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

[CSR 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 / Preview of ISO 26000 – What are the Issues? / Status of CSR Report Publication

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

The Social Responsibility of Companies as Perceived by Koreans Seems to Impose a Double Burden on Them

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

G7 Countries: “Cautious about Social Responsibility Activities, Guarantee Corporate Autonomy” Major developed countries have emphasized the importance of corporate social responsibility 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) is underway. Recently, the perception has evolved beyond the ethical justification of corporate social responsibility activities to the idea that they will be linked to strengthening corporate competitiveness and generating profits. These countries emphasize social responsibility 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 a balance should be struck between 'ethical social responsibility management' and 'profit-generating management' was 68% in Japan, 50% in the United States, 46% in the United Kingdom, 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. In Korea, the proportion emphasizing 'ethical social responsibility management' was 42%, the second highest among the nine 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 in Corporate Social Responsibility among 9 OECD Countries (%)

Korean CSR Perception: "Increased 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. 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 Japanese public opinion shows a significantly higher proportion advocating for a balance between ethics and profits. Korean public opinion demands a double burden on companies by advocating for the expansion of ethical and social responsibility areas while also strengthening regulations.

In Korea, public opinion is highly variable, which increases the uncertainty of corporate activities and makes it difficult to reach a social consensus on corporate social responsibility management. Comparing data from 2003 and 2006, there were almost no changes in perception regarding government regulation in OECD countries other than Korea and Japan. While Japan saw an increase of 31 percentage points (33% to 64%) in the opinion that government regulation should be strengthened over three years, Korea also experienced a fluctuation, with an increase of 16 percentage points from 47% in 2003.

[Figure 1] Proportion of Agreement 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 corporate social responsibility, creating rules and procedures that can achieve social consensus. In contrast, in Korea, only the necessity of corporate social responsibility management is emphasized, without considering the costs associated with it.

Companies that must bear the substantial costs of corporate social responsibility management, as well as the social stakeholders who are perceived as beneficiaries, 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 of regional development for environmental protection. 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

RSE : les bonnes entreprises Samsung, Yuhan-Kimberly, Posco, LG, SK, dans cet ordre

What evaluation do the Korean public give to the Corporate Social Responsibility (CSR) of companies? 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 activities, and KT&G, a manufacturer of tobacco, a representative harmful product. On a scale of 0 (very poorly) to 10 (very well), the average scores were as follows: Samsung and Yuhan-Kimberly (6.4), POSCO (5.9), LG (5.6), and SK (5.5) received the best evaluations. Korea Land Corporation (4.0), Korea Housing Corporation (4.2), KT&G (4.4), Korea Expressway Corporation (4.6), and Korail (4.8) received the worst evaluations. We also asked about brand image. The top-rated companies for brand image were Samsung (6.9), Yuhan-Kimberly (6.6), POSCO and Hyundai Motor (6.1), while the lowest-rated companies were 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 corporate social responsibility evaluations and brand image are closely interrelated. However, it is necessary to be cautious in concluding that CSR evaluation directly causes an improvement in brand favorability for all companies. It is difficult to consider CSR alone as the sole factor constituting brand image.

First, companies with larger asset sizes tended to receive relatively 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 social responsibility activities by large companies, but we must also consider that the level of CSR management by companies is still in its early stages and information is insufficient. Larger companies are more likely to have higher brand recognition and may be actively striving to improve their corporate favorability.

Indeed, companies that advertise relatively more received positive evaluations for their CSR management. Based on 2005 data, Samsung, LG, and SK were the business 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 business groups generally received above-average scores for both brand image and CSR evaluation. Companies that advertise more are more likely to have their brand image become familiar to the public. In other words, advertising effects can lead to favorable evaluations of corporate brands and corporate social responsibility.

It is true that, at least, 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 impact 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 influence corporate reputation■.

[Figure 1] Trend Comparison 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" 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)

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 global 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 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 known in Korea. Existing international agreements related to social responsibility primarily focus on companies. In contrast, ISO 26000 extends the scope of social responsibility beyond companies 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 management today will soon face the need to address 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 focuses on corporate social responsibility. This is because companies 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: improving governance, environmental protection, human rights protection, labor improvement, fair organizational practices, 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. Support and cooperation have been secured 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 Concerns

Despite these developments, it is difficult to predict the final version of ISO 26000 due to the strong disagreement between companies 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 the corporate decision-making process, which has led to ongoing controversy. This is a point not covered even by the GRI Sustainability Reporting Guidelines or the Global Compact, which conceptually support improved corporate governance.

Looking domestically, the "Corporate Ethics Evaluation Indicators" announced 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 at all, either in principle or in specific details. The human rights and labor-related items emphasized in international agreements are rarely found in the ethical management charters or corporate social contribution indicators of the business community.

Ultimately, it is expected that considerable difficulties will arise before ISO 26000 becomes a global and domestic standard. During the standard-setting process, corporate representatives, government officials, labor representatives, and NGOs from 59 countries, including Western developed countries like the US and Europe, as well as developing countries, are engaged in a power struggle to create a standard that reflects their positions. In Korea, an active interventionist stance is needed, going beyond mere passive preparation. In particular, the process of public discourse on key issues must be expedited. Without debate and consensus-building 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 are evaluated by reconfiguring the OECD (2001) "Comparison of Global Agreements on Corporate Responsibility" table to align with ISO 26000 guidelines. Domestic government position is evaluated based on the Ministry of Commerce, Industry and Energy's common indicators for corporate ethics evaluation (2003), and the business community's position is evaluated by integrating the Federation of Korean Industries' "Corporate Social Contribution Indicators" and "Ethical Charter."

○ : Includes relevant provisions (when a principle is specified in the standard, with one or more detailed evaluation items)

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

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

Status of CSR 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, 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 social responsibility management. Realistically, social responsibility management performance is recognized as an important criterion for investment decisions by Socially Responsible Investment (SRI) funds, and these reports also serve as a means of promoting social responsibility activities.

In Korea, since the 2000s, several 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 companies joining international agreements or publishing reports that meet international standards, rather than reports based on domestic standards, but the predominant form remains the symbolic enactment of ethical codes or norms.

A survey of the status of social responsibility-related reports among the top 100 domestic companies by sales revealed a decrease in 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 level is still low compared to developed foreign companies. Last year, 68% of the top 500 companies selected by "Fortune" magazine in the United States published sustainability reports in accordance with the guidelines (The Dong-A Ilbo, December 21, 2006). As of the end of December, there were 15 companies that 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 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