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ESG trends & performance  in Korea TBLI Asia 2009 May 2009
Overview of presentation <ul><li>Short overview of the Korean ESG market & trends </li></ul><ul><li>ESG performance </li><...
SolAbility Founded 2005 Ltd since 2007 Currently 7 full-time staff <ul><li>ESG research services </li></ul><ul><li>Company...
Corporate sustainability: ESG-related reporting Number of stand-alone Environmental and/or Sustainability Reports publishe...
Drivers & status of corporate sustainability in Korea <ul><li>Comparable late introduction of CSM compared to global level...
Drivers & status of corporate sustainability in Korea <ul><li>Sustainability seen as must… </li></ul><ul><ul><li>…  in ter...
ESG-related retail funds in Korea Source: KOSIF, SolAbility ESG/”SRI” retail funds and ESG related theme funds
ESG related AuM in Korea - cumulated Source: KOSIF, SolAbility estimation <ul><li>National Pension Fund announces public b...
Latest ESG developments <ul><li>Public bidding by the NPS to managed assets against EGS criteria, 2006/2007 </li></ul><ul>...
Backtracked performance Backtracked performance 2002 -2009: 118% outperformance
Performance since inception Performance since April 2007: 10% outperformance Actual fund performance (actively managed): 1...
Are sustainable companies more profitable or … … are profitable companies more sustainable?
Methodology: ESG linkages to financial bottom-line <ul><li>Methodology characteristics: </li></ul><ul><li>Two –step screen...
In-depth analysis: 150 equities  ESG Investment universe   <ul><li>Starting universe </li></ul><ul><li>Total equities : 35...
Korean specific issues for ESG research <ul><li>Only limited number of Large Cap companies </li></ul><ul><ul><li>Need to d...
“ Chaebol” Structure: Samsung Samsung Group cross-ownership structure : => Founding family exerts full control with minori...
Indicator correlation – Corporate Governance
Low energy efficiency <ul><li>High dependence on imported energy carriers </li></ul><ul><li>Low energy efficiency compared...
Indicator correlation – resource efficiency
Indicator correlation – HR development All assessed companies: limited information
Indicator correlation – HR development Full information
Conclusions from criteria relations <ul><li>Visible correlation between sustainability performance and share price develop...
Sustainable companies are… => Sustainability = business Intelligence <ul><li>Not only “responsible” </li></ul><ul><li>Do m...
The future: climate change risks, resource constraints, etc… => Correlation between sustainability performance and financi...
<ul><li>Thank You. </li></ul>606 FloStar 756-1 Janghang-dong, Ilsan-gu, Goyang-Si 410-380 Gyeonggi-Do, South Korea www.sol...
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Korea-specific Characteristics of Corporations and Implications for SRI/ESG Research

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Andy Gebhardt, Director - Solability Ltd. - South Korea

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Korea-specific Characteristics of Corporations and Implications for SRI/ESG Research

