[Insight & Opinion] Beyond Corporate Social Responsibility: Ideals and Realities

A global wave of ESG (Environmental, Social, and Governance) is sweeping across the world. Among ESG factors, the 'E' representing the environment, which includes carbon neutrality and climate change, has been a long-standing focus for domestic companies, and there are considerable consumer movements emphasizing environmental concerns. In contrast, the 'S,' which stands for social responsibility, remains somewhat unfamiliar in South Korea.

Last July, the European Union (EU) published a draft of the Social Taxonomy, which categorizes socially sustainable economic activities, and plans to implement the "Corporate Governance and Supply Chain Due Diligence Act" in 2024 to support this. Notably, major advanced countries have already legislated to advance supply chain standards, including human rights protection. The United Nations Principles for Responsible Investment (UN PRI), known as the largest initiative, had 3,615 signatories as of January 2021, with 11 institutions in South Korea, including the National Pension Service, participating. It is now a reality that the 'S' in ESG is no longer a voluntary target but a mandatory obligation for companies.

At this point, it is worth reflecting on whether domestic companies are adapting well to these ecosystem changes. According to a 2021 survey conducted by the Korea Federation of SMEs, 53.3% of respondent companies felt the need to adopt ESG management, yet 89.4% of these companies answered that they were either unprepared or found it difficult to implement such management practices. Among companies with ESG evaluation experience, 77.8% reported being asked for evaluations by large corporations, and 47.2% of those who failed to meet the standards and did not improve faced suspension of transactions.

Even large corporations with abundant manpower and resources still appear to be struggling. Some attempt to raise their social value scores by acquiring leading companies ahead in ESG. However, this not only demonstrates how urgent these large corporations find the changing domestic and international conditions but also is unlikely to be a long-term solution.

Nevertheless, in a free market economy, the entities most actively adapting to various business ecosystem changes are, after all, the companies themselves. The author has recently been encouraged by such positive attitudes in conversations with corporate executives. Still, global changes are happening too rapidly. For companies that fail to respond adequately, it is currently more appropriate to provide assistance rather than discuss penalties or exclusion.

Especially at this stage, where evaluation and rewards for social responsibility are still insufficient, even if companies create social value, it may be difficult to internalize the interconnected social contributions within the ecosystem and use them as a growth engine. The creation of social and financial value by companies is not independent but complementary and synergistic, and the concept of optimizing investments that simultaneously enhance both values is not only underdeveloped but also complex to implement. From a company’s perspective, there is an immediate dilemma about which value creation to prioritize with limited resources. From a traditional economic standpoint, this could be considered a market failure due to externalities.

Therefore, support from all economic actors is necessary. Academia should establish theoretical foundations such as dynamic investment models encompassing both financial and social value creation by companies, and the government should back this through institutional improvements. Above all, the ultimate power to provide both incentives and sanctions to companies lies with consumers. When consumer behavior based on awareness of corporate social responsibility becomes the foundation, an ideal ecosystem of sustainable growth can be more firmly established.