As ESG becomes more a genuine lasting shift than a passing fad, business entities are adopting this new paradigm as their company strategy that outline their business activities for sustainable growth. SGI (Seoul Guarantee Insurance) of Korea has been making efforts to embody ESG strategies within its corporate value. Here is a closer look at the company.
Creating an ESG ecosystem through guarantee insurance
Guarantee insurance is a type of non-life insurance that mitigates the credit risk of various transactions by indemnifying the beneficiary (an obligee) against losses incurred due to the principal (an obligor)’s failure to perform contractual or statutory obligations. In other words, guarantee insurance, which functions as a guarantee in the form of insurance, enhances the credit of obligors and can be conveniently used by individuals and corporates as an alternative to personal or financial collateral. Credit risk mitigation and liquidity supply enabled by guarantee insurance play a vital role for the sustainability of economic activities.
In particular, SGI’s product feature covers the overall industry which also involves relationships between contractors and subcontractors, thus enabling ESG management for the entire supply chain. SGI’s ESG management is all the more meaningful since its ESG ecosystem embraces large corporations to MSMEs.
SGI’s ESG strategies
SGI’s roadmap toward sustainable growth was unveiled as part of its ESG management strategies declared in January 2022. The vision of ESG management, known as the “Your Best Sustainable Partner”, represents SGI’s ESG management philosophy to move toward a sustainable future along with its customers.
SGI’s strategic goals are two-pronged: “Transition to Net-Zero” for carbon neutrality and “Mobilising ESG-100”. First, SGI aims to achieve net- zero on a corporate level by 2040 and on an asset portfolio level by 2050. Second, SGI is committed to playing roles as a sustainable financial partner by supplying ESG-related guarantees worth at least $74bn in total by 2030. To take such a two-track approach effectively, the company set strategic directions including the support for low-carbon green growth, creation of social value and enhancement of transparent and reliable business management.
Environment: Operating products and managing assets to support green growth
SGI has implemented an ESG product classification system for its guarantee insurance portfolio to align with green growth initiatives. The performance of these products is actively managed in accordance with these criteria. Furthermore, an enhanced credit rating system is employed during the underwriting process to offer reduced premium rates for environmentally responsible companies. SGI is also in the process of developing new products for the solar energy sector, exemplifying its commitment to embracing green growth principals within its product offerings. Regarding their asset management, SGI set up ESG policies and is exploring the feasibility to expand its ESG investment portfolio, including ESG bonds.
Upon the declaration of coal exit in August 2021, SGI suspended the writing of contract bonds related to construction of new coal-fired power plants for both contracts and subcontracts. In addition, the company strengthened its preferential guarantees offered to the green growth companies selected by the Ministry of Environment. In 2022 alone, SGI supplied more than 18,500 guarantees topping $1.6bn in total for the government’s certified eco-friendly companies and startups.
On the asset management front, SGI recently intensified its commitment to environmentally sustainable investments by allocating a substantial $1bn into domestic bonds that adhere to ESG principals. This strategic shift mirrors their decision to cease financial participation in coal-fired power generation projects, a choice made back since 2016. Additionally, SGI is resolutely advancing an initiative for greenhouse gas reduction, developing a roadmap to manage emissions based on measurements taken in December 2022.
Social: Implementing “SGI ON” for innovative and inclusive financing
SGI has been fostering financial inclusion by offering the house rental credit insurance for the residential stability of individuals and personal loan bonds to financially vulnerable individuals. In addition, the company is poised to reinforce its social responsibilities by addressing digital alienation, aiming to offer customers a more user-friendly digital environment. SGI also drew up a plan to manage the ESG indicators in line with the IFRS’ and the Financial Services Commission’s guidelines to prepare for ESG disclosure and evaluation.
Most of all, SGI’s focus lies in providing innovative and inclusive finance. For sustainable growth of the economies of individuals and SMEs, the company is implementing a corporate social responsibility brand called “SGI ON”: (1) “ON? (on-gi)”, a programme supporting corporates by providing guarantees in accordance with their growth stage; and (2) “ON? (on-jung)”, a programme dedicated to provide strong assistance to the future generations and local communities. SGI’s dedication to innovative finance is evident through its substantial support of $703m, including preferential guarantees for competitive start-ups, promising SMEs, and management innovation services for newly established businesses. Additionally, SGI is providing opportunities for companies in the midst of recovery, thereby fostering a broader scope of financial inclusiveness.
Such efforts for innovative and inclusive finance are not limited to Korea. SGI took the lead in the establishment of Asia Guarantee and Credit Insurance Association (AGCIA), with a shared commitment to the prosperity of Asian nations. By AGCIA, SGI is actively assisting other Asian countries in adopting the guarantee insurance system as a sustainable financial scheme supporting Asian economic development.
Governance: Building a transparent and reliable governance structure
Compliance and ethics management are key to strengthening the transparency and reliability of business management. In 2022, SGI acquired both ISO37301 (an international standard for compliance management systems) and ISO37001 (an international standard for anti-bribery management systems). The company is making effort to improve systems related to anti-money laundering, strengthen the compliance and ethics training and upgrade the customer information protection policies.
Meanwhile, building a sound governance structure is a crucial prerequisite for practicing ESG management and would hold great significance particularly for SGI, given that the company is currently undergoing an IPO process. Firmly establishing responsible management for shareholders and stakeholders as a publicly traded company and ensuring rigorous and transparent disclosures would lead to an advanced governance structure in the end.
The IPO of SGI, set to be listed in November this year, is advancing seamlessly. The company submitted its securities registration statement in September, followed by investor relations activities throughout October. Toward the end of October, SGI will finalise its offering price, and stock subscription will take place shortly thereafter.
SGI’s value proposition to its potential investors are:
- well-diversified product and customer portfolio as a the one and only monoline guarantee insurer in Korea;
- shareholder-friendly dividend policy based on excellent operating performance; and
- strong risk management capabilities proven with industry-leading capital adequacy.
SGI will take the upcoming IPO as an opportunity to solidify its partnership with various stakeholders and fully incorporate ESG in its business management principles.
CEO’s commitment to successful ESG managementSGI’s ESG management was driven by the strong determination of CEO Kwang-Yeol Yoo. Mr Yoo, who was appointed as CEO in December 2020, declared a new destination and vision of SGI, known as the SGI WAY, aiming for greater heights. He emphasised that the company’s strategies and core values are aligned with ESG management.
Mr Yoo, also serving as the representative of the Green Finance Forum-Korea, said, “ESG management is a survival strategy and a new opportunity for sustainable business management of companies. We will strive to address environmental and social issues by promoting not only the guarantees for individuals and corporates but also various forms of social finance including green finance.” A