ESG risks are higher for Asian companies, says FKIAsian companies have higher environmental, social and governance (ESG) risks than companies in Europe, the Federation of Korean Industries (FKI) said Sunday.
The FKI released an analysis of the ESG Risk Ratings of 3,456 companies around the world released earlier this month by research company Sustainalytics. The FKI used raw data from Sustainalytics for its "Global Companies ESG Risk Map."
ESG risks refer to issues that could affect a company's performance and value. A company's ESG Risk Rating score can vary by different rating agencies because each weighs factors differently.
Sustainalytics' ESG Risk Ratings provide an overall score based on how much a company is exposed to ESG risks and how much of that is managed by the company. The scores range from “negligible” for scores of 0 to 10, “low” for 10 to 20, “medium” for 20 to 30, high for 30 to 40 and “severe” for companies that scored more than 40 points.
Companies listed on stock markets in Greater China had the highest ESG risk level in the world, with an average of 36.1 points for companies listed on the Shanghai Stock Exchange, 32.9 points for companies on the Shenzhen Stock Exchange and 30.5 points for companies on the Hong Kong Stock Exchange.
Companies listed on the Korea Exchange had the fourth highest ESG risk, with an average of 30.1 points. Companies listed on the National Stock Exchange of India were the fifth highest, with 28.6 points.
The lowest scores came from European countries, with 20.6 points for companies listed on Euronext and 21.6 points for companies on the London Stock Exchange. They were followed by the Nasdaq with 22.1 and 22.4 for the Taiwan Stock Exchange.
Companies in services scored lower than manufacturers, which is why countries with more service sector companies scored lower than those with more manufacturers.
According to a 2019 report by the Industrial Statistics Analysis System, Britain and France had an average of 80 percent of their companies in the services sector and 10 percent in manufacturing, while 53.4 percent of Chinese companies were service companies and 27.9 percent were manufacturers. In Korea, the numbers were 62.4 percent for service companies and 27.7 for manufacturers.
By industry sectors, companies in the metal business had the highest ESG risk, followed by steel, nonferrous metal, oil and gas, and aerospace and defense. On the lower end was the fabric and apparel industry, followed by transportation infrastructure, media, packaging and retail.
Korean companies with the lowest ESG risk were Samsung Electro-Mechanics, Hankook Tire & Technology, Hyundai Mobis, CJ Logistics, NCSoft, Hanon Systems, Hyundai Glovis, CJ ENM and Naver.
“ESG risk issues need to be standardized beforehand to lower the possibility of their occurrences, and companies need to prepare themselves with the process or governance to immediately deal with the risks when they happen,” said an official from the FKI.
BY YOON SO-YEON [firstname.lastname@example.org]