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At KIC, we are expanding sustainable investments, which take into account environmental, social and governance factors, to pursue long-term and stable returns. In doing so, we also contribute to the sustainability of Korea’s national wealth.
KIC established 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 sustainable 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 sustainable investing article to its Investment Policy, which guides our investment activities, and drafted the KIC Sustainable 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 sustainable 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 sustainable investment system that meets global standards.
We have integrated ESG factors across our traditional and alternative asset portfolios, in both direct and indirect investments. And 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. We do all this in the following ways.
First, KIC engages in ESG investing, which considers ESG factors as key investment ideas. We have three ESG strategy equity funds and nine green and social projects as alternative assets. We are also making green, social and sustainable bond investments and have ESG-themed quant substrategies that integrate ESG factors at the portfolio level.
Second, KIC conducts ESG reviews to examine the ESG-related aspects of all our traditional and alternative asset managers as well as our direct, joint and indirect alternative investments. We use ESG questionnaires and on-site inspections to check a company’s ESG policy and whether it is reflected in the investment process. We also review the ESG factors of individual projects from multiple perspectives and reflect the findings in our investment decisions.
Third, KIC actively reviews and deals with climate change risks. We identify and scrutinize carbon emissions at the portfolio level for our equity and fixed-income investments. We also expanded the scope of this review to analyze climate scenarios, disclosing the results using TCFD standards in KIC’s 2022 Sustainable Investment Report.
Fourth, KIC is limiting the proportion of investments in companies with low ESG rankings through using a special watchlist and running an ESG program that includes a strategy to avoid investing in specific themes and industries deemed problematic in terms of ESG.
Going beyond the mere reinforcement of policies, KIC has been using sustainable investing as an investment strategy since April 2019, actively operating ESG strategy funds. Based on equity benchmarks, we have selected ESG indices after adjusting weightings in consideration of ESG factors. In what was a first for Korea, we introduced a global ESG strategy fund that follows the indices. With this approach, KIC has expanded investments in companies that effectively manage ESG risks, and we achieved excess returns compared to the equity benchmark until May 2021.
Since then, KIC has increased investments in and diversified into ESG core and ESG global strategies. As of the end of 2022, and since the establishment of the funds, we have achieved excellent returns compared to the equity benchmark. We plan to closely monitor ESG strategy fund performance based on long-term performance and continuously discover new strategies to establish an advanced ESG investment strategy.
KIC also invests in green and social projects with the proceeds of the Korean government’s green and sustainable bonds entrusted us (Ministry of Economy and Finance) in June 2019 and October 2021. After executing these investments, we examine and disclose their environmental impact, including carbon dioxide and greenhouse gas emission reductions and renewable energy generation, in addition to their social impact, including job creation and usage of medical and educational outreach. Through these efforts, KIC aims to boost investor confidence in the Korean government’s 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 sustainable investing capabilities and apply them across our investment process and portfolio. We strive to increase returns, have a positive impact on the environment, promote sustainability and ultimately have our sustainable investment model become a global best practice.
| 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 Inverstments | 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 Inverstments | 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.
As a Korean sovereign wealth fund and global investment institution, KIC considers the UN Sustainable Development Goals (SDGs) in its shareholder engagement process. By monitoring the progress of activities related to the SDGs, including the status of initiatives and important themes, KIC contributes to enhancing the value of invested companies.
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 sustainable 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 the first Korean public institutional investor to pledge support for the Task Force on Climate-related Financial Disclosures (TCFD). And in 2022, we joined the UN Principles for Responsible Investment (PRI), the world’s largest responsible investment initiative to promote ESG investment. In these ways, we continue to expand partnerships with global institutional investors through exchanges centering on responsible investment.
Additionally, 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.
Finally, KIC holds an annual KIC ESG Day to promote the exchange of ESG investment information among domestic institutional investors as well as sustainable investment-focused communication. In 2022, the 4th KIC ESG Day focused on green technology and recently spotlighted investment cases, with overseas investment managers and ESG officials from the domestic public sector participating. Our work has sparked interest in ESG and deepened sustainable investment expertise across the industry, inspiring lively discussion around the ESG developments of not just KIC, but also partner institutions.
