Financial leaders promoting ESG amid fears of stock declines
The leaders of Korea’s major financial holding firms will keep scaling up investments in environmental, social and corporate governance (ESG), identifying it as the most effective way to hedge against possible stock price declines, industry sources said Wednesday.
The outbreak of the coronavirus pandemic last year sparked a worldwide boom for investments to make their businesses more environmentally friendly and socially responsible. Starting in the latter half of 2020, Korean lenders and their holding firms began making aggressive investments into such goals by issuing a series of ESG bonds and pledging to go carbon-neutral.
The trend will pick up steam throughout 2021, as global investors are calling on Korean firms to fulfill their ESG pledges and generate more tangible outcomes this year.
This, however, is adding pressure to the top management of leading
financial firms here — KB, Shinhan, Hana and Woori — at a time when their business outlooks remain murky amid market saturation and weakening profitability in key revenue areas, including loan-to-deposit margins, following years of low interest rates.
The financial firms here are increasingly wary of foreign investors who account for more than half of their shareholders and monitor whether the companies are fulfilling the ESG drive.
“The biggest risk for the top management of the nation’s financial
firms is a possible decline in stock prices,” a bank industry source said. “For Korean banking groups, their stock price movement is vulnerable to a potential outflow of foreign capital.”
“They need to do their best to drive up their stock prices which have for years been trapped in a boxed band range,” the source said. “More and more foreign investors are urging Korean financial firms to leave bigger footprints in terms of ESG. They may withdraw their capital unless the companies take more advanced and concrete steps for ESG this year.”
This also increases the burden on major banks here, which are already under pressure to roll over loans and expand financial benefits to help people hit hard by the coronavirus pandemic.
But commercial lenders are crying foul over what they call “excessive demands” from the financial overseers, as the regulators have also urged banks to reduce their loan offerings to customers amid a steep rise in household debt.
“Banks are facing pressure from not just the government, but investors,” another source said. “It appears very tough for banks to satisfy shareholders, while at the same time abiding by watchdogs’ unceasing demands.”
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They need to do their best to drive up their stock prices which have for years been trapped in a boxed band range. ”