[Free Speech Forum] ESG Management Should Be a Corporate Choice, Not Another Regulation

ESG management has become a major global issue. This is because, in the wake of COVID-19, interest has grown in environmental protection, human rights, supply chains, and the social role of corporations when evaluating corporate value. ESG management is now a trend for sustainable management, representing “a change in the grammar of the corporate ecosystem.”

ESG management is an acronym formed from the first letters of “Environment,” “Social,” and “Governance.” Its central premise is that, for sustainable corporate management, non-financial factors such as eco-friendliness, social responsibility, and governance improvement must be considered alongside financial factors.

The scale of ESG investment by global investors reached $35.3 trillion in 2020, showing steep growth with a 15% increase compared to 2018. In addition, global asset managers such as Amundi, Japan’s Government Pension Investment Fund, and BlackRock have incorporated ESG into their core investment strategies in the process of selecting portfolio companies, thereby strengthening the reflection of ESG factors that affect corporate value and sustainability.

It is true that ESG has become essential to corporate management both domestically and internationally. However, in ESG’s various areas, companies need to be left to decide autonomously what kind of vision they will pursue and to what extent they will advance ESG management.

Overseas, Everlane, based on its vision of “radical transparency,” has disclosed detailed cost information such as raw materials and transportation expenses, as well as even the working conditions of its employees, so that the public can see them. McDonald’s, meanwhile, through Ronald McDonald House, is supporting children in 65 countries around the world so that illness does not leave them excluded from education.

In Korea, Hyundai Motor and Kia are building an eco-friendly mobility ecosystem and recycling waste resources in the production of new vehicles, thereby maintaining a virtuous cycle of resource management. Samsung Electronics is also contributing to environmentally friendly management by maintaining an average resource circulation rate of 98.1% at its semiconductor facilities.

In this way, companies are not pursuing ESG management blindly. Rather, they are identifying their own strengths and vision within E, S, and G, determining which areas to emphasize, and then moving forward with management accordingly.

Some point out that ESG management is progressing more slowly in Korea than overseas. However, blindly pressuring companies on ESG could cause serious side effects for Korean businesses. In other words, ESG is most effective when companies implement it voluntarily.

Since 2019, Korea has revised its rules to require KOSPI-listed companies with total assets of 2 trillion won or more to disclose key corporate governance information to investors. Furthermore, by 2030, it plans to make the disclosure of sustainability management reports mandatory for all KOSPI-listed companies. According to the Federation of Korean Industries (FKI), of the 244 provisions in proposed ESG-related bills, 196—equivalent to 80%—concern regulation and punishment, more than ten times the number of support provisions. In addition, the amendment to the Government Procurement Act includes provisions requiring the mandatory reflection of ESG management, which may constitute excessive interference for businesses.

Rather than forcing ESG into a single regulatory framework, the government needs to build an ecosystem in which companies can voluntarily strengthen their non-financial capabilities. Companies, in turn, should be able to freely identify their strengths within the ESG ecosystem, enhance their capabilities, and develop them into their latent potential.

Only if companies are free to choose in which areas, and to what extent, they will pursue ESG management can the original purpose of ESG management be fulfilled. When companies themselves find their own paths to development, the foundation for sustainable growth can be laid.

Jeongjae Park, Intern Researcher, Center for Free Enterprise (CFE)

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Original title: [자유발언대] ESG경영, 또 다른 규제가 아니라 기업의 선택이어야

Author: Jeong-jae Park

Date: 2022-04-29

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&pn=8&idx=24696