"Leaving No Trace of Fossil Fuels: The Core of SK Inno's 'Green' Strategy"

Kim Jun, President of SK Innovation, is announcing the 'Financial Story' in which SK Innovation, approaching its 60th anniversary, will completely transform its identity from a carbon business to a green-centered business at the 'SK Innovation Story Day' held on the 1st at the Conrad Hotel in Yeouido, Seoul.

[Asia Economy Reporters Kim Hyewon and Choi Daeyeol] SK Innovation, which started as South Korea's first oil refining company in 1962 and established itself as a major player in the oil refining and chemical industry, has made a bold declaration to completely transform its corporate identity from 'Carbon to Green.' To achieve this, the company plans to invest a total of 30 trillion KRW by 2025 to expand the proportion of 'green' assets to 70%. Based on its order backlog of ‘1TWh (terawatt-hour) + α’ secured in the battery business, a core sector of the eco-friendly industry, SK Innovation aims to make green business its new growth engine and develop future strategies accordingly. The company also hinted at the possibility of spinning off its battery business, currently operating as a business division, into a separate corporation.

On the 1st, SK Innovation held a 'Story Day' event at the Conrad Hotel in Yeouido, Seoul, attended by over 200 domestic and international market stakeholders both online and offline, including CEO Kim Jun and Chairman of the Board Kim Jonghoon. This year's Story Day follows the initial presentation of innovation directions in 2017 and the execution strategies unveiled in 2019, now revealing concrete plans to complete the innovation process. ▶Related article on page 3

The financial story revealed by the management on this day centers on the 'Carbon to Green' transformation, aiming to become a company that operates green-centered businesses rather than carbon-based ones, just one year before its 60th anniversary. The strategy involves strengthening the green portfolio around batteries, including separators and used battery recycling, converting existing businesses into eco-friendly models such as plastic recycling, and achieving early net zero greenhouse gas emissions through three major strategies.

The core of the green growth axis is the battery business, which currently has an order backlog exceeding 1TWh. This is about 17 times larger than the 60GWh backlog in May 2017 when SK Innovation first announced its intention to grow batteries as a future business. Converted to Korean won, this exceeds 130 trillion KRW. Ji Dongseop, head of SK Innovation’s battery business, stated, "By the end of next year, we expect to rank third globally in monthly sales volume." SK Innovation plans to leverage the rapid growth of its battery business to also expand related sectors such as separators and used battery recycling.

The existing oil and chemical business, which accounts for over 60% of the company’s assets, will transition to an eco-friendly production system, including 100% recycling of waste plastics. This is the so-called 'Green Transformation' strategy. To this end, the company will promote plastic recycling businesses such as urban oil field projects that convert waste plastics back into petroleum and develop carbon-neutral business models.

CEO Kim emphasized, "The ultimate goal of SK Innovation’s green strategy is to leave no footprint from fossil fuel use." He added, "We plan to invest a total of 30 trillion KRW by 2025, more than double the investment of the past five years," and "We will increase the proportion of green assets from the current 30% to 70%."

A Perfect Green Transformation of a 60-Year Oil Refining Company... Batteries at the Core of 'C to G'

SK Innovation’s decision to reduce the proportion of its core oil refining and petrochemical business at the group level and focus on new businesses centered on batteries is interpreted as a move to respond more swiftly to environmental issues and enhance competitiveness in the market.

Since the current oil-centered business has limitations in reducing carbon emissions, the company plans to apply environmentally friendly technologies as soon as possible. Considering that the battery business, a future growth engine for the group, is still in the early stages of market expansion, SK Innovation aims to take the lead in increasing market dominance. Currently, the asset ratio between carbon-centered and eco-friendly businesses is about 7 to 3, but the company plans to completely reverse this to 3 to 7. This reflects a sense of urgency that failure to proactively address environmental issues could lead to market exclusion.

The core of the plan announced by SK Innovation is 'Carbon to Green,' meaning reducing carbon-intensive businesses centered on oil and significantly expanding eco-friendly businesses to completely change the company’s identity.

Batteries are at the center. Although SK is considered a relatively latecomer compared to LG or Samsung in the electric vehicle battery market, the company expects to rise to the global top three by the end of next year through aggressive expansion. The battery order backlog disclosed on this day is 1TWh+α, exceeding 130 trillion KRW in value. Such scale is rare globally, with only about two companies reaching this level, positioning SK Innovation to rank among the top three worldwide.

According to the company, electric vehicle battery production capacity will increase from 40GWh annually to 85GWh in 2023 and 200GWh by 2025, doubling every two years. The target for 2030 is over 500GWh. The company recently raised its goals, including plans to establish a joint factory with Ford. Through such economies of scale, SK Innovation expects to generate profits quickly. Ji Dongseop, head of the battery business, said, "We expect to achieve profitability based on EBITDA this year and generate 1 trillion KRW in 2023 and 2.5 trillion KRW in 2025."

