► Major Korean corporations have increasingly embraced ESG practices, with the Korean government introducing K-ESG guidelines in Dec 2021 to guide ESG-driven companies and their evaluators.

► The resilience of ESG investments is expected to hinge on the engagement of this expanding demographic of young investors. What about in Korea? What do the younger generation Koreans think of responsible investment?

► Efforts to boost ESG initiatives and responsible investment should more explicitly promote principles that resonate with an increasing number of young individual investors. Importantly, these efforts should also include actions to empower the youth in society at large, such as innovating hierarchical and patrimonial organizational cultures within labor unions.

Amidst the backdrop of the COVID-19 pandemic, the world saw a remarkable surge in investments aligned with environmental, social, and governance (ESG) principles, with global ESG assets surging to an astounding $35 trillion in 2020. During this period, major ESG funds demonstrated impressive financial performance, outperforming the S&P 500 index between March 2020, when COVID-19 was officially declared a pandemic by the World Health Organization, and March 2021.

This global trend extended its reach to South Korea, where the number of ESG funds increased from 50 in early 2020 to 104 by the end of June 2021. During this period, the net assets invested in ESG funds grew exponentially, multiplying fifteen times from 450 billion KRW to 7.5 trillion KRW. Major Korean corporations have increasingly embraced ESG practices, with the Korean government introducing K-ESG guidelines in Dec 2021 to guide ESG-driven companies and their evaluators.

However, the ESG boom appears to have been relatively short-lived, as the market experienced a downturn in 2022, resulting in unprecedented outflows from ESG-focused funds. Some industry experts, including Jon Miller, the founder of Open For Business, have characterized this as a shift from the peak of ESG hype to a period of “general disillusionment.” Former insiders, like Tariq Fancy, BlackRock’s former chief investment officer for sustainable investing, have even labeled sustainable investing as a “dangerous placebo that harms the public interest.” These sentiments have raised questions about the long-term viability of responsible investment.

In this commentary, I delve into the future of ESG investment within the Korean context, with a particular focus on the role of individual investors in shaping this landscape. As consumers, employees, and investors, individual citizens wield considerable influence over corporate ESG practices and government ESG policies. In 2021, individual investors accounted for 52% of global assets under management. South Korea has also witnessed a notable increase of more than 50% in the number of individual investors in 2021, with their foreign equity investment surging since the outbreak of COVID-19. However, it remains uncertain which among the expanding population of Korean individual investors have the potential to lead and sustain responsible investment initiatives.

In Western countries, younger generations play a pivotal role as consumers, employees, and investors, often prioritizing social and environmental impact in their decision-making. For instance, Gen Zs and Millennials in the US are more progressive on social issues, more supportive of environmental causes, and more likely to endorse policies that promote diversity compared to other generations. The resilience of ESG investments is expected to hinge on the engagement of this expanding demographic of young investors. What about in Korea? What do the younger generation Koreans think of responsible investment?

While limited studies exist on this topic, there are compelling reasons to believe that in Korea as well, the MZ generations are more enthusiastic about ESG than their older counterparts. Firstly, the MZ generations in Korea are the first to have received formal education on ESG-related social issues such as climate change, ethnic and cultural diversity, and gender equality during their formative years. For instance, gender equality education became part of the official national curriculum in 2007, and secondary school teachers have been trained to offer climate change education since the same year. This implies that individuals who are currently in their 40s or older, having completed their formal education in the 1990s or earlier, likely had limited exposure to such education during their formative years. Also, today's younger generation, growing up in the post-Asian Financial Crisis era, has enjoyed greater economic affluence and stability, providing fertile ground for a cultural shift towards embracing post-material values.

If so, is the MZ generation in the country indeed at the forefront of responsible investment considering ESG-related risks and opportunities in their investment decision-making? In my working paper with Hyo Won Lee at Incheon University and Dong-Hun Kim at Korea University, we seek to answer this question using an original survey of 1,000 Korean citizens. Respondents evaluate a total of 19 claims on a five-category ordinal scale ranging from strongly disagree to strongly agree. The claims include those that see ESG activities as essential business obligations and those that emphasize the government’s active role in promoting the ESG performance of firms. The Pro-ESG Attitude variable is a composite index created through principal component analysis (PCA) of the respondent evaluation of these 19 items (7 items on E, 7 on S, and 5 on G).

Contrary to our expectations and findings from Western literature, our results reveal a surprising reverse age gap in ESG attitudes. Those in their 20s and 30s are the least enthusiastic about corporate ESG activities and government policies designed to promote them. This holds true even when we examine the three dimensions of E, S, and G separately. Individuals in their 20s and 30s are less likely to consider climate change (E), labor rights (S), and governance transparency (G) in investing compared to those in their 40s and above. Why is this the case?

One plausible explanation is that the Korean young generation, partly due to the highly competitive education system and labor market, is being compelled to prioritize individualistic achievements over developing post-material values. While the current young generation enjoys greater material abundance, they are also the first post-high growth generation in newly industrialized Asia navigating a more competitive and less secure labor market. During the high-growth years leading up to the Asian Financial Crisis, Korean companies guaranteed lifelong employment based on skills and loyalty, fostering a culture of long-term service. Ironically, this might have been the period when social solidarity over broad-based issues was more feasible. In the ultra-competitive society that emerged from the crisis, "standing out as more qualified than others" became “an absolute necessity” to secure a well-paid and stable job.

The intense competition they face growing up also nurtures a sense of disaffection towards the progressive elites of the older generation. Organized labor movements advocating for social and governance-related agendas are perceived by the young generation as the entrenched "labor aristocracy," enjoying high job security and company welfare in a polarized labor market. For young Koreans striving to enter the permanent workforce amid fierce competition, meritocracy has become their yardstick for social justice. They might perceive ESG goals and the call for social solidarity to achieve them as the hypocrisy of progressive elites.

One participant in a focus group discussion we organized, a university student, aptly encapsulated this sentiment: “Even if there are social issues such as environmental pollution or labor exploitation, my life and my interests come before these problems.”

What do these findings mean for responsible investing? Efforts to boost ESG initiatives and responsible investment should more explicitly promote principles that resonate with an increasing number of young individual investors. Importantly, these efforts should also include actions to empower the youth in society at large, such as innovating hierarchical and patrimonial organizational cultures within labor unions. While our discovery of the reverse age gap arises from an analysis of surveys conducted among Korean citizens, we expect that these findings have relevance beyond the borders of Korea, particularly in newly industrialized Asian regions. Individuals in their 20s and 30s represent the initial cohorts raised during the post-high-growth era, now navigating increasingly competitive job markets. Advocating ESG solely through progressive elite channels may fail to resonate with the younger demographic in these nations.