[CSR Public Opinion Brief No. 3] The Current State of CSR in Korea: Perception and Practice 2

[CSR Public Opinion Brief No. 3]

1. Korean Consumers' CSR Perceptions - A Double Burden for Corporations / Evaluation of CSR Activities of 30 Major Corporations by the Public / Preview of ISO 26000: What are the Issues? / State of CSR Report Publication

2. Scope of Corporate Social Responsibility Demanded by Koreans / How Far Has Ethical Consumerism Come? / Evaluation of CSR Activities by Industry / CSR BEST 5, WORST 5

To What Extent Should Large Corporations Be Socially Responsible?

Priority on Environmental and Economic Responsibility, High Support for Comprehensive Social Responsibilities Difficult for Individual Companies to Fulfill

The scope of responsibility demanded of large corporations by the public is rapidly expanding compared to two years ago. However, emphasis is placed on environmental and basic economic areas such as eco-friendly production and providing good products, and fair employee treatment, rather than on general social issues like improving human rights or reducing the wealth gap.

82% agreed with the statement, 'Large corporations should ensure their products or production processes do not negatively impact the environment.' The highest agreement rates were for 'Providing good products at low prices to consumers' (69%) and 'Treating employees fairly' (68%). The necessity of social contribution activities, such as 'Charitable donations' (60%) and 'Educational programs in local communities' (58%), which companies are currently partially undertaking, was also recognized.

[Figure 1] Scope of Corporate Social Responsibility Activities: Agreement Rate (%) by 13 GlobeScan Indicators

Note 1) Source: GlobeScan • EAI • Maeil Business Newspaper (2007)

Note 2) For each item, the sum of responses indicating '1. Strongly agree' and '2. Somewhat agree'

However, there was also high recognition for 'Being responsive to public opinion' (59%) and 'Operating production activities with the same ethical standards globally' (59%). This implies that corporations should consider not only consumers but also employees, local communities, domestic public opinion, and the reactions of countries where they operate. This is expected to act as pressure to expand the scope of corporate social responsibility.

Simultaneously, a considerable proportion recognized comprehensive global, national, and societal challenges as corporate responsibilities, such as 'Reducing impact on climate change' (48%), 'Improving the wealth gap' (47%), and 'Improving global human rights' (40%). This appears to reflect a tendency to evaluate CSR from an ethical and normative perspective rather than linking it to practical concerns of profit and cost. However, only 31.3% perceived 'Supporting proactive government policies' as a corporate responsibility.

International Comparison of Ethical Consumerism

The Duality of Korean Consumers: Confident in Pressuring Corporations on CSR, but Lagging in Consumer Practice

Korean Public Confident in Consumer Pressure on CSR, on Par with Developed Nations like the US, Australia, and Canada

Consumer evaluation of corporate social responsibility activities, which influences a company's image and ultimately product purchases, is a significant driver and disciplinary measure for the spread of CSR. Without mature consumer awareness and behavior, there are virtually no incentives or checks to voluntarily drive corporate CSR. In such cases, control over corporate social responsibility relies on government regulation or extreme social struggle.

A dual attitude among Korean consumers regarding their behavior based on corporate social responsibility activities is clearly evident. They are highly confident in their ability to exert practical pressure on corporate CSR activities. However, their evaluation of how well companies perform CSR does not significantly influence their actual purchasing behavior.

Amidst ongoing debates about the role of consumers in CSR, people in 24 countries were asked if they believed consumers could influence corporate CSR activities. A remarkable 72% of Koreans believe that individual consumers can exert meaningful influence on corporate CSR activities. This is on par with developed countries known for strong consumer influence, such as the United States (76%), the United Kingdom (76%), and Canada (80%). It is even higher than in countries with relatively strong government regulations, such as France (65%) and Germany (52%).

In stark contrast to this confidence, Korean consumers are lukewarm about concrete actions to exercise their influence. In Anglo-American countries, which are leading CSR initiatives, consumer movements are expanding, where consumers actively promote their evaluations of specific companies' CSR activities, even to the extent of sharing some of the costs incurred by CSR activities. Furthermore, 'ethical consumerism,' where consumers selectively purchase products from companies with ethical and social practices and avoid those that do not, is strengthening.

Survey results indicate that very few people in Korea put this ethical consumer behavior into practice. First, when asked if they were willing to bear a price increase of more than 10% due to corporate social responsibility activities, only 44% of respondents agreed, placing Korea 22nd out of 24 surveyed countries. This contrasts sharply with the 68% of respondents across 24 countries (25,112 individuals) who stated they would be willing to bear such costs.

