ESG & Sustainable Investment Performance

Korea ESG Performance
2010
Our future.
Your wallet.
Sustainable Investment.

Performance of Korea’s 50 most sustainable companies vs. KOSPI
01/2010-10/2010: 7% outperformance against the KOSPI
01/2006-10/2010: 72% outperformance against the KOSPI
107.45%
35.09%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10
SolAbility 50 KOSPI
16.74%
10.65%
-10%
-5%
0%
5%
10%
15%
20%
Dec-09 Feb-10 Apr-10 Jun-10 Aug-10
SolAbility 50 KOSPI
Why Sustainable Investment?
Its’ the PERFORMANCE, stupid!

Korea ESG Performance 2010
Andy Gebhardt
Chief Executive Officer
Dear reader,
A lot of water has gone down the Han River since SolAbility’s first corporate sustainability
assessment of Korean corporations back in 2007 – but not only water. Following the
global financial/economic crisis and the Korean government’s subsequent declaration
of “green growth” in 2009 - albeit the “green” is subject to controversial discussions - we
have seen remarkable changes in the corporate perception of “sustainability” and as a
consequence, integration in corporate policies and management systems in a large
number of corporations. The changing environment has also resulted in a sharply
increasing number of sustainability publications and reports, making ESG research both
more interesting and challenging at the same time, requiring analytical focus on key
industry challenges and opportunities in order to identify outstanding sustainable value.
The results of SolAbility's 4th ESG assessment shows that the value of sustainable
companies outperforms the market, both short- and long term, by significant margins.
The performance of a portfolio of leading Korean sustainability companies also
outperforms sustainability benchmarks such as the KRX SRI and the DJSI Korea. While we
are naturally proud of outperforming such prestigious benchmarks, the failure of the
globally most recognized sustainability benchmark - indicating that Dow Jones is not
allocating sufficient resources to adapting its methodology to the development in
corporate sustainability - is of concern in the wider context of further advancing
corporate sustainability and sustainable investment. The results of SolAbility’s ESG
research is proof that the identification of sustainable value is possible.
While the changes observed - particularly since 2009 - are remarkable, only a few
company have completely integrated long-term sustainability thinking into strategic
decision-making and business development frameworks. It is also necessary to keep in
mind that the average corporate sustainability level until that point was considerably
below OECD level. In addition, Koreas’ economy is more energy-intensive than OECD
average, requiring further and stronger efforts to improve resource efficiency to
maintain competitiveness in light of the nation’s reliance on energy imports and the
looming prospect of rising energy costs. However, if the current trends of integrating
sustainability management is to continue, Korean corporations enjoy a decent
perspective to secure long-term competitiveness.
Yours sincerely,

Korea ESG Performance 2010 1
SolAbility is a consultancy specialising
in sustainability management advice, founded in 2005.
Internationally know clients are trusting in SolAbility's
competence.
As a UN PRI signatory,
SolAbility also performs ESG research & assessment
on over 350 listed Korean companies and provides ESG
research to institutional investors
Contents
Highlights 1
SolAbility ESG model Characteristics 2
Tools & process 3
ESG performance Short-term 4
Long-term 5
ESG assessment review Corporate Sustainability 6
Management & Governance 8
Environmental Sustainability 10
Human & Society 12
Conclusions 14

2010 Highlights
SolAbility’s yearly sustainability assessment clearly
shows that sustainable companies have a
significant better financial performance than less
sustainable companies - both short-term and
long term – and proofs that inclusion of
sustainability long-term management yields
financial bottom line benefits.
SolAbility 4th Korea sustainability assessment,
based on an initial universe of 350
companies, reveals the financial bottom-line
benefits of integrated long-term sustainable
management thinking
Three companies, for which SolAbility has designed
sustainability policies, management systems and
implementation strategy were selected to the DJSI
World - the most prestigious sustainability benchmark
around the globe.
Sustainable companies & portfolios outperform
3 clients selected to the DJSI World
Sustainable companies outperform
1

