[The Editors' Verdict] ESG Management: A Necessity, Not a Choice

Recently, ESG (Environmental, Social, and Governance) management has become a hot topic. It represents a new value system where companies must engage in eco-friendly practices, social contribution, and ethical management to achieve sustainable development. It considers non-financial factors such as the interests of society as a whole (consumers) beyond shareholders, as well as environmental friendliness, social contribution, and ethical management. The scope of consumer benefits has expanded beyond social contribution to include environmental and ethical management, and there may be demands to reflect these non-financial factors in financial corporate value, such as stock prices, distinguishing ESG from the traditional CSR (Corporate Social Responsibility). For companies, ESG has now become a 'necessity' rather than a 'choice.'

ESG was institutionalized starting with the United Nations (UN) Principles for Responsible Investment (PRI) in 2006. It is not an abstract 'declaration' but a practical 'investment principle' that has become the investment standard for major global investors. The market expects its influence to grow as the number of institutions subscribing to the PRI principles increased to 3,615 as of January this year. Recently, carbon emission reduction and corporate governance improvement have become important factors in investment decisions by advanced countries' pension funds and global investors such as BlackRock. In particular, in Europe, financial institutions are also required to set carbon emission targets. Changes in consumer perspectives on companies are also a background for the growth of ESG. Consumers now consider the impact on the natural environment and society when purchasing products, due to issues such as global warming, climate change, environmental pollution, and polarization caused by monopolies of large corporations.

Global platform companies, which are sensitive to large-scale investors and burdened by recent monopoly issues, are moving quickly. Google is working on predicting natural disasters and preventing diseases through artificial intelligence (AI), while Microsoft (MS) is promoting the 'Project Natick,' an underwater data center project powered by 100% renewable energy.

Companies emphasizing social responsibility and governance are also increasing. Nvidia was ranked first in ESG among tech companies selected by global investment banks (IBs) last year, and the U.S. Nasdaq requires at least one woman or LGBTQ+ individual on the board at the time of listing. Financial ESG products are also emerging. For example, Sweden is set to launch the world's first credit card with a carbon emission limit called 'Do black.'

The impact on corporate management is expected to grow. Both overseas and domestic financial and investment institutions are anticipated to reflect ESG evaluation criteria in investment conditions and loan interest rates. Rapid inflows of funds into ESG bonds and funds are also expected. Last year, global ESG bond issuance reached $484.1 billion (580 trillion KRW), a 63% increase from the previous year, and the scale in South Korea reached 8.7 trillion KRW. According to Deutsche Bank, global ESG fund investment is expected to grow at an average annual rate of 12.4%, from $40.5 trillion last year to $130 trillion by 2030.

The development and expanded use of new technologies for ESG management cannot be overlooked. As seen with Google and Starbucks, the development and corporate application of AI, blockchain, and drone technologies are expected to increase. For South Korea, which has a high export dependency and significant overseas equity holdings by large corporations and financial companies such as banks, responding to ESG is especially important at this time.

Jeong Yushin, Dean of the Graduate School of Technology Management, Sogang University