Managing ESG compliance across businesses: an Interivew with Jung Sun-Ah

ESG ratings present a prominent system of holding businesses accountable for societal values, yet still present a dilemma of sacrificing cost-efficient business models. To help address such challenges, ESG rating consultants have engaged in more interactions with businesses to best advise strategies. In this interview, Jung Sun-Ah at the Korea Institute of Corporate Governance and Sustainability (KCGS) shared how the institution uniquely evaluates and assists businesses in adhering to ESG values, and the growing importance of the ESG evaluation framework.

Could you briefly introduce what kind of institution KCGS is and what role the ESG Ratings Division plays?

Initially, we were established to improve corporate governance practices within the domestic capital market. Then we expanded to include environmental and social assessments, so now we conduct comprehensive ESG evaluations. Beyond ESG ratings, our company also has a Responsible Investment Team that provides advisory and analytical services. Within that framework, I am responsible for conducting ESG evaluations of companies at the ESG Evaluation Headquarters.

How do you evaluate or assist companies with their carbon reduction or net-zero plans?

When we conduct evaluations, we don't impose direct restrictions on activities to reduce carbon emissions. Instead, we recommend that companies disclose relevant data to external stakeholders. Therefore, our evaluation criteria focus on whether environmental data is transparently disclosed to stakeholders. We primarily assess whether a company measures and discloses its carbon emissions, has a roadmap for reducing them by a specific deadline, and possesses concrete implementation plans related to that roadmap.

Do you see Korean companies changing significantly to reduce carbon emissions?

Yes, definitely. The most noticeable change is that a large number of listed companies are responding to our evaluations. Also, there's the Sustainability Management Report, which is a channel for disclosing ESG-related information. The number of companies publishing these reports has increased dramatically in recent years. These reports now include substantial details on carbon emission reduction efforts and activities companies are undertaking to improve environmental performance. As an evaluator, I can definitely feel that companies are making much greater environmental and social efforts now compared to a few years ago.

In contrast, what do you see as the biggest limitations or difficulties companies face when pursuing carbon reduction efforts or sustainability in Korea today?

Ultimately, ESG is something companies pursue alongside their core purpose of generating profits. However, the activities we require under ESG don't directly contribute to those profits; in fact, they often involve counter-intuitive activities that require ongoing expenditure.

Therefore, we must convince corporate executives of the necessity of these activities and ensure they are carried out. However, when business becomes difficult, the areas where companies tend to cut costs first are often ESG-related. This creates a slight dilemma for companies, caught between the need to receive favorable ESG evaluations and the desire to protect the core areas of their business operations.

Do you believe ESG evaluations actually have the power to change corporate behavior?

First, as we conduct our ESG evaluations, we revise the assessment criteria annually. We update them annually based on changes in laws or guidelines, then companies undertake activities to meet these revised criteria. Since they must disclose these efforts externally, whether voluntarily or not, such activities are definitely increasing significantly.

As an ESG evaluation agency, are there points you'd like to emphasize more to companies going forward, or changes you'd like to see?

In our evaluations, we consistently emphasize that while improving metrics is crucial, in the short term, we demand that all data be disclosed transparently. After all, when companies transparently disclose all their data externally, it becomes exposed to the media, consumers, and the local community. This places companies in an environment where they have no choice but to address it organically. Therefore, we strongly urge them to disclose accurate and specific data alongside their financial statements.

Finally, you mentioned that ESG will significantly impact our society going forward. What kind of impact do you foresee it having on society as a whole?

Ultimately, ESG pursues an increase in companies that are sound environmentally, socially, and in terms of governance. As more such sound companies emerge, the workers within them will be happier, and the connected consumers and local communities surrounding those business sites will all thrive together. These are the points ESG evaluation aims to achieve.