What is ESG... Influencing Corporate Value and Investment Evaluation

Choi Tae-won, Chairman of SK Group

[Asia Economy Reporter Park Soyeon] Recently, Hanwha Corporation announced that it has decided to completely divest its existing cluster munitions business in order to fulfill its environmental, social responsibility, and governance (ESG) obligations to the international community.

Cluster munitions, weapons that fire multiple smaller bomblets from a large shell, are classified as inhumane weapons by the international community due to their high dud rate and the resulting harm to civilians.

Hanwha Corporation initially planned to spin off the cluster munitions business into a subsidiary through a physical division, but considering the expectations of the international community, it has decided to fully divest the business.

SK Group Chairman Chey Tae-won also emphasized the need for fundamental reflection on the role of corporations and new principles of management, stressing that ESG should be established as a new rule in corporate management.

Chairman Chey stated, "We are experiencing unpredictable changes in the business environment such as the pandemic and climate change," raising the issue of corporate sustainability.

He added, "To preserve the global environment and pass on a more prosperous world to future generations, fundamental reflection on the role of corporations and new management principles is necessary," and emphasized, "Companies should move away from focusing solely on economic value and incorporate ESG into corporate management to grow together with society."

Chairman Chey also quoted Socrates, saying, "The beginning of wisdom is the definition of terms," and added, "Now is the time for a new definition of corporate activities."

Lotte Group Chairman Shin Dong-bin recently toured Lotte Fine Chemical’s Ulsan plant and said, "In the face of increasing uncertainties in the business environment such as COVID-19 and climate change, we must further strengthen ESG competitiveness to achieve sustainable growth."

So, what exactly is ESG, which many companies are emphasizing? ESG stands for Environmental (E), Social Responsibility (S), and Governance (G), and it is a standard for evaluating a company’s non-financial performance and sustainability.

ESG is becoming a new standard for evaluating companies and investments, focusing on sustainability, social responsibility, and transparent governance rather than immediate financial profits.

Recently, Samsung Group’s financial affiliates announced that they will cease investments and insurance underwriting related to the coal industry, which is a representative example showing that ESG has become the mainstream in corporate and investment evaluation.

Credit rating agencies are also considering adopting ESG as a criterion for corporate evaluation. An industry insider explained, "ESG should be approached with an emphasis on sustainability, focusing on what kind of society and companies we want to pass on to the next generation."

This content was produced with the assistance of AI translation services.