ESG, the New Normal of Corporate Management
ESG, the New Normal of Corporate Management
Hello, this is Chris & Partners. 😊 Office workers at companies, those interested in stock investing, those interested in environmental or human-rights issues, and many others—today's topic is probably what you've heard most these days: ESG. Now it has become such a core keyword that you can't talk business without ESG. Through today's post, let's step through the concept of ESG together! 🌱🏢💰
What is ESG?
Source: The Korea Economic Daily
ESG is the abbreviation for Environment(Environment), Social(Social), Governance, meaning a company's non-financial elements considered when investing. A bit hard? 😅 Traditionally, investment institutions or investors, when investing in a company, have reflected financial elements evaluated by numbers, such as revenue and operating profit. But investment institutions and investors, feeling the judgment standard isn't clear with financial elements alone, mean to reflect in investment such non-financial elements as how eco-friendly the products a company sells are, how rational and horizontal the decision-making within the organization is, and how transparently and independently the management and board operate. This is because such invisible, non-financial elements ultimately lead to the company's revenue and operating profit. The key issues in each ESG area are as follows. The Environment (Environment)area began from a sense of crisis over the climate, as environmental disasters—the rise in the earth's average temperature due to greenhouse gases, extreme weather, and the like—occur frequently. It's about issues such as whether a company is working to reduce carbon emissions and whether it produces and sells eco-friendly products. In the Social field (Social)) too, as the public's awareness of human rights and diversity rises, the issue of improving workers' treatment, and whether a company discriminates by race, education, gender, and the like in hiring or work become key issues. Governance (Governance)) has issues such as whether the board makes independent decisions, whether executives' compensation is appropriate compared with employees', and whether there is bribery or corruption. Whether the company's accounting/taxation is done transparently and whether the management structure is balanced also fall under governance issues. In 2020, BlackRock, the world's largest asset manager (investment institution) and also a major shareholder in domestic conglomerates, its chairman Larry Fink, in his annual letter to corporate CEOs sent the message, “Climate risk is investment risk, so we will make sustainability our top investment priority.” In 2021 he conveyed that they should announce a business plan to make the actual greenhouse-gas emissions zero net-zero by 2050. Such messages from Larry Fink influenced other investors, asset managers, and even pension funds, and companies are setting up dedicated bodies, committees, and the like for ESG strategy, applying it as an evaluation standard and changing their business models.
Examples of companies practicing ESG management
♦ Hotel Shilla
Hotel Shilla's ‘Delicious Jeju’ 23rd-store reopening ceremony
Hotel Shilla is running an internal campaign that, through environmental-improvement activities, reduces water, waste, and energy. As part of eco-friendly management, it has also formed and operates an organization dedicated to environmental work, it says. It is working to cut the use of vinyl, plastic, and disposables used at the hotel, changing the plastic straws used in lounges, buffet restaurants, and the like to natural-material straws and replacing disposable vinyl and the like with biodegradable plastic. It also runs a ‘Green Card activity’ encouraging guests to reuse bedding and towels during their stay, practicing the reduction of laundry water. ‘Delicious Jeju’ project, among other social-contribution activities, is also underway; ‘Delicious Jeju’ is a program that helps small restaurants on Jeju Island become self-reliant by providing the hotel's recipes and service training and supporting restaurant facilities and interiors.
♦ HiteJinro
Source: HiteJinro
Since 2018, HiteJinro has, together with the National Fire Agency, steadily run a treatment-improvement program for firefighters' families. It supports emergency living costs—litigation fees and children's education costs for bereaved families whose loss wasn't recognized as line-of-duty death—and supports scholarships to cultivate firefighters. It is also leading the ‘National Safety Campaign’, which raises citizens' safety awareness and helps fire-vulnerable groups prepare for fire—running a public-safety campaign to clear the way for fire engines, providing fire-safety equipment, and educating on installation and use.
♦ Nongshim
Nongshim is reducing packaging-material use by changing the way it repackages ramyeon vinyl. It changes multi-pack ramyeon products to be wrapped with a band instead of a wrapper, and through such packaging simplification it expects to be able to cut about 10 tons of plastic-film use annually. It also changed cup-ramyeon containers from PSP material to paper and changed the color from black to white, raising recyclability ease. It is also actively engaging in plastic recycling—providing PET water bottles collected in-house to recycling businesses free of charge and applying film made from recycled PET to actual products, working to raise recycling rates. We looked together at ESG—a yardstick that will determine the future direction of business and a demand of the times prevailing worldwide. It draws attention how each company will work out ESG management, which has become essential rather than optional. 👀
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