KoSIF Commentary on the Draft Revision of
Korea's Stewardship Code
 

Korea's Stewardship Code is finally being revised—the first comprehensive revision since its adoption in December 2016, nearly a decade ago. Since the world's first Stewardship Code was introduced in the United Kingdom in 2010, the UK and other jurisdictions, including Japan, have revised their codes several times to reflect evolving investment practices and changing capital market dynamics. By contrast, Korea has made only limited amendments to its guidance—such as incorporating the Corporate Value-up Program—without undertaking any substantive revision of the Code itself.

Moreover, Korea's Stewardship Code has often been treated as little more than a prerequisite for obtaining preferential consideration in the selection of external managers for institutions such as the National Pension Service and policy funds managed by the Korea Development Bank. As a result, while the number of Code signatories has grown significantly, only a small proportion have meaningfully implemented their stewardship responsibilities. It is therefore no exaggeration to say that, in practice, Korea's Stewardship Code has not functioned effectively in the capital market.

Today, Korea is pursuing a broad range of reforms aimed at enhancing the competitiveness and credibility of its capital markets. These include strengthening corporate governance through amendments to the Commercial Act, promoting shareholder returns, advancing the Corporate Value-up Program, improving market fairness and integrity, introducing mandatory ESG disclosures—including climate-related disclosures—and advancing the K-GX (Korea Green Transformation) strategy through the expansion of climate finance, encompassing both green finance and transition finance.

Against this backdrop, and considering the direction of both domestic and global capital markets, the Korea Sustainability Investing Forum (KoSIF) welcomes the proposed revision of the Stewardship Code. While the revision is long overdue, it nevertheless represents an important and timely step forward.

KoSIF particularly welcomes the draft's explicit recognition that stewardship activities—including engagement with investee companies and ongoing monitoring—should take into account ESG factors and sustainability. It also commends the expansion of the Code's scope beyond domestic listed equities to include bonds, infrastructure, real estate, private equity, and overseas assets. These developments are entirely consistent with international practice and have long been established in leading stewardship regimes, including those of the United Kingdom and Japan.

The draft also broadens the scope of fiduciary responsibilities. It encompasses more active forms of stewardship, including monitoring and dialogue on key management matters, shareholder proposals, participation in litigation where appropriate, and investment decision-making that reflects the outcomes of stewardship activities. It further recognizes collaborative engagement among investors and requires signatories to report on their stewardship activities while introducing an implementation review mechanism. These changes provide an institutional foundation for ensuring that the Stewardship Code functions effectively in the market. As they reflect well-established international practices, KoSIF strongly welcomes these improvements.

However, the draft also contains several shortcomings that should be addressed, as well as important issues that warrant further consideration.

First, while the draft refers to ESG factors and sustainability, these concepts appear only in the introductory section and implementation guidance rather than in the Code's seven core principles. Even more concerning, the term "climate change" does not appear anywhere in the draft.

The principles constitute the foundation of the Stewardship Code and provide the overarching framework for all stewardship strategies and practices. Whether an issue is embedded in the principles also sends a powerful signal not only to Code signatories but to the capital market as a whole. KoSIF therefore calls for ESG and sustainability to be explicitly incorporated into the Code's core principles, while the implementation guidance should clearly recognize the importance of climate-related risks and opportunities.

Among all ESG issues, climate change represents the single most material financial risk affecting clients' long-term asset values. The Principles for Responsible Investment (PRI) have likewise identified climate change as the foremost ESG risk facing investors and have placed particular emphasis on investor action in this area. Global investors are increasingly engaging companies on climate transition plans and related issues. Furthermore, Korea's mandatory sustainability disclosure regime, scheduled to begin in FY2027 (effective from 2028), will initially focus on climate-related disclosures. Against this backdrop, the complete omission of climate change from the draft demonstrates a failure to reflect the direction of today's capital markets and evolving ESG expectations.

Second, the independence of the Stewardship Code Development Committee and the issue of conflicts of interest must be addressed.

The draft assigns the Committee responsibility for reviewing the implementation of stewardship responsibilities by Code signatories. However, three current Committee members are affiliated with institutions that are themselves signatories to the Stewardship Code. Allowing institutions subject to review to participate in the review process inevitably undermines both the fairness and credibility of the evaluation.

Although the Korea ESG Standards Institute (KCGS) recently announced that these members would be excluded from implementation assessments, KoSIF believes this measure does not fundamentally resolve the underlying governance issue.

KoSIF therefore proposes restructuring the governance framework. The Development Committee should primarily serve as a body responsible for improving and developing the Stewardship Code. If it is also to retain responsibility for implementation assessments, its membership should be reconstituted to include only independent experts from academia, the legal profession, and the financial sector with no conflicts of interest. At the same time, a separate advisory committee comprising representatives from Code signatories, listed companies, ESG organizations, and other relevant stakeholders should be established to provide practical feedback on implementation challenges and policy improvements, with the Development Committee retaining ultimate decision-making authority.

Third, a robust evaluation framework is needed to ensure the effective implementation of the Stewardship Code.

Implementation reviews alone are insufficient to improve institutional investors' fulfillment of their fiduciary responsibilities. Regular evaluations, accompanied by public disclosure of the results, would enable stakeholders to assess the quality of stewardship practices among institutional investors. The Code should also establish clear requirements for maintaining signatory status. Ultimately, the Stewardship Code should be judged not by the number of signatories, but by whether it ensures sustained implementation and responsible stewardship.

Fourth, the expansion of the Code's coverage to additional asset classes should be supported by practical implementation guidelines tailored to each asset class. In addition, legal risks associated with collaborative engagement should be clearly defined, and concrete regulatory reforms should be pursued without delay to remove unnecessary legal uncertainty.

Fifth, since its introduction in 2016, the Stewardship Code has stated that it also applies to organizations providing services to institutional investors, including investment advisers, ESG rating agencies, ESG data providers, and engagement service providers.

However, the current draft addresses only the responsibilities of institutional investors in selecting, overseeing, and monitoring external service providers. It contains no governance framework for the service providers themselves. Looking ahead, Korea should consider following the UK's approach by establishing a separate stewardship code specifically for service providers, thereby creating a more comprehensive and appropriate regulatory framework.

In addition, further consideration should be given to ensuring the consistent application of the "Comply or Explain" principle, gradually strengthening the framework toward an "Apply and Explain" approach, shortening the implementation review cycle, and establishing a more timely monitoring and response mechanism.

Korea is at a critical juncture in its efforts to transform its capital markets by enhancing both corporate value and shareholder value, ultimately achieving a Korea Premium. A revised Stewardship Code with genuine implementation and effective enforcement should serve as a pivotal milestone in that transformation.

The Korea ESG Standards Institute is expected to publish the final version of the revised Stewardship Code after considering feedback received during the public consultation process. KoSIF urges that this consultation not remain a procedural formality, but instead result in a final Stewardship Code that meaningfully reflects the views and recommendations of stakeholders.

June 29, 2026

Korea Sustainability Investing Forum(KoSIF)