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The Era of ESG for Enterprises Has Arrived
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The Era of ESG for Enterprises Has Arrived
  • 이채원
  • 승인 2021.06.29 21:43
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ESG is recently emerging as a key point for enterprises. ESG is the acronym for “Environment, Social, Governance”. That is, the word means enterprises have to work on management in relation to environment, society, and governance.

 Since April, Namyang Dairy Products (남양 유업) has taken a direct hit by a boycott. Netizens are zealous to find products of Namyang for boycotts. Although Namyang Dairy President Hong Won-sik officially apologized to the public and offered his resignation because of this boycott, it is still underway. Namyang, which was not able to endure public criticism, is now in the situation to be acquired by Hahn & Company. This Namyang affair made enterprises realize how important corporate credibility is for consumers.

 

▲ The owner of a supermarket put up a notice that Bulgaris yogurt drink is out of stock on the beverage display stand on the afternoon of April 14. (source=Newsis)
▲ The owner of a supermarket put up a notice that Bulgaris yogurt drink is out of stock on the beverage display stand on the afternoon of April 14. (source=Newsis)

 

 On April 13, Korea Research Institute of Bio Science (KRIBS) reported that Bulgaris, a dairy drink from Namyang dairy products, helps remove the COVID-19 virus by 77.8%. Consumers that heard of the research were enthusiastic over buying the product. Eventually, Bulgaris was out of stock in some retails, and the stock of it jumped by about 30%.  

 

 However, the question was soon raised about the credibility of the research. The Korea Disease Control and Prevention Agency refuted the result, saying that it was difficult to expect the actual effect because the study did not involve humans. Also, it was revealed the study was under the support of Namyang. Eventually, this resulted in the loss of consumer confidence. After investigating the company on April 15, the Ministry of Food and Drug Safety requested Sejong city to prohibit the production of dairy products of its factory in Sejong for two months, which produces about 38% of the products for it. 

 

 Namyang issued an apology for this affair. However, the apology that did not seem sincere enraged consumers more. Due to the apology, the boycott spread on SNS, and it has taken a toll on sales. The company, which recorded 77.1 billion won in losses last year by a boycott that had lasted intermittently because it did not take social responsibility before, will face a bigger crisis than last year if the factory is closed for two months.

 

 This affair shows the conscienceless management of the enterprise. Such management can get worse the image of the company and undermine the worth of it. People can get a sense of importance of Corporate Social Responsibility (CSR) from Namyang Affair. CSR means that enterprises have responsibility for the impact on society and environment, making an effort to manage transparently. Managing a business, pursuing CSR and financial performance, is called ESG.

 

▲ The graph above shows the positive correlation between ESG and corporate financial performance is close to about 50%, while the negative correlation is only 11%. (source=Tossfeed)
▲ The graph above shows the positive correlation between ESG and corporate financial performance is close to about 50%, while the negative correlation is only 11%. (source=Tossfeed)

 

 ESG has become an important keyword for enterprises as anxiety about sustainability of people around the world has increased due to the protracted COVID-19 crisis and because the U.S president Joe Biden presented the policy on ESG. Enterprise can kill two birds with one stone through ESG because they can improve their image and the corporate activities can have a positive influence on society. In addition, corporate interest in ESG is growing higher because data released that supports basis that ESG correlates with corporate financial performance. 

 

 There is the company that again makes people realize ESG is important to enterprise in a different meaning from the case of Namyang. Ottogi (오뚜기) which has taken up CSR has been supporting more than 5,000 children suffering from congenital heart disease since 1992. Also, the company has donated contributions and instant food products of their company for the poor every year. 

 

 Especially, since the outbreak of the COVID-19, it donated its products to the hospital that confirmed COVID-19 cases stay in and the Republic of Korea National Red Cross for overcoming COVID-19. Aside from these, Ottogi showed people exemplary aspects of social enterprise in various ways. As the result, Ottogi built high reliability and a good image, and now the company is called “God-ttogi”. These activities of Ottogi have also resulted in a rise in sales. 

 

▲ The graph above shows domestic companies are expanding their investment in ESG. In 2012, their investment scale in ESG was $4.9 billion, but in 2019, it increased to $25.5 billion. (source=Sportsdonga)
▲ The graph above shows domestic companies are expanding their investment in ESG. In 2012, their investment scale in ESG was $4.9 billion, but in 2019, it increased to $25.5 billion. (source=Sportsdonga)

 

 Realizing the importance of ESG due to these cases, the Korean companies are giving more effort to expand ESG. SK has spurred the “Impact Investment”, which makes cooperation between major companies and social ventures, pursuing social problem resolution and financial performance. Starting with investing in Enuma, a digital education technology start-up for underprivileged children, SK revealed that the company will expand its investment fields in environment and employment of the vulnerable. Now, the scale of Impact Investment of SK is said to add up to about 10 billion won. SK president Chey Tae-won said that SK will function as a healthy community and improve the happiness of society by pursuing social values. 

 

 The wave for ESG is not only seen in domestic cases. Patagonia, an outdoor wear brand of the United States, executed ESG by using the phrase “We are in business to save our home planet”. Patagonia is focusing on sustainable fashion as the first clothing industry that developed polyester by recycling discarded plastic bottles. This sustainable fashion hit the MZ generation by pursuing social meaning with consumption, and showed an average annual growth rate of 30%, recording sales of 48 billion won last year.
 

▲ Most consumers show a positive aspect about ESG. (source=Korea Economic Daily)
▲ Most consumers show a positive aspect about ESG. (source=Korea Economic Daily)

 

 Consumers are responding positively about ESG. They have a tendency to purchase products or services of enterprises that contain value of ESG. According to the Korea Economic Daily, 84% of all consumers answered that they were “affected by social reputation of the enterprise when purchasing a product.” When questioned about the response when purchasing a product from the enterprise they trust, 66% of the respondents answered, “I am willing to buy the product even if it is somewhat expensive.” The results of these surveys show that consumers have high preference for companies that conduct ESG.

 

 However, ESG does not always bring only positive consequences. Danone, the French food biggest company, showed ESG dilemma in March. Danone CEO Emmanuel Faber who considered ESG important stepped down as CEO because he recorded the weakest performance last year by putting greater emphasis on environmental and social responsibility and excluding pursuit of profits. It shows that ESG is the fact that it is important issue around the world, but persisting only in non-financial value can be rather self-defeating.

 

 Lee Yeon-woo, an expert advisor of Bae, Kim & Lee (BKL), said, “In terms of the socially responsible investing and ethical standards, ESG is definitely a valuable purpose for enterprises to pursue, but trying to urgently conduct ESG can throw market and society into disorder due to an unintended direction and scale. Therefore, the policies and strategies of enterprise in ESG should be established after thoroughly reviewing the realities of various stakeholders.”

 

 The era that the enterprises setting a high value only on efficiency are no longer welcomed has come. Now, ESG is a duty for them, not a choice. If enterprises only pretend to practice ESG to avoid criticism, they can face the same results as Namyang. Lim Jae-joon, a vice-president of Korea Exchange, said “ESG is a paradigm shift of the capital market, not a craze for a while. Therefore, green washing (which makes it look like conducting, while does not actually conduct environment-friendly management) or ESG washing should not appear.” The Catholic University Forum also hope that we can look forward to seeing the companies gradually conducting sustainable management for society. 
 

 


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