[Figure 1] Comparison of Consumer Influence on Corporate CSR Activities and Willingness to Share CSR Costs (%)

Source: GlobeScan ․ EAI ․ Maeil Business Newspaper (2007)

Note 1) Percentage of respondents who agreed with the statement: 'As a consumer, I can influence how responsibly a company acts.' (Sum of '1. Strongly agree' and '2. Somewhat agree')

Note 2) Percentage of respondents who agreed with the statement: 'I would purchase a product even if its price increased by more than 10% if the company engaged in more social contributions.' (Sum of '1. Strongly agree' and '2. Somewhat agree')

Ethical Consumer Behavior is in its Infancy

Only 33% of Koreans reported having experience 'informing others about companies that perform CSR well or purchasing their products.' This shows a significant gap compared to countries with active consumer movements like the United States (48%), Australia (49%), and Canada (45%). Among those who had engaged in such consumer behavior, only 4% responded 'very often,' 24% 'several times,' and 66% 'occasionally.' Conversely, only 25% of Koreans had experience 'spreading dissatisfaction about companies that perform CSR poorly or boycotting their products.' This is less than half of the figures from the United States (56%), Australia (56%), and Canada (54%). Ultimately, while there is a growing consensus among Korean consumers regarding corporate social responsibility, their consumption awareness and practices have not kept pace.

In a joint declaration in 2003, G8 leaders emphasized the need to transition to a 'responsible market economy' to achieve sustainable growth. A responsible market economy is neither an inhumane market that unconditionally justifies profit-seeking nor a regulatory economy that imposes unilateral responsibilities on corporations. The primary condition for a responsible market economy to function ultimately depends on the market's ability to autonomously induce corporate responsibility. If voluntarily engaging in solving social and environmental problems is a corporate responsibility, then it is the consumer's responsibility to properly recognize and evaluate the CSR activities of these companies. Corporate social responsibility does not solely imply the responsibility of corporations.

[Table 1] GlobeScan ․ EAI ․ Maeil Business Newspaper CSR MONITOR 25-Country International Survey (2007)

Note 1) Percentage of respondents who agreed with the statement: 'As a consumer, I can influence how responsibly a company acts.' (Sum of responses '1. Strongly agree' and '2. Somewhat agree')

Note 2) Percentage of respondents who answered '3. Have had experience' out of the options '1. Have never considered' '2. Have considered but not practiced' '3. Have had experience'.

Note 3) Percentage of respondents who answered '3. Have had experience' out of the options '1. Have never considered' '2. Have considered but not practiced' '3. Have had experience'.

Korea: Increasingly Strict Evaluation of Corporate Social Responsibility

Evaluations for All Industries Have Worsened Compared to Two Years Ago

Negative perceptions have significantly increased across all industries compared to two years ago, attributed to the strengthening ethical evaluation of corporations.

□ Only the IT/Computer industry shows more positive than negative evaluations; negative perceptions overwhelmingly dominate most others.

□ Industries with Negative CSR Perceptions: Tobacco (84%) > Oil Refining (58.9%) > Banking/Finance (54.3%)

□ Industries with Positive CSR Perceptions: Advanced IT (43%) > Telecommunications (27.9%) > Apparel (17.6%)

Examining the evaluation of corporate social responsibility by industry, negative perceptions are higher than positive ones for all industries except IT/Computers, and they have significantly worsened compared to two years ago.

Public opinion was most negative towards industries related to public health, the environment, and finance. The proportion of respondents who believe these industries are performing CSR poorly (mostly poorly + very poorly) was as high as 84% for the tobacco industry and 53% for the food industry. Oil refining companies scored 59%, and the chemical industry scored 52%. It is noteworthy that the banking and finance industry, which is not directly related to public health or the environment, was identified as a socially irresponsible corporate group. Although banking and financial services have improved significantly, their independence is questioned whenever scandals involving the government or corporations emerge. Furthermore, the perception that the threshold for banking remains high for ordinary citizens likely contributes to this.

In contrast, the advanced computer industry received relatively favorable evaluations for its CSR activities. Negative perceptions of poor performance were only 20%, followed by apparel at 28% and telecommunications at 36%. Media, such as TV and newspapers, received 42% negative responses. However, for all industry groups except advanced computers and telecommunications, the proportion of positive evaluations for CSR activities remained below 10%.

Compared to 2005, negative perceptions are increasing significantly across all industries. Even the computer industry, which enjoys high public favor, shows an increasing trend in negative public opinion compared to 2005. The worsening evaluation of corporate social responsibility over the past two years is likely due to various complex factors. First, corporate scandals and corruption cases that have continued over the past two years have likely had a negative impact on the public overall. Additionally, it must be considered that Korea tends to evaluate corporate social responsibility based on ethical standards more strongly than Western countries. With strict ethical standards, it is difficult to meet the criteria easily. The most fundamental and serious problem is that Korean society has been rapidly moving towards a low-trust society recently. Corporations are no exception.

[Figure 1] "Industries Performing Poorly" in Corporate Social Responsibility (Mostly Poorly + Very Poorly) (%)

Note 1) Source: GlobeScan • EAI • Maeil Business Newspaper (2007; 2005)

Note 2) Percentage of respondents who answered '4. Mostly poorly' or '5. Very poorly' among the options '1. Very well' '2. Well' '3. Average' '4. Poorly' '5. Very poorly', indicating 'poor performance' (%)

Note 3) Blank entries for 2005 data in Figure 1 indicate questions not asked in the 2005 survey.

Top 5 and Bottom 5 CSR Corporate Evaluations by Koreans

- Comparison of 2005 and 2007 Data

□ Globally, Samsung is ranked #1 for performing CSR well, and McDonald's is ranked #1 for performing poorly.

