One of the topics that can be recently found in companies all over the world is “ESG”. ESG, an abbreviation for environment, social, and governance, refers to a standard for determining a company’s non-financial performance. According to the statistics from the Global Sustainable Investment Alliance (GSIA), the amount of worldwide investment in ESG recorded around USD 30.683 trillion in 2018, which has increased by around three times compared to the amount in 2012.
In the era of uncertainty caused by COVID-19, ESG may seem like an unrealistic, utopian ideology; however, companies are rushing to prepare for the post-COVID-19 era by presenting a new management principle focusing on the ESG. SK hynix has also recently launched a related task force (TF) to internalize ESG management and make fundamental improvements. The newsroom team looked into the current status of ESG and the future with SK hynix.
ESG Management, a New Management Trend Sweeping the World
Last month, SK Group Chairman Tae-won Chey sent an e-mail to all group members ahead of the Korean Thanksgiving Day (Chuseok). The main topic of the e-mail was the “ESG”. Chairman Chey defined ESG as “to empathize with future generations, prioritize social values, and consider sound corporate governance.” He also said in the e-mail, “The strongest and the only way for survival is not to show us by only numbers such as sales or operating profit, but to recognize performance, stock price and our dreams related to social values as one.”
Chairman Chey’s e-mail shows that the global management trend is now changing. The conventional management was focusing on financial performance; however, the perspective of stakeholders towards a company has changed significantly. No matter how good a product is, if it has adverse effects on the environment in the production process, the product will not be chosen by consumers. Also, if a company causes social criticism in the human rights and labor fields, the company will lose trust and empathy. ESG management is not simply becoming a “good” company but becoming a “sustainable” company.
As this awareness spreads, more investors are considering non-financial factors such as environmental impact, social responsibility, and transparency of governance, rather than simply looking at financial performance. At the beginning of this year, the world’s largest asset management company called BlackRock emphasized the company’s obligation to comply with ESG by saying “We will consider sustainability as the basis of making investment decisions.”
COVID-19 was also the reason of spread of ESG management of companies. Amid the severe damage to numerous companies around the world due to COVID-19, a consensus that “sustainability is important” was formed, and the demands of stakeholders for social responsibility of companies have been further strengthened.
SK hynix’s ESG Management, How Far Has It Come?
SK hynix has already been pursuing Double Bottom Line (DBL), which is a management philosophy to pursue economic value and social value at the same time. It is based on the SK Group’s philosophy that “a company cannot survive only by earning money, and it can create economic value by increasing social value.” Under this philosophy, SK hynix has established its own systematic indicator by converting social value (SV) into monetary value. In addition, the company is performing various ESG activities in four areas, which are the environment, supply chain management, social contribution, and corporate culture. The activities in the four areas are based on ▲ Green 2030, ▲ Advance Together ▲ Social Safety Net, and ▲ Employee Development respectively, reflecting the stakeholders’ needs for social value and global social issues. In other words, to grow into a sustainable company, SK hynix is focusing on the DBL management that simultaneously pursues economic and social values through the ESG management that manages risks in each area of environment, society, and governance.
In the semiconductor production process, a large amount of energy and water resources are used. SK hynix is continuously setting up and implementing specific tasks such as reducing greenhouse gas emissions, recycling waste, managing water resources, and expanding the use of renewable energy. Furthermore, it has formed “ECO Alliance” with about 40 partner companies to work together to solve the environmental problems in the semiconductor ecosystem. An otter which recently appeared at a stream called Jukdangcheon right near the SK hynix’s Icheon Campus shows that these efforts are paying off. Otters are an indicator of water quality and the safety of the ecosystem. Inhabitation of otters in that area means that the effluent is being treated cleanly.
“Analysis/Measurement Support Project” which helps partner companies analyze physical properties, chemistry, and measurement, by sharing expensive equipment and on-site analysis know-how
Left: Artificial intelligence (AI) speaker Silver Friend,
Right: Location tracking-based roaming detector, Happy GPS
“Mutual growth” is also one of the important values that SK hynix pursues. SK hynix is generously sharing its semiconductor knowledge and know-how with partner companies to strengthen the domestic semiconductor ecosystem. It is operating diverse programs for mutual growth such as analysis and measurement support project, pattern wafer support project, ESG consulting service for partner companies, and Hy-Five program for youths. In addition, its ICT-based social contribution activities to provide an artificial intelligence (AI) speaker called “Silver Friend” for the elderly living alone and a location tracking-based roaming detector called “Happy GPS” for the dotard and children with developmental disabilities are receiving positive reviews. Recently, the company is working to establish a safety net by carrying out support activities throughout the local communities that are suffering from the COVID-19 outbreak.
