Will ESG Evaluation Begin Next Year?

[Asia Economy Reporter Junho Hwang] It is forecasted that the sorting of ESG (Environmental, Social, Governance) in the capital market will intensify next year.

Shinhan Asset Management stated in its report titled ‘Next Year’s ESG Market Outlook and the Role of Asset Management Companies’ on the 29th that "the level of caution against greenwashing is spreading," and "due to the strengthening of global ESG regulations and disclosure obligations, as well as the specification of ESG standards, the sorting process will become full-fledged."

It is expected to be a year in which the influence on the environmental (E) sector will grow significantly. Although governance (G) still has a major impact on investment decisions, the importance of the environmental sector is gradually emerging, such as excluding ‘climate change’ or ‘controversial industries like casinos and drugs’.

The influence of ESG on asset management companies’ investment decisions is also expected to increase. The National Pension Service has announced plans to expand the asset classes applying ESG investment standards to 50% of the total by next year. According to Macquarie’s ESG survey report, the response that ‘ESG determines whether to invest’ increased to 21%, more than doubling from 10% in 2019.

It was analyzed that asset management companies’ ‘ESG sorting’ can be implemented through ‘divestment’ strategies like in Europe, or ‘ESG integration’ that includes ESG factors in the investment process like in the United States. Alternatively, there is a method to activate shareholder proposals related to ESG through active ‘shareholder engagement activities’ like BlackRock, the world’s largest asset management company.

However, domestic conditions for such activities were found to be very poor. Currently, only 72 listed companies publish sustainability reports, which is about 3% of all listed companies. The reports lack uniformity and vary widely, reducing the usefulness of the information. Among the top 30 companies with high greenhouse gas emissions, about 9 companies do not disclose specific information according to international accounting standards.

Son Miji, a researcher at Shinhan Asset Management’s ESG Strategy Team, said, "The obligation to publish sustainability reports will start in 2025 for companies with assets exceeding 2 trillion won," and added, "This is a very slow pace compared to global ESG disclosure trends, so the prompt implementation of unified disclosure regulations is necessary."

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