As a member of the social community, if a company puts effort into sustainable activities and creates environmentally and socially meaningful outcomes, it in itself solidifies the going concern assumption. Therefore, it is reasonable to assume that ESG performance and corporate value would have a meaningful association. However, a number of empirical literature over a long period of time have presented mixed conclusions about the relationship between ESG performance and a firm's financial performance or corporate value(Waddock & Graves, 1997; Zhao & Murrell, 2016). In particular, in the case of Korea, it is not even clear or robust whether investors utilize a company's ESG performance in making investment decisions as well as purchase decisions in the product and service market(Kim et al., 2022).This report intends to reconcile the inconsistent discussions on the relationship between existing ESG activities and corporate value, and to re-visit the relationship between the two in terms of financial materiality. We examined the relationship between ESG activities and corporate value of Korean listed companies and suggest that the main reason why existing studies did not find consistent empirical evidence is that overall ESG performance improvement activities, on average, possibly deviated from the main channels in creating corporate value. Companies that improved their ESG performance by focusing on financially material activities not only achieved long-term abnormal returns in the stock market but also persistently maintained high ESG performance. The results imply that financially material ESG activities are deeply related to the long-term value creation of a company, and ultimately, it would be reflected through security prices. However, in the short term, it appears that market participants underestimate such value relevance rather than fully understand it in a timely manner. Results of this report have great implications not only for managers who want to increase their corporate value by improving ESG performance but also for policymakers who want to alleviate the chronic discount phenomenon in the Korean capital market. First, companies should focus on financially material ESG activities. ESG activities that do not drive long-term financial performance are not only systematically suppressed under the current legal system that intends to protect the interests of shareholders, but it is also difficult to attract sustained support from key stakeholders.Second, since the participants in the capital market may not be able to understand the value relevance of ESG activities in a timely manner, disclosure should be able to clearly express the financial significance of ESG activities. Although the performance of ESG activities with high financial materiality will be relatively more comparable than non-financial performance, investors still underreact in the short term, which raises the need to improve the market's valuation mechanism. The ESG information disclosure, which is scheduled to become mandatory in 2025, needs to incorporate an identification and reporting system focusing on important risk and opportunity factors that affect corporate value which is necessary to promote a virtuous cycle effect that is a source of financing
