The Korea Investment Corporation (KIC) is aiming to become a signatory of the UN-supported framework Principles for Responsible Investment (PRI) in a bid to expand its sustainable investing agenda both internally and through global partnerships, the sovereign wealth fund announced on October 5.
KIC established its own stewardship principles in 2018 and has been fully ESG (environment, social and governance) integrated since 2020, meaning that ESG considerations are applied to entire assets across all asset classes.
By being a PRI signatory, KIC expects to strengthen its ESG investing capabilities with better access to global experts and international institutions, a spokesperson told AsianInvestor.
These steps have also had an impact on KIC’s investment strategy. Since beginning its ESG push, KIC has enlarged its ESG strategy from global equities to green and social projects based on the green and sustainability bonds issued by the Korean government.
“Also, we've already made [efforts] to exclude some types of themes to strengthen the sustainability of KIC's portfolio. In the future, based on continuing active research on ESG market, we will try to develop ESG strategies and enlarge new investment areas around ESG investment. Also, we are developing a climate change model and will apply it to KIC's whole portfolio,” the spokesperson said.
The sovereign wealth fund’s assets under management reached $205 billion as of December 31 2021, thereby exceeding $200 billion for the first time since its establishment in 2005. Since then, global markets turmoil has reportedly taken a toll on its performance and portfolio value.
ALL ABOUT ESG
When selecting external managers for equities and fixed-incomes, KIC goes through an ESG assessment and gives extra points to managers with better responsible investment capabilities.
As part of the assessment, the managers' internal resources, such as ESG research capability and independent sustainable investment teams, stewardship activities and ESG-related disclosures, are taken into account.
“For alternative investments, KIC conducts an independent ESG review on the target companies and assets involved in direct and co-investments to assess any potential ESG risks. For indirect investment in alternative assets, KIC uses an ESG questionnaire for asset managers,” the spokesperson said.
ESG findings on all alternative assets are reported to both the investment working committee and the investment committee, so that these findings are then reflected in the investment process, the spokesperson added.
KIC operates two ESG programs. The first is called the ESG Special Companies Program where the sovereign wealth fund limits its exposures to ESG laggards below benchmark weight for direct investments. The second is called the ESG Exclusion Strategy where KIC excludes selected industries and themes from portfolios.
KIC plans to sign the declaration form to join the PRI later this year.
Once finalized, KIC will become the second Korean asset owner to join the PRI after the National Pension Service (NPS), which has been a PRI signatory since 2009.
“KIC has been actively working with international institutions and has expanded global partnerships for ESG investmentover the years. Becoming a signatory of the PRI will reinforce our commitment to transparent and sustainable investment,” Jin Seoung-ho, KIC CEO, said in a statement.