  1. 1. ESG trends & performance in Korea TBLI Asia 2009 May 2009
  2. 2. Overview of presentation <ul><li>Short overview of the Korean ESG market & trends </li></ul><ul><li>ESG performance </li></ul><ul><li>Linkages and correlations between CSM (corporate sustainability management), ESG research and financial performance </li></ul>
  3. 3. SolAbility Founded 2005 Ltd since 2007 Currently 7 full-time staff <ul><li>ESG research services </li></ul><ul><li>Company reports </li></ul><ul><li>Sector reports </li></ul><ul><li>Training & capacity building </li></ul>ESG research <ul><li>Analysis & benchmark of sustainability levels </li></ul><ul><li>Development of corporate sustainability strategy </li></ul><ul><li>Specialized services: </li></ul><ul><li>Risk management </li></ul><ul><li>GHG services </li></ul><ul><li>Project-related sustainability analysis & evaluation </li></ul><ul><li>Stakeholder engagement </li></ul>Corporate sustainability services
  4. 4. Corporate sustainability: ESG-related reporting Number of stand-alone Environmental and/or Sustainability Reports published in Korea
  5. 5. Drivers & status of corporate sustainability in Korea <ul><li>Comparable late introduction of CSM compared to global level </li></ul><ul><ul><li>… but fast catching up </li></ul></ul><ul><li>Government driven </li></ul><ul><ul><li>Government drive under previous administration: government controlled companies & agencies required to publish sustainability report </li></ul></ul><ul><li>International trends </li></ul><ul><ul><li>Copying of international trends </li></ul></ul><ul><ul><li>Inclusion of Samsung SDI (2004) and POSCO (2005) & SK Telecom (2008) in the DJSI increased awareness for sustainability management issues </li></ul></ul><ul><li>Compliance drive </li></ul><ul><ul><li>Compliance with regulation & public perception </li></ul></ul><ul><li>Most recently: “Green growth” </li></ul><ul><ul><li>Economic stimulus package officially label “80% green”; however: “green” depends on the definition </li></ul></ul><ul><ul><li>Focus on selected technologies (energy efficiency, new renewable technologies, materials) </li></ul></ul>
  6. 6. Drivers & status of corporate sustainability in Korea <ul><li>Sustainability seen as must… </li></ul><ul><ul><li>… in terms of reporting </li></ul></ul><ul><li>Little strategic integration of sustainability into core product/service development until recently </li></ul><ul><ul><li>Traditional approach: Improving governance systems, increasing environmental awareness and management systems </li></ul></ul><ul><ul><li>low anticipation of business value of CSM management on top-management level </li></ul></ul><ul><ul><li>But little strategic integration as of yet </li></ul></ul><ul><ul><li>Ne development: seizing sustainable business opportunities without relevant management systems </li></ul></ul>
  7. 7. ESG-related retail funds in Korea Source: KOSIF, SolAbility ESG/”SRI” retail funds and ESG related theme funds
  8. 8. ESG related AuM in Korea - cumulated Source: KOSIF, SolAbility estimation <ul><li>National Pension Fund announces public bidding for U$ 300 ml ESG fund </li></ul><ul><li>AMs launch SRI retail funds </li></ul><ul><li>Launch of several thematic funds </li></ul><ul><li>Decline of KOSPI following sub-prime crises </li></ul><ul><li>Chinese gold rush </li></ul><ul><li>Disappointing performance of thematic fund </li></ul><ul><li>National Pension Fund increases ESG mandates </li></ul><ul><li>Renewed interest in clean-tech investment </li></ul>
  9. 9. Latest ESG developments <ul><li>Public bidding by the NPS to managed assets against EGS criteria, 2006/2007 </li></ul><ul><li>Strong, but short rally of ESG-related retail funds, Summer 2007, however: enthusiasm dried quickly </li></ul><ul><li>Recent developments </li></ul><ul><li>National Pension Service expected to sign to the UN PRI </li></ul><ul><li>Public Sustainability Index on the KRX, Q4 2009 </li></ul><ul><li>Korea-specific DJSI Index, Q4 2009 </li></ul><ul><li>Korea-specific Accountability Rating, January 2009 </li></ul><ul><li>Sustainability ranking published by major newspaper </li></ul>
  10. 10. Backtracked performance Backtracked performance 2002 -2009: 118% outperformance
  11. 11. Performance since inception Performance since April 2007: 10% outperformance Actual fund performance (actively managed): 16% outperformance
  12. 12. Are sustainable companies more profitable or … … are profitable companies more sustainable?
  13. 13. Methodology: ESG linkages to financial bottom-line <ul><li>Methodology characteristics: </li></ul><ul><li>Two –step screening </li></ul><ul><li>Best-in-class </li></ul><ul><li>Positive screening </li></ul><ul><li>Pioneer-screening </li></ul><ul><li>MarketCap adjustment </li></ul><ul><li>Performance verification </li></ul>
  14. 14. In-depth analysis: 150 equities ESG Investment universe <ul><li>Starting universe </li></ul><ul><li>Total equities : 350 </li></ul><ul><li>KOSPI: 260 </li></ul><ul><li>KOSDAQ: 85 </li></ul><ul><li>KOSPI200 : 175 </li></ul>SolAbility SRI 평가 대상기업 현황 Starting universe: 350 equities ESG “pre-assessment” ESG-in-depth Assessment Investment portfolio Financial analysis
  15. 15. Korean specific issues for ESG research <ul><li>Only limited number of Large Cap companies </li></ul><ul><ul><li>Need to differentiate lower reporting levels of smaller companies </li></ul></ul><ul><li>Late absorber of corporate sustainability trends </li></ul><ul><ul><li>however: catching up fast </li></ul></ul><ul><li>Governance structure </li></ul><ul><ul><li>Historical & cultural differences </li></ul></ul><ul><ul><li>Cross-ownership structure of large conglomerates </li></ul></ul><ul><li>Legislation </li></ul><ul><ul><li>E.g. Korea not required to cap emissions under Kyoto – but probably will be required under post-Kyoto agreement </li></ul></ul><ul><li>Aging society </li></ul><ul><ul><li>Birthrate decreased dramatically over last 30 years </li></ul></ul>
  16. 16. “ Chaebol” Structure: Samsung Samsung Group cross-ownership structure : => Founding family exerts full control with minority ownership (3%)
  17. 17. Indicator correlation – Corporate Governance
  18. 18. Low energy efficiency <ul><li>High dependence on imported energy carriers </li></ul><ul><li>Low energy efficiency compared to OECD levels </li></ul>
  19. 19. Indicator correlation – resource efficiency
  20. 20. Indicator correlation – HR development All assessed companies: limited information
  21. 21. Indicator correlation – HR development Full information
  22. 22. Conclusions from criteria relations <ul><li>Visible correlation between sustainability performance and share price development </li></ul><ul><li>However: low r-value-correlation, wide spread => high scores in ONE criteria does not necessarily mean good performance in all cases </li></ul><ul><li>Financial performance is more closely related to sustainability score if a company scores high throughout all ESG factors/criteria </li></ul><ul><li>Lack of information (insufficient reporting): affects research outcome </li></ul>
  23. 23. Sustainable companies are… => Sustainability = business Intelligence <ul><li>Not only “responsible” </li></ul><ul><li>Do more than comply </li></ul><ul><li>Have more than awareness </li></ul><ul><li>Have a wider and longer horizon </li></ul>
  24. 24. The future: climate change risks, resource constraints, etc… => Correlation between sustainability performance and financial performance is expected to increase in the future Environmental degradation Human Capital Management Vision & Capability Corporate Sustainability Cost and revenues Profitability Climate Change Aging population Bottom of Pyramid markets Changing perceptions Resource scarcity
  25. 25. <ul><li>Thank You. </li></ul>606 FloStar 756-1 Janghang-dong, Ilsan-gu, Goyang-Si 410-380 Gyeonggi-Do, South Korea www.solability.com [email_address] Tel ++82 31 811 3578

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