Park Jae-hyuk is a seasoned journalist who has provided comprehensive coverage of South Korea's corporate dynamics, economic policies, industry challenges and the global positioning of Korean companies. Based on the articles he has written since joining The Korea Times in 2016, his investigative approach has helped readers understand corporate governance, economic trends and business strategies shaping South Korea’s economy.
Government advised to be more prudent with ESG policies
By Park Jae-hyuk
This article is the last in a four-part series highlighting the importance of ESG criteria in management and making suggestions for Korea's financial, industrial and public sectors to come up with better ESG strategies for sustainable growth. ― ED.
In-depth discussions with market participants considered necessary
By Park Jae-hyuk
The set of management criteria called environmental, social and corporate governance (ESG) standards has become one of the Korean government's top policy priorities, after President Moon Jae-in said in early February that it was very meaningful that the country has been awarded the highest rating in Moody's Investors Service's analysis of 114 nations' capabilities in handling ESG issues.
Government ministries have been busy recently making various ESG policies, since Moody's and its peers ― S&P Global Ratings and Fitch Ratings ― emphasized that the values-based criteria are considered key factors in assessing the country's sovereign credit rating.
Moody's said that Korea's ESG scores have a positive effect on the country's sovereign credit rating. Its remarks were encouraging enough for the Korean government to speed up making ESG policies. However, at the same time, some experts raised questions about the sudden flood of policies that seem to have been hastily made to catch up with the global trend.
In line with the administration's Green New Deal drive for eco-friendly growth, a government taskforce to pursue green finance, comprised of representatives from relevant ministries, public and private financial institutions and various other sectors, has also held talks since August of last year.
Last December, the Ministry of Trade, Industry and Energy announced it developed what is called the “K-ESG index,” to enable the assessment of efforts for sustainable management, based on the Industrial Development Act. The Ministry plans to give certifications to businesses that satisfy the standards, so that they can keep up with global companies and investors demanding sustainable management.
The Financial Services Commission (FSC) will force all KOSPI-listed firms to disclose how they adhere to ESG factors starting in 2030. The Ministry of Finance and Economy also decided last month to request that public institutions disclose their work safety, environmental, and social contributions, as well as how they are working to improve work-life balance, starting in July.
But this new series of policies has caused concern among experts over their effectiveness.
“The government should be careful about being hasty in accepting suggestions from certain institutions without assessing their effectiveness, and in its discussions with other market participants,” the Korea Corporate Governance Service's ESG business division head, Yoon Jin-soo, said. “It is important and meaningful for the government to pay attention to ESG issues, but the government should refrain from enforcing a unified standard.”
He advised the government to focus more on providing a forum for debate about ESG criteria, agreeing with other experts who emphasized the importance of the government playing a role as provider of the legal infrastructure to push for the implementation of ESG management principles and investments.
Regarding the mandatory measure requiring companies to disclose their adherence to ESG criteria, Yoon and other experts urged the government to implement the measure earlier.
“More objective and correct indices are needed to better compare each company's ESG performance, and the mandatory disclosure measure should be pursued speedier,” Samil PwC's director, Lee Bo-hwa, wrote in a recent report.
Korea Development Institute economist Kim Jung-wook said the government's role in bolstering the implementation of ESG principles is in enhancing the transparency of information, by providing investors with non-financial data for each company. The ruling Democratic Party of Korea (DPK) has also pressed the government to hasten the mandatory ESG disclosure measure.
Deputy Prime Minister and Finance Minister Hong Nam-ki, left, speaks with Alastair Wilson, head of Moody's Investors Service's sovereign risk group, during a teleconference at the Central Government Complex Seoul, Tuesday. Courtesy of the Ministry of Economy and Finance
The government as an “assistant” to businesses
In response, the government has hinted it will serve as an “assistant” to businesses, rather than forcing them to follow its ESG policies.
“For ESG principles to enhance the competitiveness of Korean businesses and industries, we will develop the Korean-style ESG index before the end of this year, help small- and medium-sized enterprises to improve their ESG capabilities and offer more incentives to companies already excelling in ESG practices,” Minister of Industry Sung Yun-mo said during the National Assembly's ESG Forum on Monday.
FSC Chairman Eun Sung-soo also vowed to support financial companies' ESG efforts, so as to help them adapt to the new ESG paradigm and to look for new growth opportunities.