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KIC established the Stewardship Principles in 2018 to set clear goals for our stewardship activities. The Principles also mark our commitment to elevating our role as Korea’s sovereign wealth fund through responsible investment practices that integrate non-financial metrics, including ESG factors. In a global context, the Principles symbolize KIC’s alignment with the focus on sustainable development throughout global capital markets.
In 2019, KIC added a responsible investing article to its Investment Policy, which guides our investment activities, and drafted the KIC Responsible Investment Guidelines. At the legal level, Korea’s National Assembly revised the Korea Investment Corporation Act in March 2021 to provide a basis for our commitment to responsible investing. Adhering to laws and regulations in our pursuit of stable, long-term returns, KIC integrates ESG factors throughout the investment process.
We have achieved ESG integration across our asset classes and portfolio, creating a responsible investment system that meets global standards. We have integrated ESG factors across our traditional and alternative asset portfolios, in both direct and indirect investments. Through checking ESG factors that can impact the value of investment targets and taking necessary measures during the investment process, we aim to enhance long-term asset value and returns.
First, for traditional investments, we maintain a watchlist of companies that have scored low on ESG evaluations, for better performance and risk management. We also use a system of assigning bonus points for responsible investment when selecting external fund managers.
Second, we conduct ESG reviews on each of our alternative investments. For direct and co-investments, we examine each project in terms of potential opportunities and risks from an ESG perspective. For indirect investments, we conduct detailed assessments of our fund managers through ESG questionnaires that cover the manager’s ESG policies, resource availability and ESG integration.
Third, we actively consider ESG factors in managing our general equity and fixed-income portfolios. We invest in green, social and sustainable bonds and adopt ESG data in quant strategies for excess returns. Specifically, we have devised exclusion criteria by investment theme and sector and apply them across the KIC portfolio.
Fourth, we have been proactive in responding to global climate change initiatives. KIC actively monitors carbon emissions at the portfolio level for all our equity and fixed-income holdings, and we plan to extend this analysis to cover climate scenarios.
In April 2019, KIC launched a dedicated global ESG fund, the first of its kind in Korea. It follows an ESG index that is linked to equity benchmarks and readjusted according to ESG factors. KIC has used this fund to expand its exposure to companies with a proven ability to manage ESG risk and successfully generated alpha exceeding equity benchmarks, as of May 2021. Following initial successes, we extended this strategy to cover ESG Core and ESG Global strategies. We plan to follow up with time-series monitoring of performance and ramp up existing strategies to drive our ESG investments forward.
KIC has also been entrusted with the proceeds of the Korean government’s green and sustainable bonds to invest in green & social projects. We have published updates on environmental impact indices, including carbon dioxide and greenhouse gas emission reductions and renewable energy generation, in addition to social impact indices including medical and educational outreach. Through this work, KIC aims to boost trust in investors of Korean green and sustainable bonds, drive global ESG investment growth and, over the long-term, contribute to attaining the UN Sustainable Development Goals.
Going forward, we will continue to strengthen our ESG analysis and responsible investing capabilities and apply them to our entire investment process and portfolio as we strive to increase returns, have a positive impact on the environment and promote sustainability.
| ESG-dedicated Investing | ESG Integration – Portfolio level | ESG Review | ESG Program | ||||
|---|---|---|---|---|---|---|---|
| Strategy | ESG Strategy Fund | Green & Social Project | Quant ESG Sub-Strategy | GSS Bonds | ESG Review for Traditional and Alternative Investments | ESG Special Companies Program | KIC Exclusion Strategy |
| Content | ESG Core and ESG Global Strategy Funds | Investing proceeds of government Green & Sustainability Bond | Over (under) weighting high (low)-ESG score names | Investing in green, social & sustainability bonds | Reviewing external managers and alternative investments | Limiting exposures to low-ESG score names (under BM weights) | Excluding particular industries and themes |
| Application(inception) | EQ external management (April 2019) | Direct/indirect AI (June 2019) | Direct quant (EQ) investments (June 2020) | Direct/indirect FI investments (April 2012*) | KIC’s entire portfolio(Jan. 2020) | Direct EQ/FI investments (Nov. 2019) | KIC’s entire portfolio(March 2021) |
* Date of first direct purchase of GSS bonds
Shareholder voting is an integral component of stewardship and a way to monitor business activity and corporate governance to ensure long-term shareholder value. KIC exercises its shareholder rights in line with the KIC Stewardship Principles.
For direct investments, we exercise our shareholder rights through a global stewardship manager we selected in December 2019 for its expertise and independence. For indirect investments, we vote through our external managers. We keep a comprehensive record of all our voting activity and results, striving to drive long-term value in our investments.
Shareholder engagement is a process that encompasses management discussions, written communications, investor reports and any other activity that takes place between a business and its investor. Engagement activities tend to lead to an improvement in business results, enhancing corporate value over the long term.
KIC engages actively as a shareholder, monitoring the scope and key themes of our activities to drive long-term investment value.
And as Korea’s sovereign wealth fund as well as a globally leading institutional investor, we continue to consider the UN Sustainable Development Goals (SDGs) as we engage.
Establish and publicly disclose our principles on investment stewardship and how we will fulfill our stewardship responsibilities
Have a robust internal approach for managing conflicts of interest that may arise in our stewardship activities
Regularly monitor portfolio companies to preserve and enhance value over the medium to long-term
Develop a process for engaging with investee companies, where necessary, on key matters relevant to the delivery of medium- to long-term value creation and preservation
Establish a voting policy and procedures for exercising shareholder rights in a manner aligned with the creation and preservation of investor value
Report periodically on stewardship activities
Commit to appropriate training, development, resourcing and collaboration for good investment stewardship
KIC has actively established responsible investing partnerships with institutional investors in Korea and abroad. In 2019, KIC became the first Korean institutional investor to join the International Corporate Governance Network (ICGN). In 2020, we joined the One Planet Sovereign Wealth Funds (OPSWF), an initiative to respond to climate change. We were also the first Korean public institutional investor to pledge support for the Task Force on Climate-related Financial Disclosures (TCFD) and continue to develop responsible investment partnerships with the world’s leading investors.
Following the 26th UN Climate Change Conference (COP26) in 2021, KIC signed a Memorandum of Understanding (MOU) with the UK Department for International Trade to seek green and ESG investment opportunities in response to climate change. KIC is also the first Korean public institutional investor to publish a Sustainable Investment Report.
On the public relations front, KIC hosted its third ESG conference this year to facilitate the exchange of ESG investment expertise among Korean institutional investors and share our responsible investing knowhow. Of particular note, we hosted an international conference titled “ESG and Beyond” with the International Finance Corporation, reaching a wide audience of domestic and global institutional investors. Our work has sparked interest in ESG and stepped up responsible investment expertise across the industry, inspiring lively discussion around the ESG developments of not just KIC, but also partner institutions.
