[Initial Insight] For Voluntary ESG

The ESG trend is blowing. You can hear this term everywhere. It stands for Environment, Social, and Governance. It refers to actions that minimize environmental impacts such as climate change, pursue profits without socially questionable methods, and conduct corporate activities with a reasonable level of governance. If the traditional concept of social responsibility activities involved negative positioning, such as not investing in industries like tobacco and gambling, ESG can be seen as a positive approach that rewards companies considering climate change. Ultimately, ESG encourages good corporate activities by considering not only financial factors but also non-financial factors.

ESG came to the forefront in 2020 when Larry Fink, CEO of BlackRock, the world's largest asset management company in the US, sent an annual letter stating that climate crisis would be a major consideration. This was a practical move to make companies respond to ESG through shareholder power. BlackRock also exercises ESG-related shareholder rights in Korean companies. According to the Federation of Korean Industries, BlackRock participated in ESG-related shareholder proposal votes in 27 Korean companies, 2.3 times more than the 12 companies in 2019.

The domestic financial investment industry is also expanding ESG activities in line with this trend. Shinhan Investment Corp. decided to hold more than 70% of its total fund in ESG grade BB stocks. To receive investment from this company, which promotes itself as an ESG asset manager, companies must meet ESG grades.

Companies are also adapting to these changes. Among the top 10 domestic groups by total assets, Samsung, Hyundai Motor, SK, Lotte, POSCO, Hanwha, and GS have established ESG committees. The ESG breeze is spreading throughout the business community.

However, the government’s intervention has cooled down the temperature of this trend. The government announced that it would introduce Korean-style ESG (K-ESG) indicators in the second half of this year and implement a mandatory ESG information disclosure system starting in 2030. Since there are about 600 ESG indicators domestically and internationally that evaluate companies in a haphazard manner and produce vastly different results, it is not wrong for the government to step in and create an ‘official indicator.’ However, while the ESG fever is spontaneously rising in the market, the government’s involvement has made the private sector hesitant.

There are already talks about 'ESG regulations.' It is said that drawing a line and forcing companies to run at this early stage, when they are just opening their eyes to ESG and taking their first steps, is problematic. This criticism carries weight. If this indicator loses its influence, it will be no different from the 600 existing indicators. Wouldn’t it have been better to introduce support measures to bring companies into the ESG ecosystem? There is concern that the ESG trend might become a cold wind for companies struggling due to the aftermath of COVID-19.