ESG: new mantra for Korean firms

SK, KB lead green drive in Korea

By Lee Min-hyung
Environmental, social and corporate governance (ESG) is emerging as a new mantra for sustainable growth of Korean manufacturing and financial firms, in their drive to generate more meaningful green, social and economic value.

Until recently, the notion of ESG did not make big headlines worldwide. But with the COVID-19 pandemic triggering what many pundits call a "once-in-a-century health crisis," large companies here and abroad are rushing to embrace ESG as their next key management philosophy under the strong belief that no firm can survive without a spirit of co-prosperity with society and the environment.

Data shows that more and more capital is flowing into socially responsible investment (SRI) funds here. According to market tracker FnGuide, the number of SRI funds in Korea has risen rapidly to 41 as of Aug. 13, compared to 31 at the end of 2019. The value of the funds also increased to 367.9 billion won ($309.3 million), up 15 percent during the same period.

Financial institutions are also latching on to the ESG boom by issuing relevant bonds. As of the end of 2019, the nation's four major financial holding firms ― including KB, Shinhan, Hana and Woori ― had issued ESG bonds worth more than 5.16 trillion won.

On the industrial front, SK Group is standing at the forefront in joining the global ESG bandwagon, with its key affiliates taking aggressive steps for eco-friendly management under the leadership of Chairman Chey Tae-won.

"The definition of sustainability has drastically changed since the COVID-19 outbreak," Chey said in the group's sustainable management report published in June. "Sustainable management is made possible only in a sustainable society."

The latest in a series of the group's ESG practices is SK Engineering & Construction's (E&C) recent announcement of its move to acquire EMC Holdings, a local environment management firm running more than 2,000 waste water treatment facilities nationwide.

SK E&C is in talks to take over EMC for 1 trillion won. The SK affiliate expects the acquisition to speed up its eco-friendly drive and secure a new sustainable growth engine, while at the same time fulfilling its social and economic value program.

SK Chemicals is also on track to realign its business portfolio with the focus on developing eco-friendly materials.

In February, the company sold its bioenergy business unit to a local private equity firm for 380 billion won. The decision was made as part of the firm's determination to secure capital to invest in developing more eco-friendly materials and increasing the sophistication of its life sciences business.

SK Innovation, which manufactures petroleum products and batteries for electric vehicles, is also looking to fulfil the group-wide ESG drive. The company plans to create what it calls a "total value chain" for the environment under which it will not just manufacture eco-friendly products, but also take steps to recycle batteries.

On the financial front, KB Financial Group, the nation's largest financial holding firm by market capitalization, is setting an example in achieving a group-wide ESG management drive.

Starting this year, KB Financial Group Chairman Yoon Jong-kyoo has reiterated the importance of ESG management, viewing it as a crucial and unavoidable step for the group's sustainability.

KB recently decided to expand its ESG investments to 50 trillion won by 2030 from the current 20 trillion won.

"KB will continue seeking to become a leading ESG-fulfilling company by taking more responsibility in the area, and we will do our best to create future value," Yoon said in the group's sustainability report published in early August.

To join the global ESG drive, KB is teaming up with the United Nations. Last year, the company signed up for the Principles for Responsible Banking under the U.N. Environment Program Finance Initiative.

The principles share a series of rules that banking players should follow for financial sustainability here and abroad.

KB Kookmin Bank, the group's major cash cow, is at the center of fulfilling a comprehensive set of ESG practices ― from offering financial consultations on new renewable energy projects to establishing funds for sustainable growth of small- and medium-sized enterprises.

KB Securities has established a joint fund with a Canadian energy investment firm and acquired a license to operate a solar power development business project there.

KB Kookmin Bank also plans to launch an ESG-related fund in September. Other top-tier lenders, such as Shinhan Bank and Hana Bank, are also selling ESG funds.

While Korean companies only recently jumped on the global ESG paradigm, overseas firms mostly in the United States and Europe have already embraced the eco-friendly drive as their key management philosophy.

Microsoft is one of the most exemplary firms worldwide in terms of ESG management. As of the end of 2019, the American software giant had invested $2.3 billion in ESG funds, surpassing Apple which came in second at $500 million.

Microsoft is also sharing a grand vision to become carbon negative by 2030. The company is taking a leading role in investing in global carbon emission reduction by helping other firms control and reduce their emissions.

In the finance circle, BNP Paribas, a French international banking company, is actively engaging in the green drive by launching climate- and other environment-linked bonds. The company has issued equity-linked green bonds worth $100 million here and abroad for investment in eco-friendly and environmental projects.

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