[Declaration of Korea's BRT] Urgent Need to Establish Reliable Evaluation Indicators for 'New Entrepreneurship'

'Mental Declaration' Alone Is Not Enough
Environmental and Ethical Evaluation Criteria Are Essential

Virtuous Cycle of Social Management and Financial Performance
Great Help in Policy Decision-Making and Forecasting

Choi Tae-won, Chairman of the Korea Chamber of Commerce and Industry. (Photo by Yonhap News)

[Asia Economy Reporter Moon Chaeseok]

"We need to develop a quantitative evaluation model for the cost-benefit of carbon neutrality and the effectiveness of various energy policies. This model should not only measure policy effects but also propose solutions to problems."

Choi Tae-won, chairman of the Korea Chamber of Commerce and Industry (KCCI) and SK Group chairman, diagnosed on the 24th that for the newly announced 'New Entrepreneurship' to spread throughout the business community, an accurate evaluation system must first be established. The feasibility of the five key action tasks of the new entrepreneurship, including 'eco-friendly management,' can be gauged through Chairman Choi's proposed 'Net Zero Growth Theory.' Among the five tasks, 'eco-friendly management' is expected to incur the highest costs. There are many stakeholders involved, and attempting to implement it could increase management uncertainty for companies. This is why criticism arises that mere 'declarations of spirit' by companies are insufficient.

The problem is that the current evaluators and standards for social management are listed in a department store-like manner, and there are no highly credible standards that companies can refer to in their management. In the financial investment sector, there are sporadic frameworks such as the Korea Exchange ESG disclosure guidance, the Financial Services Commission's mandatory corporate ESG disclosure, and the Korea Exchange's emission trading price indicators. In the public sector, the evaluation score for social value implementation in the public institution management evaluation by the Ministry of Economy and Finance, which became a topic after last year's LH (Korea Land and Housing Corporation) employee land speculation scandal, serves as a reference. It is difficult to find unified standards like the MSCI (Morgan Stanley Capital International) ESG index used by major overseas investment banks (IBs).

Without a credible evaluation system like the MSCI index, there is concern that the new entrepreneurship could be reduced to merely a campaign to promote corporate ethics awareness. The message of 'do well in social management' could shift to 'as long as (management) does not cause social controversies.' It is widely agreed that Korea's ESG management began as an effort to improve 'G (corporate governance)' in response to social outrage over the power abuse scandals involving Korean Air, Namyang Dairy Products, and webhard companies WeDisk and FileNori. Companies, conscious of 'chaebol reform' and 'corporate punishment,' started ESG management reluctantly to avoid consumer lawsuits and criminal legal actions by authorities. This is far from the global standard of ESG management, which is based on a consensus, centered around the United Nations (UN) and others, that it is good to comprehensively reflect environment, social, and governance factors in corporate management. Considering this background, establishing a credible ESG evaluation system is an essential requirement for the 'New Entrepreneurship' declared on this day to function properly in the corporate field.

Chairman Choi's theory is that companies must be instilled with the belief that "the better they adhere to the New Entrepreneurship, the higher their credit ratings and operating profits." The ultimate goal is to induce a 'virtuous cycle' where social management leads to improved financial performance. The reason Chairman Choi led the New Entrepreneurship declaration ceremony not as SK Group chairman but as head of KCCI is precisely this. As the head of an economic organization, encouraging companies to participate in the New Entrepreneurship declaration ceremony centered on social management is the most certain way to reduce the counterargument that 'New Entrepreneurship' is SK Group's exclusive philosophy. Although SK is recognized in the Korean business community as a company with a notable social value evaluation system, 'SK' was not mentioned at the declaration ceremony.

Meanwhile, SK disclosed its 'social value formula' the day before, which calculates social value by subtracting the market average from its management effect, then multiplying by sales volume, monetization units, and contribution rates. At the 'Energy Transition and Carbon Neutrality Policy Seminar' hosted by KCCI on the 28th of last month, Chairman Choi stated, "Various organizations including private institutions, companies, and government agencies will be able to create evaluation systems for (carbon neutrality), and (most importantly) someone must measure it," adding, "With an evaluation model, policy authorities and companies can make key decisions, and from there, various systems such as prediction models and stock price forecasting systems will gradually be established."