[CSR Public Opinion Brief No. 3] The Current State of CSR in Korea: Perception and Practice 1

[CSR Public Opinion Brief No. 3]

1. Korean Consumers' Perception of CSR: A Double Burden for Corporations / Evaluation of CSR Activities of 30 Major Corporations by the Public / A Preview of ISO 26000: What are the Key Issues? / Status of Social Responsibility Report Publication

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

Koreans' Conception of Corporate Social Responsibility Appears to Impose a Double Burden on Corporations

Jang Jin-ho, Department of Business Administration, Yonsei University / Jeong Han-wool, EAI Public Opinion Analysis Center

G7 Nations: "Cautious about Social Responsibility Activities, Ensuring Corporate Autonomy" Major developed countries have emphasized the importance of socially responsible management through the G-8 Declaration in 2003 and the OECD's 'Principles of Corporate Governance' report published in 2004. In 2008, the development of guidelines for social responsibility led by the International Organization for Standardization (ISO) has recently evolved into the perception that corporate social responsibility activities are not only ethically justifiable but also linked to strengthening corporate competitiveness and generating profits. These countries emphasize socially responsible management that operates through appropriate government regulation, voluntary corporate efforts, and market discipline to harmonize ethics and profits.

Indeed, citizens of OECD countries believe that corporate social responsibility activities should be linked to strengthening corporate competitiveness and profit generation. According to public opinion surveys in 9 OECD countries in 2006, the proportion of respondents who believed that 'ethical social responsibility management' and 'profit-generating management' should be balanced was 68% in Japan, 50% in the US, 46% in the UK, and 45% in Canada. The opinion to 'focus on economic activities such as profit generation and tax payment' did not exceed 30% in any of the 9 countries. In Korea, the proportion emphasizing 'ethical social responsibility management' was 42%, the second highest among the 9 countries after Italy (45%). The proportion advocating for a balance between 'profit generation' and 'ethical management' was 36%, which was relatively low compared to other OECD countries.

[Table 1] Perceptual Differences Regarding Corporate Social Responsibility in 9 OECD Countries (%)

Korean CSR Perception: "Increasing Corporate Responsibility and Strict Regulations Impose a Double Burden"

In Korea, the argument for strengthening government regulations to ensure corporations fulfill their social responsibilities was particularly strong. In Korea, public opinion in favor of government regulation was the second highest at 63% in 2006, following Japan (64%). Australia was 54%, Canada 50%, the UK 49%, the US 42%, and France only 34%. While Japanese public opinion is similar to Korea's regarding government regulation, there is a difference in emphasizing ethical management, as a significantly larger proportion of the Japanese public called for a balance between ethics and profits. Korean public opinion demands a double burden on corporations by advocating for both the expansion of ethical and social responsibility domains and stricter regulations.

Furthermore, the highly variable public opinion in Korea increases uncertainty in corporate activities, making social consensus on responsible management difficult. Comparing data from 2003 and 2006, there was almost no change in perception regarding government regulation in OECD countries other than Korea and Japan. While Japan saw an increase of 31 percentage points (33%→64%) in the opinion to strengthen government regulation over three years, Korea also experienced a fluctuation, with an increase of 16 percentage points from 47% in 2003.

[Figure 1] Percentage Agreeing with "CSR Should Be Legally Regulated Even if Prices Rise and Jobs Decrease" (%)

Source: GlobeScan • EAI • Maeil Business Newspaper (2006; 2003)

While achieving both ethics and profits is possible, it is not an easy task. To this end, in developed countries, various social forces participate in the debate on socially responsible management, creating rules and procedures for social consensus. In contrast, in Korea, the necessity of socially responsible management is emphasized without considering the costs associated with corporate social responsibility activities.

Not only corporations, which must bear the enormous costs of corporate social responsibility (CSR), but also the various stakeholders in society, who are recognized as beneficiaries, have costs to bear. If one expects corporations to practice environmental management, one must be willing to accept price increases for goods and forgo the opportunity costs that could be gained through local community development for the sake of the environment. This is precisely why the International Organization for Standardization (ISO) views not only corporations but also governments, labor unions, and NGOs as having social responsibilities.

Brand Image and CSR Evaluation Results of 30 Major Corporations

Jeong Won-chil, EAI Governance Center

Top CSR Companies: Samsung, Yuhan-Kimberly, POSCO, LG, SK in Order

What evaluation do Korean citizens give to corporate social responsibility (CSR)? We asked the public. The subjects were the top 30 corporate groups based on asset size, announced by the Fair Trade Commission in January 2006. Yuhan-Kimberly, a company with a long history of sustained social contribution activities, and KT&G, a manufacturer of tobacco, a representative harmful product, were added. On a scale of 0 ('very poorly') to 10 ('very well'), the average response placed Samsung and Yuhan-Kimberly (6.4) first, followed by POSCO (5.9), LG (5.6), and SK (5.5). Korea Land Corporation (4.0), Korea Housing Corporation (4.2), KT&G (4.4), Korea Road Corporation (4.6), and Korea Railroad Corporation (4.8) received lower evaluations. Brand image was also assessed. Top-rated companies included Samsung (6.9), Yuhan-Kimberly (6.6), POSCO and Hyundai Motor (6.1), while poorly rated companies included Korea Land Corporation (4.3), Korea Housing Corporation (4.7), and KT&G (4.8). The remaining companies were clustered in the middle range.

