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Will BlackRock divest from Kakao over ESG issues?

BlackRock headquarters building in New York / Reuters-Yonhap
BlackRock headquarters building in New York / Reuters-Yonhap

By Park Jae-hyuk

BlackRock appears to be falling into a dilemma over its strategy to prioritize environmental, social and corporate governance (ESG) criteria after Kakao sparked severe public criticism for an alleged workplace bullying incident, just a few days after the IT firm attracted an additional investment from the world's largest asset management company.

Given that commitment to employee welfare is classified as a "social factor" in ESG criteria, attention is focused on whether or not BlackRock will reconsider its investment in Kakao.

According to its recent regulatory filing, BlackRock became the fourth-largest shareholder of Kakao last Monday, following Kakao Chairman Kim Beom-su, the National Pension Service (NPS) and Tencent's subsidiary Maximo, by increasing its stake to 5.18 percent from 4.96 percent. The Kakao shares held by BlackRock are worth over 2 trillion won ($1.8 billion).

The U.S. asset management firm's decision was interpreted as a recognition of the Kakao chairman's "ambitious plan" to donate half of his wealth and the company's establishment of an ESG committee for transparent corporate governance.

Kakao, however, has come under controversy since a person, who claims to be its employee, uploaded a message last Wednesday on Blind, an anonymous chat app for verified employees, criticizing their colleagues for backbiting and threatening to commit suicide.

The message was removed immediately, but other Blind users claiming to be working for Kakao made remarks on the company's performance evaluation system, saying they have been forced to answer whether or not they want to continue working with their colleagues.

They emphasized the peer review system has resulted in some workers being ostracized by their coworkers. Some Blind users suggested filing a petition with the Ministry of Employment and Labor to ask for an inspection.

BlackRock has remained silent about the controversy, although it has continued to warn of its possible divestment from companies that shun ESG principles.

It is true that the asset manager has focused more on environmental factors than social factors to emphasize the importance of the fight against climate change. However, it has never ruled out labor issues when rating ESG scores of companies in which it invested, said experts.

"The more your company can show its purpose in delivering value to its customers, its employees and its communities, the better able you will be to compete and deliver long-term, durable profits for shareholders," BlackRock CEO Larry Fink said in his letter to CEOs earlier this year.

Local experts also viewed workplace bullying as a major risk to handle to get better ESG scores.

"Workplace bullying brings negative impacts on a company in terms of reputation, human capital and regulation cost," Korea Corporate Governance Service analyst Kim Jin-sung said. "This is a significant example of a company's non-financial factors causing medium- to long-term financial risk."

Kakao said it will continue to improve its performance evaluation system, after taking into account the opinions of its employees. The company also said none of its employees committed suicide after the suicidal message was uploaded.


BlackRock headquarters building in New York / Reuters-Yonhap
BlackRock headquarters building in New York / Reuters-Yonhap

By Park Jae-hyuk

BlackRock appears to be falling into a dilemma over its strategy to prioritize environmental, social and corporate governance (ESG) criteria after Kakao sparked severe public criticism for an alleged workplace bullying incident, just a few days after the IT firm attracted an additional investment from the world's largest asset management company.

Given that commitment to employee welfare is classified as a "social factor" in ESG criteria, attention is focused on whether or not BlackRock will reconsider its investment in Kakao.

According to its recent regulatory filing, BlackRock became the fourth-largest shareholder of Kakao last Monday, following Kakao Chairman Kim Beom-su, the National Pension Service (NPS) and Tencent's subsidiary Maximo, by increasing its stake to 5.18 percent from 4.96 percent. The Kakao shares held by BlackRock are worth over 2 trillion won ($1.8 billion).

The U.S. asset management firm's decision was interpreted as a recognition of the Kakao chairman's "ambitious plan" to donate half of his wealth and the company's establishment of an ESG committee for transparent corporate governance.

Kakao, however, has come under controversy since a person, who claims to be its employee, uploaded a message last Wednesday on Blind, an anonymous chat app for verified employees, criticizing their colleagues for backbiting and threatening to commit suicide.

The message was removed immediately, but other Blind users claiming to be working for Kakao made remarks on the company's performance evaluation system, saying they have been forced to answer whether or not they want to continue working with their colleagues.

They emphasized the peer review system has resulted in some workers being ostracized by their coworkers. Some Blind users suggested filing a petition with the Ministry of Employment and Labor to ask for an inspection.

BlackRock has remained silent about the controversy, although it has continued to warn of its possible divestment from companies that shun ESG principles.

It is true that the asset manager has focused more on environmental factors than social factors to emphasize the importance of the fight against climate change. However, it has never ruled out labor issues when rating ESG scores of companies in which it invested, said experts.

"The more your company can show its purpose in delivering value to its customers, its employees and its communities, the better able you will be to compete and deliver long-term, durable profits for shareholders," BlackRock CEO Larry Fink said in his letter to CEOs earlier this year.

Local experts also viewed workplace bullying as a major risk to handle to get better ESG scores.

"Workplace bullying brings negative impacts on a company in terms of reputation, human capital and regulation cost," Korea Corporate Governance Service analyst Kim Jin-sung said. "This is a significant example of a company's non-financial factors causing medium- to long-term financial risk."

Kakao said it will continue to improve its performance evaluation system, after taking into account the opinions of its employees. The company also said none of its employees committed suicide after the suicidal message was uploaded.


Park Jae-hyuk pjh@koreatimes.co.kr


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