□ While Samsung's CSR evaluation has improved compared to two years ago, accompanying concerns exist.

When asked to name two companies, including Korean ones, that fulfill their social responsibilities globally, Samsung has been cited most frequently for three consecutive years. Microsoft has consistently ranked second for three years, followed by Johnson & Johnson (15.8%), LG (10.4%), and Coca-Cola (6.7%). These companies consistently maintain top positions in annual CSR rankings.

Samsung Ranks #1 for 3 Consecutive Years (Combined 1st and 2nd Place Results)

Samsung (42.8%) > Microsoft (20.1%) > Johnson & Johnson (15.8%) > LG (10.4%)

When asked to name two companies, both domestic and international, that perform CSR well and poorly, Samsung and LG consistently rank within the top 5 among domestic companies. In Samsung's case, despite frequent controversies such as allegations of irregular inheritance transfers, the percentage of respondents who selected Samsung as performing best increased significantly from 25.3% in the 2005 report to 42.8% in the 2007 report. LG also saw its support increase from 7.1% in 2005 to 10.4% in 2007, moving up one spot from 5th to 4th place. Samsung's strong performance appears to be a result of increased favorable public opinion towards corporations amidst a worsening economic sentiment, despite negative perceptions stemming from irregular inheritance cases. Notably, the promise of an 800 billion KRW donation from the Lee Kun-hee family in February 2006 also appears to have had a considerable impact.

[Table 1] Top Companies Globally in Corporate Social Responsibility (Sum of 1st and 2nd Place Percentages)

Note 1) Percentage of respondents who selected either 1st or 2nd place (%)

Note 2) Responses referring to general industry sectors (e.g., tobacco companies, oil companies) were excluded from ranking.

Based on 1st place responses only, the percentage of respondents who selected 'Samsung' decreased sharply from 19% in 2005 to 7.4% in 2007.

Looking only at first-priority respondents, LG leads Samsung with 9.3%.

Compared to 2005, the base of favorable public opinion towards Samsung has widened, but its intensity has significantly weakened. In terms of first-priority responses for 'best performing company,' the 2005 report showed 19% of respondents selected Samsung as the company that best fulfills its social responsibilities. This figure dropped sharply to 7.4% in the 2007 report. Considering only first-priority responses, LG garnered 9.3% support, surpassing Samsung, and Samsung's overall ranking fell by three places to fourth. Considering Chairman Lee Kun-hee's statement that Samsung's growth into a world-class enterprise was supported by the backing of society and the public, this represents a significant and concerning factor that cannot be overlooked.

[Table 2] Percentage of First-Priority Responses for Companies Best Fulfilling Corporate Social Responsibility Worldwide

* Source: GlobeScan ․ EAI ․ Maeil Business Newspaper (2007; 2005)

Note 1) Percentage of first-priority respondents only (%)

Note 2) Responses referring to general categories of companies (e.g., tobacco companies, oil companies, etc.) were excluded from ranking.

Companies Least Fulfilling Social Responsibility

McDonald's (26.6%) > Coca-Cola (20.4%) > Walmart (5.4%) > Samsung (4.4%)

McDonald's (26.6%) and Coca-Cola (20.4%) were prominently identified by Korean respondents as companies that do not fulfill their social responsibilities, followed by Walmart (5.6%) and Samsung (4.4%). Interestingly, Coca-Cola and McDonald's, which received negative evaluations in Korea, are considered among the companies that best fulfill social responsibilities in South America and Africa. Walmart is also evaluated positively by American consumers for its corporate social responsibility efforts.

The reason why some companies that are well-regarded in certain countries struggle in Korea can be attributed to the public consciousness reflecting that these are companies representing the fast-food industry. It is not a recent issue that concerns have been rising in Korea regarding obesity and other diseases caused by fast food. In a survey last year, more than half of Koreans responded that developing safe and healthy products should be a social responsibility of large corporations. This trend is not unique to Korea but is a general phenomenon in countries where basic livelihood issues have been largely resolved.

Public opinion should be used as a warning signal, not an absolute criterion for judging corporate social responsibility

There is room for doubt regarding whether public opinion is based on accurate information when judging the social responsibility activities of individual companies. Therefore, assigning excessive importance to the rankings derived from opinion polls can be perilous. However, in Korea, investment funds that determine investment decisions based on social responsibility activities are emerging, and consumers are increasingly taking action against socially irresponsible companies. Furthermore, the corporate image reflected in public perception influences consumer behavior, making it a factor that cannot be ignored. While it is risky to use opinion poll results as an absolute standard for evaluating a company's social responsibility activities, they hold considerable value as a warning signal regarding corporate image■.

[Table 3] Companies Least Fulfilling Corporate Social Responsibility Worldwide (Sum of First and Second Priority %)

* Source: GlobeScan ․ EAI ․ Maeil Business Newspaper (2007)

Note 1) Percentage of combined first and second priority respondents (%)

Note 2) Responses referring to general categories of companies (e.g., tobacco companies, oil companies, etc.) were excluded from ranking.