Is ESG losing relevance among major Korean companies?

An activist displays a banner reading "Future vs. Trump — Greenpeace" in front of the U.S. Embassy in Berlin, Jan. 21, in protest against the U.S. president's decision to withdraw his country from the Paris Climate Agreement and the rejection of previous climate protection measures. EPA-Yonhap

Major Korean companies have reorganized and renamed the departments responsible for an investing principle that prioritizes environmental, social and corporate governance (ESG).

After SK Group's end-of-year reshuffle in December, SK Energy and SK Geo Centric merged their respective ESG teams into each company's departments that are focused on operational improvements. As a result, the ESG teams’ operations are now under the supervision of higher-level organizations.

SK Innovation, the two companies' parent firm, said on Wednesday that their recent reorganization was intended to focus more on improving their fundamental competitiveness.

SK Geo Centric, one of the group's petrochemical units, reported an accumulated operating loss of 9.3 billion won ($6.4 million) during the first three quarters of last year. Meanwhile, SK Energy, the group's oil refining unit, also posted an accumulated loss of 118.9 billion won for the same period.

Earlier this year, Shinhan Bank began using the term "SDGs" instead of "ESG" to refer to the bank’s department responsible for sustainable management.

SDGs stands for Sustainable Development Goals, a United Nations initiative adopted in 2015 to combat poverty, diseases, climate change and violence by 2030. Despite the similarities between the two initiatives, most Korean companies have focused primarily on the environmental aspect when pursuing ESG principles.

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"As the term ESG is a bit old-fashioned and the term SDGs is more inclusive, the department changed its name, although it will continue with its tasks," a Shinhan Bank spokesperson said.

SK Innovation also emphasized that the ESG teams of its subsidiaries will play the same roles.

"The numbers of their members have remained unchanged," an SK Innovation spokesperson said.

Given that both SK and Shinhan have led the Korean business community's transition to ESG management, speculation persists that their latest moves could potentially undermine sustainable management efforts at other major companies here.

Korea's small- and medium-sized enterprises have already complained about difficulties meeting the criteria, citing a lack of workforce and budget.

Against this backdrop, global investors have paid less attention to ESG in recent years, considering the global economic recession and geopolitical risks.

BlackRock, the world’s largest asset manager, which sparked the ESG boom in 2020 with its declaration to invest according to ESG principles, also decided to leave the Net Zero Asset Managers Initiative earlier this year, just before the inauguration of U.S. President Donald Trump, who has been critical of eco-friendly policies.