Samjong KPMG "Domestic Companies Need to Redesign 'ESG Management Systems'"

[Asia Economy Reporter Ji-hwan Park] It is anticipated that in the post-COVID-19 era, the management paradigm will accelerate its major shift towards ESG (Environmental, Social, and Governance).

According to "The Era of ESG Management, Strategic Paradigm Shift," published by Samjong KPMG on the 21st, companies have experienced business site shutdowns, supply chain disruptions, and fundamental changes in customer values due to COVID-19, leading to strengthened ESG management that considers non-financial values.

The report urged companies to redesign their management systems by redefining their vision according to ESG standards and establishing new goals that integrate financial and non-financial performance. It presented five key ESG management agendas for business leaders to focus on: Regulation, Financing, M&A, Technology, and Reporting.

With growing interest in sustainable development and ESG, governments worldwide are actively institutionalizing related regulatory policies beyond mere recommendations. The number of new global ESG regulatory policies increased from just 28 in 2013 to 210 in 2018. Between 2016 and 2018, the annual growth rate reached 102.9%, showing a steep upward trend.

In South Korea, ESG-related regulations are also being strengthened, such as gradually expanding the mandatory disclosure of governance reports. ESG themes are also increasing in national projects like the Green New Deal.

The report explained that ESG factors are emerging as criteria for financing and investment. The importance of ESG elements is growing when companies raise funds. Sustainable-linked loan activities are increasing, especially among major global banks such as ING in the Netherlands and BNP Paribas in France. Leading domestic banks are also concretizing the adoption of ESG factors.

Issuance of ESG bonds and inflows into ESG funds are also on the rise. This year, the global issuance of ESG bonds reached $484.1 billion (approximately KRW 529.1213 trillion), a 63% increase compared to the previous year. The net asset size of ESG funds set up domestically was KRW 386.9 billion as of February this year, 2.6 times higher than KRW 145.1 billion in 2018.

ESG is also emerging as a critical factor in M&A deal sourcing and valuation processes. Large deals themed around "environment," such as electric vehicle battery materials and waste treatment, are actively progressing. It was found that over 40% of large domestic M&A deals exceeding KRW 500 billion this year are ESG-related. Companies are divesting businesses with unethical or inhumane elements, such as human rights violations and civilian harm.

Global companies are integrating new technologies related to the Fourth Industrial Revolution into their businesses through ESG management to simultaneously address corporate challenges and social and environmental issues. Google pursues improving human quality of life and solving humanity’s pressing problems under the slogan "Advancing AI for Everyone" through AI.

Starbucks has been conducting the "Bean to Cup" project since March 2018, which uses blockchain to trace the production and distribution history of coffee beans. Microsoft has been promoting "Project Natick," which involves building underwater data centers powered by 100% renewable energy, since 2015.

According to KPMG’s survey on sustainability reporting trends of 5,200 companies across 52 countries, 80% of the top 100 companies by revenue in each country conduct sustainability reporting, indicating a steady global increase in corporate sustainability reporting rates.

The number of companies obtaining third-party certification for sustainability information such as ESG is also continuously increasing. Through ESG disclosures, companies can comprehensively assess their economic, environmental, and social impacts and enhance trust with rating agencies and various stakeholders.

Lee Dong-seok, leader of Samjong KPMG’s ESG Service Specialist Team, emphasized, "Successful ESG management requires establishing strategies that link ESG policies, regulations, market trends, and the company’s business." He added, "It is essential to build an ESG management system utilizing external professional organizations and internal task forces."

Lee also stated, "Companies should review ESG factors when establishing business portfolios and conduct corporate screening for environmental pollution and social issues during deal sourcing." He further added, "Companies must strengthen new technology capabilities that reduce ESG risks through technology development and R&D investment, and internalize ESG management by systematically managing ESG information and developing performance measurement models."

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