_esg performance _korea _2009
sustainability
_pays. _sptember_2009 www.solability.com
ESG Performance Korea 2009 Sustainability pays!
SolAbility is a Korean-Swiss joint-venture based in Korea, providing ESG research to institutional clients and sustainability services to corporate clients www.solability.com contact@solability.com Tel. +82 31 811 3578
Š SolAbility. All rights reserved. Reproduction permitted with citation of source December 2009
Table of contents
TABLE OF CONTENTS................................................................................................. 1
1
BACKGROUND..................................................................................................... 1
2
SUSTAINABILITY LEADERS FINANCIAL PERFORMANCE – SUSTAINABILITY PAYS! .......... 2
3
DEVELOPMENT OF CORPORATE SUSTAINABILITY LEVELS IN KOREA 2007-2009............ 4
4
DEVELOPMENT OF SELECTED SUSTAINABILITY THEMES – ECONOMIC CRITERIA .......... 5
5
DEVELOPMENT OF SELECTED SUSTAINABILITY THEMES – ENVIRONMENTAL ................ 6
6
DEVELOPMENT OF SELECTED SUSTAINABILITY THEMES – SOCIAL.............................. 7
7
SUSTAINABILITY PERFORMANCE IN DIFFERENT INDUSTRY SECTORS.......................... 8
Background
1 Background SolAbility conducts a yearly sustainability analysis of listed Korean companies since 2007. The SolAbility ESGS (environment, society, governance, strategy) assessment methodology is based on sustainability mega-trends, global assessment tools, recognised sustainability standards (e.g. GRI G3, Global Compact, etc.) adjusted to the specific Korean business culture, regulation and historically grown corporate organisation. The analysis covers a wide range of issues, applying industry-specific criteria and is based on a best-in-class approach. In addition to the positive “screening” (evaluating quality of policies, management systems and performance), we perform a “negative” screening to evaluate the level of implementation of policies and management systems.
SolAbility applies a two-step ESG assessment model. In a first step, sustainability laggards are filtered out, with the second step consisting of performing an in-depth sustainability performance in a second step. The yearly assessment covers 350 Korean equities, and includes the largest companies form both the KOSPI and the KOSDAQ.
1
Sustainability leaders financial performance – sustainability pays!
2
Sustainability leaders financial performance – sustainability pays!
The most sustainable companies according SolAbility’s research demonstrate a clear and consistent financial outperformance over time vs. the benchmark of Korean listed companies. Backtracked to 2002, the 50 most sustainable companies have outperformed the KOSPI by more than 250%.
The 50 most sustainable companies vs. Korea n Stock Index, 2002-2009 KO SPI 200
KO SPI
Susta inab le 50
850% 750% 650% 550% Sustainable 50, 397%
450% 350% 250%
KOSPI, 128%
150% 50% -50% 02/01/02
02/01/03
02/01/04
02/01/05
02/01/06
02/01/07
02/01/08
02/01/09
2
Sustainability leaders financial performance – sustainability pays!
The outperformance of the portfolio of the 50 most sustainable companies is not only achieved through the back-tracking of the portfolio. The shorter-term performance since the first assessment cycle in 2007 and the one-year performance in 2009 equally show a solid outperformance versus less sustainable peer companies. In addition, the results show that sustainable companies bounced back quicker and stronger than non-sustainable companies.
Sustainable 50, one-year performance (09/2 008 - 09/2009) KOSPI
KOSPI 200
Sustainable 50
40% Sustainable 50, 27.16%
30%
20% KOSPI, 10.65% 10% 0%
-10%
-20% -30%
-40% 31/08/0 8
26/10/0 8
21/12/0 8
15/02/0 9
12/04/0 9
07/06/0 9
02/08/0 9
3
Development of corporate sustainability levels in Korea 2007-2009
3
Development of corporate sustainability levels in Korea 2007-2009
The
steady
advancement
of
Sustainability management amongst Korean companies is reflected in the
Overall Sustainability Performance 2007-2009 51
2009
72
rise of the average sustainability score in
SolAbility’s
assessment.
yearly The
ESGS
48
2008
72
average
sustainability performance across all
45
2007
69
sector and industries has increased 0
by a remarkable 13% since the initial
10 Best
20
30 Average
40
50
60
70
80
90
80
90
assessment in 2007. Econom ic Sustainability Performance
It is interesting to note that while the
54
2009
74
average performance of the assessed companies has risen substantially in
52
2008
72
most categories, the increase at the best performing companies has been
51
2007
less significant, indicating a somewhat
71
0
that
already
have
implemented
10
Best
stagnant performance at companies
20
30
40
50
60
70
Average
Environmental Sustainability Per formance
sustainability management practices 44
2009
81
The performance in environmental
41
2008
criteria
is
lower
compared
81
to
economic and societal (or human and
38
2007
77
society related) criteria - despite a very
large
companies 14001
number having
certification
of
obtained for
approach
a
10 Best
20 Average
30
40
50
60
70
80
90
70
80
90
ISO their
environmental management systems, indicating
0
Korean
Societal Sustainability Performance 49
2009
70
compliance-driven
towards
environmental
47
2008
69
issue in the past.
