[In-Depth Review] Institutional Support Needed as ESG Craze Shows No Signs of Slowing Down

ESG (Environmental, Social, and Governance) management is spreading like a trend.

ESG is an evolved corporate management system from the Corporate Social Responsibility (CSR) and sustainable management that were popular in the early 2000s. ESG can also be seen as a normative framework that society demands from companies. Global investment management firms are signaling CEOs to integrate carbon neutrality goals into corporate strategies, and ESG evaluation factors are increasingly being stipulated as top priority criteria for cooperative transactions within global supply chains in contracts.

Domestically, the Financial Services Commission announced that from 2025, ESG disclosure will be mandatory for listed companies with total assets exceeding 2 trillion won, and from 2030, this will expand to all KOSPI-listed companies.

This reminds me of the mid-2000s when CSR management spread like a trend. I also received government support to establish a Small and Medium Enterprise CSR Management Forum, published evaluation systems and practical guidebooks, and traveled nationwide giving related special lectures. However, that trend did not last for ten years. Only a few of the experts involved at that time have survived.

Scholars and consultants who claim to be ESG experts are increasing rapidly like mushrooms after rain. The problem is that these ESG initiatives are being carried out not by actual experts but by hastily assembled self-proclaimed experts. As a result, the organization and suitability of evaluation systems are inconsistent.

This fosters distrust between companies and stakeholders and requires investment and time for verification, resulting in considerable social costs. Under government support, industry-specific associations should develop and utilize standardized ESG evaluation and reporting systems tailored to their sectors. Wisdom is needed to create and disseminate segmented ESG evaluation systems that can flexibly apply indicators according to industry size and capability.

ESG management should actually be practiced starting from small and medium enterprises to achieve national economic outcomes. Therefore, the government must spare no effort in providing necessary support so that SMEs can adopt and practically utilize ESG management. Strong, practical, and innovative support measures should continue to enable SMEs to independently organize internal ESG structures, implement practices, evaluate performance, and establish reporting systems, including education and consulting. It is also necessary to guard against ESG investment costs being transferred as pressure to lower product prices or delivery prices. There is a need to create a nationwide support organization funded by taxpayers that leads this effort collectively for all members of the nation.

ESG should not be confined simply to the perspective of investors.

From the viewpoint of all stakeholders, it is also necessary to organize efforts to collect industry-specific concerns and difficulties and incorporate them into the establishment of ESG evaluation systems and support measures in a gradual and swift manner. At the same time, the government should strongly promote the ESG achievements of SMEs so that society can recognize its necessity.

Over time, the ESG trend may subside. We must create the institutional and normative framework now to sustain it. Let us return to the basics that we have overlooked while busy making a living. We must understand that this is the way to sustain our society, future generations, and save the planet.

Kim Ikseong, Professor at Dongduk Women’s University, President of the Asia-Europe Future Society

This content was produced with the assistance of AI translation services.