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Korea vows to create ESG ecosystem for sustainable growth

Deputy Prime Minister and Finance Minister Hong Nam-ki delivers an opening speech during the 2021 Korea Times Global ESG Forum at the Korea Chamber of Commerce and Industry building in Seoul, Thursday. Korea Times photo by Choi Won-suk
Deputy Prime Minister and Finance Minister Hong Nam-ki delivers an opening speech during the 2021 Korea Times Global ESG Forum at the Korea Chamber of Commerce and Industry building in Seoul, Thursday. Korea Times photo by Choi Won-suk

Government plans to unveil K-ESG guidelines this year

By Lee Kyung-min

Korea will do its utmost to create a private sector-led ecosystem that promotes environmental, social and corporate governance (ESG) values by establishing the necessary infrastructure and incentive systems, the country's top policymaker said Thursday.

"In a situation where ESG management is gaining traction worldwide, the government plans to introduce Korea's ESG guidelines by the end of this year so that local firms can prepare for the global spread of ESG," Deputy Prime Minister and Finance Minister Hong Nam-ki said during the 2021 Korea Times Global ESG Forum at the Korea Chamber of Commerce and Industry (KCCI) building in Seoul

"At the same time, the government will set up an ESG platform that can offer related comprehensive information for Korean businesses and overseas investors," he added.

Behind the government's move is its expectation that economic growth will be increasingly defined by how fast and thoroughly economic actors reprioritize future goals conforming to ESG values, a new "social metric" that will prompt change in government policies, investor behavior and public awareness.

The country, he stressed, is facing mounting calls to abandon previous growth models, long unchallenged by risk factors as grave as the country is now facing such as climate change and inequality. It is no longer, and should not be, only about year-on-year macroeconomic figures of annual growth.

"Corporate growth will no longer be about meeting short-term shareholder demand to raise share prices, but about creating a long-term vision whereby employees, customers and partner firms can thrive together with shared values," he said.

Deputy Prime Minister and Finance Minister Hong Nam-ki, center, and Korea Times Chairman Seung Myung-ho, front row second from left, attend the 2021 Korea Times Global ESG Forum. Korea Times photo by Shim Hyun-chul
Deputy Prime Minister and Finance Minister Hong Nam-ki, center, and Korea Times Chairman Seung Myung-ho, front row second from left, attend the 2021 Korea Times Global ESG Forum. Korea Times photo by Shim Hyun-chul

Paradigm shift

He expects the stakeholder-oriented paradigm shift will in turn facilitate growth through greater priorities placed on innovation, resilience and sustainability, three key values that will underpin what the government considers a "desirable advancement" of an economy measured only by statistics, with long-term policy consequences left unaddressed.

The administration plans to help spur corporate activity seeking greater correlation between the pursuit of ESG values and profit, in the broader context of mutual, inclusive growth where low-income earners are not left behind.

Also to be strengthened are measures to incentivize businesses that promote ESG values amid fair competition, propped up by continued efforts to increase transparency in corporate governance structures.

The government's green policy initiative will prioritize decoupling carbon emissions from economic growth, and advancing its "net zero-emissions" drive by 2050. It also plans to build infrastructure for firms to reduce dependence on carbon-intensive growth models and develop carbon-neutral technologies.

Under the plan, about 1.13 million electric vehicles and 200,000 fuel cell vehicles will be made by 2025, while a climate response fund will be set up next year to help transition and train workers expected to lose their jobs once many coal-dependent businesses shut down.

Also to be considered is a revision to the stewardship code to ensure responsible investment by institutional investors including the National Pension Fund, the world's third-largest with over 800 trillion won in assets under management.

Deputy Prime Minister and Finance Minister Hong Nam-ki delivers an opening speech during the 2021 Korea Times Global ESG Forum. Korea Times photo by Choi Won-suk
Deputy Prime Minister and Finance Minister Hong Nam-ki delivers an opening speech during the 2021 Korea Times Global ESG Forum. Korea Times photo by Choi Won-suk

"The government, businesses and investors are all required to identify a survival strategy that reflects ESG considerations amid a seismic paradigm shift in the post-pandemic world where a fundamentally new formula will be needed to lead the discussion beyond efficiency implications. The ESG drive will further emerge as a key agenda issue in the years to come," Hong said.

The recent wave of fossil-fuel divestment by global investors in his view is an encouraging sign of investment interests increasingly aligning with ESG values, a corporate activity that should be fostered further by government policy directives.

"Top global asset managers are divesting from coal, followed by automakers and refineries whose business models are considered to have little consideration for ESG. This resulted not from government regulations but profit-oriented decisions, the beginning of change that will last. ESG values are no longer a cost but an investment," he added.

BlackRock, the world's largest fund manager with over $8.67 trillion (9.66 quadrillion won) in assets under management, was one of the first firms to announce that it would divest from coal, a move followed by many insurers and banks that have long financed cheap energy production.

Similarly, a group of ten automakers launched "DRIVE Sustainability: The Automotive Partnership," with objectives including "minimizing the environmental impact of our industry and promoting business integrity." Included are BMW Group, Honda, Jaguar Land Rover, Toyota Motor Europe and Volkswagen Group.

Deputy Prime Minister and Finance Minister Hong Nam-ki delivers an opening speech during the 2021 Korea Times Global ESG Forum. Korea Times photo by Shim Hyun-chul
Deputy Prime Minister and Finance Minister Hong Nam-ki delivers an opening speech during the 2021 Korea Times Global ESG Forum. Korea Times photo by Shim Hyun-chul

Hong stressed the importance of ESG values by citing Richard N. Langlois who in his 1988 paper said, "It is a fundamental insight of economics that a competitive system incorporates not only an invisible hand but also various kinds of invisible feet that go around prodding the ill-adapted."

This in his view speaks volumes about how over 400 Fortune 500 firms in 2000 were no longer on the list in 2020.

"The growth of firms that recognize and swiftly incorporate ESG values into their business strategy will be greater by an extreme margin compared to those that fail to do so. The government will support ― not regulate ― firms that internalize ESG considerations, thereby helping them make a great leap forward to becoming leading, global players with a competitive edge," the minister concluded.


Lee Kyung-min lkm@koreatimes.co.kr


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