Baek Bok-in, KT&G President, Focuses on ESG This Year... Launches Dedicated Team

[Asia Economy Reporter Lee Seon-ae] Baek Bok-in, CEO of KT&G, is stepping up efforts on ‘ESG management’ this year. To this end, a dedicated organization will be fully operational.

On the 13th, KT&G established two ESG-dedicated teams: the ‘ESG Planning Team’ and the ‘Energy and Environmental Technology Team.’ This move aims to measure performance and strengthen management in the areas of environment, society, and governance to enhance corporate sustainability. It reflects CEO Baek’s long-standing emphasis on ESG management. Through this, KT&G aspires to solidify its foundation for sustainable management and establish itself as an industry leader in ESG.

Previously, CEO Baek announced a vision in 2017 to become the ‘4th largest global’ tobacco company, and the following year emphasized ‘ESG’ as a key element for management innovation. At the 31st anniversary ceremony held in April 2018, Baek stated, “We will build a management system that meets global standards from a sustainable management perspective and focus on ESG management centered on environment, society, and governance.”

The newly established ‘ESG Planning Team’ within the Strategic Planning Headquarters will serve as a control tower to establish a company-wide ESG management system that complies with global standards. KT&G plans to expand global-level ESG management across the company by adopting global ESG standards, creating new related indicators, and building IT infrastructure. Additionally, the company aims to extend these efforts to group companies, seek collaboration methods by business sector, and swiftly implement ESG innovations through strategic responses.

A KT&G official explained the establishment of the ESG-dedicated organization, saying, “With the expansion of uncertainties due to the COVID-19 pandemic, ESG management is being particularly emphasized among companies. We formed this organization to establish an ESG management system befitting a global company’s status and to enhance group-level execution capabilities to overcome crises and increase shareholder value.”

The newly created ‘Energy and Environmental Technology Team’ was organized with the purpose of fulfilling social responsibilities in the environmental sector. To proactively respond to climate change crises such as global warming, KT&G is accelerating coal phase-out management through optimizing energy efficiency and introducing renewable energy. The team will also focus on initiatives such as adopting rainwater harvesting methods and designing environmentally friendly products.

Above all, the core is to systematically manage the entire value chain?from raw material cultivation and procurement to manufacturing, consumption, and disposal?with climate change response as the top priority. The scope of management will be expanded to include farms, partners, and consumers. This includes encouraging eco-friendly fuel use among tobacco leaf farms, promoting partner companies’ participation in the circular economy, and strengthening waste management.

Based on this, KT&G will also accelerate obtaining domestic and international certifications to maintain a top-tier global ESG rating. The company has already acquired ISO14001 (Environmental Management System) and ISO9001 (Quality Management System) certifications, verifying systematic quality and environmental management at its sites. Additionally, KT&G plans to obtain certifications such as ISO50001 (Energy Management System) and ISO45001 (Occupational Health and Safety Management System) to further enhance trust in the ESG field.

KT&G has established a company-wide environmental management system to address climate change, manage workplace environments, and reduce product environmental impacts. It has implemented a maximum power monitoring system to improve energy efficiency at five factories nationwide (Sintanjin, Gwangju, Yeongju, Cheonan, Gimcheon) and is thoroughly managing greenhouse gas emissions. To promote eco-friendly energy use, KT&G has installed solar power facilities totaling 1,715 kWp at the Sintanjin and Yeongju factories, reducing greenhouse gas emissions. Starting early next year, a facility of approximately 500 kWp will also operate at the Gwangju factory.

Regarding social responsibility, one pillar of ESG, KT&G conducts various social contribution activities such as welfare, scholarships, youth entrepreneurship support, and cultural and artistic support. Last year, the company invested 100 billion KRW, equivalent to 3.4% of sales, in social contribution activities.

KT&G also creates social value based on mutual growth with partner companies and tobacco leaf farms. It is the only tobacco company that purchases 100% domestic tobacco leaves, continues volunteer activities at farms, and supports health checkups and scholarships for cultivators. Payments to partner companies are made 100% in cash within five business days, with early payments during holidays. KT&G has introduced a supplier certification system and operates partnerships on a three-year cycle.

KT&G is also recognized as a company with transparent governance centered on the board of directors. The board is composed mainly of outside directors to effectively perform management oversight and make independent decisions. Currently, out of seven directors, five are outside directors, constituting a majority.

To guarantee the board’s independence, the chairperson of the board is selected from outside directors, and the roles of CEO and board chairperson are separated, establishing an objective and independent governance structure. Based on this, KT&G won the grand prize in the governance category at the 2019 Excellent Company Evaluation hosted by the Korea Corporate Governance Service (KCGS), which evaluated 924 listed companies in Korea.

Since 2007, KT&G has published the ‘KT&G REPORT’ to communicate ESG management achievements. Through this report, the company shares the results of sustainable management activities with domestic and international stakeholders and various social responsibility initiatives.

Last year, KT&G’s ESG management achievements were recognized with an A rating in the ESG evaluation conducted by MSCI (Morgan Stanley Capital International), a global investment information provider. This rating was one level higher than the previous year and surpassed the top three global tobacco companies. Notably, KT&G ranked first among 11 global tobacco companies in product safety and quality. MSCI also praised KT&G’s governance as industry-leading due to its diverse and professional board operations.

A KT&G official stated, “KT&G’s ESG management achievements have been recognized by domestic and international institutions based on our ongoing efforts. We will continue to maximize corporate value and fulfill social responsibilities based on advanced governance.”

Meanwhile, despite the domestic economic downturn caused by the COVID-19 pandemic, KT&G recorded consolidated sales of 1.4634 trillion KRW and operating profit of 434.6 billion KRW in the third quarter of last year. These figures represent increases of 10.7% and 13.6%, respectively, compared to the same period the previous year, marking the highest quarterly performance since the company’s founding. KT&G’s growth trend is expected to continue this year. Eunjeong Park, a researcher at Yuanta Securities, commented, “KT&G’s domestic tobacco market share has expanded, export capacity in key regions has strengthened, and through partnerships with PMI, KT&G has expanded export channels for heated tobacco products, creating additional growth drivers. With growth across all sectors, KT&G is expected to show the most stable growth in the food and beverage industry next year.”

As a global company, KT&G has strived to maximize not only financial value but also non-financial values such as environment, society, and governance for sustainable development. Since the full opening of the domestic tobacco market in 1988, KT&G has withstood fierce competition from multinational tobacco companies and maintained a market share close to 65%. KT&G is virtually the only local company defending its domestic market in the global tobacco industry. Based on excellent quality and a spirit of challenge, KT&G has overcome intense competition in overseas markets and grown into the world’s 5th largest tobacco company.

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