ESG funds gain popularity in Korea amid social awareness and institutional role

2019.12.02 15:39:40 | 2019.12.02 15:40:08

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Sharing pays off for the companies and investors.

According to a report released by KB Securities Co. on Sunday, worldwide investments in the environmental, social, and governance (ESG) funds have reached $30 trillion as of the end of last year, after growing 14 percent on average every year since 2014.

The phenomenon has caught up in Korea.

Namyang Dairy Products Co was dethroned as top dairy maker amid scandals involving owner family and bullying business practices. Maeil Dairies now doubles in market value of 658.9 billion won ($559.1 billion) against Namyang Dairy Products capitalized at 328.7 billion won as of Friday.

The report said public funds and institutional investors have been especially aggressive in expanding investment in ESG funds. In the U.S. asset managers’ funds for investment in socially and environmentally responsible companies rose sharply to $12 trillion in 2018, from $8.1 trillion in 2016 and $1.4 trillion in 2012. In Japan, public pension funds have actively incorporated ESG funds in their investment portfolio, pushing more companies to join the move.

Top institutional player National Pension Service has been leading ESG funds’ growth in Korea. The pension fund last Friday announced it will increase investment in stocks of socially and environmentally responsible companies from next year, and expand such investment practice to overseas stocks and domestic bonds from 2022.

Socially responsible investing has been also growing in the country, with the total asset under management for socially responsible investment (SRI) funds reaching 358.7 billion won currently. As of Sunday, there are seven ETFs under ESG category are available for public trading.

The SRI funds have been doing relatively well. According to local market tracker FnGuide, 30 domestic SRI funds with over 1 billion won under management have yielded 3.13 percent on average this year, as of last Friday, which is far above 0.7 percent that domestic stock-tracking funds have generated. Two of the ESG-focused funds even delivered over 10 percent profits, with a fund managed by KB Asset Management yielding 13.43 percent.

Kim Jae-eun, researcher at NH Investment & Securities said ESG funds have attracted 380 billion won so far and the amount is growing larger since the National Pension Service adopted the stewardship code. “A company with higher ESG rating would see their profit increase as they would stand more competitive in various aspects, from resource management to governance structure management and dividend policy.” Stewardship code refers to a guideline that encourages institutional investors to be more vocal in exercising their shareholder rights, and expanding engagement in management by shareholders to improve corporate value.

By Kim Gi-chul and Cho Jeehyun

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