[Journalism Internship] ESG could be more than an investment philosophy

Consumers want to see change, not just a passing trend

“I do not want to buy products that may harm the environment or ignore workers’ labor,” said university student Jung Hye-won.

Jung isn’t the only one. Consumers today are increasingly interested and willing to purchase from companies that create social value. This leads companies to adapt so-called ESG management systems to bring new changes into consumer behavior.

ESG stands for environmental, social and governance. It’s industry jargon, but has quickly become a buzzword in Korea.

These three components serve as a tool to assess how sustainable or ethically responsible a company is in the long run for investors.

Although ESG is a non-financial performance standard, it is a valuable criterion for measuring company performance for investors. Investors can set standards in accordance with ESG principles to assess how future-proof a company is.

The environment section measures how well a company contributes to the environment. Companies are expected to deal with issues like biodiversity, climate change and cutting carbon emissions. By doing so, companies can save energy and operational costs as well as appeal to consumers.

For social aspects, companies focus on areas such as customer satisfaction and human rights. This leads to employee satisfaction, increases in social integrity and stronger relationships among community members.

Lastly, board composition and executive compensation are areas that decide how a company structures its governance. A successful governance framework can formulate positive relationships with investors and increase government support and financial aid.

The three standards represent a shift in investment philosophy. In the late 20th century, investors looked for companies that would generate profits. In recent years, however, reports have begun to support the idea that there are financial benefits of backing ethical and responsible companies in the long run.

This led to the United Nations officially coining the term ESG in 2004 and develop several investment initiatives.

A recent joint conference hosted by the Federation of Korean Industries invited 60 executives from companies like Samyang Holdings and Hanwha General Chemical to discuss the importance of ESG management and its future values.

Korean conglomerate Posco has already announced that its steel will be produced using hydrogen instead of coal. Hyundai Motor Group plans to invest 1 trillion won ($875 billion) into environmentally friendly fuel and technology.

A college student surnamed Koo said he favors automobile company Volvo because of their safety philosophy. The automaker’s advertising campaigns have boasted about its all-electronic production, contributing to Koo’s trust in the brand.

Although his first priority may be quality, Koo is willing to reconsider decisions if a company gets involved in seriously unethical issues.

Sira Maliphol, the assistant professor in the Department of Technology and Society at SUNY Korea, says that ESG management is certain to be a long-run trend.

“ESG management is not something that is going to stop,” Maliphol said.

He explained that increasing consumers’ demand for social responsibility and tackling environmental problems makes companies continue improving their governance, even if the corporations do not know how big the impact of ESG management is going to be yet.

There are also those who haven’t heard of the issues but are still positive about the message that ESG delivers.

Younger consumers have already been applying many of the ESG standards to their consumption patterns, taking a greater interest in environmental and ethical concerns in particular.

A sophomore surnamed Lee remembers hearing about a taxi service company run by deaf taxi drivers. After hearing the CEO’s philosophy and attempts to offer opportunities to a marginalized group of people, Lee immediately felt more interested in the business.

Still, some skeptical voices doubt whether these trends are enough to bring about actual change.

Data analytics consultant Kwon doesn’t really follow the ESG trend, even though she acknowledges the change is needed. Kwon says there is a danger of people just unconsciously following trends without actually understanding or addressing the principles behind consumer behaviors.

Anthony Pennings, a professor in the department of technology and society at SUNY Korea, pointed out the impact of social media and public relations on ESG management trends, with some brands capitalizing on its popularity to sell products.

He says that corporations’ ESG campaigns and policies are spread through social media and the news, and consumers, who are now following the trend for ESG management, are influenced by the exposure, not by the original ESG index.

Pennings concluded that consumers should make sure to get their news from credible sources to avoid being caught by the PR campaigns.

BY CHOO SI-EUN, JOO YEON-SOO AND YOO DONG-YEON [sieun.choo@stonybrook.edu, yeonsoo.joo@stonybrook.edu, dongyeon.yoo@stonybrook.edu]