[Asia Exclusive] Shin Jin-young, Director of Capital Research Institute: "Companies Not Practicing ESG Management Will Eventually Fail to Make Money"

ESG Management Benefits Both Performance and Risk Management
Unilever as a Case of Achieving Sustainable Growth and Value

Governance ('G') Gains Greater Importance for Domestic Companies
Due to 'Owner Risk' Arising from Chaebol Culture

European Sovereign Wealth Fund's Withdrawal from KEPCO Investment Sends Important Message
Failure to Properly Handle ESG Trends Leads to Harsh Market Evaluation

Shin Jin-young, President of the Korea Capital Market Institute, emphasizes the importance of ESG, stating that without practicing ESG management, companies are bound to face harsh evaluations from the market. Photo by Kim Hyun-min kimhyun81@

"Companies that do not engage in ESG management will inevitably be left behind. If they do not properly follow the current ESG trend, they will eventually be unable to make money."

Shin Jin-young, President of the Korea Capital Market Institute, said, "Companies should no longer view ESG uncomfortably." He bluntly stated that companies that do not respond to the era's demand for ESG will inevitably face harsh evaluations in the capital market.

ESG is currently the hottest keyword worldwide. Until now, ESG was dismissed as an abstract concept of 'doing good,' but it has now become an unstoppable trend. Companies are actively launching ESG committees and busy creating guidelines tailored to their organizations. Central banks, investment banks (IBs), and sovereign wealth funds around the world are including ESG in their investment criteria and engaging in responsible investing. In South Korea alone, pension funds increased their responsible investment scale to 103 trillion won last year, more than tripling in one year, accounting for 57% of their investments. According to the Global Sustainable Investment Alliance (GSIA), as of June last year, global ESG-related investment assets amounted to $40.5 trillion, an increase of about 207% compared to 2012 ($13.2 trillion).

Energy-related companies at home and abroad, which were somewhat late in transitioning to ESG, are now facing rapid changes. Korea Electric Power Corporation (KEPCO), which continues coal power generation, received a divestment notice last year from the Dutch pension fund APG, following the Norwegian sovereign wealth fund. Earlier, ExxonMobil, a global oil company that once dominated the oil industry, lost two board seats to activist funds advocating for accelerated fossil fuel phase-out and is now seeking to transform into a renewable energy company. Shin emphasized, "The era when ESG management was seen as a burden or a major cost is over. Now, consumers, investors, and shareholders are all pressuring companies to actively engage in ESG management," adding, "In the future, companies that fail to properly handle social, environmental, and governance issues will not be properly valued in the market."

Shin expressed concern about viewing ESG solely from the perspective of cost efficiency. For example, although the world is pursuing net zero (carbon neutrality) policies to protect the environment, if South Korea merely views the transition to renewable energy as unsuitable due to its geographical and environmental conditions, it will inevitably fall behind in the global market. Shin explained, "Carbon border taxes, which impose higher taxes on higher carbon emissions, can be used as modified trade barriers not only in the U.S. but also in Europe," adding, "If renewable energy efficiency is low, it is more positive to develop technologies that can compensate for this."

Director Shin emphasized that ESG management is already delivering superior performance in terms of both outcomes and risk management. Photo by Hyunmin Kim kimhyun81@

Shin expressed confidence that ESG management can produce superior results in terms of performance management and risk management. He mentioned that the case of multinational company Unilever is worth watching closely. In 2010, Paul Polman, former CEO of Unilever, actively practiced ESG management through the 'Unilever Sustainable Living Plan for 10 Years,' significantly enhancing corporate value. Polman was hired to improve Unilever's stagnant performance at the time, but his large-scale organizational restructuring and active investment in ESG initially caused investors to turn away. The market responded coldly as performance did not improve quickly. However, in the long term, Unilever achieved both sustainable growth and enhanced corporate value. Currently, Unilever firmly holds the top position as the world's sustainability leader, and comparing Unilever's stock price in 2010 to now shows approximately 160% growth. This proves numerically that engaging in ESG management long-term is effective.

Shin identified governance (G) as the ESG element that South Korean companies should focus on most. The unique system of 'owners' created by South Korea's chaebol culture equates individuals with groups, increasing stock price volatility. Owner risk is a chronic problem in Korean companies and is considered a discount factor in the domestic stock market. Shin explained, "Governance issues greatly affect the value of Korean companies," adding, "Simply put, governance is the decision-making system, so if governance is not properly established, decisions regarding environmental and social issues cannot be properly made."

There are many examples where owner risk has caused significant stock price drops, resulting in large losses for shareholders. A recent example is Coupang. Although not a personal misconduct of Coupang founder Kim Beom-seok, after he resigned as chairman of the domestic board following the large fire at the Deokpyeong logistics center in June and was named chairman of the U.S. Coupang board, it created a negative impression among consumers and the market. Additionally, criticism arose that Coupang inadequately addressed frequent industrial accidents involving workers (social factor S), leading to a 'Coupang boycott movement' on social media among consumers. Although Coupang's stock price did not sharply decline immediately after these incidents, it increased concerns about performance and suppressed the stock price.

Interview by Jeon Pil-su, Head of Capital Markets Department and Corporate Analysis Department; compiled by Minji Lee, Reporter ming@

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