The Korea Herald is publishing a series of interviews with executives of South Korea’s leading corporations on their response to environmental, social and corporate governance, or ESG, issues, which have become central factors globally in measuring the sustainability of an investment or business decision. -- Ed.
Handling with the uncertainties and anxiety rising from the COVID-19 pandemic, businesses here and abroad have found themselves swept away by burgeoning ESG calls over the past year and beyond.
South Korea’s largest steelmaker Posco would have faced the same challenge had it not made the preemptive move to build a new, sustainable management philosophy of “corporate citizenship” ahead of the pandemic breakout.
Unlike most other peer businesses that were pushed to face the market’s upheavals, Posco’s ESG actions came as a natural phase of developing its already operating corporate citizenship framework, according to a senior official in charge.
“Some may find it ironical or even hypocritical that a major steelmaker, with its inevitably high volume of carbon emission, has taken the lead in the ESG agenda,” Yang Weon-jun, executive vice president and chief of the corporate citizenship office at Posco, told The Korea Herald in an interview.
But it is precisely because of the company’s identity as a steelmaker that it had to take the bull by the horns, he explained.
“Should we dodge the carbon issue for as long as possible or rather turn it into an opportunity and gain an upper hand in a whole new market? We obviously chose the latter.”
As no steelmaker across the world has yet managed to eliminate or drastically reduce carbon emission to a significant extent, carbon neutrality or other green indexes will be the key to attaining superiority in the market, according to the senior official.
Posco Group was one of the first among South Korea’s top-tier conglomerates to form a groupwide mechanism dedicated to ESG issues -- the ESG Group, which kicked off in January 2020 under Yang’s corporate citizenship office to coordinate policies and activities at subsidiaries.
The corporate citizenship office had been initiated a year earlier, in January 2019, as a comprehensive headquarters to manage the group’s sustainability agendas, ranging from corporate social responsibility and partnerships with regional communities and contractors to carbon neutrality.
The introduction of this novel organization was an agenda introduced by incumbent chief Choi Jung-woo, who took office as the steelmaker CEO and group chairman in 2018. His inauguration also coincided with the company celebrating 50 years of business.
“Welcoming a new leadership and facing new technologies such as artificial intelligence and big data, we figured that it was time that we adopted a new business philosophy, in order to sustain and prosper for another half century and beyond,” Yang said.
“Now that we look back in light of the COVID-19 pandemic and the consequently growing interest in ESG, it turned out that Posco had taken a timely step ahead, getting ready for a world that was about to come.”
The management framework that Posco adopted was the concept of “corporate citizenship,” which states that companies and all of their interested parties -- including not only staffers, but also business partners, shareholders and customers -- should recognize the benefits they have received from society and actively engage in addressing social issues.
The definition, principles and vows were all incorporated as what is called the Posco Charter of Corporate Citizenship, a statement that is seen at basically every workplace that involves Posco’s name.
All those who pass through the lobby of Posco Center in Seoul’s Gangnam are to face a vibrant, giant media art display -- 7.25 meters high and 2.4 meters wide -- that pictures a waterfall hitting upon a plate, upon which the full text of the charter would be engraved letter by letter, both in Korean and in English.
Throughout the 50-minute running time, the surroundings would change from pure water to a burning iron mold and back, alluding to the evolution in stages of steelmaking as an analogy to the four seasons in nature.
“We embedded a number of symbolic messages in the media display. For instance, the 50-minute running time refers to the company’s next 50 years in business and the 7.25-meter height takes inspiration from July 25, when the charter was proclaimed in 2019,” Yang said.
“All these efforts prove how much we valued the idea of corporate citizenship as our sustainable policy and how our ESG actions were the natural consequences of such comprehensive drives.”
The visually impressive art piece, created by media artist Lee Lee-nam, was one of the first projects carried out by the corporate citizenship office as a preliminary phase to transmit the new policy pillar throughout the group.
As a following step, it set to issuing an annual corporate citizenship report every May, marking the equivalent to the sustainability reports brought out by peer businesses.
“The corporate citizenship, as comprehensive as it is, already comprises the concepts of climate response and carbon neutrality, as well as ESG directions,” Yang said.
“(But) in order to clearly reaffirm our dedication for green-driven changes, we separately issued a climate action report in December last year, in which we vowed to become carbon neutral by 2050.”
This year, the ESG Group is focusing on establishing green accounting standards, in order to properly evaluate ESG operations.
While Posco may join the Value Balancing Alliance down the road, its priority is first to set up an independent ESG assessment frame that reflects the reality and technology of the steel industry, according to Yang. The VBA is a global nonprofit organization led by German chemical giant BASF, seeking to pilot a model of calculating the contribution of social values.
A key tool for the steelmaker to approach carbon neutrality is hydrogen-based direct reduction, which refers to a developmental technology of using hydrogen to convert iron ore fines to liquid steel.
The Korea Iron & Steel Association estimates that it will take around 5.9 trillion won ($5.21 billion) per blast furnace in order for Posco to convert its system to a hydrogen-based one. A separate 500 billion won is expected for related research and development down the road, while infrastructure investments will require another 400 billion-500 billion won.
The company’s goal is to complete the necessary technology development by 2040 and create a green energy infrastructure so that it may phase out of the conventional steelmaking model into the hydrogen-based reduction model. The detailed pace of the transition will depend on the profitability of the new technology, according to the company.
To lay the foundation for the makeover, Posco established a green steel committee in February this year, working together with the Ministry of Trade, Industry and Energy.
“The move reflected the consensus that the green energy transition in the steel industry requires the participation of both the private and public sectors, as well as academia,” Yang said.
“Global asset manager BlackRock has already made it crystal clear that it will veto investments into companies that fail to meet the standards suggested by the Task Force on Climate-related Financial Disclosures, or TCFD. The green drive across industries is already very much tangible in our world today.”
The steelmaker also underlined the growing importance of working together with market leaders from different sectors.
Earlier this month, Posco joined four other major conglomerates -- SK, Hyundai Motor, Hanwha and Hyosung -- in announcing a joint plan to invest 43 trillion won in the nation’s hydrogen industry, responding to the growing energy demands.
Also, adopting a citizen’s innovative idea, Posco worked with cosmetic giant Amorepacific to build enhanced pavement blocks, using empty cosmetics product containers and steel slag. The upcycled material was used to build the outer walls of a public restroom at Seoul’s Noksapyeong Subway Station.
On the back of diverse efforts for sustainability, Posco hopes to remain the leading steelmaker, and at the same time to grow beyond the steelmaking paradigm.
“I expect that we shall maintain the business-to-business frame to supply key industrial materials to companies and that steel will continue to be our essential item,” he said.
“But think about the business evolution that has taken place over mere decades. Who knows where we shall stand 50 years from now and why hold on to diminishing businesses when we have the insight and capacity to pioneer new promising sectors?”
By Bae Hyun-jung (firstname.lastname@example.org