The practice of green- or other ]washing (providing exaggerated claims about the environmental, social or governance impacts of a fund) should result in tough punishment, Yoo-Kyung Park, Asia head for sustainable investing and governance for APG, has told AsianInvestor.
Despite publicly committing to engagement on environmental, social and governance (ESG), Asian asset managers remain conflicted, she said.
“In Korea, for example, all the local asset managers say that they take ESG into account. But can they be completely independent when it comes to critical decisions [concerning] companies owned by large groups like Samsung Group, SK Group or LG Corp?” Park said.
“If a small local asset manager sees issues regarding Samsung’s CEO or its board, can it raise these publicly? No: there are commercial realities which they must take into account,” Park said, noting that Samsung-affiliated companies, most notably Samsung Electronics, collectively comprise more than 20% of the market cap of the Korean Stock Exchange.
CONFLICTS OF INTEREST
Park said the pressure exerted by large conglomerates over asset management firms is not limited to Korea.
“Asset managers are also [constrained] in India, where companies may not be as powerful [as large groups in South Korea], but remain inter-connected,” she said. In India, as in other countries, there is often an undeclared reciprocal convention among asset managers not to criticise practices that fall short of ESG standards among companies forming part of large groups of which their peers are a part, she said.
“In Japan, business groups are connected through actual cross-shareholdings, invisible business relations, or an agreement not to talk about certain things from a kind of [corporate] etiquette,” she said.
APG’s own investment approach prioritised public disclosure around how it engaged with companies it owned, by contrast, she said.
“I don’t like the notion that I have a relationship with [these] companies. My engagement with companies is not to build good relations. I’m not a relationship manager, I’m an investor. I want to have a candid discussion and have candid feedback. Unless I am involved in closed-door discussions [conducted] in confidence, I tend to be for [public] disclosure in principle and practice.”
Park also said it was common for companies to complain about her to APG’s senior management, especially when she has raised sensitive issues such as the appointment of a CEO via proxy voting.
“Our head office will get an email for the head of the company saying: you don’t understand this business, this is just common practice in this business,” she said. “There are pushbacks, in many different forms.”
Park said that her longstanding efforts lobbying Samsung Group, Korea’s largest conglomerate, to reduce its carbon footprint had elicited censure. “I might be getting blowback for that, but I think ultimately it is good for the company,” she said.
Under pressure from Park and other investors, Samsung has agreed to respond at the end of June with a framework for how it proposes to shift to renewable energy. But she worries that the roadmap won’t be sufficient to facilitate the reduction in emissions required to address climate change in time, as laid out in the RE100, a global initiative to achieve 100% renewable electricity.
“At the end of June, they will announce something big — although how big, they didn’t share. They want to still play conservatively. But if all the big businesses in the world play conservatively, there will be no transition [to renewable energy] in time [to save the planet].”
Park said that the practice of green-and-other washing was widespread among asset managers and should be stopped.
“[The term] greenwashing sounds too nice: it doesn’t capture the core of the problem, which is lying,” she said.
Park favoured a declare-and-comply approach where asset managers should disclose quantifiable ESG standards against which they wish to be measured. As in other businesses, if they misrepresent information about their products or services, they should be punished, she said. In many countries in Asia, such false advertising is illegal.
She said she had been surprised by the high standards of ESG reporting and adherence among a number of family-owned companies, singling out HK Hanglung Properties, a Hong Kong-based property group.
“They were thoughtful and authentic, I was very pleasantly surprised. It has a long corporate history but it is run by the younger generation of the family and is doing ‘quietly’ better," Park said.