in terms of the period until the Financial Services Commission unveils the mandatory policy after ESG discussions in Korea became active, it can be seen that they are accepting and implementing them in a very compact manner. In other words, the announcement of our authorities is rather a bit too slow. It is more important whether companies are aware of and predictable the introduction of such a system in advance so that they have given enough time to prepare.

-If so, we will have to discuss such a discussion from now on.

△ According to the Financial Services Commission’s announcement, governance issues are to be recorded in the corporate governance report and the rest in the sustainability report. It is not known whether this will ease the disclosure burden on companies. The system should be introduced in a way that relieves the burden of disclosure on companies by establishing sufficient consensus with companies. Both the government and academia must solve the challenge of ESG together while collaborating with companies. In the end, you have to think about who ESG is for. Companies must consider how they can manage ESG on their own and be able to accept them well, and to do so, the government and academia must share information with companies and think head-to-head together. We have a sense of going too fast.

-Domestic companies that do business or deliver in Europe and the US, which speed up ESG, are likely to be already affected.

△ When I meet companies, I seem to feel a pretty high burden. It is mandatory to subscribe to RE100 (100% renewable energy), but if it fails to enter it, it may be excluded from the global value chain and cannot go abroad. In addition, it is already necessary to consider the carbon border tax beyond traditional tariffs. In Europe, tariffs equivalent to carbon emissions are required to export goods, which is a new trade barrier for companies. In particular, the reason for imposing the carbon border tax is so clear that it cannot be rejected. Renewable energy prices are cheaper than fossil fuels in Europe and the United States, but in Korea, renewable energy prices are still expensive due to various systems such as direct purchase of electricity. As the government was not able to preemptively prepare, the burden on domestic companies with high dependence on foreign countries has grown too much. In addition, the Korean government has not properly provided information on the carbon border tax, etc. to companies. The Ministry of Industry and the Ministry of Environment should have played that role.

-There are a lot of ESG evaluation indicators scattered around, so how do you sort out good indicators?

△ He said that if you can’t measure it, you won’t be able to improve it. All metrics are more important. However, even when looking at the recent evaluation of global companies, the correlation between the evaluation indicators is not high. This is because each evaluation index has different focus points that evaluation companies consider important. For example, Morgan Stanley Capital International (MSCI) alone ranks Tesla’s ESG indicators highly, but Sustainables sees GM better than Tesla. The evaluation results are different depending on whether you view only the published indicators, whether companies disclose information, or take into account corporate feedback. In the end, it is a part of the company to choose which indicator to look at. Therefore, there is a movement to unify the evaluation index, but that too is bound to be subjective. More evaluation indicators will emerge in the future in Korea as well. In the end, all indicators are inevitably subjective, and it must be acknowledged that the main endpoints are different for each evaluation agency. Of course, even domestic indicators should be consistent with global indicators and take into account the Korean situation. There may be indicators that are overlaid with Korean colors, such as poor quality toward subcontractors, relationships with partners, and women with career breaks. Then, at some point, it will converge to one or two depending on the rate of return that the indicator brings.

-Is there any problem with the National Pension Service expanding 50% of its assets to ESG investment by next year?

△ There can be no objection to the national pension plan to use 50% of its total assets as ESG investments. However, I am curious about what standards to invest in. In addition, I am worried that this expansion of ESG investment may increase the return on investment of the National Pension Service. This is because ESG investments have been increased, but if the financial performance of the investments decreases, there will be noise. According to the research results so far, it is true that the majority of ESG-seeking funds generally have high returns. However, since most of the companies that these funds are incorporating are IT companies and companies that have benefited from Corona 19, there is still a reservation to improve the return on ESG investment. It is said that the National Pension Plan uses 50% of ESG investment, but it is worrisome. I am also a little worried about whether it will produce a perfect indicator of investment evaluation within this year. It can be seen that companies with good ESG evaluation results have been reflected in the stock price under the Corona 19 pandemic. Even a good company with a good ESG rating may have a different share price. How scientific an evaluation method is can be a battle against time. It takes time to verify a lot of data.

-Funding through ESG Bond is slow, but there are concerns about green washing or impact washing.

△Because it was the nature of humans to spearhead, green washing is inevitable. However, it is the financial sector that plays a role in sorting this out. If I want to lend my money, I have to find someone I don’t have to worry about. To do that, you have to judge the risk of the company. So, financial companies do technology evaluation and credit evaluation. In the end, there may be green washing or impact washing, but I believe that the financial sector itself can filter it out.