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

[CSR Public Opinion Brief No. 3]

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

2. The Scope of Corporate Social Responsibility as Perceived by Koreans / How Far Has Ethical Consumerism Come? / Evaluation of CSR Activities by Industry / CSR BEST5, WORST5

Koreans' Perception of Corporate Social Responsibility Seems to Impose a Double Burden on Companies

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

G7 Nations: "Cautious about Social Responsibility Activities, Guarantee 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 released in 2004. In 2008, the development of guidelines for social responsibility led by the International Organization for Standardization (ISO) is underway. Recently, the perception has evolved to believe that corporate social responsibility activities will not only be 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 generating profits. According to the results of a public opinion survey in 9 OECD countries in 2006, the proportion of respondents who believed that a compromise between 'ethical social responsibility management' and 'profit-generating management' was necessary 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 nine countries. Korea ranked second highest among the nine countries, with 42% emphasizing 'ethical social responsibility management,' following Italy (45%). The proportion advocating for a compromise between 'profit generation' and 'ethical management' was relatively low at 36% compared to other OECD countries.

[Table 1] Perceptual Differences in Corporate Social Responsibility Among 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 companies fulfill their social responsibilities was particularly strong. Korea ranked second highest in public opinion favoring government regulation, with 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 on government regulation is similar to Korea's, there is a significant difference in that a much larger proportion of the Japanese public calls for a compromise between ethics and profits, unlike in Korea where ethical management is emphasized. Korean public opinion demands a double burden on companies by advocating for both the expansion of ethical and social responsibility areas and stricter regulations.

In Korea, public opinion is highly volatile, increasing uncertainty in corporate activities and making social consensus on socially 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 not as significant as Japan, where the opinion to strengthen government regulation increased by 31 percentage points (33% to 64%) in three years, Korea also experienced a fluctuation, with the proportion increasing by 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 it may be possible to achieve both ethics and profits, 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.

Companies that must bear the significant costs of socially responsible management, as well as the various stakeholders in society who are perceived as beneficiaries, also have costs to bear. If society expects companies to engage in environmental management, it must be prepared for price increases and forgo the opportunity costs that could be gained through local community development for the sake of the environment. This is why the International Organization for Standardization (ISO) considers not only companies but also governments, labor unions, and NGOs to have social responsibilities▦.

Brand Image and CSR Evaluation Results of 30 Major Companies

Jeong Won-chil, EAI Governance Center

Las mejores empresas en RSC son Samsung, Yuhan-Kimberly, POSCO, LG y SK, en ese orden.

What kind of evaluation do the Korean public give to corporate social responsibility (CSR)? We asked the public. The subjects were the top 30 business groups based on asset size announced by the Fair Trade Commission in January 2006. We also added Yuhan-Kimberly, a company with a long history of social contribution, and KT&G, a manufacturer of tobacco, a representative harmful product. On a scale where 'very poorly' is 0 and 'very well' is 10, the average scores were as follows: Samsung and Yuhan-Kimberly (6.4), POSCO (5.9), LG (5.6), and SK (5.5) received favorable evaluations. Land Corporation (4.0), Korea Housing Corporation (4.2), KT&G (4.4), Korea Expressway Corporation (4.6), and Korail (4.8) received unfavorable evaluations. We also asked about brand image. Top companies for brand image were Samsung (6.9), Yuhan-Kimberly (6.6), POSCO and Hyundai Motor (6.1), while unfavorable companies included 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 corporate social responsibility evaluations and brand image are closely interrelated. However, it is important to be cautious in concluding that CSR evaluation directly causes improvements in brand favorability. 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. With the exception of Yuhan-Kimberly and some public enterprises, companies with larger asset sizes generally received higher brand favorability scores and higher CSR evaluation scores. While this could be attributed to differentiated CSR activities by large companies, it is also important to consider that the level of socially responsible management is still nascent and information is scarce. Larger companies are more likely to have higher brand recognition and may be actively striving to enhance their corporate favorability.

