Weekly ESG Controversies (August 5~11)

Key Takeaways

• Continued Competitive Behavior Risk Shocks

  • The risk related to the detention and trial of KAKAO's founder, Kim Beom-soo, accounts for 33.36%, with its impact surging from 10.1% to 21.9% last week.

  • SAMSUNG ELECTRONICS is facing risks related to a patent infringement lawsuit from Harvard University concerning semiconductor chip manufacturing technology and a recent antitrust defeat in Google's search market.

    
    

• Repeated controversies in the Financial Sector

  • NH INVESTMENT & SECURITIES received regulatory warnings last week for golf entertainment related to retirement pension contracts, followed by HANWHA INVESTMENT & SECURITIES this week for document forgery by an employee and concealment of internal audit results.

  • WOORI BANK is embroiled in controversy over approximately 35 billion won in fraudulent loans to relatives of former chairman Son Tae-seung, following previous embezzlement cases involving 70 billion won in April 2022 and 10 billion won in June 2024.

  • This year, domestic securities firms, including KB, NH, and Samsung Securities, are facing ongoing settlement system disruptions, with issues such as delays in canceling weekly U.S. stock transactions in this week, along with other internal and external factors.

    
    

• Black Monday

  • Systemic risks have emerged as SAMSUNG ELECTRONICS and SK HYNIX experienced dramatic stock market declines, amid concerns over yen carry trade liquidation, U.S. economic downturn fears, and production issues with Nvidia's AI chips.

    
    

• Large-Scale Recalls

  • HYUNDAI MOTOR, KIA, and SAMSUNG ELECTRONICS are implementing extensive recalls due to fire risks and defects in their products, resulting in a surge in product quality and safety risks from 3.43% to 10.87%.

1. Competitive Behavior (21.9%)

• Kakao's founder, Brian Kim, was arrested and indicted on August 8 for alleged violations of the Capital Markets Act, with the first trial scheduled for September 11.

• Following Google's loss in the U.S. Department of Justice's antitrust lawsuit concerning the search market, both Samsung Electronics and NAVER have been impacted.

2. Business Ethics (13.65%)

• HANWHA INVESTMENT & SECURITIES received its second institutional warning this year due to concealing internal audit results after a previous warning for the improper sale of a private equity fund.

• Woori Bank faced controversy for granting an improper loan of 35 billion KRW to relatives of former WOORI FINANCIAL GROUP Chairman, Son Tae-seung.

3. Systemic Risk Management (13.32%)

• Concerns over systemic risk were raised as SAMSUNG ELECTRONICS and SK HYNIX experienced significant intraday stock drops amid fears of a U.S. economic recession and controversy surrounding Nvidia's Blackwell design flaw.

• Following an earlier incident on Baengnyeong Island, disruptions in KT's landline services also affected parts of Seoul and Chungcheong, causing confusion and losses for small business owners.

4. Product Quality & Safety (10.87%)

• SAMSUNG ELECTRONICS, HYUNDAI MOTOR, and KIA issued large-scale recalls due to fire risks and product defects.

• KOREAN AIR flight KE197 encountered severe turbulence, causing a chaotic situation with spilled meals; around ten passengers and four crew members suffered minor injuries, drawing significant attention.

5. Labor Practices (6.08%)

• KT saw a significant decline in operating profit due to increased labor costs from the early implementation of wage negotiations.

• KOREAN AIRLINES faced controversy as around 40 subcontracted employees responsible for security interviews for U.S.-bound passengers were at risk of being laid off following the termination of an outsourcing contract.

This week has highlighted the ongoing exposure of various companies and industries to controversies. KAKAO is under investigation for alleged market manipulation in the SM acquisition bid, while SAMSUNG ELECTRONICS faces patent infringement lawsuits, labor disputes, and systemic risks related to its operations. HYUNDAI and KIA are dealing with frequent recall issues, and KT is experiencing communication failures across multiple regions. In the financial sector, issues such as embezzlement, breach of fiduciary duty, and payment system errors persist. These problems are not isolated incidents but rather risks that have been ongoing for periods ranging from six months to several years.

As emphasized in previous weekly reports, stakeholders must always keep in mind the interconnectedness of risks. When a single risk persists over the long term, it can escalate uncontrollably or transfer to other risks. Companies need to address and mitigate ongoing risks swiftly to improve their reputation and operations, reduce costs, and secure a competitive advantage.

Furthermore, emerging risks, such as the ban on DAISHIN SECURITIES' technology-driven special listing and the turbulence incident involving KOREAN AIRLINES, should also be continuously monitored. Observing how other companies within the same industry manage and respond to these risks is essential for avoiding similar pitfalls.

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