Consumers are driving demand for more sustainable practices from South Korea’s big companies

A recent survey by the Federation of Korean Industries found that 75% of the 120 largest companies in South Korea are now engaged in some form of corporate responsibility project, and 87% describe this as“necessary company activity”.

Nearly 50%of the large companies (mostly chaebols) surveyedby the FKI hadset up their own corporate responsibilitydepartment,includingmajor companiessuch as KT, Samsung, SK Energy, Hyundai-Kia Motor Group and Hynix. Additionally according to the FKI survey, the major chaebolsare spending approximately 2% of their group profits on corporate responsibility activities. This is a growth from a few years ago, but still well below the equivalents for the EU, US and Japan.

The FKI survey found that the primary motive for launching corporate responsibility programmes was “the improvement of the company’s image”(the response given by 81% of firms). In second place was“immediate improvement of sales figures and/or market share values”.

Certainly, South Korean consumers are interested in corporate responsibility activities. The Korean Chamber of Industry and Trade says 80% of 500 business people in a survey stated that they preferred to buy goods from companies that champion social causes.

The major issue for many companies in South Korea has been to use corporate responsibility to connect better with customers. Korean consumers, and indeed the Seoul government too in many instances, have been rather further ahead of the chaebols on environmental awareness and green consciousness.

This has expressed itself strongly in consumerism and consumer preferences and is reflected in major corporate responsibility campaigns in Korea including those from cosmetics firm Amorepacific and retailer Lotte Shopping.

“Sustainability” has undoubtedly become a buzz term in Korea for government and companies. Buyer beware, though, as it is applied to a wide range of products and activities that are not always what most people would consider “sustainable”.

This is partly a result of the focus of the Korean president, Lee Myung-bak, on improving national sustainability to maintain economic growth while admitting that the unrestrained growth programme of the “tiger years” led to much environmental damage that now needs to be rectified.

With the chaebols so closely linked to the government and the growth of the past 40 years it is impossible for them to dodge the sustainability debate easily. However, it is also the case that sustainability is an area where the Seoul government sees economic benefits and business opportunities for Korea.

Powering ahead

Korea is a leader in nuclear technology – pioneering the cutting edge Smart reactor design. It is also at the forefront of the adoption of tidal power, an area in which the country is Asia’s leader by a long way, and numerous other areas of research and development from the internet to eco-cities.

Ultimately South Korean corporate responsibility amounts to a pact between government and the chaebols to drive Korean business into new – sustainable – areas. Companies and the government are keen to do so in order to maintain the country’s growing reputation for innovation and R&D while also reflecting the Korean public’s concerns over the environment.

Korean companies have studied surveys linking corporate responsibility to profits and appear to have accepted that this link is genuine. And as South Korean brands continue to expand and sell into overseas markets, and list on foreign stock exchanges, they are having to react to the concerns of overseas investors.

“Global investors need more systematic ESG disclosure from Korean companies to enable them to minimise their risks to earnings and derive long-term sustainable value within their holdings,” said PeterWebster, executive director of research group Eiris at last year’s launch of a new report – Unlocking Investment Potential: ESG Disclosure in Korean Companies.

How companies will react in this area is one of the next stages in the development of responsible business in South Korea.

Case study: Amorepacific – sustainability that is not cosmetic

Amorepacificis South Korea’s largest cosmetics company, owning more than 20 leading brands of cosmetic and personal care products. Its products include skin care, make-up and fragrances as well as the more mundane items such as toothpaste and shampoo.

In recent years Amorepacific has broadened out into mineral waters and green teas as well as expanding into growing regional markets, particularly China where it has had some success.

The company is listed and recently its stock price surpassed even traditional giants of Korean industry such as Samsung Electronics – an amazing achievement for a Korean company that is not a chaebol.

Nationwide, and across all brands, Amorepacific has a 39% share of South Korea’s cosmetics and personal care market. It has global revenues of more than $1.8bn, with a growth rate of over 20% year-on-year.

In 2008 Amorepacific launched a policy of “unlimited liability”, terming it the Amorepacific Way. This includes compliance with fair-trade-related laws. However, the main issues are more consumer-facing.