Indeed, companies that advertised relatively more received positive evaluations for socially responsible management. As of 2005, Samsung, LG, and SK were the business groups that spent the most on advertising across various media. In addition, Hyundai Motor, KT, Hanwha, POSCO, GS, CJ, and GM Daewoo followed in terms of advertising expenditure. These business groups generally received above-average scores for both brand image and CSR evaluation. Business groups that advertise more are more likely to have their brand image become familiar to the public. In other words, advertising effects can be seen as leading to favorable evaluations of corporate brands and corporate social responsibility.

It is true that the public's perception of corporate social responsibility 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's influence 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 of CSR activities to impact corporate reputation■.

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

* 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 they are not among the top 30 business groups.

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

* Asset Ranking: "Top 30 Business Groups by Asset Size" 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 Issues?

Lee Sang-hyup, EAI Public Opinion Analysis Center

Expanding Social Responsibility Beyond Companies to Governments and NGOs

The International Organization for Standardization (ISO), familiar to us through ISO 9000 quality certification, is scheduled to release a globally common standard for social responsibility issues (ISO 26000) in 2008. Some media outlets are urging prompt measures, stating that companies not meeting the standard will be excluded. To provide specific suggestions on what and how to prepare, it is essential to accurately understand the characteristics of ISO 26000 and the issues involved in the consensus-building process.

ISO 26000 holds significant meaning beyond what is currently understood in Korea. Existing international agreements related to social responsibility primarily focus on companies. In contrast, ISO 26000 expands the scope of social responsibility beyond companies to include entities that can influence society, such as governments, labor unions, and civic groups. It is likely that groups demanding socially responsible management from companies will soon have 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 revolves around corporate social responsibility. This is because while the influence of governments and labor unions is relatively weakening, companies exert greater social influence. 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, consumer interest realization, 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 support and cooperation of 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 significant disagreement between companies and other social forces regarding corporate governance and the guarantee of labor rights. The draft of ISO 26000 includes the principle of stakeholder participation in corporate decision-making processes, which has led to ongoing debate. This is a point not even addressed in the GRI Sustainability Reporting Guidelines or the Global Compact, which principi-ally support improvements in corporate governance.

Looking 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' (FKI) proposal, which prioritizes the protection of management rights, makes no mention of this at either a principled or detailed level. 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.

Ultimately, considerable difficulties are expected before ISO 26000 becomes a global and domestic standard. During the standard-setting process, representatives from companies, governments, labor, and NGOs from 59 countries, including Western developed nations and developing countries, are engaged in a power struggle to ensure their perspectives are reflected in the standard. Korea needs to adopt an active interventionist stance rather than a vague preparatory one. 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 evaluated by reconfiguring the OECD's (2001) "Comparison of Global Agreements on Corporate Responsibility" table to align with ISO 26000 guidelines. Domestic government positions were evaluated based on the Ministry of Commerce, Industry and Energy's Common Indicators for Corporate Ethics Evaluation (2003), and the business community's positions were evaluated by integrating the FKI's "Corporate Social Contribution Indicators" and "Ethical Charter."

○ : Includes relevant provisions (when a principle is specified in the standard and there is one or more detailed evaluation item)

△ : 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 the publication of social responsibility management reports are emerging. Representative examples include the Sustainability Reporting Guidelines from the Global Reporting Initiative (GRI), established in 1997 with the support of the UN Environment Programme, and the Global Compact report, led by the UN, which emphasizes ten voluntary principles of corporate social responsibility.

The reason for emphasizing sustainability management reports in the international community is that they not only help companies 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 in Socially Responsible Investment (SRI) funds, and it also serves 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 the publication of reports that directly comply with international agreements or meet international standards, rather than domestic standards, but the predominant form remains symbolic ethical codes or ethical norm establishment.

A survey of the status of social responsibility-related reports among the top 100 domestic companies by sales revealed a decrease in the number of companies publishing their own environmental reports 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 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 Norms" has significantly increased from 13 in 2001 to 62 in 2006. This indicates that the way domestic companies disclose their social responsibility activities remains at a symbolic and declarative level.

[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