Banking Association Establishes Dedicated ESG Team... Boosting ESG Management in Financial Sector (Comprehensive)

Organization Restructuring Plan Confirmed at This Afternoon's Board Meeting

[Asia Economy Reporter Park Sun-mi] Amid the banking sector's efforts to strengthen ESG (Environmental, Social, and Governance) management, the Korea Federation of Banks confirmed the establishment of a dedicated ESG organization at its meeting on the 22nd to support ESG management in the banking sector. There is great anticipation that this year will see increased issuance of ESG bonds, launch of ESG-related products, and enhanced ESG cooperation among industry players.

According to the financial sector on the 22nd, the board of directors of the Korea Federation of Banks, composed of CEOs of 10 major commercial banks and Chairman Kim Kwang-soo, held a non-face-to-face meeting at 5 p.m. and finalized an organizational restructuring plan that includes the creation of dedicated ESG and legal support departments. This restructuring aligns with the banking sector's emphasis on ESG management and the trend of establishing dedicated ESG organizations and ESG committees under the board of directors.

Although the specific duties of the dedicated ESG department have not yet been disclosed, it is expected to be an organization that supports ESG management in the banking sector at the federation level and discusses related consultation matters to strengthen the momentum for ESG management in the industry. A federation official said, "Previously, ESG-related tasks were divided among departments such as the social contribution department whenever such work arose," adding, "As the banking sector emphasized ESG management, there were many requests from member companies to establish a dedicated ESG department at the federation level, and the federation also recognized the need for a department to handle this, leading to the plan to create the organization." He further explained, "The newly established organization will not handle only ESG tasks but will be responsible for ESG-related work within the federation."

This is the first organizational restructuring under the leadership of Chairman Kim, who took office at the end of last year. Having served as chairman of NongHyup Financial Group before his current role, Kim has observed ESG management trends in the banking sector and reflects a strong intention to align the federation’s ESG dedicated organization with the banking sector’s ESG management.

Momentum Builds for ESG Management in Banking Sector

In fact, ESG management in the banking sector is gaining more momentum this year. The chairmen of the five major financial groups?KB, Shinhan, Hana, Woori, and NH NongHyup?are promoting ESG management as a key task this year and are establishing and expanding various ESG-related organizations.

This month, Shinhan Financial Group established an ESG Promotion Committee, composed of all subsidiary CEOs as members, to manage ESG management performance within the group. It plans to build an ESG performance management system that quantitatively measures and evaluates ESG projects undertaken by each subsidiary, a first among domestic financial companies. Together with the existing ESG Strategy Committee within the board, the Group ESG CSSO Council composed of chief strategy and sustainability officers (CSSOs) from subsidiaries, and the ESG Working Council, a systematic ESG management organization has been completed.

Woori Financial Group, after establishing the ESG Management Department, a dedicated ESG department, at the end of last year, plans to seek final approval next month at the holding company’s board meeting to establish an ESG Management Committee. This committee will serve as the highest decision-making body for the group’s ESG management, responsible for establishing group ESG strategies and policies and receiving reports on various ESG initiatives.

NongHyup Financial Group plans to establish a ‘Social Value and Green Finance Committee’ within its board this year to enable direct oversight of ESG strategies. It will also create an ESG Strategy Council and an ESG Working Meeting chaired by Chairman Son Byung-hwan. KB Financial Group established an ESG Committee within its board in March last year and has been operating an ESG management system since then. Hana Financial Group has also renamed its long-standing Happiness Sharing Committee to the Social Value Management Committee since last year.

Kim Yoon-kyung, a senior researcher at the International Finance Center, recently stated in a report, "Triggered by COVID-19, financial institutions are increasingly incorporating ESG into their investment decision-making processes, and this market is emerging not as a niche but as the mainstream."

Banks Expected to Benefit Directly and Indirectly

According to DB Financial Investment, global credit rating agency Moody’s released ESG evaluation ratings for 144 countries, awarding South Korea the highest rating of Level 1. Only 11 countries received Level 1, and among G20 countries, only South Korea and Germany were rated Level 1, indicating that only a few countries can achieve the top rating.

Analyst Yoo Seung-woo said, "South Korea ranks at the top with sector-specific ratings of E (Environment) Level 2, S (Social) Level 2, and G (Governance) Level 1," adding, "By receiving excellent evaluations on ESG factors that could act as risk factors for national credit ratings, the stability of South Korea’s national credit rating is expected to improve. This will also positively impact the attraction of investors, such as through the rapidly expanding issuance of ESG bonds by domestic institutions. In particular, public enterprises and banks, which have a high correlation with national credit ratings, are expected to benefit directly and indirectly."

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