[ESG Symposium] "ESG, the Core of Corporate Global Competitiveness" (Summary)

2021 Asia ESG Symposium
"Corporate Governance Must Be Composed Independently"

Editor's NoteThe traditional success stories of companies that used natural capital without restraint and prioritized external growth as their foremost virtue no longer hold true in the 21st century. We are reminded of the need to take responsibility for environmental issues threatening human survival and to realize proper values as members of society. Governance structures are also being refined to make the right decisions. This is the background behind the growing attention to Environmental, Social, and Governance, or ESG. It is difficult to easily predict how companies facing growth limits, and society at large, will resolve these issues. However, ESG, born out of such considerations, will provide a starting point for sustainable management in our companies.

Kim Jong-hoon, Chairman of the Board of SK Innovation, is delivering a keynote speech on the topic "In the ESG Era, How Should We Respond?" at the '2021 Asia ESG Symposium' held on the 29th at the Westin Chosun Hotel in Jung-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporters Kim Hyewon, Choi Daeyeol, Jung Hyunjin] There is an opinion that to establish a Korean-style sustainable ESG (Environmental, Social, and Governance) management, corporate governance must be structured independently.

Kim Jong-hoon, Chairman of the SK Innovation Board, stated in his keynote speech at the ‘2021 Asia ESG Symposium’ held on the 29th at the Westin Chosun Hotel in Jung-gu, Seoul, "We need to quantify non-financial values like ESG and establish evaluation standards to reach social consensus," emphasizing this point.

Chairman Kim said, "Going forward, eco-friendly management is essential, and management that damages social values is unacceptable," adding, "Especially, the major direction of ESG is to structure corporate governance independently." The Asia ESG Symposium is an event recently expanded and reorganized from last year's ‘Value-Up Symposium,’ which was first held by this publication to explore corporate social responsibility (CSR) management strategies, now focusing on the global hot topic of ‘ESG.’

Jo Hae-jin, co-chair of the National Assembly ESG Forum (Chairman of the National Assembly Education Committee), said in his welcoming remarks, "Over 140 ESG-related bills have been proposed in the 21st National Assembly," adding, "We will focus on legislation to ensure ESG is firmly established in our economy and corporate activities, enhancing global competitiveness and solidifying our status as a first-class economy."

Following this, Lee Jung-mi, Senior Counsel at Logos Law Firm (former Constitutional Court Justice), who gave the opening speech, stressed, "Just as the constitution ensures the continuous preservation of values shared by the state and its people, it is important to maintain corporate sustainability through the ESG management paradigm," and added, "The establishment of Korean-style ESG management will contribute to responding to and overcoming current and future global crises, including the planetary crisis, addressing the pitfalls of capitalism, and securing the safety and freedom of the people."

Cho Hae-jin, Chairman of the National Assembly Education Committee, is delivering a welcome speech at the '2021 Asia ESG Symposium' held on the 29th at the Westin Chosun Hotel in Jung-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

"Governance is the foundation of ESG and the key to resolving Korea Discount"

Chairman Kim pointed out that the reason Korean companies do not receive proper evaluations in the global market is largely due to governance scores that are lower than those of advanced countries. He said, "Governance is the foundation and the most critical core of ESG," adding, "The discount on Korean companies reflects concerns about the independence of governance."

Governance, narrowly, can be seen as the issue of how to divide authority among the general meeting of shareholders, the board of directors, and management, but broadly, it encompasses the coordination of relationships among various stakeholders surrounding the company, including members and local communities. Comparing the price-to-book ratios (PBR) of countries competing with us on the international stage, Korea's ratio was about 0.9 (as of 2019), trailing behind the United States (3.2), India (2.7), and Taiwan (1.9), and more than 40% lower than the average (1.7). This means that companies are not being fully valued for their true worth.

The SK Innovation Board, on which Chairman Kim participates, has expanded the roles and authority of the board to enable practical board-centered management, including CEO evaluation, compensation, succession, and compliance monitoring. SK Innovation is a leading affiliate in the SK Group, serving as a mid-tier holding company, with subsidiaries including SK Energy (the largest refinery in Korea), SK Geocentric (chemicals), SK Lubricants, and SK IE Technology (materials). After separating into a holding company and operating companies in 2007, it established the current independent management system. Since then, it has continuously focused on improving governance by declaring a corporate governance charter and appointing an outside director as the board chairperson.

Lee Jung-mi, Standing Counsel Attorney at Law at Logos Law Firm, is delivering the opening speech at the "2021 Asia ESG Symposium" held on the 29th at the Westin Chosun Hotel in Jung-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

In particular, to establish ESG management, SK Innovation decided last month to create a checklist from an ESG perspective for all board agenda items and to link ESG performance to CEO evaluation and compensation. Considering criticisms that many domestic company boards fail to perform their roles, the company is working to strengthen its own capabilities and independence. They are evaluating each director individually and are also considering having an external third party assess the board members. One outside director has been appointed as a stakeholder communication committee member to remove closed aspects and operate transparently, which is a distinctive feature of the SK Innovation Board.

Chairman Kim said, "There is no definitive answer to ‘what is the best governance’ as American-style governance has been criticized for focusing on short-term performance," adding, "However, when we talk about ‘Korean-style governance,’ it should not become a limitation that restricts itself." He continued, "Considering that ownership and management are not separated in our companies, the board of directors is the means to firmly check the management."

He emphasized that during the recent decision-making process for a large-scale investment with Ford, the board examined the impact and any issues in each ESG area, saying, "For the board to have significant authority, it must have corresponding expertise."