Bank Holding Companies' ESG Evaluation: Strong in Environment and Governance, Social Aspect Somewhat Weak

ESG Weather Report of 8 Listed Bank Holding Companies
Total Scores Exceed Listed Companies' Average
Excellent Governance and Good Environment... Social Sector Below Average

[Asia Economy Reporter Song Hwajeong] The ESG (Environmental, Social, and Governance) evaluation results of bank holding companies showed that the governance and environmental sectors were excellent, while the social sector somewhat fell short of expectations. It appears that more attention should be paid to consumer protection.

According to SK Securities on the 4th, based on data from the Sustainable Development Center, an analysis of the ESG evaluations of eight listed domestic bank holding companies (KB, Shinhan, Hana, Woori, Industrial, BNK, DGB, JB Financial) as of the end of last year showed an average overall score of 47.6 points, exceeding the listed companies' average of 42.2 points, receiving generally favorable evaluations.

By sector, governance (G) scored 58.9 points, significantly surpassing the listed companies' average of 50.5 points. SK Securities researcher Koo Kyunghoe analyzed, "Domestic bank holding companies received high scores in governance due to the introduction of the holding company system, separation of ownership and management, the development of labor unions and performance-based pay systems, and substantial investments in risk management."

The environmental (E) sector was also favorable. The environmental sector received an average of 33.2 points, exceeding the listed companies' average of 22.5 points. This is interpreted as reflecting the fact that many banks are practicing ESG management through issuing green bonds. Last year, the scale of ESG bond issuance in the domestic banking sector exceeded 11 trillion KRW. Among these, the proportion of green bonds expanded from 5% in 2020 to 11%. KB Kookmin Bank issued 100 billion KRW worth of won-denominated green bonds in March last year, followed by KB Financial Group issuing 110 billion KRW worth of green bonds in May, the first among domestic financial holding companies. Shinhan Bank also issued 400 billion KRW worth of won-denominated ESG subordinated bonds (green bonds, contingent capital securities) in May last year.

On the other hand, the social (S) sector scored 41.9 points, falling short of the listed companies' average of 46.1 points. Researcher Koo explained, "This is because points were lost in terms of consumer protection due to issues such as the sale of defective private equity funds." Recently, financial authorities took measures to suspend Hana Bank, which was the fund custodian for the Optimus Fund involved in a large-scale redemption suspension incident, from accepting new custody tasks for general private collective investment schemes for three months. Industrial Bank of Korea also faced confirmed measures from financial authorities including a one-month partial suspension of institutional operations, a fine of 4.7 billion KRW, and sanctions on executives related to the Discovery Fund incident.

Researcher Koo said, "Currently, domestic bank holding companies receive high scores for ESG management, but they need to pay more attention to protecting financial consumers."

Kim Youngdo, senior researcher at the Korea Institute of Finance, said, "Banks must strengthen ESG and financial consumer protection systems to enhance the sustainability of the financial system and financial companies," adding, "They should set and manage specific performance targets regarding the scale and proportion of green finance, and also organize internal policies related to ESG so that they are appropriately reflected in all banking business processes."