04/01/2021
This report is based on Who’s Good ESG Incident Analysis, powered by Artificial Intelligence (AI) algorithms and news data in Korea. This report provides an overview of the corporate ESG incidents in 2020, analyzed by industry groups, ESG issues and company groups.
2020 marked a critical year. Not only was it the first year that the stewardship code was implemented in South Korea, but it also signaled a new beginning as Korea’s National Pension Service (NPS) announced its plans to activate responsible investment. At a global level, ramifications of the COVID-19 pandemic accelerated recognition of the value of environmental, social and governance (ESG) issues. Taken together, we have witnessed a momentous shift from shareholder-centric capitalism to a more inclusive stakeholder capitalist paradigm. In this sense, the theme of 2020 can be summarized as “ESG mainstreaming.”
In Korea, 2020 was a turning point for both companies and investors. ESG considerations have become critical not only for impact investors, but conventional investors and firms have also been incorporating ESG frameworks to assess a company’s fundamentals and risk. Above all, the introduction of data analytics technology to ESG evaluation has made it possible to remove biases of existing evaluation methodologies. This has helped improve current market inefficiencies, which have underestimated the value of sustainable companies. As this may signal further activation of capital flows to sustainable companies, we can expect greater contributions to sustainable financing going forward.
Who's Good, which has been analyzing corporate ESG data with data analytics technology since 2014, provides ESG data and insights of Korean companies to investors around the world. ESG Incident Analysis, launched at the end of 2018, is the first product in Korea to automatically analyze a company's ESG-related news data using artificial intelligence technology. In 2020, we were able to advance its algorithms to expand our coverage from listed companies to private companies as well as state-owned enterprises. Moreover, more clients are utilizing our data to analyze a wide range of financial products, such as bonds and loans. This is our third annual ESG Incident Analysis Report, based on the quality data generated by our improved algorithms. Based on news for various ESG-related incidents, we have summarized 2020 ESG incidents by sector, company, and ESG issue. We found that ESG incidents occurred in 474 companies (19.9%) out of a total of 2,373 listed companies analyzed. Among 17 ESG issues, “Business Ethics” issues such as embezzlement, bribery, stock price manipulation and fraudulent accounting were identified as the biggest threats to the sustainability of Korean companies since 2016. At the same time, our analysis confirmed that environmental and social issues are becoming increasingly important. While the number of companies with ESG incidents remained the same at about 400 each year, the proportion of news on corporate governance decreased from 64% to 49% over a five-year period, while social (56.6%) and environmental (2.0%) issues now
account for a bigger combined portion of ESG incidents. In addition, due to the pandemic, social issues such as “Consumer Relations,” “Supply Chain Management,” and “Anti-competitive Practices” have become the most controversial issues after “Business Ethics.”
As ESG has become such a crucial factor in the market, companies must also promote sustainable growth by managing ESG risks and opportunities. This report specifically focuses on ESG risk. Many companies have viewed ESG simply as CSR (corporate social responsibility) activities. However, in the investment market, ESG assessment is aimed at identifying a company’s non-financial risks. So rather than simply promoting what a company is doing well, they need to implement a strategy to identify key risks.
2020 ESG INCIDENT REPORT : KOREA
