ESG: Name of the game in investing, funding amid Korea’s green push

With South Korea’s aggressive green push at both the government and corporate levels, money is flowing back to environmental, social and governance-themed funds, recent data showed.

ESG funds suffered during last year’s financial market downturn, but they’re witnessing a resurgence in popularity despite mediocre gains or even losses in the short term.

The hope of improved long-term profitability is boosting investor confidence, industry officials said.

According to financial market information provider FnGuide, socially responsible investment (SRI) funds saw a net fund inflow of 109.5 billion won ($83.4 million) over the past month while ESG bond funds received 88.5 billion won in the same period.

SRI funds select companies for investment based on not only their financial performance but also their environmental impact, community contributions and governance structure.

ESG funds invest in bonds issued by companies with outstanding ESG practices.

The majority of money inflow was directed towards NH-Amundi Asset Management's Allright Earth OCIO Asset Allocation Securities fund with 41.6 billion won; 9.2 billion won to Midas Responsible Investment Securities Investment Trust-Equity Fund; 2.8 billion won to Korea Investment Management’s America Wide Moat; and 2.6 billion won to Truston Asset Management’s ESG Level Up.

However, returns on these funds haven’t yet met investor expectations. The SRI funds’ average return was negative 2.15% over the past month.

Among ESG funds, Korea Investment Credit Focus ESG received 60.5 billion won while Korea Investment eShort-term Bond ESG saw an inflow of 49.2 billion won in the same period. The returns on the two ESG funds were 0.68% and 0.5%, respectively.

NOT A SHORT-TERM TREND

Analysts attributed the renewed interest in SRI and ESG funds to the recent wave of shareholder activism, which has boosted investor sentiment, as companies are striving to comply with sustainable growth and transparent management standards.

The corporate move to strengthen governance and management transparency comes as the government forces large companies to disclose their ESG activities to align them with global business standards for corporate social responsibility.

Under strengthened disclosure rules, Kospi-listed companies with total assets valued at 2 trillion won and more are required to make public their EGS activity information from 2025.

The mandatory public disclosure will be extended to all companies listed on the main bourse from 2030.

“ESG-themed investment is not a temporary trend. We expect a continued stream of money flow into such funds irrespective of their short-term performance,” said an asset management company official.

Write to Sang-Hoon Sung at uphoon@hankyung.com

In-Soo Nam edited this article.