SolAbility’s ESG methodology
Identification of key sustainability challenges/opportunities
for each industry sector
Strength/weakness analysis of global sustainability
benchmarks (DJSI, FTS4Good, GRI, UN PRI, Global
Compact, etc.)
Adaption to the characteristics and corporate culture of
the Korean economy
Strict analysis scheme and calculation of weightings based
on bottom-line (financial) implications in each industry
Taking into account company size
Yearly reviewed and refined based on experiences,
feedback, and new emerging trends
Analyst expertise
2
Methodology
Purpose : Identification of sustainable value
Best-practice based, adapted for Korean characteristics
Universe : 350 Korean companies (KOSPI and KOSDAQ)
Characteristics

Assessment Processes
The SolAbility ESG assessment consists the application of three
tools:
1. Sustainability filter : screening large number of companies
according key sustainability indicators to eliminate laggards
for in-depth Assessment phase.
2. ESG Assessment tool : analyzing and evaluating
sustainability performance based on industry-specific
sustainability indicators
3. Verification : investigation of company cases related to
sustainability performance through media surveys and
government documents
Information sources
SolAbility acquires a wide range of information through a
variety of channels such as public announcements, websites,
annual reports, sustainability reports, questionnaires, lawsuit
records, stakeholder participation issues, media research,
etc.
Systematic, IT-based assessment tools
Solving the puzzle: wide range of information sources
Unique experience
3
Methodology
Tools

Starting universe:350 stocks
The leading 50 Korean companies of the starting universe show a significant
outperformance vs. the Korea Stock Performance Index
Short-term return of sustainable companies
A portfolio of the 50 most sustainable companies (market-cap weighted)
achieved a return of 16.74% from January 2010 to early October 2010. For
the same period, the KOSPI gained 10.65%, while KRX and DJSI Korea gained
roughly 8%.
Data Sources: KRX, Dow Jones
4
ESG portfolio
performance
Short-term
7.6%
10.4%
16.4%
-15%
-10%
-5%
0%
5%
10%
15%
20%
12/31/2009 3/1/2010 4/30/2010 6/29/2010 8/28/2010
KRX SRI DJSI Korea KOSPI SolAbility 50

Data Sources: KRX, Dow Jones
Long-term return of sustainable companies
Sustainable companies equally achieved high returns in the long-term. The
SolAbility 50 portfolio gained 107% over 5 years (01/2006-10/2010), over three
times higher than the Korea Stock Exchange Index (KOSPI), which gained 35%.
Due to its global brand name and recognition, both the investment industry
and corporate managers observe the performance and composition of
globally recognized benchmarks. In this context, the failure to identify
outstanding sustainable value of the global benchmark is of concern and an
obstacle to further advance of corporate sustainability and sustainable
investment.
The SolAbility assessment proofs that sustainable value can be identified.
5
ESG portfolio
performance
Long-term
47.7%
33.9%
106.6%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
January-
06
July-06 January-
07
July-07 January-
08
July-08 Decembe
r-08
July-09 Decembe
r-09
July-10
DJSI Korea KOSPI SolAbility 50

Development of dimension scores
30
35
40
45
50
55
60
2007 2008 2009 2010
Economic Environment Social
Overall Sustainability Performance
69
72
75
45
48
51 53
72
0
20
40
60
80
2007 2008 2009 2010
Best Av erage
The overall sustainability level of Korean
companies is improving every year.
However, top-performing companies
advance faster than the average,
implying that high-performing
companies have further strengthened
their sustainability level while a
considerable number of companies
are still reluctant to fully integrate
sustainability management beyond
compliance as a strategic
management framework.
The level of environmental reporting
has improved dramatically, while
economic reporting has been
stationary, and social reporting mostly
remains limited to the areas of Human
Resources Development and social
contributions.
Visible improvements in terms of
sustainability performance are seen in
the environmental and social sectors.
The average environmental
performance has improved by 12%
compared to last year, and social
performance by 6%. On the other hand,
the economic performance has
improved by only 1%, but remains the
highest average performance.
While a significant number of Korean
corporations are now introducing
sustainability management, the
proportion of sustainably managed
companies is still somewhat below
OECD levels.
Corporate Sustainability
Performance
Developments
6

