"Emphasizing the Essential Role of Financial Institutions in ESG Investment"

Hana Financial Research Institute Hosts the 11th Roundtable

[Asia Economy Reporter Kiho Sung] Hana Bank announced on the 7th that Hana Financial Research Institute jointly held the 11th roundtable under the theme "ESG and the Role of Financial Institutions" with the Korea Institute of Finance Center.

The roundtable, held on the afternoon of the 5th at the 8th-floor conference room of the Korea Institute of Finance, was attended online by over 40 experts and financial institution officials. They discussed the impact of ESG, which has recently become a global hot topic, on the financial industry and sought responses and solutions from financial institutions for the development of Korea's financial industry. Most participants agreed on the urgency of preparing countermeasures by financial institutions in response to ESG demands and emphasized the need to review potential issues, sharing various opinions and suggestions.

Ryu Young-jae, CEO of Sustainvest, argued that ESG investment to enhance the sustainability of the financial industry should be conducted through market mechanisms. He pointed out that various ESG issues could limit opportunity factors for financial institutions. Therefore, he suggested the appropriate development of the ESG investment market ecosystem and infrastructure.

It is important to note that ESG investment, though relatively short in history, has been developed by pension funds in advanced financial countries with the aim of improving long-term investment returns by mitigating or eliminating market failures related to environmental (E) and social (S) issues and principal-agent problems (G). Accordingly, CEO Ryu emphasized the importance of the role of public pension funds such as the National Pension Service due to the late start of the domestic ESG investment environment. He also stressed the need for financial authorities to foster the ESG investment ecosystem and infrastructure, including corporate ESG information disclosure, and highlighted the urgent task of enhancing the expertise of ESG rating agencies.

Professor Cho Shin of Yonsei University summarized the current status, issues, and overseas cases related to ESG domestically and internationally and proposed solutions to domestic ESG-related issues. First, as of last year, global ESG investment accounted for 36% of total assets under management, showing significant growth, but in Korea, the ESG investment amount of public pensions was 102 trillion won, which was relatively low. In Europe, almost all listed companies are required to disclose ESG-related information, but Korea plans to gradually mandate ESG information disclosure starting in 2025, and he advocated for earlier implementation. Meanwhile, based on overseas studies showing a positive correlation between corporate ESG performance and financial performance, he suggested that financial companies should encourage corporate ESG management.

Meanwhile, Professor Cho recommended that financial institutions clearly understand their role in ESG investment and implement the following ESG strategies. First, he pointed out that the scale and number of domestic ESG financial products are minimal and suggested that financial institutions play a key role as market makers in developing ESG financial products and activating ESG investment. Second, he emphasized that shareholder engagement by institutional investors is essential to promote corporate ESG management and argued that financial institutions, as institutional investors, should actively engage in shareholder activities. Third, since identifying and integratively managing ESG risks positively affects the financial performance of financial institutions, he stressed the need to promptly establish ESG risk management processes.

Professor Jung Jun-hyuk of Seoul National University expressed that careful approaches are necessary because the relevant provisions of the Commercial Act, Capital Markets Act, Trust Act, and National Pension Act applied to pension funds and financial institutions' ESG investments differ. Professor Jung stated that collective investment managers have a duty to maximize the economic benefits of beneficiaries, so ESG investment can be allowed within the scope of improving the fund's risk-adjusted returns. However, ESG investments motivated by environmental or social reasons without improving returns may violate fiduciary duties unless agreed upon in advance through trust contracts. On the other hand, pension funds can execute ESG investments with a longer-term perspective, and more flexible ESG investments are possible, including those that sacrifice returns on specific assets to improve the overall portfolio's returns.

Additionally, Professor Jung emphasized that principles related to ESG investment, such as the Stewardship Code, should be established and that pension funds and financial institutions must consider these legal restrictions when making ESG investments. He particularly noted that universal investors managing assets to mitigate systemic risks like climate change may cause harm to individual company stakeholders and pointed out the need to pay attention to new forms of externalities that ESG investment may cause.

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