The four biggest accounting firms in South Korea have launched services that provide advice on environmental, social and governance (ESG) issues as sustainable investing becomes widespread.
Samil PwC, Samjong KPMG, EY Hanyoung and Deloitte Anjin all recently created advisory teams after rising demand from institutional clients that wish to integrate ESG factors into their business strategy and investment decision-making processes.
The services involve measuring ESG factors that can have an impact on business performance in both financial and non-financial aspects. Verifying socially responsible bonds, like green bonds, is also included in the scope of the services.
ESG investing is gradually taking hold in South Korea. POSCO and LG Chem recently set carbon neutrality goals, and more large companies will do likewise. Private equity firms are also embracing the idea of ESG integration, as limited partners, such as pension funds and credit unions, place more focus on socially responsible investing.
However, despite the growing awareness, ESG investing in the country is still in the very early stages, industry watchers said. They said standards and processes still needed to be developed to evaluate ESG factors, which are non-financial in nature, in a concrete and objective manner.
Investment firms and institutional investors typically use negative screening, which involves excluding certain companies or sectors, to incorporate ESG issues into their investment practices. This contrasts with more mature markets, such as Europe and the U.S., where options such as the best-in-class approach, which allows investors to identify which companies are better positioned in terms of ESG, are frequently used.
“In the domestic investment industry, negative screening is the main ESG investing strategy, as it is the easiest option,” an insider said. (Reporting by Ar-rum Rho)