There are many different views on linking ESG to financial performance. The positive hypothesis that ESG helps financial performance is opposed, the negative hypothesis is the opposite, and the null hypothesis that ESG has no effect on financial performance.
It is clear that many ESG experts and evaluation agencies say that ESG management is beneficial to companies’ financial performance, and consumers and investors also show a preference for companies that practice ESG management.
◇ Do companies with good ESG management make good money?
In November last year, the Korea Institute of Industrial Trade and Economics published a landmark report. At the time, in a report titled ‘Industrial Policy Approaches and Implications for Expanding Corporate ESG Management,’ the researcher said, “Among domestic listed companies, companies with good ESG management are highly profitable, and while management capabilities are not ESG are profitable. – financial information, It has become an important factor.”
The report said the results were obtained by empirically examining the relationship between ESG ratings and asset returns of 868 listed companies in Korea using Korea Corporate Governance Service ESG rating data and KIS-Value corporate financial information.
According to the report, companies with a 1% higher ESG overall and a lower grade within the industry also had a 0.031% higher return on assets. By sector, companies with a 1% higher score in the E sector had a 0.024% higher return on assets, 0.033%p in the S sector and 0.031%p in the G sector.
The Korea Institute of Industrial Economics and Trade explained, “The significant relationship between ESG management capabilities that follow non-financial values and financial performance means changes in the industrial environment due to ESG-related values.”
However, this correlation was found to vary by industry group. For example, among companies with a 1% higher score in the E sector, the return on assets was 0.3% higher in the water transportation industry, but 0.3% lower in the medical, precision and optical equipment industries. This industry-specific difference is evident in the environmental sector, which the Korea Institute of Industrial Economics and Trade analyzed as reflecting differences in environmental issues related to manufacturing processes by industry.
Additionally, in the report, the Korea Institute of Industrial Economics and Trade stated, “In previous studies conducted on foreign companies, empirical results were obtained that a company’s high ESG capability leads to high financial performance. It suggests that pursuit is both an opportunity and a challenge that must be considered in the corporate management process.”
◇ As ESG and related regulations are strengthened, the impact on corporate value will increase
This trend appears to have continued until recently. In fact, as a result of examining the quarterly reports between 2020 and 2021 of companies with an overall ESG rating of A+ in the ESG evaluation of the Korea Corporate Governance Service, there was no company with a decrease in sales. However, in the case of D grade companies, it was not uncommon to find companies with lower sales.
Some note that the bigger the company, the higher the ability to respond to the ESG management system, and the higher the sales.
In response, ESG experts and evaluation agencies predict that ESG reflection will become natural in corporate evaluation due to the strengthening of ESG-related regulations, including global carbon regulations to solve the climate crisis, and argue that corporate value will soon associated with ESG management. .
In February last year, Samjong KPMG published a report entitled ‘What should ESG Emerging Companies Prepare?’ Research organizations have been conducting various studies to find the correlation between ESG activity and an increase in corporate value. ”
“Now, there is a growing awareness that ESG is not separate from corporate value. The impact of ESG on corporate value will be even greater as ESG regulations are strengthened, investor demand for ESG increases, ESG is reflected in corporate evaluation, and customer ESG demand increases.”
The ‘ESG information platform’ operated by the Korea Financial Supervisory Service and Exchange said, “The major credit rating agencies also reflect or reflect ESG management in their credit rating evaluation. “It will have a negative impact and increase financial costs.”
A recent case where this phenomenon has been well demonstrated has occurred in the United States. In May, US stock index provider Standard & Poor’s (S&P) excluded Tesla from the ‘S&P’ 500 ESG index. At the time, S&P said it had excluded Tesla because of its lack of a low-carbon strategy and racism among employees. Tesla’s stock price plunged 6.80% on the day the S&P 500 ESG index was banned.
Now, such a situation is no longer true of foreign companies only. In the event of an accident or incident that violates ESG management in domestic companies, investors and consumers directly affect the company. The situation where ESG affects a company’s financial performance is becoming a reality.
This is not the time of climate change, it is the time of ‘climate crisis’. This is because the extreme weather threatens not only human health but also survival. There are also warnings that a shaky sustainable system could have a far-reaching effect on the real economy, leading to a ‘climate recession’.
Likewise, now is the time to prepare for ‘global warming’ rather than global warming. The World Meteorological Organization (WMO) announced in its ‘Report on the State of the Climate 2021’ in October last year that the global average temperature at that time was about 1.09 degrees higher than before industrialisation. “Extreme climate events are now the new norm,” the WMO warns. Cold waves, sweltering heat, wildfires, and strong winds are hitting every part of the world. Global warming must be stopped before it is too late. But how should it be stopped?
Green Post Korea plans throughout the year start reporting. The purpose is to escape the climate crisis and prevent a climate recession by stopping the increase in global average temperature as much as possible compared to pre-industrial levels. The purpose is to deal with environmental issues with the intention of preventing more than 1.5 ℃, which is the goal of mankind, or 1 ℃, where there is a warning that it has already been exceeded. Not for the lives of our children, but for my immediate survival and economic activities.
Through planning throughout the year, we will identify how serious the climate crisis is, why it is important to include the average temperature increase, what the relationship between the changing weather and the real economy is, and what kind of the efforts of consumers, companies, and the government should do in this situation.. see. The serialization will run for a total of 35 episodes every Tuesday until November. [편집자 주]
serialization scheme]
PART 1 Humanity’s new homework 0.99 ℃
The threat of changing weather and temperature that will change the fate of the earth
World leaders and academics are warning of a climate crisis
The crop map changed in wild weather
The warming earth has changed the prices of shopping carts
A promise from Kyoto and Paris to come out again
Part 2 Climate Recession World Shock Waves
$60 trillion of Arctic ice melt, the prelude to climate recession
Wildfires burn money, not trees
Environmental destruction, pandemic, butterfly effect on the global economy
A starving world… A food crisis is shaking the planet
Awareness of the climate crisis…How do you feel?
Learning from the UK and Germany…keeping the economy with the environment
The US Federal Reserve’s Climate Crisis Response Strategy
Impact of climate crisis response on Korean economy
The top three environmental, economic and climate crises “necessary for major transformation”
The relationship between the climate crisis and inflation
PART 3 The survival strategy of Homoplasticus
0.99 ℃ and 2050 carbon neutrality summarized by keywords
0.99 Project 1_Do you want to throw away one meal a day?
0.99 Project 2_Humanity buried in a pile of plastic
0.99 Project 3_Where do you come from, what will you come from, and where will you go?
0.99 Project 4_Future shaken by discarded products
0.99 Project 5_Will we reduce 88% of litter?
Recycling technology…what to throw away and what to recycle?
PART 4 Companies to practice carbon neutrality
Climate and economy ESG catches two rabbits
Are high ESG scores better for financial performance?
Food and drink companies to reduce plastic
Reducing hazardous chemicals in the chemical industry
The financial sector to expand green finance
“Reduce coal power generation” Car companies promise for the future
Green 15 years ago in Sweden and Germany
PART 5 The key to success at 0.99 ℃ in energy
The Earth beyond the Anthropocene… Can energy use be reduced?
0.99 Key to Success, Look at the Energy Conversion Plan
Two electricity use keywords. Efficiency and Conversion
Debate and truth about new and renewable energy
Reading environmental economics through carbon tax issues
All mankind’s homework… for 0.99℃
hdlim@greenpost.kr
