Over half of Korean exporters concerned by lack of ESG preparedness

KCCI's survey shows companies afraid of deal breakers due to on-site ESG inspections

(123rf)

Over half of Korean exporters believed that their contracts with customers could be scrapped due to the lack of preparedness for environment, social and governance management, a survey conducted by the Korea Chamber of Commerce and Industry showed Sunday.

According to the KCCI’s survey, 52.5 percent of the 300 participating companies said they felt that there is a high chance for their contractors to back out from deals with inadequate ESG management levels in their supply chains.

Asked how prepared the companies were in case of on-site ESG inspections by their contractors, 77.2 percent said their level of preparation was low. Almost 60 percent of the companies said they had drawn up no action plans in regard to different steps of on-site ESG inspections.

As only about 10 percent of the subcontractors said they had experienced on-site ESG inspections, relevant evaluations and consultations, the KCCI stressed that there is an urgent need for policies supporting exporters’ ESG preparedness.

The respondents included 84 large corporates and 216 small- and medium-sized businesses.

“In general, large corporates, who usually are customers, carry out ESG management well and supervise their subcontractors systematically,” said Cho Young-jun, executive director of sustainable management institution at the KCCI.

“But small- and medium-sized businesses, who lack ESG preparedness but are in the middle of supply chains, have to respond to customers’ ESG needs and take care of subcontractors.”

The KCCI’s survey showed a wide gap between how much companies can afford to spend on conducting on-site ESG inspections and receiving consultations.

About 56 percent of the respondents said they could allocate less than 1 million won ($755) for conducting on-site ESG inspections while 29 percent said they can afford to spend over 2 million won. For ESG consultations, 52 percent said they were willing to use less than 20 million won whereas 24.4 percent said they would spend over 40 million won.

Almost half of the respondents pointed to the lack of ESG professionals as the biggest difficulty for on-site ESG inspections in supply chains, followed by the burden of costs required to strengthen ESG management and lack of related information.

Regarding governmental policies that are necessary to help exporters carry out on-site ESG inspections in supply chains, 35.5 percent of the companies asked for ESG guidelines by industry sector while 23.9 percent and 19.3 percent chose financial aid for ESG inspections and ESG education as well as consultation, respectively.

“Since the EU’s draft of Corporate Sustainability Due Diligence Directive was announced early this year and German’s Corporate Sustainability Due Diligence Directive will take effect in January next year, (Korean) exporters have been on alert,” said Woo Tae-hee, executive vice chairman at the KCCI.

“As companies that take care of supply chains well have competitiveness in the global business ecosystem, the KCCI will continuously support exporters’ on-site ESG inspections in supply chains, consultations and raising professionals.”

By Kan Hyeong-woo(hwkan@heraldcorp.com)