_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

© 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%

450% Sustainable 50,

397%
350%

250%

150% KOSPI, 128%

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%

30% Sustainable 50, 27.16%

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

Overall Sustainability Performance 2007-2009
Sustainability management amongst
Korean companies is reflected in the 2009
51
72
rise of the average sustainability score
in SolAbility’s yearly ESGS 48
2008
72
assessment. The average
45
sustainability performance across all 2007
69

sector and industries has increased

0 10 20 30 40 50 60 70 80 90
by a remarkable 13% since the initial Best Average

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 2008
52
72
most categories, the increase at the
51
best performing companies has been 2007 71

less significant, indicating a somewhat

0 10 20 30 40 50 60 70 80 90

stagnant performance at companies Best Average

that already have implemented

Environmental Sustainability Per formance
sustainability management practices
44
2009
81

The performance in environmental 41

2008
81
criteria is lower compared to
economic and societal (or human and 2007
38
77
society related) criteria - despite a
0 10 20 30 40 50 60 70 80 90
very large number of Korean Best Average

companies having obtained ISO

Societal Sustainability Performance
14001 certification for their
49
environmental management systems, 2009 70

indicating a compliance-driven
2008 47
approach towards environmental 69

issue in the past.

41
2007 68

0 10 20 30 40 50 60 70 80 90
Best 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 63
59
56 57
50 54
51
40 44
41 41

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
70
68
60 64
62 61
59
50

40
41
37
30 34 33
31 31 30
27
25
20

10

0
Environmental Environmental Carbon risk Chemical substance Green business
management systems reporting management management 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

60 64

57
50 54
50 52
50 49
46 45
40 44
42
39
30
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 40 50 60 70 80
Best company Industry average

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, Fin anci al s

risk management, customer Util itie s

Ph armace utical & cosme ti cs

satisfaction, etc. plus industry
Ele ctr oni cs

specific criteria) is highest C onsu me r service s

Transp ort service s

amongst service providers and
Indu stri al s
companies who due to the Co nsume r g ood s

nature of their business have to Energ y & che mi cal s

Co nstructio n & materi al s

deal with some levels of risk Metal s

management. Ho ld ing s

0 10 20 30 40 50 60 70 80 90
Best co mp any In dustry aver age

Environme ntal performance acr oss industry s ector s

The sectors with highest global Ele ctroni cs

Tra nsport service s
exposure and the highest
Indu strial s
operational exposure have the Energy & chemical s

highest environmental Me tal s

Pha rma ce uti cal & cosmeti cs

management and performance
Utili tie s

levels: the electronic Communication service s

Hol ding s
companies, and other high-
C onsumer good s
impact industry sectors Con struction & material s
Con sumer service s

Fin ancial s

0 10 20 30 40 50 60 70 80 90
Be st comp any 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 20 30 40 50 60 70 80 90
Be st Ave rag e

9
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

© SolAbility. All rights reserved.

Reproduction permitted with citation of source
December 2009

10

_sustainability_pays.
www.solability.com