Adre Hinesburg NNIP CSO "Korea Should Increase Focus on 'Governance' Among ESG Factors"

Korea Focuses on Environment Where Performance Is Easy to Verify
Recent Namyang Dairy Case Shows Importance of Governance Improvement

[Asia Economy Reporter Minji Lee] "ESG is no longer a niche market but the new normal (a newly emerging standard in response to changing times). For ESG (Environmental, Social, Governance) to establish itself as an important investment factor in the relatively closed Korean market, greater attention must be paid to governance (G) factors."

Adrie Heinsbroek, Chief Sustainability Officer (CSO) of NNIP (NN Investment Partners), said this in a written interview with Asia Economy on the 9th. While global attention to the environment (E) is increasing due to the severity of the climate crisis among ESG factors, considering Korea's cultural background and market type, governance should be regarded as the most important factor.

CSO Adrie explained, "When devising ESG investment strategies, different approaches are required for emerging and developed countries, and governance is key in emerging markets. In Korea, some chaebols have unequal ownership structures, so governance needs to be given significant consideration." To establish ESG evaluation criteria and investment strategies, regional and national specificities must be reflected. Given Korea's preference for companies actively engaged in social responsibility activities, governance should be actively considered.

CSO Adrie argued that chaebol companies themselves are not inherently bad, but the opaque ownership structures of Korean chaebols inevitably create uncertainty for investors. He said, "Companies with governance issues are more likely to fail when dealing with environmental and social issues. In Asian countries, there is a high correlation between governance and default rates, mainly due to relatively low openness."

Looking at some domestic companies, when CEOs or chairpersons are legally detained or fined for charges such as embezzlement, breach of trust, or bribery, it often causes significant disruption to business and inflicts fatal damage to reputation and brand. The recent case of Namyang Dairy Products well illustrates the importance of governance improvement. The governance structure that allowed unilateral decision-making by the owner family triggered incidents such as forced product sales to dealerships (2013), embezzlement of dealership sales commissions (2017), and exaggerated advertising of Bulgari's (2021), which angered consumers and eventually led to the company's sale. CSO Adrie emphasized, "The Korean government and companies are actively pursuing environmental improvements, which are easier to measure in terms of performance, such as greenhouse gas emission regulations and carbon neutrality goals, compared to other ESG factors. Social sensitivity to governance and institutional investors considering it an important factor are increasing the importance of governance improvement."

From the perspective of ESG investors, the current Korean market is not an ideal investment destination. The inclusion of ESG as an essential part of the investment process in Asian countries, including Korea, has only recently begun after the COVID-19 pandemic. However, it is positive that consumers have increased their interest in corporate sustainability during the pandemic, and investors are realizing that integrating ESG factors into investment decisions can lead to better returns.

CSO Adrie explained, "Although it is an early market developing and promoting a comprehensive ESG framework aligned with global standards, the accelerating pace of ESG adoption in Asian countries makes it a potential major investment destination in the future." As of the end of last year, NNIP manages approximately $370 billion in assets entrusted by institutional and individual investors worldwide. Of these, 74% are managed according to ESG standards, with most equity investments concentrated in developed markets such as Europe and the United States.

CSO Adrie stressed the importance of the role of institutional investors, including the Korean government’s pension funds, in promoting ESG. He said, "It is necessary for institutional investors to actively participate in voting processes where they can express opinions on corporate performance and strategies, holding management accountable." He added, "Clear regulations on disclosures should be established to strictly select investment companies and prevent greenwashing, similar to the EU Sustainable Finance Taxonomy or the EU Green Bond Standard."

△ Adrie Heinsbroek, Chief Sustainability Officer at NNIP, has been involved in corporate social responsibility and responsible investment since 1996. At ING Group, the predecessor of NNIP, he served as Senior Analyst for Socially Responsible Investment and Senior Sustainability Advisor, and at ING Belgium Bank, he was Head of Sustainability. Since 2017, he has been leading responsible investment at NNIP, ensuring that sustainability indicators are integrated into all investment decision-making processes.

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