41
2007
68 0
10
Best
20
30
40
50
60
Average
4
Development of selected sustainability themes – economic criteria
4
Development of selected sustainability themes – economic criteria
Comparable good average performance in Corporate Governance and Ethical Management reflect the focus in terms of sustainability on policies rather than strategic direction in the Korean corporate environment in the recent past – in particular on ethical business conduct activities, with all major companies having highly developed ethical management systems. While the Korean legislation requires minimal Governance standards and all companies having introduced a formal governance systems with a Board of Director, the functionality of the Board remains rather formal than being a true and independent supervisory body for the executive management, explaining the comparable low average in Corporate Governance scores.
2007
2008
2009
70 60 50
63 54
56
57
59
51
40 41
41
44
30 20 10 0 Corporate Governance
Ethical Management
Risk management
However, more advanced management systems management are still on a lower level, with only a few companies having
- for example - fully implemented corporate-wide risk
management systems that go beyond standard financial risk management such as hedging strategies for fluctuations in interest rates or currency exchange values.
5
Development of selected sustainability themes – environmental
5
Development of selected sustainability themes – environmental
Korean companies score high in terms of formal implementation of environmental management systems (ISO 14001). However, a certified management system is neither guarantee nor a replacement for thorough environmental analysis and management. In terms of advanced environmental management systems or strategic business development, Korean companies lag behind global best practice.
2007
2008
2009
80 70 68 60
62
64
70
61
59 50 40
41 37 34
30 27 20
33
31
31
30
25
10 0 Environmental management systems
Environmental reporting
Carbon risk management
Chemical substance management
Green business development
However, in 2009 has seen a shift in management perception with a large number of companies making significant investment in GHG management systems, reduction programs and “green business strategies”. It is therefore expected that the relevant levels will catch up with international standards shortly.
6
Development of selected sustainability themes – social
6 Development of selected sustainability themes – social The Korean corporate culture has seen a modernisation of management policies and systems o a range of issues over recent years. While classical “social” issues have been addresses for quire some time, such as safety at the workplace – reflected in high average scores and low relative improvement – other issues have been coming to the forefront and are being addressed at many companies. Modern HR training systems have been implemented, and incentive schemes introduced at a number of companies. The highest relative increase is observed on reporting related to social issues, marking a shift in external communication focussing on the social activities (citizenship) to a wider view on social issues, including stakeholder surveys, employee management systems, and supply chain management programs.
2007
2008
2009
80 70 70
71
64
60 50 50
49
46
40
45
30
52
57
44
42
39
50
54
31
20 10 0 HR development
Social reporting
OHS-Manufacturers
OHS-Services
Supply chain management
7
Sustainability performance in different industry sectors
7 Sustainability performance in different industry sectors Analysing the data by sector reveals some interesting details. The large conglomerations focused on exports to the global and advanced markets have been exposed at an earlier stage and to a deeper extend to sustainability related issues, and it is therefore probably no surprising that sustainability performance tends to be more advanced in industry sectors where Korean companies have achieved a globally leading position, in particular in the electronics industry with its global presence. Industries and sectors that mostly cater for the domestic market (metal producers, consumer services and food producers) and needs tend to have a lower sustainability implementation level at this point in time.
Average sustainability performance across industry sectors E le ctro ni cs
Co mm un ic ati on s erv ice s
Tra nsp o rt s erv ice s
Ph arm ac eu tica l & c osm eti cs
Ind ustri al s
U ti li tie s
En er gy & c he mi cal s
Fi na nci al s
Me tal s
H ol di ng s
C o nsu me r go od s
C on sum er s erv ice s
Co n structi on & ma teri al s
0
10 20 30 Best company Industry average
40
50
60
70
80
8
Sustainability performance in different industry sectors Ec onomic performa nce ac ross industr y s ectors
Economic criteria performance C ommuni cation service s
(governance, corporate ethics, risk
management,
customer
satisfaction, etc. plus industry specific
criteria)
is
Fin anci al s Util itie s Ph armace utical & cosme ti cs Ele ctr oni cs
highest
C onsu me r service s
amongst service providers and
Transp ort service s Indu stri al s
companies who due to the nature of their business have to deal with some levels of risk management.
Co nsume r g ood s Energ y & che mi cal s Co nstructio n & materi al s Metal s Ho ld ing s 0
10
20
30
Best co mp any
40
50
60
70
80
90
In dustry aver age
Environme ntal performance acr oss industry s ector s
The sectors with highest global exposure
and
the
highest
Ele ctroni cs Tra nsport service s Indu strial s
operational exposure have the highest
environmental
management and performance levels:
the
electronic
companies, and other highimpact industry sectors
Energy & chemical s Me tal s Pha rma ce uti cal & cosmeti cs Utili tie s Communication service s Hol ding s C onsumer good s Con struction & material s Con sumer service s Fin ancial s 0
10
20
Be st comp any
30
40
50
60
70
80
90
In dustry avera ge
Soc ie ty & huma n c riter ia pe rform anc e ac ross industr y se ctors
Ele ctroni cs Communication services Constructi on & materials Pha rmace uti ca l & cosmeti cs Utilities Hol dings Fina ncials Tra nsport services En ergy & chemicals Con su me r services Industrials Co nsumer goods Metals 0
10
Be st
20
Ave rag e
30
40
50
60
70
80
9
90
SolAbility is a Korean-Swiss joint-venture based in Korea, providing ESG research to institutional clients and sustainability services to corporate clients. www.solability.com contact@solability.com Tel. +82 31 811 3578
Š SolAbility. All rights reserved. Reproduction permitted with citation of source December 2009
10
_sustainability_pays. www.solability.com