ESG Performance 2009

_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