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Social Investment Landscape

South Korea

South Korea’s strong government support for the social economy has led to a well-developed SE ecosystem and prominent government players in green and sustainable bonds

Summary

Executive Summary

The Republic of Korea (South Korea) exhibited remarkable economic development over the past few decades with its GDP per capita based on PPP growing from USD 8,276 in 1990 to 38,335 in 2017. The strong export economy allowed South Korea to become a major industrial power, a member of the Organisation for Economic Co-operation and Development (OECD), and one of the ‘Four Asian Tigers’. Large family-run conglomerates known as chaebols dominate the business landscape and have become world-recognised brands in technology, ranging from cars to smartphones. The growth of South Korea’s exports and economy have, however, slowed significantly in recent years, while economic inequality has risen. South Korea also faces challenges around ageing, the environment, and gender equality. The population is ageing at the fastest rate amongst OECD countries. Female employment is concentrated in low-paying and non-regular jobs that have led to a gender wage gap nearly double the OECD average.

South Korea’s social economy is distinguished for being the first in East Asia to create legislation that defines social enterprises, making it a regional leader in this area. While the corruption scandal in 2016 surrounding the South Korean president and several chaebols affected public trust of government and business, both have introduced reforms to improve governance, which is often linked with social economy activities. Government players are especially prominent in promoting social innovation tools such as green bonds and impact investment.

South Korea’s Fact File

South Korea’s 2018 Fact File

51 million

Population

USD 1,973 billion

GDP (PPP)

World Rank 14

3.1%

GDP Growth

USD 38,335

Per capita GDP (PPP)

World Rank 36

62 75 in 2016

World Giving Index Rank

41%giving money 17%volunteering time 44%helping a stranger

686,000

Number of Millionaires

17.9%

Poverty

26/137

Global Competitiveness Index

Global Competitiveness Rank (2016-2017) – 26/138

5/190

Ease of Doing Business Rank

Ease of Doing Business Rank (2018) – 4/190
Source: ADB, Charities Aid Foundation, Credit Suisse, World Economic Forum, World Bank. Figures are accurate as of March 2019

Dashboard

SDG Dashboard

In 2017, newly elected President Moon Jae-in indicated that he would focus on large business reform and increased government spending to create jobs, raise wages, and build out social welfare programmes, all while addressing environmental and pollution concerns. Although the 2017 presidential election occurred amidst a political corruption scandal, the problems that South Korea is facing stretch far beyond that. South Korea is ageing faster than any other country in the world, with nearly half the elderly living in poverty. The country’s fertility rate hit a record low of 0.98 in 2018, far lower than the OECD average of 1.68 and the replacement rate of 2.1. These demographic trends are putting great pressure on workers and the pension system.
In December 2018, South Korea established the Korean Sustainable Development Goals (K-SDGs). The K-SDGs are South Korea’s adaptation of the UN SDGs to fit their national context, incorporating contextualised targets addressing chronic disease, low birth rates, alternative materials to plastic, and establishing a permanent peace regime. These goals were created following numerous task forces and public forums to drive sustainable development in the country and align national strategy with the framework of the SDGs.

Source: sdgindex.org (2018)

Note: The “traffic light” colour scheme (green,yellow, orange, red) illustrates how far a market is from achieving a particular goal

Government Initiatives

Government Initiatives to Address Development Gaps

Climate action

SDG Goals

Gap

  • In the Environmental Performance Index 2018, South Korea ranked 60th out of 180. However, in air quality it dropped to 119th and specifically for PM2.5 exposure, it fell to 174th.
  • Air quality in South Korea in 2017 was the worst amongst all OECD countries, with the average annual exposure to PM2.5 of 25.1 micrograms per cubic metre more than double the World Health Organisation’s recommendation.

Government Initiatives

  • South Korea labelled air pollution a ‘social disaster’ in March 2019, allowing it to access reserve funds to respond to future emergencies. Additionally, all schools are now required to have an air filter in every classroom.
  • Starting in April 2019, South Korea will lower taxes on liquid natural gas by as much as 74% and raise taxes on thermal coal by 27% to drive the country’s energy mix towards more sustainable sources.

Gender equality

SDG Goals

Gap

  • The gender wage gap in 2018 was at 37%, the highest amongst OECD countries and more than double the OECD average.
  • In the Global Gender Gap Report 2018, South Korea was ranked 115th of 149 countries, primarily due to poor performance in economic participation and opportunity and political empowerment.

Government Initiatives

  • South Korea has introduced gender budgeting, which aims to increase the amount earmarked for gender equality in the government budget. In 2017, the gender-responsive budget was raised from 3.7% to 7.4%.
  • Following the adoption of the Sixth Basic Plan for Gender Equal Employment 2018-2022, the government plans to mandate corporate disclosure of salary data by gender as a means to reduce pay disparity.

SME development

SDG Goals

Gap

  • Although SMEs account for 99.9% of total enterprises and 82.2% of total employment, as of 2018 the 10 largest chaebols own more than 27% of all business assets in South Korea.
  • The Korea Small Business Institute reported that 80.5% of SMEs have difficulty finding employees, while a 2016 survey of university students found that only 5% wanted to work in an SME.

Government Initiatives

  • Government spending to support SMEs amounted to 3.0% of total spending in 2017 and 3.8% of GDP in 2016, the second-highest amongst OECD countries.
  • To promote youth employment at SMEs, in 2019 the government introduced a 3-year tax credit of up to KRW 12 million (USD 10,500) per newly hired young employee.

Social protection

SDG Goals

Gap

  • Public social expenditure for South Korea in 2018 was 11.1% of GDP, 9 percentage points below the OECD average.
  • Poverty rates are high among the elderly. The relative poverty rate in 2015 for those above 65 was nearly 50%, compared with the national average of 13%.

Government Initiatives

  • From 2019, the pension for elderly aged 65 and above in the lowest quintile income bracket has been increased from KRW 200,000 (USD 175) to KRW 300,000 (USD 265).
  • The 2019 budget allocated a record KRW 162.2 trillion (USD 145 billion) for social welfare, 12.1% higher than 2018.

Social Economy

South Korea’s strong government support for the social economy has led to a well-developed SE ecosystem and prominent government players in green and sustainable bonds

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Social Investment Landscape in Asia