China Recruits a South Korean Conglomerate to Advise on ESG


South Korean conglomerate SK Group is accelerating efforts to help China develop ESG standards after a years-long push by Beijing to improve social governance disclosures at its companies stalled.

SK said it will team up with China’s State-owned Assets Supervision and Administration Commission, or SASAC, to jointly establish a lab in Beijing to study and develop rating methods for environmental, social and governance practices at companies like China Mobile Ltd. and China Petroleum & Chemical Corp. The conglomerate, South Korea’s third largest, has been working with SASAC, which oversees the country’s government-run companies, on social value efforts since 2019.

The Covid-19 pandemic saw a surge in inflows into ESG-related assets, driving companies to step up social value disclosures in order to access a share of the trillions of dollars invested in this area. Even before the outbreak, China had pledged to make its nearly 4,000 listed corporates publish ESG metrics by the end of this year, though those efforts have yet to come to fruition. The world’s second-largest economy has also been seeking to burnish its environmental and social credentials, with President Xi Jinping targeting to make the country carbon neutral by 2060.

“There are misconceptions that Asian companies are climate villains and they neglect ESG practices,” said Lee Hyung Hee, President of the Social Value Committee at SK Supex Council, the conglomerate’s main decision-making committee. “It’s disdainful of the entire Asia and we’d like to fix and show that Asian companies are interested in ESG.”

BASF SE, the world’s largest chemical maker, is leading a growing number of global firms including BMW AG, Novartis AG and SK in a collaboration to create an international accounting standard of evaluating social value by 2022. SK, which is actively advising South Korean government organizations and companies on evaluating social values, aims to have its affiliates from SK Hynix Inc. to SK Innovation Co. adopt an integrated accounting method including ESG practices within the next five to 10 years, Lee said in an interview in Seoul.

SK has so far channeled 74 billion won ($65 million) into impact funds investing in firms and startups that could address social and environmental problems and is planning to set up a new fund next year, Lee said. After successfully purchasing South Korea’s largest waste treatment company for more than 1 trillion won, SK is also considering more acquisitions in areas that can alleviate environmental problems through technology.

The conglomerate and China’s SASAC first collaborated on a research program into the social value of state-owned companies in both countries in February 2019. SK and the government body will hold equal stakes in the new lab, which is expected to be set up within this year, according to Lee.

China has yet to release guidelines to its companies on disclosing ESG information despite setting a goal to kick off the program this year. Roughly 1,100 companies listed on China’s two mainland exchanges -- less than a third of the total -- voluntarily disclosed environmental data in 2018, according to the statistics from the securities regulator.

“The market value of a company now depends on how it manages ESG,” Lee said. “ESG is not something that undermines shareholders’ value. Putting no effort into ESG goes against value. Shareholders will protest a company that has no ESG plans.”

©2020 Bloomberg L.P.

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