SK Innovation will also expand lithium-ion battery separators (LiBS), a key battery material. Currently producing 1.4 billion square meters annually, ranking first globally, the company plans to triple this to 4 billion square meters by 2025. CEO Kim Jun said, "By 2025, we aim to grow EBITDA to 1.4 trillion KRW, making it a core green business."

The battery business, currently focused on electric vehicle supply, will expand applications to energy storage systems (ESS), flying cars, robots, and more. Additionally, the company plans to grow the Battery Metal Recycle (BMR) business, which recycles used batteries, and the Battery as a Service (BaaS) platform business, which efficiently manages battery life cycles. The BMR business can reduce carbon emissions by up to 70% compared to initial lithium mining. SK Innovation plans to start pilot production next year and aims for mass production domestically and internationally by 2024. By 2025, the company expects to recycle 30GWh of batteries annually, generating 300 billion KRW in revenue from this business alone.

30 Trillion KRW Investment to Increase Green Assets from 30% to 70%

SK Group Chairman Chey Tae-won has consistently emphasized that companies must take a leading role in solving environmental problems. Since business activities have significantly contributed to environmental degradation, companies equipped with technology and capital should also lead in resolving these issues. He views responding to environmental challenges not as an option but a necessity, considering it a decisive factor for future corporate competitiveness. This background explains SK Innovation’s bold declaration to downgrade its oil refining business, built by the late founder Chey Jong-hyun and a core area of the group, to a subsidiary business.

Looking at SK Innovation’s tangible and intangible assets by business division, carbon-based businesses such as oil, chemicals, oil exploration and production (E&P), and lubricants account for 70%. Although investments in battery-related fields have increased in recent years, assets in battery and materials sectors still represent only about 30%. To completely reverse this structure, SK Innovation plans to secure the necessary 30 trillion KRW over the next five years through external joint ventures (JVs), incentives, initial public offerings (IPOs), selling stakes in existing businesses, and asset efficiency improvements. This 30 trillion KRW investment is double the amount invested in the past five years.

The battery and oil exploration (E&P) businesses will be spun off considering market conditions. A physical division method is likely to be used to enhance the value of each business. SK Innovation is a business holding company within SK Group, with subsidiaries such as SK Energy (refining), SK Global Chemical (chemicals), and SK Lubricants (lubricants). The battery business is currently operated directly but will be separated.

CEO Kim said, "We will focus on the role of a holding company specializing in developing green portfolios, discovering second and third battery and separator businesses through R&D, new business development, and mergers and acquisitions in the eco-friendly business sector."

‘Green’ Applied to Oil Refining and Petrochemicals That Led for 60 Years

SK Innovation will also apply ‘green’ (eco-friendly) principles to its oil refining and petrochemical businesses, which have driven the company’s growth for the past 60 years. The ultimate goal of SK Innovation’s green strategy, as expressed by CEO Kim Jun, is to leave no trace of fossil fuel use.

At the Story Day event, the first strategy revealed by management is a business that recycles 100% of waste plastics. Centered on SK Global Chemical, a chemical subsidiary, the company plans to introduce an urban oil field business model that converts waste plastics back into petroleum. The goal is to completely transform into a chemical company based on recycling. Na Kyungsoo, president of SK Global Chemical, emphasized, "While plastic is more eco-friendly than glass or steel during production, the low recycling rate is a problem. We will turn the plastic issue into a growth opportunity rather than a crisis as a recycling and eco-friendly materials company."

SK Global Chemical has set a goal to recycle 100% of plastics produced domestically and internationally (2.5 million tons annually by 2027) and achieve 100% eco-friendly product ratios that reduce usage and are recyclable, based on its own developed technologies and global mergers and acquisitions (M&A). President Na expects, "SK Global Chemical plans to generate over 600 billion KRW in EBITDA from green businesses alone by 2025, surpassing half of the total 1.1 trillion KRW and leading existing businesses."

The oil business will significantly improve its operational structure focusing on minimizing carbon emissions in crude oil refining, trading, and oil exploration and production (E&P). The company plans to simultaneously pursue various approaches, including optimizing operations by converting all business sites to low- and decarbonization systems, reducing production of transportation fuels with declining demand while increasing petrochemical product output, developing carbon capture and storage technologies, and expanding bio-renewable energy businesses. Additionally, the company will transform its gas stations and customers into a ‘green platform’ concept, sequentially introducing energy solution businesses that produce and sell eco-friendly electricity and hydrogen, as well as subscription models for eco-friendly vehicles.

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