Environmental performance by college students in the plaza in front of the Seoul City Hall. It contains a message to reduce greenhouse gas emissions and suppress the global temperature rise within 1.5 degrees. Reporter Kim Young-woo [email protected]
There are people who get sick when they start new production facilities or when sales spike. It is an employee in charge of ESG (environmental, social, governance) management. An ESG representative of a large company said, “In a year when the factory is fully operated because of the good business conditions, greenhouse gas emissions and energy consumption also increase. It is good for the company to run well, but we have to bear the decline in the ESG ranking.”
According to the 2019 evaluation report of Morgan Stanley Capital International (MSCI), which is often referred to by global institutional investors on the 3rd, all the leading ESG ratings of domestic’Big 3’such as Samsung Electronics (BBB) Hyundai Motors (B) SK Hynix (BB) are ‘ B’. The same goes for POSCO (BBB). Experts analyze that as the proportion of the manufacturing industry that uses a lot of energy is high, it loses the score related to E (environment).
The findings of the Korea Economic Daily and IBS Consulting also support this. Of the 20 major domestic companies, only 9 have reduced greenhouse gas emissions from 2017 to 2019, and only 5 have reduced energy consumption. It is an analysis that it is not easy to raise environmental indicators enough to meet the eye level of global evaluation agencies due to the nature of large Korean companies whose manufacturing is the core. The fact that global evaluation agencies do not take into account the unique characteristics of Korea in which the criminal punishment regulations for the CEO (CEO) are very many was cited as a reason for the low ESG rating.
Experts warn that if the standardization and institutionalization of ESG, which has become an irreversible trend, proceeds further, Korean companies may suffer disadvantages. There is also a possibility that global funds advocating ESG will be excluded from investment or European countries will bite a’carbon tax bomb’ on companies with high greenhouse gas emissions.
There are also observations that the Korean government, which is required to reduce 315 million tons of greenhouse gases by 2030 according to the Paris Climate Agreement, could preemptively raise fines for pollutant-emitting companies. Seok-mo Yoon, head of the ESG Research Institute of Samsung Securities, pointed out that “Korean companies need to quickly modify the overall management system to avoid the’ESG shock’.”
Companies that reduce greenhouse gas emissions, only 9 out of 20… Korean companies’ankle’ to environmental indicators
Korean ESG competitiveness lagging behind
As ESG management is spreading in all directions, the concerns of domestic companies are growing. ESG stands for environmental and social governance and stands for a non-financial indicator of a company. Global pension funds and asset managers are deciding where to invest based on ESG evaluation. It has the meaning of selecting a company that contributes to the environment and society. As of the end of last year, the global ESG fund estimated by the Global Sustainable Investment Association (GSIA) amounted to 45 trillion dollars (about 5 kilograms). Some global companies, such as Apple of the United States, are also starting to demand ESG performance from suppliers that supply materials and parts.
When considering ESG competitiveness of domestic companies,
On the 3rd, the Korea Economic Daily and IBS Consulting analyzed the ESG competitiveness of representative companies in 20 domestic industries, which are publishing sustainability reports for three consecutive years, and as a result, GHG emissions were analyzed as the main factor that degrades ESG scores. ESG evaluation was conducted by analyzing detailed ESG data from the sustainability report, centering on indicators commonly reflected by Morgan Stanley Capital International (MSCI) and Thompson Reuters.
According to the results of the survey, greenhouse gas emissions were cited as one of the representative’challenges’ for Korean companies. Nine out of 20 companies that reduced their greenhouse gas emissions between 2017 and 2019 were less than half. Samsung Electronics’ GHG emissions in 2019 were 5067,000 tons, up 38.1% from 2017. During the same period, SK Hynix’s greenhouse gas emission growth rate reached 24.4%. POSCO had a different unit altogether. In 2019, the greenhouse gas emissions alone reached 7.99 million tons.
Energy consumption and waste emissions are also classified as indicators that are not improving. In 2019, LG Chem consumed 175,500,000 GJ (gigajoules: a unit representing the amount of energy) and discharged 340,847 tons of waste. Energy consumption increased by 6.4% and waste emission by 24.8% from two years ago. It is explained that it shows a dilemma in the Korean manufacturing industry, in which pollutant emissions are bound to increase as investment and production increase.
Governance structure is improving
However, the item with significant change was the amount of waste and waste discharged. Samsung Electronics, Hyundai Motors, and LG Electronics have succeeded in reducing emissions in 2019 compared to 2017. An official from IBS Consulting said, “Global ESG evaluation agencies such as MSCI do not disclose how detailed environmental indicators are weighted,” he said. “It only explains that the rating is given in consideration of changes in sales or production.”
On the other hand, the situation of’G (government structure)’, which was pointed out as the’Achilles’ tendon’ of Korean companies, was also found to be improving little by little every year. As of 2019, eight of the 20 major companies, including Samsung Electronics, SK Hynix, and LG Electronics, separated the CEO and the chairman of the board. It is a common argument of ESG evaluation agencies that this is a sign of increased transparency in governance. It is also a positive change that Hyundai Motor Company and SK Hynix established a new compensation committee to determine the compensation of executives in 2019.
Speed in ESG management from this year
In the market, there is a prospect that the ESG management of domestic companies will begin in earnest starting this year. This is because domestic pension funds and asset managers have announced that they will make investments based on ESG evaluation. The move of the National Pension System, the’big hand’ of stockholders, is of great interest. Kim Yong-jin, chairman of the National Pension Service, said at a conference hosted by KB Financial Group in November last year, “by 2022, the principle of responsible investment will be expanded to 50% of the total assets of the fund.”
Overseas, the movement of the European Union is expected to increase. The biggest change is that the’Sustainable Financial Disclosure System (SFDR)’ becomes mandatory from March. SFDR’s gist is that financial investment institutions in Europe should disclose information on sustainable investment and demonstrate the sustainability of financial products.
Reporter Song Hyung-seok/Lee Soo-bin [email protected]