“Big p_ layer_s” like Pension and Funds expanding investments in ESG

“ESG representative” Samsung C&T
Expected to reform corporate governance
Reinforcing new & renewable energy

SK declaring the first “RE100”
SKC expanding the eco-friendly business

​ESG (environmental, social, and corporate governance) was nothing more than a trend in the past but has become a matter of survival these days. Socially responsible investment (SRI) is now required due to the introduction of Green New Deal around the world and strengthened shareholder activism. Such atmosphere is present in many places in Korea. Major conglomerates have declared ESG management, and institutional investors such as the National Pension Service are increasing ESG investment. As a result, companies that are doing well in their main businesses and also fulfilling their social responsibility are drawing attention.

Global ESG investment exceeding 40 trillion dollars

​According to a Hana Financial Investment report released on December 20, global ESG investment exceeded USD 40.5 trillion (about KRW 44,530 quadrillion) as of the end of the second quarter of this year, with Exchange Traded Funds (ETF) investing only in ESG companies recording USD 88 billion—which is much more than the USD 58 billion (of ETF) invested throughout last year—in 6 months.

The importance of ESG keeps increasing as big p_ layer_s like Pension, capital management company, etc. are executing their investments by “negative screening,” which excludes negative companies in ESG from the portfolio. Thus, it will be difficult for a company going against ESG to attract investments.

The principle of BlackRock, the biggest asset management company in the world investing USD 7 trillion (about KRW 7,690 trillion), shows such atmosphere well. This year, BlackRock has excluded companies earning more than 25% of the total revenue from production and manufacturing with coal-fired power from its stock and bond portfolio. The company has also set a policy to exclude companies with less than two women members in the Board of Directors. Last month, the National Pension Service announced that it will invest 50% of its total assets in ESG companies by 2022, and a company earning a “D” grade in the ESG _ eval_uation will not be included in excess of the benchmark ratio from next year. Companies showing excellent ESG capacity are drawing much attention in the Korean stock market, too. For example, the stocks of Samsung C&T and affiliates in the SK Group are highly _ eval_uated as they are strengthening ESG management while improving their business performance.

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Samsung C&T and SK Group in the spotlight

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In October this year, Samsung C&T announced that it will stop all new businesses related to coal and withdraw from ongoing businesses gradually. The company is promoting new and renewable energy business such as wind power and photovoltaic power generation, and it is expected to reform corporate governance as one of the three major factors of ESG management. “Corporate value and dividends are expected to increase with the reform of corporate governance, and minority shareholders will benefit, too,” said Soo-Hyeon Kim, researcher of Shinhan Investment.

The SK Group officially announced “RE100” (to become 100% powered by renewable energy by 2050) for the first time in Korea with the participation of affiliated companies. SKC announced on Dec. 14 that it will build the largest eco-friendly waste plastic pyrolysis oil factory in Ulsan Metropolitan City. SK innovation is developing the technology to produce chemical products by decomposing waste plastic.

Hana Financial Investment selected Samsung Electronics, Hyundai Motor Company, Hanon Systems, Hyundai Mobis, SK, Doosan Bobcat, etc. as companies with good shareholder value (dividends). Some companies have achieved both sales growth and ESG. Shinsegae, LG Electronics, Orion, Hotel Shilla, SK, Hanon Systems, etc. are said to be companies that increased sales and reduced emission of greenhouse gases.

Good performance of ESG funds

It is possible to invest in ESG through funds. More funds are flowing into SRI funds with the increasing interest in ESG. According to FnGuide, the amount of net inflow into SRI funds for the past 3 months stood at KRW 310 billion, and the average earnings rate of SRI funds in Korea was 20.78% from the beginning of the year, which is higher than other theme funds such as value stock fund (14% of earnings rate), public sub_ script_ion stocks fund (8.94%), gold fund (22.83%), etc.

MIDAS ASSET Responsible Investment Fund has taken 43% of the earnings, with Samsung SRI Fund capturing 30.13% of earnings this year. Global ESG funds include Vanguard ESG International Stock ETF, iShares ESG Away MSCI USA ETF, etc. Vanguard ESG International Stock ETF rose 16.9% compared to early October. “Funds are flowing in quickly as the prospect of SRI funds has become brighter since the outbreak of COVID-19,” Hoo-Jeong Kim, researcher at Yuanta Securities, explained. 

Reporter Eui-Myeong Park (uimyung@hankyung.com)