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KoSIF's Karl Chun Seung Yang: "The National Pension Service Must Demonstrate More Active Behavior in Responding to Climate Change"

“The National Pension Service (NPS) must declare its support for the Task Force on Climate-related Financial Disclosures (TCFD) in one way or another.”

Karl Chun Seung Yang, Executive Director of the Korea Sustainability Investing Forum (KoSIF), spoke with powerful emphasis during an interview with Business Post on the 1st.

Executive Director Yang previously served as a member of the Fiduciary Duty Committee immediately after the NPS implemented the Stewardship Code in October 2018. The Fiduciary Duty Committee is an operating body established under the National Pension Fund Management Committee to review and determine the exercise of shareholder rights, voting rights, and core responsible investment matters regarding listed equities held by the National Pension Fund.

Why is Executive Director Yang, a former fiduciary duty committee member, raising his voice so strongly regarding the TCFD?

The TCFD is an alliance established in 2015 by the Financial Stability Board (FSB) at the request of the G20 Finance Ministers and Central Bank Governors. It recommends that corporations disclose carbon emissions and related metrics to identify financial risks during the transition toward carbon neutrality.

Currently, over 3,400 organizations and corporations across 95 countries have declared their support for the TCFD. Crucially, 113 of the world's leading public pension funds—including Japan's GPIF, the Netherlands' ABP and PGGM, and the United States' CalPERS—are participating as supporting institutions.

However, despite managing assets exceeding 900 trillion KRW, making it the third-largest public pension fund globally, South Korea's National Pension Service has yet to join as a TCFD supporting institution. Furthermore, the NPS remains absent from other major international climate action movements, such as the Partnership for Carbon Accounting Financials (PCAF) and the Science Based Targets initiative (SBTi). This explains why criticism is mounting that the NPS's movement in countering climate change is excessively passive.

For Executive Director Yang, who has long dedicated himself to driving transformation within the National Pension Service, the fund's current trajectory regarding climate response leaves deep regrets.

Nevertheless, regarding the quantitative growth of the NPS's responsible investment portfolio, which encompasses climate change responses, Yang offered a positive assessment: "Following the introduction of the Stewardship Code, it grew rapidly. In 2020, the explosion in responsible investment volume was catalyzed when the NPS shifted the entirety of its directly managed domestic equity portfolio into responsible investment frameworks."

Indeed, the NPS's responsible investment volume amounted to a mere 32.17 trillion KRW in 2019, representing only 4.36% of the total fund. By 2022, however, this figure surged to 384.1 trillion KRW, accounting for approximately 43.13% of total assets under management.

He also noted that the implementation of the Stewardship Code by the National Pension Service exerted a substantial impact on the domestic capital market.

"After enacting the Stewardship Code, the NPS integrated compliance with the code into its selection criteria for external asset managers," Yang said. "As a direct result, the adoption of stewardship codes among domestic asset management firms and investment advisory entities expanded significantly."

As of June 2023, the number of domestic institutions that have adopted the Stewardship Code reached 212, encompassing 4 public pensions, 3 investment advisories, 58 asset managers, and 63 private equity firms.

However, Executive Director Yang delivered a skeptical evaluation regarding whether the NPS's fiduciary activities have achieved qualitative growth alongside this quantitative expansion.

"Since removing Namyang Dairy Products from its public intensive management list in January 2020, the NPS has not executed a single active shareholder action, such as designating new public intensive management targets or submitting shareholder proposals," Yang remarked. "This inevitably raises doubts about whether the fund's fiduciary duty operations are being executed with any practical efficacy."

When conducting fiduciary duty activities, the NPS follows a stepped framework regarding focus areas like executive compensation and dividends. It first selects 'blind engagement target companies' to convey opinions. If conditions fail to improve, it raises the intervention tier to 'blind intensive management designation,' followed by 'public intensive management designation,' before ultimately executing active shareholder engagement, such as filing shareholder proposals.

On the climate front, these fiduciary duty activities have struggled to gather momentum. It was only in March of this year that Article 13 of the Guidelines on National Pension Fiduciary Duty Activities—which stipulates focus areas—was amended to explicitly include "matters requiring risk management related to climate change." This means that prior to this amendment, climate change response was never recognized as a focus area for fiduciary duties since the code’s initial introduction in 2018.

Executive Director Yang emphasized that for the National Pension Service to move aggressively in its fiduciary operations, including climate change response, it must fundamentally alter the lens through which it views these activities.

"The NPS must stop viewing fiduciary activities under the Stewardship Code merely as a moral obligation or doing it simply because it is 'the right thing to do,'" Yang asserted. "The primary principle governing asset management must always be profitability, and this holds even greater weight for a public pension fund because it represents the collective wealth of the entire citizenry."

He concluded, "Today, structural shifts in society driven by climate change and broader ESG issues are directly tied to the financial performance and long-term investment returns of the National Pension Service."

◆ What is the Korea Sustainability Investing Forum (KoSIF)? Who is Karl Chun Seung Yang?

The Korea Sustainability Investing Forum is a non-profit organization established in April 2007. It aims to contribute to building a sustainable society by accelerating Socially Responsible Investment (SRI) that integrates ESG factors, and by incentivizing Corporate Social Responsibility (CSR).

Since its inception, KoSIF has deployed a diverse matrix of operations based on rigorous ESG research, including legislative support, policy formulation, campaigns, and public relations. It collaborates closely with domestic and international investors, civil society, the government, and the National Assembly to maximize sustainable development.

In 2018, KoSIF achieved a landmark success by orchestrating the nation's very first coal-exit declarations among financial institutions. To date, 104 domestic financial institutions have joined this coal-exit movement driven by the forum.

Executive Director Yang initially founded and operated an environmental enterprise as a corporate executive. Concluding that corporate accountability is vital to systemic sustainability, he joined forces with like-minded individuals to establish KoSIF.

He has served as an adjunct and guest professor across Seoul National University, Central University, and Seoul National University of Science and Technology, and previously served as a member of the National Pension Fiduciary Duty Committee. Currently, alongside his role as Executive Director of KoSIF, he serves as the Standing Vice Chairperson of the CDP (formerly Carbon Disclosure Project) Korea Committee.

[Editor's Note] Asset owners holding $68 trillion have begun to move under the banner of "Climate Action 100+." This coalition features large-scale public pension funds and sovereign wealth funds, including CalPERS and GIC. Institutional investors of diverse nationalities and scales have unified for a single reason: if climate catastrophes worsen or the industrial landscape shifts rapidly due to carbon-neutral mandates, the financial value of their investment portfolios will plummet.

In South Korea, fiduciary activities addressing climate change—known as climate stewardship—are intensifying among large domestic and international investors. Starting this September, the National Pension Service will also launch fiduciary activities specifically targeting "climate change-related risk management."

Business Post is interviewing global and domestic leaders pioneering climate stewardship to convey corporate adaptation strategies. Furthermore, in partnership with the National Assembly ESG Forum and KoSIF, Business Post will host the 2023 Climate Competitiveness Forum on June 13. Relevant coverage and forum information can be found on the official website (ccforum.net).

Sangho Lee Reporter sangho@businesspost.co.kr