NH Investment, Maeil Business to launch new ESG index

South Korea’s NH Investment & Securities and Maeil Business Newspaper jointly launch a reference index devoted to environmental, social, and governance (ESG) interests, offering the first private and domestic index on the burgeoning field in the country.

NH Investment & Securities and Maeil Business Newspaper earlier this week signed a memorandum of understanding to work towards building ESG value in the local capital market.

The MK-iSelect AI ESG Index is a byproduct of yearlong work, leveraging on ESG analysis provided by financial technology company Who’s Good.

Who’s Good utilizes artificial intelligence (AI) technology to analyze news articles of more than 2,000 listed companies every day and produces ESG ratings. It also reflects index inclusions every quarter instead of every half a year through AI technology.

NH Investment & Securities and Maeil Business Newspaper plan to launch not only indices of each environment, social responsibility, and governance based on MK-iSelect AI ESG Index but also ESG bond index, with an aim to provide an alternative option to local institutional and retail investors in the highly potential ESG investment market.

The launch of the MK-iSelect AI ESG Index could be a game changer in the local indices market that is dominated by public authority Korea Exchange and foreign entities.

According to Shinyoung Securities Co., the global ESG ETF index market is dominated mainly by private entities – 56 percent by Morgan Stanley Capital International (MSCI), 10 percent by U.S. financial information provider Bloomberg, and 8 percent by global credit rating firm Standard & Poor’s.

Three of 7 ESG exchange traded funds (ETFs) in Korea uses Korea Exchange’s ESG Index while three of the remaining four follows MSCI Index. This shows how the local ESG fund market is highly dependent on public institution and foreign entities.

Choi Chang-gyu, head of index development at NH Investment & Securities, said that there is a tendency that investors are heavily dependent on indices provided by foreign institutions..

The latest move is aimed at introducing an ESG index to make the theme more popular with investors.

NH Investment & Securities currently operates an index development team under its research department.

Choi said that having more private index developers in the market will allow more diverse financial products and expand investment base.

Yoon Joon-kil, an official from NH Investment & Securities, noted that the MK-iSelect AI ESG index selects stocks based on big data-analyzed ESG rating and uses AI to swiftly reflect ESG environment of companies.

The index has also improved profitability, which has been a stumbling block in having more institutional investors to favor ESG investment due to duty of good faith practices.

A simulation based on the MK-iSelect AI ESG index showed 11.23 percent rate of return as of Dec. 21 for the past month, 19.57 percent for three months, 32.71 percent for six months, and 30.31 percent for one year.

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