[Viewpoint] The Era of ESG Management

ESG Management:
From Shareholder Capitalism
to Stakeholder Capitalism

Seoyonggu, Professor, Department of Business Administration, Sookmyung Women's University.

Since 2021, the hottest topic among global companies has been ESG. ESG is a coined term that stands for Environment, Social, and Governance. Major advanced countries have begun a massive shift from the ‘shareholder-centric’ capitalism of the UK and the US after COVID-19 to ‘stakeholder-centric’ capitalism, encompassing investors, society, employees, customers, and partner companies.

The corporate social responsibility for environmental and social issues has been significantly strengthened compared to before, and the investment industry has started to evaluate ESG as the most important non-financial competitive advantage. Emphasizing corporate social responsibility is not a new phenomenon. However, it differs from the past trend of Corporate Social Responsibility (CSR) that was briefly popular. After COVID-19, companies have changed their purpose of existence from ‘growth’ to ‘sustainability.’ For example, Unilever, a leading ESG company, has a corporate vision of ‘making sustainable living commonplace.’

As the main consumers in major global markets shift to the millennial generation, companies are being demanded to pursue higher ‘fairness’ and ‘eco-friendly management.’ Let’s look at the three main elements of ESG management. First, the E (Environment) factor is the most important among ESG elements. Industries such as steel, petrochemicals, and cement, which primarily emit greenhouse gases, are at a point where they fundamentally need to change their manufacturing processes. In a situation aiming for a carbon-zero emission era, many manufacturing companies in Korea face an enormous challenge to their sustainability. It is expected that sustainability management reports will become mandatory for KOSPI-listed companies before 2030 in Korea.

Second, the S (Social) factor indicates that companies have evolved into institutions that create social value. It is no longer an era where only making money matters; companies must solve social problems while making profits. The social factors consistently emphasized by the United Nations (UN) include data protection and privacy, gender equality and gender diversity, human rights, and labor standards.

Third, the G (Governance) factor relates to issues concerning organizational governance and ethics, such as board composition, lobbying, and whistleblowers. Without proper governance, E and S cannot be adequately addressed, so companies must create roadmaps for governance improvement and undertake various efforts to recruit female executives and ensure transparent management. Korean Air, for example, guaranteed the independence of the Outside Director Candidate Recommendation Committee and established a Compensation Committee in 2019. It also enacted and publicly announced a governance charter to actively communicate with shareholders, efforts that have recently yielded good results in ESG management evaluations.

The era of evaluating companies solely based on financial performance such as sales and operating profit is over. Global money is flowing into ‘good companies’ that minimize negative risks such as environmental destruction, industrial accidents, financial scandals, and abuse of power. Although the correlation between ESG management and corporate performance is still weak, a time will soon come when only companies that excel in ESG management will achieve sustainable growth. To become a carbon-neutral country by 2050, ESG management must be accelerated.

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