Where’s the ‘G’ in ESG
The author is the head of the industry 1 team of the JoongAng Ilbo.
This year’s buzzword is ESG. From the beginning of the year, Samsung Group de facto head Lee Jae-yong, SK Group Chairman Choi Tae-won and Lotte Group Chairman Shin Dong-bin all emphasized the need to strengthen ESG without an exception.
ESG is a new management strategy aimed at enhancing corporate value and pursuing sustainable development based on environmental soundness, social responsibility, and transparent governance.
Companies that have invested in pension funds and reported high earnings in the UK, Germany and Sweden have been revealed to be strong in ESG, and the culture is spreading to many companies. In Korea, the Financial Services Commission requires an ESG notice for all listed companies with more than 2 trillion won in assets from 2025. ESG is no longer an option.
However, in the ESG strategies pursued by Korean companies, ‘G’ is severely lacking. In contrast, the World Economic Forum emphasizes G from the three axes of ESG the most. It strongly recommends Korean companies reform practices such as the CEO serving as chairman of the board of directors and the board merely rubber-stamping orders. It is still a widely condoned practice for CEOs to appoint retired high-level officials, judges, prosecutors or professor to the board and using them as lobbyists to the government or the National Assembly.
As a result, corporate boards have lost the original function of checking on the management and haven’t shaken off the dishonor of being a rubberstamping device or sidekick. In fact, 227 boards of the listed subsidiaries of 64 conglomerates passed 99.5 percent of their 6,716 agenda items without modification. In the subsidiaries of Hyundai Motors, Posco, GS and Hyundai Heavy Industries, there was not a single opposition.
No matter how Korean companies pursue ESG, they cannot attain the whole purpose if they miss the G. In fact, new management strategies have emerged, become fashionable for a while, and disappeared. Workers have all heard of “synergy” in the 1960s, “global standards” in the 1990s, “6 Sigma Movement” in the 2000s and “sustainability” and “corporate social responsibility” after the 2008 global financial crisis. Each time, some companies had synergy, became global standards and grew to fulfil corporate social responsibility. But others only remember them as slogans on the bulletin board.
Will the ESG management strategy transform Korean companies? If ESG is going to be more than just a passing fad and improve corporate health and value, the G needs to be reinforced, starting with the board of directors.