Sustainability Performance by
Sector
65
69
64
63
62
64
66
61
66
66
64
70
75
47
48
48
49
50
50
50
51
54
54
54
55
65
0 20 40 60 80
Consumer
services
M etals
Holding &
Trading
Consumer
goods
Construction &
materials
Financials
Energy &
chemicals
Transport
Industrials
Utilities
Parma &
Cosmetics
Communication
Electronics
Best Company Industry Av erage
SolAbility categorizes companies by 13
sectors (composed of 29 industries,
according the main business line) to
allow for sector comparisons.
The industry scores of Electronic
companies are outstanding compared
to other industries. The score gap
between Industry Best and Industry
Average has also narrowed.
The most year-on-year improved
industry is the Construction &
Construction Materials sector, with the
performance improved by 8.5%
compared to last year.
On the other hand, industries such as
Holdings & Trading, Steel & Metal,
Media, Leisure & Services are
characterized with low sustainability
levels compared to other industries,
improved by only 1.4% from last year’s
score.
For Steel/Metal industries, there is a
large score gap between Industry Best
and Industry Average, reflecting the
phenomena that leading companies
have been consistently improving their
performances while the companies not
or less exposed to global markets are
not actively involved in sustainability
management.
Performance
Sector trends
7

Economic Sustainability Performance
71 74 75
51 52 54 54
72
0
20
40
60
80
2007 2008 2009 2010
Best Av erage
C
Eco no mic C riteria perfo rmance
59
47
48
65
55
54
46
44
63
56
52
44
41
59
54
48
44
41
57
51
20 40 60 80
Brand
management
Sustainability
strategy
Risk
management
Ethical
M anagement
Corporate
Governance
2010 2009 2008 2007
Management &
Governance
Developments
The sustainability level of the economic
criteria has not shown any significant
changes, with a minor improvement of
1.53% compared to 2009 last year’s
performance.
The corporate governance score
remained at 2009 level, with the know
weaknesses of Chaebol board
structure in terms of professionalism,
independence board effectiveness
still witnessed today. Transparency
has weakened due to the deregulation
of corporate disclosure requirements.
The majority of companies have
established ethical management
system and reinforced monitoring, but
the number of non-compliances
reported such as price fixing practice
has not dropped.
Risk management performance has
improved, reflecting company’s efforts
to better predict future risks and turn
them into business opportunities.
Nevertheless, domestic company’s risk
management is still below global level.
Korean companies have steadily
improved in the areas of R&D, brand
management, and innovation.
However, there is still room for
improvement in the areas of
integrating sustainability management
strategy in management thinking.
8

Governance & Management by
Sector
60.9
68.7
73.9
58.8
64.5
59.7
64.2
64.6
62.7
63.7
67.7
71.0
75.3
47.4
50.3
51.2
52.5
52.7
52.8
53.9
54.6
56.1
56.9
57.7
60.0
60.4
0 20 40 60 80
Energy &
chemicals
Holding &
Trading
M etals
Transport
Industrials
Construction &
materials
Consumer
services
Consumer
goods
Parma &
Cosmetics
Utilities
Electronics
Financials
Communication
Management &
Governance
Sector trends
Communication, financial, and
electronic industries are associated
with high sustainability level compared
with other industries.
The industries with the greatest
improvement are Food & Beverages
(+6.8%) and Construction/Materials
(+6.3%). Particularly in the Construction
& Materials industry, a significant
number of companies have newly
published sustainability reports.
Even though the industry averages of
Holdings& Trading and Steel & Metal
have improved, the sustainability levels
are still low compared to other
industries.
9

