National Pension Service Proves ESG Investment Performance

[Asia Economy Reporter Park So-yeon] A study has revealed that the National Pension Service's ESG (Environmental, Social, and Governance) investment strategy has translated into actual returns, drawing market attention. ESG investing, which considers environmental, social, and governance factors alongside financial elements in the investment decision process, is expected to gain momentum.

According to the financial investment industry on the 11th, the National Pension Research Institute of the National Pension Service recently published these findings in a report titled "A Study on Portfolio Management Strategies Considering ESG Factors." Researchers Eun-young Jo, Jeong-hee Noh, and Eom-cheol Tae, who jointly conducted the study, stated, "Analyzing a strategy that buys (long) companies with high ESG ratings and sells (short) those with low ratings yielded statistically significant positive returns."

The study measured cumulative returns over 1-month, 3-month, 6-month, and 12-month periods when adopting a strategy of buying the highest ESG-rated companies and selling the lowest-rated ones. The 1-month return of the ESG rating-based long-short strategy was 0.5%, which was not statistically significant. However, returns over 3 months, 6 months, and 12 months increased sharply to 1.72%, 3.05%, and 6.50%, respectively.

By individual factors, the environmental (E) and governance (G) factors showed very meaningful mid- to long-term return increases, whereas the social (S) factor did not yield significant results. Additionally, when companies with lower ESG ratings were excluded from investments based on ESG ratings, the exclusion strategy showed slightly higher returns compared to cases without such exclusion.

This study conducted an empirical analysis based on ESG ratings and score data from 2016 to 2020 provided by Sustainvest. Information on stock characteristics such as returns, market capitalization, and financial performance was extracted from DataGuide. The study targeted only common stock items listed on the domestic stock market with available market capitalization and return data. On average, 946 stocks had ESG ratings annually, including 730 KOSPI stocks and 216 KOSDAQ stocks.

As of the end of December 2020, the scale of domestic stock ESG investments by the National Pension Fund was KRW 101.4 trillion, accounting for 12.2% of the total fund. In direct management, KRW 93.4 trillion of the total is managed through ESG investments, and KRW 8 trillion of entrusted management under responsible investment types is also managed as ESG.

Meanwhile, the National Pension Service has expanded ESG investments to overseas stocks and bonds starting this year. It plans to gradually broaden the asset classes subject to ESG investment, applying ESG investing to over 50% of the total assets managed by the National Pension.

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