Sustainable products are a major innovation and response to both demands for sustainability from the Seoul government and consumer surveys. A July 2010 report – Skin Care in South Korea – from market research company Euromonitor International cites Amorepacific’s Happy Bath Chamomile baby cream as an example of a sustainable product. The cream has obtained the EU-approved organic accreditation ECO-cert. It is made from more than 90% natural ingredients, and more than 10% organic ingredients. It is treated with no pigment, no paraben preservatives, no ethanol and no artificial fragrance.

Another example is the company’s Mise en Scene shampoo brand, which includes a braille ingredients list on the packaging. Since introducing the Amorepacific Way the company has introduced more than 35 sustainable products.

In terms of direct corporate responsibility activities involving customers and social campaigns, Amorepacific has naturally focused on its major customer group – women.

Amorepacific founded the Korea Breast Foundation in 2000 that targets breast cancer awareness, prevention and treatment and organises Korea’s annual nationwide Pink Ribbon Campaign and marathon.

Amorepacific launched the Make Up Your Life campaign in 2008 to help female breast cancer patients overcome the profound feeling of loss as their physical appearance deteriorates during treatment. In all these programmes and activities Amorepacific is encouraging its employees to get involved.

Case study: Lotte Shopping – South Korea’s ‘eco-family’

Founded in 1979, Lotte Shopping Company is a local chain store operator. It is impossible to spend any time in South Korea and not see the Lotte brand on food and drinks or the omnipresent Lotte Shopping outlets.

The company operates through four divisions: department stores, discount stores, supermarkets and cinemas. The department stores account for 51% of group revenues and the discount stores for 37%. As part of the process of breaking up the chaebols under former Korean president Kim Dae-jung, Lotte sold its food division, Lotte Food, to one of its affiliates Lotte Samkang.

Lotte Shopping has 23 department stores, 69 discount stores, about 190 supermarkets and 54 cinemas in South Korea and is expanding into Russia, China, Vietnam and Indonesia.

The company is a sustainability leader in South Korea’s retail sector, making strong commitments to environmental issues and incorporating these beliefs into its customer relations and brand management.

According to a Nah Geun Tae, a spokesman for Lotte Shopping in Seoul, the company has developed a packaging policy with a focus on reducing environmental impact. It uses materials that are biodegradable, or can be recycled and have decreased packaging volumes. The company has also published a green lifestyle guidebook – Eco-family – in partnership with a leading Korean environmental NGO in order to raise awareness about sustainability issues among the Korean public.

Though Lotte Shopping is now best known for its environmental and packaging related corporate responsibility work, it has also been a leader in governance, due largely to the fact that the company had a simultaneous listing on the Seoul and London stock markets in February 2006 requiring a greater level of transparency and a more trustworthy governance structure.

Case study: Samsung – eco-vision

Founded in 1969, Samsung Electronics manufactures and sells a wide variety of electronic products, communication devices, and semiconductors. In 2010 Samsung generated revenue of $119bn and operating profit of $9.9bn.

Samsung launched its overall corporate responsibility programme, Vision 2020, in 2009 to coincide with the company’s 40th anniversary. Under Vision 2020, Samsung has introduced a number of social and environmental programmes. Environmentalism has been a major strand of Samsung’s work given the sectors it works in.

This green push is encompassed in the company’s Creating New Value Through Eco-innovation programme. While much of this is similar to the enhanced environmental awareness in product design also seen at Amorepacific and Lotte, one aspect that has been especially praised as innovative in South Korea is the company’s waste electronic products recycling campaign.

Though schemes to collect and recycle mobile phones, plasma screens and other electronic products have been introduced in urban centres, including Seoul, they are rarely seen in the more remote areas of the country where collection is more difficult, and population is much less dense.

Since 2002 Samsung has entered into agreements with local councils in remote areas to develop recycling schemes. As well as remote country areas the programme includes provincial cities such as Taebaek, and Hongcheon county in Gangwon-do province. According to Gee Sung-Choi, a vice-chairman of Samsung, a nationwide campaign to collect used mobile phones has seen the company gather up and recycle 520,000 units.

While this campaign has been successful in Korea, Samsung has also rolled it out across its international subsidiaries. In the US, a very important market for Samsung, the company launched Samsung Recycling Direct in 2008 and was awarded environmental prizes in the states of Pennsylvania, Wisconsin and New Hampshire.

Gee says that Samsung’s global collection and recycling programmes have retrieved and recycled an estimated 250,000 tonnes of waste products in South Korea, Japan, Europe and the US.

 



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