Environmental Sustainability Performance
77
81
86
38
41
44
50
81
0
10
20
30
40
50
60
70
80
90
2007 2008 2009 2010
Best Av erage
Environmental criteria performance
45
71
72
49
41
41
58
70
37
34
33
57
68
31
31
30
49
61
25
27
20 30 40 50 60 70 80
Green
business
development
Waste
management
& recycling
Chemical
substance
management
Carbon risk
management
Environmental
reporting
2010 2009 2008 2007
c
Environmental criteria performance
45
71
72
49
41
41
58
70
37
34
33
57
68
31
31
30
49
61
25
27
20 30 40 50 60 70 80
Green
business
development
Waste
management
& recycling
Chemical
substance
management
Carbon risk
management
Environmental
reporting
2010 2009 2008 2007
Average environment performance
showed the largest increase, rising
by11.95% compared 2009, indicating
that Korean companies have woken
up to the challenge of global climate
change and the prospect of high
energy costs.
Average environment reporting
improved by 21.27% due to the
increased number of companies
disclosing environmental information.
Carbon Risk Management increased
by 32.41% due to efforts to improve
energy efficiency and establishing
GHG inventories.
However, considering Koreas 97%
reliance on energy imports and the
energy intensity of the economy
(considerable above OECD average),
efforts undertaken so far are still highly
insufficient to secure future
competitiveness.
Waste management improved by
23.11%. Adapting LCA, waste
minimization in the production stage
and recycling account for this
development.
Green business lines saw a surge of
10.15%, reflecting the fact that
companies are starting to develop new
business lines (products & services)
related to clean-tech and green
growth
Environmental
Sustainability
Developments
10

Environmental Managament &
Performance
67
66
64
60
69
64
65
73
75
70
78
72
86
31
37
43
47
51
53
53
54
54
55
57
59
73
0 20 40 60 80
Consumer
services
Financials
Holding &
Trading
Construction &
materials
Communication
Transport
Consumer
goods
Parma &
Cosmetics
Energy &
chemicals
M etals
Utilities
Industrials
Electronics
Environmental
Sustainability
Sector trends
The assessment reveals Significant
differences between the different
industry sectors in environmental
sustainability performance. While some
sectors improved by nearly 30%
compared to 2009 levels, other sectors
remain at the same level of previous
years.
High ranking sectors include Electronics,
Industrials, Utilities (manufacturing
industries and other industries subject to
environmental regulation). The waste
majority of Electronics, Industrial
companies are pursuing environment
management, and invest to reduce
energy usage, green house gases,
water usage and waste.
The construction & materials (+31.7%)
and Consumer goods industry (%28.7%)
showed the highest progress rate year-
on-year.
The Pharmaceutical & Cosmetics
industries and service providers
improved only marginally. Within these
sectors, only few companies implement
environment management systems
without regulatory requirements.
11

Societal Sustainability Performance
68 70 72
41
47 49
52
69
0
20
40
60
80
2007 2008 2009 2010
Best Av erage
Social criteria performance
60
74
45
42
54
47
57
71
44
38
50
42
54
70
44
35
46
43
52
64
42
26
39
34
20 30 40 50 60 70 80
Supply chain
management
OHS-
M anufacturers
Corporate
citizenship
HR
compensation
HR
development
Stakeholder
engagement
2010 2009 2008 2007
Social criteria performance
60
74
45
42
54
57
71
44
38
50
54
70
44
35
46
52
64
42
26
39
20 30 40 50 60 70 80
Supply chain
management
OHS-
M anufacturers
Social
engagament
Incentive
systems
HR
development
2010 2009 2008 2007
Human & Society
Developments
With an increase of 6.3%, societal
performance showed general
improvements across all sectors,
exhibiting a tendency of gradual
improvement.
HR development increased by 8.82%
year on year. This indicates the
corporate realization of the
importance of HR management to
improve global competitiveness by
attracting and retaining the best staff
and strengthening internal training.
Social activities and contributions
remain at a similar state compared to
2009. While social activity rates are
generally increasing, companies may
not have a formulated strategy for
social activities and alignment of
strategic corporate citizenship activities
with core business capabilities
Supply Chain Management and OHS
management exhibit gradual
development. In particular, the
manufacturing sector has been
emphasizing “win-win” and “together
growth” as well as “green purchasing”.
However, supply chain management
system at most companies are focused
on domestic suppliers at this point in
time and fail to recognize supply chain
risks in less developed markets
12

