KIC to allocate $300 mn to ESG fund; to adopt stewardship code in January

Korea Investment Corporation (KIC) will allocate around $300 million to an environment, social and governance (ESG) integrated fund and embrace stewardship responsibilities from next January for responsible investing as a sovereign wealth fund, its chief executive said on August 30.

ESG factors and the Stewardship Code, the Korean version of which was introduced last December, began to gain momentum in South Korea after the installation in May of President Moon Jae-in, an advocate of better corporate governance and responsible ownership by institutional investors.

“We will allocate around $300 million to an ESG fund,” Sung-soo Eun, KIC’s CEO, told reporters in a news conference in Seoul. “We will select a global manager specializing in ESG funds and gradually increase our allocations after reviewing their performance.”

His remarks also came after a main opposition party lawmaker proposed a revision to the KIC Act late last year which requires KIC to consider ESG practices when making equity investments which represented 41% of its assets in 2016.

Major South Korean pension funds such as National Pension Service, Teachers’ Pension and Government Employees Pension Service have already taken ESG factors into consideration for responsibility investment.

But they have yet to introduce the Stewardship Code, a set of guidelines for institutional investors to monitor and actively engage with companies in which they invest to protect and enhance shareholder value.

“We felt the need to reflect the global trend of institutional investors actively exercising shareholder rights to enhance the interests of clients and beneficiaries,” said Eun.

Only four private companies in South Korea – three private equity firms and one asset manager – have adopted the Code until now. They all embraced it after President Moon took office.

ROBUST H1 RETURN

In the first half of this year, KIC posted an 8.17% return on assets, driven by bullish global stock markets and the weaker dollar. Its 2016 return was 4.35% after a negative 3% in 2015.

Eun expects its AUM to surpass $130 billion by the end of this year, up from $122.3 billion at end-June.

KIC will select two additional global fund houses with South Korean subsidiaries in which they own more than 30%, after it gave J.P. Morgan Asset Management and AllianceBernstein $400 million fixed-income mandates in April.

It will also increase the number of domestic fund houses to help them build global experience. KIC has allocated an aggregate $780 million for Greater China stock investments to three Korean fund houses – Samsung Asset Management, KB Asset Management and Mirae Asset Management.

The sovereign wealth fund is set to open its third overseas office in Singapore on September 15, with an aim to explore alternative investments in Southeast Asia and India as well as in Oceania.

Eun will attend the opening ceremony.

By Hugh YH Jeong

hugh@hankyung.com