National Pension Service Transfers 'ESG Problematic Companies' Director Shareholder Proposals to Stewardship Committee for Review

[Asia Economy Reporter Park So-yeon] The National Pension Service (NPS) has decided to refer the agenda item on the 'ESG (Environmental, Social, and Governance) Problematic Companies' Outside Director Appointment Shareholder Proposal,' initiated by some members of the Fund Management Committee (Fund Committee), to its subordinate body, the Stewardship Responsibility Committee (Stewardship Committee), for review.

The Stewardship Committee will examine the purpose of the proposal, the current status and procedures of responsible investment, and then report to the next Fund Committee meeting. The second Fund Committee meeting this year is expected to be held in early to mid-next month, considering the overall situation.

Cho Heung-sik, Vice Chairman of the National Pension Fund Management Committee and President of the Korea Institute for Health and Social Affairs, said in a meeting with reporters after the first Fund Committee meeting held on the afternoon of the 29th at The Plaza Hotel in Jung-gu, Seoul, that the proposal to recommend outside directors for ESG problematic companies "will be re-discussed by the Stewardship Committee according to regulations and reported."

He added, "This was initiated by one Fund Committee member, and a comprehensive judgment can only be made after review. Since only a few days have passed since the proposal, the Stewardship Committee will conduct a thorough review, and a reporting system will be established going forward."

Seven Fund Committee members, including lawyer Lee Chan-jin, proposed an agenda to the Fund Committee that the National Pension Service should carry out shareholder proposals recommending outside directors for ESG problematic companies. If more than one-third of the 20 Fund Committee members, i.e., at least seven members, agree, the agenda can be submitted to the Fund Management Committee.

Civil society organizations such as the People's Solidarity for Participatory Democracy have urged the National Pension Service to proceed with public interest outside director shareholder proposals to improve ESG problematic companies, arguing that the NPS has not properly created or recommended a list of outside director candidates.

Regarding private equity fund consumer damages, shareholder proposals for outside directors should be made for companies such as KB Financial Group, Hana Financial Group, Woori Financial Group, Shinhan Financial Group, related to industrial accidents like POSCO and CJ Logistics, and for governance-related Samsung C&T Corporation.

The next Fund Committee meeting is expected to be held in early to mid-next month, six weeks before the shareholders' meeting.

At this Fund Committee meeting, the committee deliberated and approved amendments to the tactical currency composition adjustment limit and changes to the National Pension Fund Operation Plan, and received reports on this year's active risk allocation results by asset class.

In December last year, the Fund Committee approved the 2021 target excess return, which is the target rate of return exceeding the market return, at 0.22 percentage points. The National Pension Service allocated a total target active risk of 0.55% that can achieve the target excess return to domestic and foreign managed asset classes and reported this to the Fund Committee.

Active risk refers to the target level of risk that must be taken to achieve excess returns above the market return.

Along with this, the Fund Committee approved matters related to the tactical currency composition introduced under the National Pension Fund foreign exchange management system improvement plan, which was approved in October last year. During the preparation process for implementing the tactical currency composition of the National Pension Fund in response to exchange rate fluctuations, the currency composition adjustment limit was revised to about 3.0 percentage points.

Tactical currency composition adjusts the currency composition of overseas assets to defend the fund's returns against exchange rate fluctuations. When overseas financial markets are unstable, it increases the proportion of relatively safe currencies and reduces the proportion of currencies with increased volatility to protect the fund from losses.

The Fund Committee received a report on the major agenda submission plans for this year.

This year, the Fund Committee plans to discuss regular agenda items such as the 'Last Year's National Pension Fund Settlement' in February, the '2022-2026 Medium-term Asset Allocation Plan,' the '2022 National Pension Fund Operation Plan' in May, and the '2020 Fund Operation Performance Evaluation' in June, as well as improvements to the asset allocation system, activation plans for responsible investment, and methods for calculating target additional returns.

Additionally, to ensure the smooth execution of this year's National Pension Service Unemployment Credit Support Project, the Fund Operation Plan was amended and approved to increase essential operating expenses such as public utility fees by 940 million KRW. As a result, the budget for the Unemployment Credit Support Project increased from 28.5 billion KRW last year to 32.9 billion KRW this year.

This content was produced with the assistance of AI translation services.