Human & Social Considerations
57
59
66
63
60
64
68
67
63
71
69
70
72
46
48
48
49
50
51
51
53
55
56
57
57
65
0 20 40 60 80
Transport
Holding &
Trading
Consumer
services
Financials
Consumer
goods
Energy &
chemicals
M etals
Industrials
Parma &
Cosmetics
Communication
Utilities
Construction &
materials
Electronics
Human & Society
Sector trends
Sustainability performance of Society
criteria showed comparably equivalent
progress amongst industry sectors due
to improved management systems
related to HR development and
incentive systems.
Again, the field is lead by Koreas most
know export sector the electronics
industry.
Compared to 2009, significant
improvement were made in the Steel &
Metals (+16.4%), Utilities (+14.8%), and
Industrials industries (+12.6%). This
indicates that more and more
companies make active efforts to
improve OHS performance and Supply
chain management
Average Consumer Services and
Holding & Trading performance remain
at comparable low levels.
13

Increasing recognition of the business value of sustainability management
But – limited implementation in terms of strategic business development
Large differences between sectors, and within sectors
Increased recognition of sustainable management for business value
The increase In average ESG performance scores reflect the spread of interest and
recognition for sustainability in Korea following the financial crisis 2008/2009 and the
government’s strategic focus on “green growth”. The number of companies that have
actively reviewed their management systems in light of sustainability integration has
accelerated remarkably since 2009. Given that a large number of Korean companies
are currently undergoing internal sustainability reviews, further rise of the average
Korean sustainability performance is expected. Along with integration of sustainability
considerations in policies and management systems, the number of companies
disclosing sustainability performance and information has increased rapidly. However,
while the developments have been encouraging, only few companies have
formulated long-term strategies that integrate not only operational issues and
considerations, but also strategic, long-term business development considerations
based on sustainability trends.
Imbalance of sustainability levels amongst Industry sectors
Export-focused companies, namely in the manufacturing industry sectors such as
electronics, automobiles, and ship-builders are leading Korean companies in terms of
corporate-wide efforts to improve corporate sustainability level as a means of securing
future competitiveness. In contrast, industry sectors focused on domestic demand such
as finance and service sectors have been more reluctant in embracing sustainability
management until recently.
14
Conclusions

High sustainability performance equals high financial returns and stability
SolAbility's ESG assessment results proof that sustainable companies achieve
significantly higher returns than the average investment over both short-term and long
term periods. Despite the sharp fluctuations in the stock markets during 2009-2010, it is
observed that the market value of sustainable companies was less elastic on the
downturn compared to other companies. This observation strongly supports the claim
that sustainability brings companies higher returns in times of prosperity and more
stability in times of depression. Considering the growing uncertainty in the domestic an
global economy, sustainability is now a MUST HAVE for a company’s long-term business
success.
Global sustainability benchmarks
While we are proud to outperform the global benchmark, the “SolAbility” brand carries
only limited weight. In the wider context of advancing corporate sustainability and
sustainable investment, it is paramount that the global benchmark is capable of
identifying outstanding sustainable value. The current failure to do so is an indication of
insufficient allocation of resources to adapt the research to the developments in
corporate sustainability and needs to be addressed urgently.
Sustainability management as core management principle
Despite all the positive developments, sustainability management is still only partially
recognised as a core management principle and strategic business development tool,
and is not fully reflected in corporate culture. Korean companies need to consider
sustainability issues from the highest decision-making levels in order to secure future
competitiveness.
15
Conclusions
Sustainable Performance
Sustainable companies outperform the market
Sustainability needs to be integrated further to secure long-term competitiveness

Our future.
Your wallet.
Sustainable Investment.
SolAbility Ltd.
802 Meritwin 856
Janghang, Ilsan, South Korea
Tel ++82 31 811 3578
Questions?
contact@solability.com
www.solability.com

ESG & Sustainable Investment Performance

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Was ist angesagt?

Was ist angesagt? (20)

Andere mochten auch

Andere mochten auch (6)

Ähnlich wie ESG & Sustainable Investment Performance

Ähnlich wie ESG & Sustainable Investment Performance (20)

Mehr von SolAbility

Mehr von SolAbility (13)

Kürzlich hochgeladen

Kürzlich hochgeladen (20)

ESG & Sustainable Investment Performance