17:30 Evening ESG News Wrap-up

PM: Tea Time

Evening ESG news and briefings to wrap up your day.

ALL Environment Social Governance Policy42 articles

Is ESG Disclosure Standardization Beginning?

ESG international disclosure standard proposals were announced this year by the International Sustainability Standards Board (ISSB) under the International Financial Reporting Standards (IFRS). The exact title is ‘IFRS Sustainability Disclosure Standards.’ Established at the 26th UN Climate Change Conference (COP26) held in Glasgow, UK in 2021, ISSB has been working to establish sustainability disclosure standards. As ESG-conscious management and investment have gained importance, information disclosure criteria proposed by organizations such as the Global Reporting Initiative (GRI) and the Task Force on Climate-Related Financial Disclosures (TCFD) have attracted attention. The ISSB stated that it established the standard based on these existing mixed frameworks. Notably, it stands out that the TCFD recommendations, which companies were already using, were fully integrated and unified into the standard. Why are efforts being made around the world to create sustainability disclosure standards? First, it is necessary to examine why companies disclose information.Why Do Companies Disclose Information?Disclosure is a system that regularly or occasionally reveals information such as a company's operational performance, financial condition, and governance, allowing stakeholders such as employees, shareholders, creditors, and general investors to accurately understand the reality of the enterprise. The types and scope of information to be disclosed are defined under the 'Capital Markets Act'. Ultimately, it is a protective system established institutionally by the state so that members of society can support and invest in companies based on accurate judgments. However, while traditional disclosure focused on the financial performance of corporate activities, 'ESG disclosure' requires companies to reveal metrics showing their impact on the environment and society leading up to those financial outcomes. The ESG disclosure standard aims to standardize the indicators used in this process. Of course, these indicators will only shine if they are effectively put into practice.Must the IFRS Sustainability Disclosure Standards Be Followed?Not necessarily. Standards are just standards, and actual adoption and implementation are decided independently by each country. Therefore, ISSB formulated the disclosure standards with 'inter-operability' in mind. This means they made effort to align as closely as possible with existing disclosure systems established or used by major countries. On July 31, the EU officially adopted the European Sustainability Reporting Standards (ESRS), which are 'aligned at a very high level' with ISSB disclosure standards, and will apply them to EU-listed companies and companies with over 500 employees starting January 1, 2024. The U.S. Securities and Exchange Commission (SEC) is also scheduled to finalize its climate disclosure standards by April 2024.When Will South Korea Adopt It?Relatively late. For all companies listed on the KOSPI market, full adoption begins in 2030. Large corporations were initially scheduled to start mandatory disclosure earlier in 2025, but this was delayed by one year at the request of industry, postponing it to 2026. Consequently, opinions exist that South Korea is lagging behind other developed nations. As explained earlier, disclosure systems exist to help stakeholders make informed decisions. We need to reflect on whether disclosure systems should be considered primarily around stakeholders or around companies.by Editor N

December 21, 2023

[Global Trends]

GovernancePolicy

BlackRock Declares Abandonment of ESG

The intense focus gathered on ESG, which originally started with 'BlackRock', the world's largest asset manager, may now fade away due to BlackRock itself. Larry Fink, CEO of BlackRock, announced that he will completely stop using the term ESG. In his 2020 annual letter to investors, Larry Fink included a commitment to make environmental sustainability a core goal when making investment decisions. He also stated that BlackRock would no longer invest in companies with 'high risk' to the environment, including coal producers. Afterwards, business executives, legal professionals, professors, and other management and investment experts agreed that ESG was not a temporary trend, but a massive wave of global change. Indeed, numerous companies worldwide joined the ESG momentum, and even the International Financial Reporting Standards (IFRS) moved to standardize indicators showing ESG performance alongside financial results.So Why?Why did the CEO of BlackRock, who moved the world with a single letter, suddenly declare that he would stop using the term ESG? In fact, public opinion regarding ESG within the United States, where BlackRock is headquartered, has not been entirely positive. In the US, where companies do not hesitate to show political leanings and where lobbying is legal, ESG became a political issue. Which Political Camp Opposed ESG?It was the Republican Party. Fossil fuel companies provide substantial funding to the Republicans. US corporations can engage in lobbying under the guise of donations to shift policy in their favor—or to prevent unwanted policy shifts. While the Democratic Party also receives lobbying funds, the difference in scale is significant. In 2020, during the 46th US presidential election, the Republican Party received $63.7 million (approx. 85 billion KRW) from fossil fuel companies. In the same year, lobbying funds received by the Democratic Party from fossil fuel companies amounted to around $12.3 million (approx. 16 billion KRW). Current Status of Lobbying Expenditures by US Oil & Gas Companies by Political Party (Unit: USD Millions)ⓒStatisticsFollowing his announcements on ESG, BlackRock and Larry Fink became targets of political attacks from the Republican Party. Larry Fink confessed that Republican attacks went beyond criticism of business decisions into personal attacks and threats. He eventually declared that he would no longer mention the overly politicized term ESG. However, he explained that dropping the term ESG does not mean stopping ESG investments, leaving open the room by stating, “We will continue to communicate with companies working to address issues related to the environment and corporate governance.” What Lies Ahead?It is highly likely that we won't see Larry Fink mention ESG again. Regardless of the outcome, however, it is true that his annual letter encouraged reflection from many companies and pushed them to care more about social responsibility. Attention is now focused on whether companies that actively supported ESG values and joined their voices will continue to uphold those values moving forward.by Editor N

December 21, 2023

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