I was hesitant to write this article, but it demonstrates my previous arguments so clearly, i couldn't not do it. On my recent trip to Hungary, multiple people expressed the same concerns regarding Samsung who fails to meet local and EU legislation when it comes to environmental and social performance. This example indicates the disconnect between corporate level ESG ratings and site-specific E&S performance – a topic I deeply care about.
If you haven’t read my book, I highly recommend you broaden your perspective on why ESG has gotten such a bad reputation over the past years. This is not a political blog, but I can’t avoid mentioning how the Republicans point out some of the ways ESG as we know it fails to provide an accurate representation of a company’s sustainability efforts. I have written about way to improve ESG here[AI1] , about the difference between a ‘sustainable portfolio’ vs. assets that are managed sustainably here[AI2] and about management systems here[AI3] .
To recap: The sustainability industry, specifically ESG was built on principles and approaches of credit risk analysis that resulted in some obvious gaps:
Focusing on numerical data
Focusing on portfolio or macro level impacts
Focus on proactive positive impact creation and not risk management
This leads us to begin our quick analysis of the Samsung Hungary saga.
Facts:
Samsung has a stellar ESG rating globally with all the nicely-worded policies and statements you can think of[AI1]
In 2023, the EU Commission approved EUR89.6 million Hungarian Investment Aid to Samsung to build an EV Battery Plant
This is a brownfield project, meaning that it is an extension of the existing EV facility in Hungary
This third factory is expected to complete in September 2024
Upon NGO uproar, the court revoked the environmental permit in May this year, yet the plant is still operational[AI2]
This is the perfect example of why the sustainability industry needs more E&S performance practitioners in the right seats. The issue is very clear to me: the plant does not have adequate environmental and social management systems, including a commitments and permits register to ensure that all necessary legal, environmental and social requirements are fulfilled that are required for operations. This is typically the job of the EHS Director, Environmental Director or similar roles. THIS IS NOT ESG! And this is the issue. Companies allocate resources to what matters to them, and it is clearly the policies, ratings and statements, not the management systems.
The EV Battery plant is a ‘sustainable’ project because it contributes to the overall energy transition plans, however, it is managed in an unsustainable way. The focus is so much on macro level impacts that no one cared (other than the NGO) to look at operations related environmental risks. The EU EIA Directive [AI3] requires projects that are listed in Annex I to undergo an Environmental Impact Assessment, but the scope of these assessments are often superficial compared to more stringent international standards, such as the IFC Performance Requirements[AI4] [AI5] or the Equator Principles. It is noteworthy to look at Annex I and see that the projects deemed environmentally risky, hence the assessment include: crude-oil refineries, thermal and nuclear power, smelting, linear projects (motorway, railway, airports), waste disposal, dams, pipelines, installation of large scale animal husbandry facilities, quarries, industrial plants, overhead electrical lines to name a few. You notice how the EV plant is not there, despite being a significant manufacturing facility handling hazardous waste.
To be fair, brownfield projects or extensions of existing facilities often don’t need a full EIA, unless there is significant increase in capacity or a significant change in production. In this case, international best practice would look at how production changes and would most likely suggest a short environmental assessment to see whether operations related management plans need an update. Obviously, this did not happen.
The other issue is the enabling legal environment and the lack of enforcement of local legislation. Mind you, I had clients that looked at fines for breach of environmental permit as a worthwhile investment or a ‘tax’ that still saved them money by not having to comply with the requirements to get the permit. This leaves me with a few questions:
Are we neglecting site specific risks for a greater good? Are we valuing the quicker energy transition more than the protection of the immediate environment around the manufacturing facilities?
Are we measuring the right things when we apply our current sustainability standards?
[AI1]https://news.samsung.com/global/samsung-earns-aa-in-msci-esg-ratings-the-highest-level-in-the-korean-ict-industry
[AI2]https://english.atlatszo.hu/2024/05/03/court-revokes-environmental-permit-battery-factory-in-god-should-suspend-its-operations/
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