[KH Finance Forum] NPS looks to exercise institutional power in Korea's ESG push
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"Instead, it is meant to preemptively suggest our direction (toward ESG integration) and help us interact with investee companies transparently, so that the concept of ESG investing takes root in Korean society."
"Pandemic-fueled changes in the business environment are testing the sustainability of corporations. Global companies will have no choice but to focus on ESG as a key to survival to overcome uncertainties in the future."
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The National Pension Service, the world’s third-largest pension fund which is based in South Korea, has stressed its unwavering stance in the adoption of environmental, social and governance factors across its investments.
Kim Yong-jin, chairman and chief executive officer of the NPS, pledged to motivate companies it has invested in and external partners, to which NPS deploys capital, to adapt to NPS’ responsible investing strategies.
The move will allow companies to get ahead of the game and predict changes, rather than being caught off guard by restrictions posed at the institutional investor’s request, said the official who leads the pension fund that oversees over 900 trillion won ($762 billion) of assets.
“The NPS’ act of responsible investing is not designed to widen investee companies’ uncertainties,” Kim said at The Korea Herald Finance and Investment Forum held in Seoul, Tuesday.
“Instead, it is meant to preemptively suggest our direction (toward ESG integration) and help us interact with investee companies transparently, so that the concept of ESG investing takes root in Korean society.”
Kim, a career bureaucrat who embarked on his role as NPS CEO in August 2020, is now behind the institutional power of the fund -- holding a stake worth 184.3 trillion won across some 1,130 domestic listed firms, or 6.7 percent of Korea’s total market capitalization, as of June.
Its shareholder engagement with investee companies in Korea has largely revolved around governance factors, often giving the NPS clout in shareholders’ proxy fights.
With the ESG push in place, the NPS is likely to engage with companies’ environmental and social issues as well, Kim said in his keynote speech at the event.
Kim’s remarks come as the public pension scheme’s decadeslong push to exercise responsible investing strategies -- aimed at taking both financial and nonfinancial performance into account in portfolio assessment -- is beginning to take shape in the wake of the COVID-19 pandemic.
NPS took the first step as a responsible investor in 2006 and became a member of the United Nations Principles for Responsible Investment in 2009. Fast-forward to more than a decade later, NPS is now a member of the International Corporate Governance Network, the Asian Corporate Governance Association and the Asian Investor Group on Climate Change.
At this juncture, especially when the pandemic shows no signs of surrendering, the NPS is looking to up the ante as its ESG assessment is increasingly integrated in the NPS’ investing mechanism.
“The coronavirus pandemic is accelerating the need for responsible investing,” Kim said.
“Pandemic-fueled changes in the business environment are testing the sustainability of corporations. Global companies will have no choice but to focus on ESG as a key to survival to overcome uncertainties in the future.”
Starting this year, the NPS will dial down exposure to companies with ESG ratings of “D” or below compared to portfolio benchmarks in the active stock investment management strategy. The same mechanism will apply to the NPS’ passive stock investing, as well as domestic bond investing by the end of this year.
In the future, overseas investments of stocks and bonds will also be subject to its ESG assessment and oversight, while the NPS seeks to ramp up ESG engagement with boards of foreign firms to influence their management.
The institutional investor’s ESG push will not be limited to its investee companies, as the NPS is looking to urge all of its external managers at home and abroad to submit responsible investing reports.
“It is crucial to substantiate ESG factors for capital allocation through discretionary investment management strategies,” Kim said.
“NPS is coming up with plans to take ESG factors into account when selecting and assessing external managers for stock and bond investment at home and abroad.”
Since Kim took the top post, the NPS has declared its exit from coal investing and sought to strengthen responsible investing. Kim also published a book, titled, “ESG’s New Path With the National Pension Service.”
By Son Ji-hyoung(firstname.lastname@example.org)
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