High Correlation Between Brand Image and CSR Evaluation

The survey results indicate that the evaluation of corporate social responsibility and the company's brand image have a close mutual influence. However, the CSR evaluation scores were lower than the brand favorability scores for all companies. Nevertheless, caution is needed in concluding that CSR activities are the direct cause of improved brand image. It is difficult to consider CSR alone as the sole factor constituting brand image.

First, larger companies tended to receive more positive evaluations for their social responsibility. Although Yuhan-Kimberly and some public enterprises are exceptions, companies with larger asset sizes generally received higher brand favorability scores and higher CSR evaluation scores. This could be seen as a result of differentiated CSR activities by large corporations, but we must also consider that the level of CSR management among companies is still nascent and information is scarce. Larger companies are more likely to have higher brand recognition and may have made active efforts to enhance corporate favorability.

Indeed, companies that advertise relatively more received positive evaluations for socially responsible management. Based on 2005 data, Samsung, LG, and SK were the corporate groups that spent the most on advertising across various media. Following them were Hyundai Motor, KT, Hanwha, POSCO, GS, CJ, and GM Daewoo in terms of advertising expenditure. These corporate groups generally received above-average scores for both brand image and CSR evaluation. Companies that advertise more are likely to have their brand images become more familiar to the public. In other words, advertising effects may have led to favorable evaluations of corporate brands and corporate social responsibility.

It is true that at least the perception of corporate social responsibility among the Korean public is closely linked to brand image. However, considering the lack of information for evaluating CSR activities and the absence of social discussion and consensus on specific evaluation criteria, it is presumed that corporate brand power currently has a greater influence on the image of a company's social responsibility than CSR has on strengthening brand power. Nevertheless, the case of Yuhan-Kimberly, which boasts high brand power along with positive CSR evaluations relative to its size, sufficiently demonstrates the potential impact of corporate CSR activities on corporate reputation■.

[Figure 1] Trend Comparison of CSR Evaluation Results and Brand Image Evaluation Results for 30 Major Corporations

* Average Brand Image Score = 5.5 (excluding KT&G, Yuhan-Kimberly)

* Average CSR Score = 5.2 (excluding KT&G, Yuhan-Kimberly)

* Yuhan-Kimberly and KT&G were included for comparison although not part of the top 30 corporate groups.

[Table 1] Comparison Table of Brand Image/CSR Evaluation Scores for 30 Major Corporations + KT&G and Yuhan-Kimberly

* Asset Ranking: 'Top 30 Corporate Groups by Asset Size' as announced by the Fair Trade Commission in January 2006

* Advertising Ranking Data: Advertising Data Center (www.advertising.co.kr) [2005 Annual Top 300 Advertisers Data] (http://211.51.63.73/uw-data/dispatcher/news/adreport/200512/S9100529/01.html)

A Preview of ISO 26000: What are the Key Issues?

Lee Sang-hyup, EAI Public Opinion Analysis Center

Expanding Social Responsibility Beyond Corporations to Include Government and NGOs

The International Organization for Standardization (ISO), familiar to us through ISO 9000 quality certifications, is scheduled to release a global common standard for social responsibility issues (ISO 26000) in 2008. Some media outlets are urging prompt measures, stating that companies falling short of the standard to be released by ISO will be eliminated. To provide specific proposals on what and how to prepare, it is essential to accurately understand the characteristics of ISO 26000 and the key issues in the consensus-building process.

ISO 26000 holds significant implications beyond what is currently understood in Korea. Existing international agreements related to social responsibility primarily focus on corporations. In contrast, ISO 26000 extends the scope of responsibility beyond corporations to include entities that can influence society, such as governments, labor unions, and civic organizations. It is highly likely that groups demanding corporate social responsibility today will soon face the need to consider their own social responsibility issues. This is why ISO 26000 is named a 'Standard for Social Responsibility' rather than a 'Standard for Corporate Social Responsibility'.

The discussion process for ISO 26000 primarily centers on corporate social responsibility. This is because corporations wield greater social influence today, while the power of governments and labor unions is relatively weakening. The second draft of ISO 26000, prepared in October 2006, outlines seven principles of social responsibility: improvement of governance, environmental protection, human rights protection, labor improvement, fair organizational operation, realization of consumer interests, and community development. Furthermore, ISO 26000 has signed Memoranda of Understanding with the International Labour Organization (ILO) and the UN Global Compact. It has secured the promise of support and cooperation from these international organizations on issues such as environmental protection, human rights, labor, and strengthening corporate fairness.

