# INTRO
ESG is the talk of the town, regardless of the field. Lectures and books on ESG are flooding the market, and the press can’t stop going on and on about ESG investment, with globally renowned companies scrambling to publish sustainability reports. But how does all of this have anything to do with our lives? How can we relate?

The bottom line is that the timing and the resources couldn’t be more perfect to find that connection. I picked today’s keywords — ESG and sustainability — hoping this column will give everyone a chance to connect the dots between their lives and ESG, which is no longer just industry jargon, but is rather a concept that we should all be able to relate to. Here is a peek at how ESG began and a few of its more common misunderstandings.

# ESG, and its beginning

The acronym ESG stands for Environment, meaning environment-friendliness or environmental protection, Social, referring to social responsibility, and Governance, referring to ethical and transparent management encompassing the management structure. The concept may sound a little textbook and complex, but you will be surprised to find out that the term was first coined in 2006 by the UN in its Principles for Responsible Investment (PRI)¹ (17 years already!) and it has since nestled across the industry as an investment term.

Then came a few events which ignited its popularity. During the global financial crisis of 2008, the public sentiment against the existing social order started to grow. The 2015 Paris Climate Agreement on carbon reduction, signed by 195 countries, further acted as a catalyst. Then, with COVID-19 bringing the global economy to a standstill following the US business roundtable event in 2019, and with 2020 president-elect Joe Biden starting the federal investment initiatives, ESG started to be hailed as the ‘investment-worthy choice.’

Going back to this series of events reminds us that ESG emerged out of a necessity and need for social change, rather than as an idea exclusively created and endorsed by academia. Being an empirical notion that is related to us, ESG is no longer a phenomenon we can ignore — let’s hop on the bandwagon before it’s too late.

But before we do that, let’s look at some of the biggest misunderstandings about ESG.

Is ESG just ‘good’?

You might be tempted to explain to those unfamiliar with ESG that it is about ‘being a good company,’ but this description can potentially distort the essence of ESG. Often being ‘good’ is associated with behaving in a certain way that benefits others at the cost of one's loss. However, investors who choose companies on the basis of ESG factors, a non-financial indicator, believe that ESG investment eventually helps their bottom line.

A great example is ‘Digital and ESG.’ Two years ago, the EU announced a circular economy strategy named the 3Rs (Reduce, Reuse, Recycle), which has since become one of the most practiced ESG strategies globally. In order to put this strategy into practice, however, implementing digital technologies is a must. So, do companies in the digital field provide their technologies purely out of good will?

That is not the case. The EU has set a goal of creating 2 million jobs and 60 billion euros (about 80 trillion won) of value by 2030, with the economic effect generated through this being estimated to reach 4.5 trillion dollars (about 5,350 trillion won) globally. In other words, companies in the digital field are actively taking part in ESG projects because of their sound business feasibility. If the Fourth Industrial Revolution is what we need to move forward, ESG serves as an indicator that allows us to look around and not just ahead. Companies are voluntarily participating in the ESG strategy to create profits, thereby forming cooperative relationships.

Does ESG hinder corporate growth?

Some misconstrue ESG's role in saying that it hinders corporate growth. In order to locate the root of this misunderstanding, we need to first look at how we define ‘business.’

‘Businesses produce, sell goods or provide services to make a profit.’

This definition is from a Grade 5 social studies textbook. In school, we would write ‘seek profit’ or ‘generate profit’ to fill in the blank ‘businesses exist to __________.’ While phrase itself is true, it is definitely not enough to provide an explanation for the following event.

In August, 2019, one event caught the eye of everyone around the globe. 181 CEOs from the largest companies in the US, including Apple, Amazon, and JP Morgan, sat around a BRT (Business Round Table)² and signed a document stipulating that they would change the purpose of their business in order to pursue a sustainable economy. In short, they expressed their willingness to incorporate management that reflects the needs of all stakeholders, including employees, the local community, partners, customers, and investors, instead of just pursuing profit for their shareholders.

“We will absolutely not invest in companies with bad ESG performance.”

Larry Pink, CEO of Blackrock, the largest asset management company in the world, declared in his annual letter to the shareholders in 2022 that the company will be investing in ‘companies that take an initiative in climate change’ and in ‘companies with an employee-friendly work culture.’ To say that this decision fueled the ESG craze would be an understatement. Korea's National Pension Service, the largest institutional investor in Korea, also decided to expand its ESG investment to cover 50% of its assets. The fact that ESG is now attracting global capital is a clear demonstration that it has now become a new paradigm that holds a substantial influence on the management activities of corporations.

ESG has now become the most important indicator, illustrating how (not how much) profit is generated by the company generated. Corporate executives and employees now contribute to the sustainable growth of their company by ensuring the continuity and stability of the company through contributions and trust in the company they belong to.

Is ESG outcome too subjective?

Some worry that ESG outcome can be judged as either ‘good’ or ‘bad’ without providing any more concrete grounds, which, of course, is not true.

Just as corporate financials are an indicator of the quality of a company’s profit-seeking portfolio, ESG is an indicator of the company’s sustainability. More than 130 institutions around the world assess ESG activities of companies, with 30 to 40 in Korea alone, in order to translate such activities into easily understandable value. The outcome of this assessment is also made public, potentially influencing how consumers decide to buy from or boycott a certain company.

Let’s take a look at our company, for example.

Amorepacific has been publishing an annual sustainability management report since 2009, long before the ESG craze started in other parts of the world, let alone in Korea. We have been dedicating our efforts towards globally responding to climate change and reducing carbon emissions, with the goal of achieving RE100 by 2030. RE100 is a green campaign designed and implemented exclusively by our company, and entails sourcing all the power we need from renewable energy. The results, especially those of last year, were impressive. We were incorporated into the ‘World Index’ in the 2022 Dow Jones Sustainability Index (DJSI)³ evaluation, and obtained Grade A, the highest grade in the Carbon Disclosure Project (CDP) evaluation, in recognition of our leadership in the field of green measures and transparency. Out of more than 18,000 companies worldwide, only 5 in Korea received an A rating, and we were one of them. These results were based on large and small changes that occurred in the workplace, such as the empty cosmetics bottle collection campaign, green cycle, and eco-friendly projects we conducted for each brand's products.

# OUTRO
As conservationist David Brower once said, “There is no business to be done on a dead planet.” Companies don’t have a place in a market collapsed by climate crisis and social issues. In this first ESG column, we looked at how closely our society is connected with the concept of ESG and corrected any misunderstandings we had about the notion. I hope this was helpful.

Stay tuned for my next column, which will cover different elements of ESG and interesting ESG practices.

¹ The UN has announced the Principles for Responsible Investment to major institutional investors, including global pension funds, to "actively reflect ESG in investment analysis and fund management."
² As an organization founded in 1997, BRT has been adhering to the principle that corporations put shareholders first and exist to serve shareholders.
³ The 'DJSI World Index' is an indicator given only to the top 10% companies with excellent ESG performance, selected among the world's top 2,500 companies by market capitalization