Weekly ESG Controversies (July 8~14)

Key takeaways

1. Surge in 'Competitive Behavior' Risks:

• A significant increase from 8.02% to 30.19% was observed last week, centered around Kakao and HYBE.

• Concerns about Asiana Airlines' management rights and monopolistic issues post-merger have resurfaced after the airline’s union accused its CEO of breach of trust.

2. KAKAO at Peak Legal Risk:

• The most controversial issue this week was KAKAO related to the manipulation of SM Entertainment's stock prices.

• Other legal risks for KAKAO are escalating, including allegations of accounting fraud and algorithm manipulation at Kakao Mobility, and the overpriced acquisition of the drama production company Baram Pictures to manipulate stock prices.

3. Ongoing Strike Risks in Labor Practices

• SAMSUNG ELECTRONICS, experiencing its first strike in history, is facing ongoing difficulties, and HYUNDAI MOTOR and KIA are also encountering production disruptions due to strikes, leading to an increase in ‘Labor Practices’ risk from 8.49% to 12.73% last week.

4. SeAH Besteel's CEO Change

• Following four accidents that resulted in five fatalities since the enactment of the Severe Accident Punishment Act, two CEOs of SeAH Besteel have resigned amid prosecutorial investigations.

5. Communication Disruption and Power Outage Risks

• The Korea Electric Power Corporation (KEPCO) has once again come under fire due to ongoing power outage issues.

• Residents of Baengnyeong Island have reported significant inconveniences due to slow or frequently interrupted internet speeds during the foggy or rainy summer season.

1. Competitive Behavior (30.19%)

• KAKAO, holding 31.10%, faces the most significant controversy with allegations of manipulating stock prices to hinder HYBE's acquisition of SM Entertainment.

• The Asiana Airlines union accused the company’s CEO of breach of duty, claiming the transfer of two aircraft to Korean Air caused financial harm to Asiana Airlines.

2. Business Ethics (13.62%)

• Ssangbangwool, persistently embroiled in controversies related to remittances to North Korea, accounts for 21.32%.

• The police conducted a search and seizure at TAIHAN ELECTRIC WIRE over allegations related to leaking LS Cable's submarine cable technology.

3. Labor Practices (12.73%)

• SAMSUNG ELECTRONICS, HYUNDAI MOTOR, and KIA, collectively accounting for 63.48%, are all facing significant challenges due to ongoing strikes.

4. Employee Health & Safety (5.03%)

• S CONNECT's primary cells supplied to the military have reportedly exploded multiple times.

• As a follow-up measure to recent fatal industrial accidents, the CEO of Seah Besteel has been replaced.

5. Systemic Risk Management (4.93%)

• A spark caused by a snake climbing a transmission tower led to a momentary blackout for 2,400 households in Yeongju.

• Despite KT establishing giga infrastructure on Baengnyeong Island in 2015, residents frequently experience service interruptions during summer due to heavy fog and rain.

This week’s ESG analysis report emphasizes the importance of long-term risk management. The prolonged Ssangbangwool North Korea remittance case has ultimately resulted in the CEO receiving a prison sentence, while Kakao's stock manipulation case has led to an investigation involving founder Kim Beom-su. The merger between Korean Air and Asiana Airlines is transitioning from short-term to long-term risk, and ongoing strike risks at Samsung Electronics and Hyundai, along with repeated power outages at KEPCO, are also significant risk factors for their respective business operations. Therefore, it is essential for each company to respond promptly to reduce risks and focus more on critical business elements.

LG Chem has pledged to expand compensation support for victims of the gas leak incident at its Indian facility, while Seah Besteel has replaced its CEO due to fatalities that occurred after the implementation of the Serious Accident Punishment Act. When one risk is addressed, companies can concentrate on other risks, allowing for further development. Thus, companies should continuously monitor not only individual risks but also those affecting the broader industry, enabling swift responses to strengthen their competitiveness in the future.

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