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NPS, abrdn highlight ESG as key decision-making tool

The world’s third-largest pension fund is planning to put external managers under stricter ESG mandates, underscoring the importance of ESG in asset allocation.
NPS, abrdn highlight ESG as key decision-making tool

The global movement to adopt environmental, social and governance (ESG) principles is pushing South Korea’s financial sector to embrace more sustainable values, but stronger efforts should be made to bring actual changes in Asia’s fourth-largest economy.

The Korea Herald Finance and Investment Forum 2021, under the tagline “Korea’s ESG revolution: Green shoots after the pandemic,” discussed how investors, advisers, and target companies in Korea and abroad are adapting to new trends and requirements to slow down the pace of climate change and eliminate deceptive practices often dubbed ‘green washing’.

One speaker was Kim Yong-jin, chairman and chief executive of National Pension Service (NPS), the world’s third-largest pension fund.

During the keynote speech, Kim reiterated that NPS’ external managers at home and abroad are poised to be placed under stricter ESG mandates. NPS oversees over KRW 900 trillion ($762 billion) of assets.

Kim Yong-Jin, NPS

The Jeonju-based institutional investor’s ESG push will not be limited to its investee companies, as NPS is looking to urge all its external managers in both domestic and overseas markets to submit responsible investing reports.

“It is crucial to substantiate ESG factors for capital allocation through discretionary investment management strategies,” said Kim, who took the top post in August 2020.

“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.”

Kim added that NPS is seeking to ramp up ESG engagement with boards of foreign firms. The institutional investor held KRW 184.3 trillion worth of equity across some 1,130 domestic listed firms, or 6.7% of Korea’s total market capitalisation as of June.

This process has already influenced NPS’ decision-making process for domestic stock investments. Starting this year, NPS will dial down exposure to companies whose ESG standard is rated as ‘D’, the lowest on its six-point scale, compared to active management portfolio benchmarks.

The same mechanism will apply to NPS’ passive stock investing, as well as domestic bond investing by the end of this year. Its overseas investments of stocks and bonds will also be subject to ESG assessment and oversight.

Kim’s remarks came as the public pension scheme’s decades-long push to exercise responsible investing strategies is beginning to take shape in the wake of the Covid-19 pandemic.

NPS is a member of the United Nations Principles for Responsible Investment, the International Corporate Governance Network, the Asian Corporate Governance Association and the Asian Investor Group on Climate Change.


Alongside Kim of NPS, David Smith, senior investment director of Asian equities at Edinburgh-based asset management firm abrdn, stressed the importance of its internal road map -- a circular investment process from sector review to idea generation, research, portfolio construction and engagement -- which underscored its capability to explore trends and opportunities for ESG investing.

Smith argued that the Asian region, including China and Korea, not only supports companies dedicated to cultivating new and renewable energy sources, but also pushes to build supply chains that phase out the use of fossil fuel.

Smith said that new ESG investment opportunities lie in supply chains, including companies with solar and wind energy technology, component manufacturers, and infrastructure firms that optimise the performance of smart grids. Energy storage companies could offer opportunities as well, as they can help to overcome intermittency in power generation caused by the unpredictable nature of solar and wind power.

The declining cost of new and renewable energy power generation is making the case for Asia’s broad adoption of ESG practices, he said.

The global investment manager, formerly known as Aberdeen Standard Investments, had £532 billion ($728.8 billion) of assets under management as of June.


David Smith,

Other sessions featured Seoul-based Shinhan Financial Group’s chief digital officer Sunny Yi, who emphasised the need for talent acquisition and investment in order to achieve digital transformation in the wake of the pandemic; and Ryu Young-jae, chief executive of Seoul-based proxy adviser and ESG evaluator Sustinvest, who called on Korean companies to swiftly adapt to ESG disclosure that is becoming mandatory for large companies starting 2025.

The sessions came alongside congratulatory speeches from Deputy Prime Minister and Finance Minister Hong Nam-ki, Chairman of the National Assembly’s National Policy Committee Rep. Yoon Jae-ok, Seoul mayor Oh Se-hoon and British Ambassador to South Korea Simon Smith.

Notably, Oh spoke about the Seoul Metropolitan Government’s plan to launch an investment organisation next year dedicated to attracting foreign investment to foster startups in Korea, as part of its goal to turn the capital city into an international financial hub.

Oh said that the new investment entity, which could be Korea’s equivalent to Singapore’s Economic Development Board and Hong Kong’s InvestHK, will help local businesses win overseas contracts and draw global venture capital investments in promising startups.

The plan is part of Seoul’s policy direction dubbed ‘Seoul Vision 2030’, unveiled on September 15, under which the city government is looking to invest KRW 48 trillion in the scheme over the next decade. Details on the reform drive will be announced later in October.

The event went hybrid as it hosted 49 in-person attendees at the venue, as well as virtual attendees, by complying with social distancing rules in Seoul.

The forum drew Korea’s top bankers, including Hana Bank CEO Park Sung-ho, Woori Bank CEO Kwon Kwang-seok, KB Kookmin Bank CEO Heo In, Shinhan Bank CEO Jin Ok-dong, NH NongHyup Bank CEO Kwon Joon-hak and Standard Chartered Bank Korea CEO Park Jong-bok.

Korea Herald CEO Choi Jin-young highlighted the importance of the finance sector in ESG adoption in the forum’s opening speech.

“Financial investments in sustainable businesses have grown to be a key pipeline of the global capital market,” Choi said.

“The local finance sector’s efforts to establish sustainable management, including pledges to become coal-free and issuance of ESG-related bonds, are contributing to the buildup of the ESG environment here. Finance holds the key to the establishment of ESG values.”

The Korea Herald was established in 1953 and is now a leading English-language newspaper in South Korea by circulation. The Korea Herald is a supporting organisation of AsianInvestor.

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