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NPS set to invest more in ESG-active firms

Seen above is headquarters of National Pension Service in Jeonju, North Jeolla Province. Yonhap
Seen above is headquarters of National Pension Service in Jeonju, North Jeolla Province. Yonhap

By Lee Min-hyung

The National Pension Service (NPS) is set to introduce tighter environmental, social and corporate governance (ESG) criteria for companies that it seeks to invest in.

Under the tightened screening measures, the nation's largest pension fund will stop investing in any listed firm if it is found to have any problems involving the criteria. The NPS is set to introduce the move as early as the first half of the year. Details of the tightened screening measures have not been fixed yet.

The NPS considered adopting such a strategy in 2019, as part of its bid to expand socially responsible investments.

Also known as "negative screening," the toughened criteria will be used by the NPS to avoid investing in so-called "bad companies" that do not meet social and environmental standards. The term contrasts with "positive screening" under which investors focus on expanding investments in companies that contribute to favorable social and environmental changes.

Discussion over the early introduction of negative screening will pick up more steam amid the growing importance of ESG criteria after the outbreak of the COVID-19 pandemic. Pension funds and investment firms here and abroad are underscoring the need for more companies to join the global ESG drive and widen investments in sustainable growth.

Last year, the NPS announced plans to invest half of its assets in ESG-active companies by 2022. The move is in tandem with major overseas pension funds, a number of which have already adopted negative screening and set up their own "investment blacklists" of companies that fail to adopt ESG criteria. They include players in the area of coal development or weapons manufacturing such as cluster munitions.

Given the NPS' massive influence in the domestic investment circle, stock prices of some ESG-inactive companies are expected to drop after the fund announces its negative screening plans.

"Discussions on specific measures for responsible investments are still underway, and we will confirm them after taking into account opinions from experts and diverse organizations," Health Minister Kwon Deok-chul said Feb. 24 following an NPS fund management committee meeting. He chairs that committee.

In Korea, the notion of ESG was relatively lesser known before the coronavirus pandemic engulfed the country in March 2020. But with a number of big companies in industries such as aviation and travel collapsing in its aftermath, more firms and institutional investors have started to realize the importance of ESG for sustainable growth.

Data also showed that more investors are paying attention to ESG funds. According to data from market tracker FnGuide, the value of socially responsible investment (SRI) funds here surged to 1.51 trillion won as of Feb. 5 this year, a fivefold growth from the end of 2019 when the total value of the SRI funds here stood at 318.4 billion won.

"More companies will have to adopt a stricter set of internal criteria to become more socially and environmentally responsible, as not just the NPS, but also other institutional investors here and abroad are moving to set tighter ESG rules before investing," an industry source said.


Lee Min-hyung mhlee@koreatimes.co.kr


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