APG ready to confront Asian companies on ESG
Companies in South Korea and Japan are slow in adopting good environmental, social, and governance (ESG) standards in their business practices - an issue that APG, a major Dutch-based pension fund, is prepared to confront publicly to seek improvements.
This includes lobbying the respective governments of these companies, highlighting the companies' shortcomings to the media, and exercising its voting rights at shareholder meetings, said Yoo-Kyung Park, APG's head of sustainable investing and governance for Asia in an exclusive interview with AsianInvestor.
“[We focus] efforts on Korea and Japan since they are in the G7 and G8. We hope they can show leadership that other countries in Asia can follow. But there is a gap between our expectations and the reality,” she said, adding that shortcomings were found in all areas of the ESG spectrum in these countries.
“On cuts to carbon emissions, they are not articulated enough. They pledge [targets] for 2050 but when you ask what the pathway is they don’t have a clear answer.”
In February, APG approached its ten largest holdings in Korea, including Samsung Electronics, Hyundai Steel, and chemical company LG Chem, with the requirement that they comply with RE100 - a global corporate initiative to achieve 100% renewable electricity.
Park said Samsung has agreed to respond to its request with an announcement detailing goals concerning RE100 by June or July. “Samsung’s biggest competitor, Apple, is delivering, we want to see the same,” she said.
DIRECT ENGAGEMENT
She advocates direct engagement, including filing motions at shareholder meetings, to tackle stonewalling by the management and boards of Korean companies over social issues.
She cited the example of Hyundai Development - the Korean property and construction company in which APG has a share - which had two fatal worksite incidents in the space of seven months to January 2022.
“The management and board weren’t interested to engage,” she said. So, she approached policy makers, the media, and NGOs before filing a shareholder proposal to be discussed at the annual meeting in March, which demanded a safety expert be appointed to the board and the company to enhance safety monitoring, including formulating and reporting against a zero-fatality policy.
After presenting the motion at the annual meeting, she finally received a response. “They said ‘we take it on board’. They promised to act,” she said.
CORPORATE CULTURAL CHALLENGES
Korea and Japan pose distinct governance and corporate cultural challenges to APG, Park said. The prevalence of majority-controlled companies by powerful families or the government also means responsibility for change is tightly controlled.
“Unless you persuade the controlling shareholder to change practices, nothing will happen,” she said.
In Japan, the ownership model is more diverse but the management exercises tight control and corporate change moves at a glacial pace. Park estimates that achieving any ESG improvements at a Japanese company could take up to ten years, and may only be achieved if investors are united in seeking the change.
“It [will take] five to ten years, and you can’t achieve change doing it on your own. At this stage most investors understand what is a reasonable ask unless they are an activist investor,” she said, adding that she typically channels her efforts through the Asian Corporate Governance Association (ACGA), Asia’s leading corporate governance body.
COLLECTIVE ENGAGEMENT ON ESG
The ACGA has recently criticised investors for lack of disclosure about their engagement over ESG issues with the companies they own.
“In our last [survey] we were disappointed in the levels of corporate governance. A lot of investors aren’t publicising what they are doing. We’d like to see more saying: this is how we’re voting; this is how we voted, and this is how we’re engaging,” Jane Moir, research director at the ACGA in Hong Kong, told AsianInvestor.
She said that there was more collective engagement in Japan and South Korea than in countries such as Hong Kong, where a prevalence of majority shareholdings and an effective ban on class actions have hampered investors' efforts to engage. Like APG's Park, she believed that shareholder resolutions can be an effective engagement tool.
“In Japan and South Korea, we see more collective engagement: investors across the board can collaborate. [We see] a lot of shareholder resolutions in Japan. Even when the resolution doesn’t pass, the company is more likely to engage,” she said.