Insights

Making the Obvious Obvious —
What Korea’s Stewardship Code Reform Must Overcome

ㅣTaehan Kim, COO of KoSIFㅣ

There are things in life that we accept as self-evident, without feeling the need to prove them. We believe that parents value their children more than their own lives, that doctors place patients’ lives above all else, and that the state exists to protect the safety of its citizens.

Reality, however, often betrays what we take for granted. Parents have neglected infants to the point of death. Doctors have reduced lives in the operating room to a source of profit. The state failed to protect its citizens in the waters off Sewol and in the alleys of Itaewon. Because these supposedly obvious duties have not always been upheld, laws and institutions have gradually been introduced to safeguard them.

The financial world is no different. In 2008, financial institutions that were expected to put their clients’ interests first betrayed that basic trust. Major Wall Street firms, driven by short-term bonuses, invested their clients’ assets in subprime mortgages and high-risk derivatives linked to them—not for the benefit of their clients, but for their own gain. When the housing bubble burst, the losses were ultimately passed on to clients and society as a whole.

     A Standard That Exists Only on Paper — The Current State of Korea’s Stewardship Code

Financial institutions entrusted with clients’ money—in other words, fiduciaries—should act in the interests of those who have entrusted that money to them. The framework created in response to the 2008 global financial crisis to uphold this basic principle is the Stewardship Code.

The Stewardship Code sets out several fundamental principles of conduct for financial institutions acting as fiduciaries. These include establishing and disclosing clear policies for fulfilling stewardship responsibilities, managing conflicts of interest, reporting voting policies and outcomes, continuously monitoring investee companies, and engaging actively with those companies to enhance corporate value.

The Stewardship Code was first introduced in the United Kingdom in 2010 and has since been adopted by more than 20 countries, including Japan and Canada. Korea introduced its own code in 2016, and more than 200 financial institutions, including the National Pension Service, have adopted it.

Despite this outward growth, however, Korea’s Stewardship Code continues to face criticism for remaining a standard that exists largely on paper. Without a proper implementation review system, asset managers have often treated adoption as little more than a way to receive additional points when competing for mandates from pension funds. They sign up to gain the advantage, while neglecting the Code’s actual purpose: active shareholder engagement.

     The Government’s Reform Proposal and Legislative Discussions

In December 2025, the government announced measures to strengthen the practical implementation of the Stewardship Code, which had increasingly become a formal exercise.

First, it plans to establish a Stewardship Code Development Committee and introduce an implementation review system. Beginning with asset managers and pension funds in 2026, the government intends to assess and publicly rate the quality of reports submitted by all participating institutions by 2028.

It will also recommend linking the outcomes of shareholder engagement to the key performance indicators and compensation systems of investment professionals. A comprehensive revision is planned to expand the scope of stewardship responsibilities beyond governance issues to include environmental and social matters, while also extending the assets covered to bonds and overseas investments.

In addition, the government plans to clarify guidelines so that shareholder communication intended to enhance corporate value does not trigger disclosure requirements applicable to activities aimed at influencing corporate control. This is expected to improve the conditions for institutional investors to exercise shareholder rights in practice.

Legislative discussions are also under way in the National Assembly. On February 12, lawmaker Kim Nam-geun introduced an amendment to the Act on Corporate Governance of Financial Companies. The bill would authorize the Financial Supervisory Service to directly assess whether financial institutions are implementing the Stewardship Code and to disclose the results, thereby strengthening legal oversight of what has so far operated as a soft-law framework.

     Changes for Financial Institutions and Companies

If the Stewardship Code is revised by the first half of the year as announced, shareholder engagement by asset managers is likely to increase significantly.

In particular, the criteria used to assess pension funds’ implementation of the Stewardship Code will include their oversight of external asset managers. As a result, asset managers that currently manage, or seek to manage, assets on behalf of the National Pension Service and other pension funds are likely to step up shareholder engagement as early as the second half of this year.

The Stewardship Code is therefore also likely to have a more tangible impact on the management direction of investee companies. As the scope of stewardship responsibilities expands to include environmental and social issues, institutional investors are expected to conduct ongoing monitoring of risks related to climate change, occupational safety, labor, and human rights, while also increasing their use of letters and requests for private dialogue.

     Four Conditions for Genuine Change

Several improvements will be necessary, however, for the reform to produce meaningful change.

First, the Stewardship Code must move beyond the political framing that portrays it either as a moral standard for “good investment” or as the exclusive agenda of a progressive government. It is simply a practical means for financial institutions to keep their promise to clients: to identify and manage potential risks in investee companies in advance and thereby maximize returns. The reform must begin with a clear recognition of this purpose.

The Stewardship Code emerged because financial institutions failed to do what should have been obvious. Introducing it as a voluntary private-sector framework, without even an implementation review process, may have meant that failure was built into the system from the beginning.

It is therefore a positive sign that an implementation review is now being introduced, even at this late stage. Yet if oversight becomes preoccupied with superficial indicators such as the number of letters sent or the proportion of votes cast against management, it may once again fall into the trap of evaluation for evaluation’s sake, without producing any substantive effect.

Institutional design must be sufficiently detailed to recognize more sophisticated forms of shareholder activity as meaningful outcomes. These should include not only simple votes for or against a proposal, but also conditional support and proposals for modification.

The role of the National Pension Service is also critical. Its influence in Korea’s capital market is immense.

The implementation of stewardship responsibilities should be reflected in the evaluation of the National Pension Service’s fund management, the assessment of its internal investment professionals, the selection and performance review of external asset managers, and the performance and compensation systems applied to fund managers within those firms.

Most importantly, these compensation systems must be linked to long-term rather than short-term performance. As long as the National Pension Service, which manages the retirement assets of the Korean public, remains focused on short-term results, effective implementation of the Stewardship Code will remain out of reach.

Finally, the prompt introduction of mandatory sustainability disclosure is essential.

The purpose of shareholder engagement is not to punish companies for wrongdoing. It is to identify and address risks in investee companies before they materialize, thereby enhancing corporate value.

To do so, investors need information on companies’ ESG risk management systems, strategies, targets, and leading indicators. It is also necessary to classify highly limited forms of shareholder activity—such as requests by financial institutions for sustainability information from multiple companies—as simple investment rather than general investment or investment intended to influence management.

For decades, Korea’s capital market has been unable to escape the stigma of the “Korea discount” because practices considered self-evident by overseas investors were not consistently upheld.

Now, as a series of institutional reforms aimed at improving corporate governance and advancing the capital market begin to reduce that discount, I hope the revision of the Stewardship Code will become another solid foundation supporting that progress.