Financial firms need ESG-oriented business strategy: report

Seoul-based consulting firm KPMG Samjong on Wednesday urged local financial firms to accelerate their sustainable corporate management through business strategies focused on environmental, social and governance factors, or ESG. 

“To enhance corporate values, local financial institutions should integrate ESG values into their business processes, ranging from strategy making to risk management,” KPMG Samjong said in its report. 

“For instance, while improving governance structure, development of ESG-linked financial products, disclosure of ESG information and public relations activities to raise awareness of financial companies’ social responsibility are needed to foster their ESG management,” read the report, titled “Coexistence of Finance and ESG: Sustainable Financial Firms’ Management Strategy.”

In the midst of the COVID-19 pandemic, a growing number of investors and bankers in global financial markets have been paying keen attention to the so-called “sustainable finance,” the process of taking ESG considerations into account when making investment decisions in the financial sector, leading to more long-term investments in sustainable economic activities.

The world’s largest asset management firm BlackRock last year introduced global principles and guidelines to reflect its commitment to climate and diversity, while launching new investment products that screen for fossil fuels. Also, Banco Bilbao Vizcaya Argentaria, Spain’s second-largest bank by asset size, employed digital technologies to develop ESG-related financial products, while British bank HSBC is taking the lead in green bond issuance, the report said. 

“It is necessary for domestic financial institutions to strengthen their social responsibility by taking measures for sustainable finance. To add momentum to their ESG drives, the government should play an active role in promoting communication between various market players for strategic cooperation to boost ESG management in financial circles,” said Kim Jin-gwi, head of KPMG Samjong’s center of excellence group in charge of ESG management. 

Responding to the ESG boom triggered by the pandemic, local banking giants have been gearing up for sustainability activities, including the launch of intraboard ESG committees, carbon neutrality drive and social bond issuance.

Meanwhile, Moody’s ESG Services Affiliate Vigeo Eiris recently gave praise to the nation’s major banking groups for their ongoing ESG efforts. 

“Shinhan Financial adopted a robust approach in integrating ESG considerations into its lending and investment activities through risk assessment, positive screening, thematic funds and active engagement, while KB Financial strengthened its commitment to preventing business ethics risks and the number of internal incidents is showing a downward trend,” the rating agency told The Korea Herald. 

“Hana Financial stepped up its efforts to help customers better access digital financial services, supporting financial education programs and projects implemented under the Korea Federation of banks targeting financial consumers, especially the elderly, who are falling behind digital transformation in the local banking sector.” 

Woori Financial, however, is exposed to “frequent ESG controversies,” since the group has been relatively passive in terms of improving corporate governance structure, compared with its efforts for promoting green-related projects, the firm added. 

By Choi Jae-hee (cjh@heraldcorp.com)