Along with this, SK hynix is making a lot of effort to establish sound corporate governance to secure the trust of stakeholders and implement the management of responsibility. It retained the transparency and independence of the board of directors by stipulating that the ratio of non-executive directors to maintain a majority of all directors. In addition, the company separated the chairman of the board of directors and the CEO to reinforce the functions of monitoring and checking the management. Various training programs for non-executive directors were provided to strengthen professionality as well.
Furthermore, SK hynix has been publishing sustainability reports annually to transparently disclose its various ESG activities and performances. Through this, stakeholders can see SK hynix’s efforts to fulfill its role as a sound corporate citizen and identify its management strategies to respond to the uncertain future at the same time.
“SK hynix’s ESG is Still in Its Introductory Stage, But It Will Be Done Properly”, Launch of ESG TF
SK hynix launched an ESG TF under the immediate control of CEO on September 1st to become an ESG-friendly company. The newsroom team met Hyeong Soo Kim in charge of safety, health, and environment (SHE) and who leads the TF to hear about the future direction of SK hynix.
ESG TF was launched because the necessity of the ESG management and communication strategy suitable for the status of a global company was emerging. SK hynix has been growing rapidly as the No.2 company in the domestic corporate value and the No.2 global memory semiconductor company. Accordingly, the need for a dedicated department to review the direction of the ESG strategy from a company-wide perspective, link it with the business strategy, and coordinate collaboration between multiple departments was raised from the inside and outside of the company.
Recently, investors tend to consider ESG-related performance as an important indicator. In fact, many research results show that companies with excellent ESG performance have great financial performance. Therefore, it should be able to tell investors directly or through external evaluation agencies that the company is doing well with ESG; however, the current ESG evaluation has an issue in that there are some differences in evaluation results by different agencies.
TSMC, a Taiwanese semiconductor foundry company, re-established its water resource management policy and role and responsibility (R&R) for each department by applying an international standard called Alliance for Water Stewardship (AWS)1 standard to strengthen its eco-friendly manufacturing capabilities. As a result, it obtained an AWS Platinum-level certification for the first time in the semiconductor industry.
Hyeong Soo Kim said, “There are over 300 investment institutions that evaluate the ESG activities of a company, and each institution has its own evaluation criteria and indicators. Of course, it is important for companies to carry out ESG activities systematically, but if the evaluation criteria of the institutions are more consistent, it will be helpful for companies to manage ESG activities.” He also added, “SK hynix had been passively responding to the needs of stakeholders, and the dedicated organization and R&R had been dispersed. To increase the executive ability of the ESG management, a TF which connects across the company with decisions by the CEO was organized.”
Many global companies are already expressing their willingness to pursue the ESG, led by the CEO. Kim said, “Amazon’s Jeff Bezos has declared the goal of achieving carbon neutral2 by 2040 and contributed his own fund to establish “Bezos Earth Fund” that supports scientists, environmentalists, and non-profit organizations taking the lead in responding to climate change.” He added, “For global companies, ESG has already become a CEO-level agenda.”
Newly-organized ESG TF of SK hynix will function as a practical “ESG Control Tower”. Kim said, “First of all, from a strategic point of view, we are planning to start promoting ourselves to the outside world through ‘One Body Single Voice’, a way to communicate internally and externally with a consistent message and through one single window. By analyzing the difference between actual activity status and evaluation results, we are planning to derive strategic tasks and execute them preemptively. Also, we will promote them strategically to increase synergy with the business organization.” The TF is expected to be converted into a regular organization from next year to carry out ESG-related tasks in a more systematic way.
Meanwhile, a “CEO Seminar” where CEOs of major affiliates of SK Group gather to discuss management strategies was held on October 21st to 23rd. At this seminar, Chairman Chey emphasized a new management philosophy of “Financial Story3” methodology, including the ESG values. All affiliates of SK Group, including SK hynix, plan to accelerate the ESG management based on this Financial Story methodology.
1AWS: An organization comprised of major corporations, non-profit organizations, organizations in the public sector, and academic institutions with a common goal of encouraging socially, economically, and environmentally responsible water use for all
2Carbon neutral: To offset the greenhouse gas emissions which cause global warming through greenhouse reduction and absorption activities such as generating electricity by using renewable energy, and make the total net amount of emissions to zero.
3Financial Story: The company’s future growth story from a DBL perspective to maximize the company’s value; a methodology for effective communication with financial investors by linking the company’s orientation with the ESG strategic direction