Stakeholder Participation in Corporate Decision-Making and Labor Issues are Key Controversies

Despite these developments, it is difficult to predict the final version of ISO 26000 due to the strong disagreement between corporations and other social forces regarding corporate governance and the guarantee of labor rights. The draft of ISO 26000 includes the principle that stakeholders should participate in corporate decision-making processes, which has led to ongoing controversy. This is a point not addressed even by the GRI Sustainability Reporting Guidelines or the Global Compact, which express principled agreement on improving corporate governance.

Domestically, the 'Corporate Ethics Evaluation Indicators' published by the Ministry of Commerce, Industry and Energy in 2003 include an item on improving corporate governance, but it only considers the active functioning of the board of directors. In other words, it does not consider the participation of other stakeholders in management. The Federation of Korean Industries' proposal, which prioritizes the protection of management rights, makes no mention of this principle or specific details. The human rights and labor-related items emphasized in international regulations are rarely found in the ethical management charters or corporate social contribution indicators of the business community.

Consequently, ISO 26000 is expected to face considerable challenges before it is established as a global and domestic standard. During the standard-setting process, corporate representatives, government officials, labor representatives, and NGOs from 59 countries, including Western developed nations like the US and Europe, as well as developing countries, are engaged in a power struggle to create a standard that reflects their interests. In Korea, an active engagement approach is needed, rather than mere passive preparation. In particular, the process of public deliberation on key issues must be expedited. Without debate and consensus on these issues, ISO 26000 will become a source of new conflict rather than a standard▦.

[Table 1] Comparison of International Agreements and Domestic Evaluation Indicators Related to Social Responsibility

Source: Global agreements were reconfigured to align with ISO 26000 guidelines based on the OECD's (2001) 'Comparison of Global Agreements on Corporate Responsibility' table. Domestic government position was evaluated based on the Ministry of Commerce, Industry and Energy's Common Indicators for Corporate Ethics Evaluation (2003), and the business community's position was evaluated by integrating the Federation of Korean Industries' 'Corporate Social Contribution Indicators' and 'Ethical Charter'.

○ : Includes relevant provisions (when a principle is stated in the standard and includes one or more detailed evaluation items)

△ : Weak (when the item is included as a general principle but lacks detailed evaluation items, or only some detailed evaluation items are included)

- : Omitted (when there is no specific mention or provision)

Status of Social Responsibility Report Publication

Is the Competition to Publish CSR Reports Beginning?

Song Moon-hee, EAI Public Opinion Analysis Center

As corporate social activities gain attention, the importance of social responsibility management reports (sustainability management reports) is being emphasized. In the international community, even international standards for publishing reports on socially responsible management activities are emerging. Representative examples include the Global Reporting Initiative (GRI) Sustainability Reporting Guidelines, established in 1997 with the support of the UN Environment Programme, and the Global Compact reports, led by the UN, which emphasize ten voluntary principles of corporate social responsibility.

The reason for emphasizing sustainability management reports in the international community is that they not only help corporations self-assess their social responsibility management status but also serve as a starting point for pursuing more systematic socially responsible management. Realistically, social responsibility management performance is recognized as an important criterion for investment decisions by Socially Responsible Investment (SRI) funds, thus serving as a means of promoting social responsibility activities.

In Korea, since the 2000s, some companies have begun producing and publishing 'Environmental Reports,' 'Social Contribution White Papers,' and 'Ethical Management Charters' according to their own standards. Recently, there has been an increase in publications that directly adhere to international agreements or meet the requirements of international standards, rather than domestic standards, but the form of symbolic ethical codes or ethical regulations still predominates.

A survey of CSR-related reports from the top 100 domestic companies by sales revealed that the number of companies publishing their own environmental reports decreased from 10 in 2004 to 4 in 2006. The number of top 100 companies publishing social contribution white papers remained largely unchanged, from 4 in 2001 to 6 in 2006. In contrast, the number of companies publishing GRI sustainability reports increased from 5 in 2003 to 15 as of December 2006.

However, this level is still low compared to developed foreign companies. Last year, 68% of the top 500 companies selected by 'Fortune' magazine in the US published sustainability reports in accordance with the guidelines (The Dong-A Ilbo, December 21, 2006). As of the end of December, 15 companies had joined the Global Compact, but only 5 of them were among the top 100 companies.

However, the number of companies among the top 100 that have established an 'Ethical Code' or 'Ethical Regulations' has sharply increased from 13 in 2001 to 62 in 2006. This indicates that the method by which domestic companies disclose their social responsibility activities remains largely symbolic and declarative.

[Figure 1] Changes in the Forms of Social Responsibility Report Publication by Top 100 Companies

[Figure 2] Status of Ethical Code Establishment by Top 100 Companies