Press Releases

• "The National Pension Service, as a Public Pension Fund,

• Must Send a Clear Signal on Coal Divestment"

- Joint Statement of Civil Society on the National Pension Service's Coal Investment Restriction Strategy

- Strict Criteria Required to Prevent the National Pension Service's Coal Divestment Declaration from Becoming Greenwashing

The National Pension Service (NPS) will report the final research results regarding the formulation of coal investment restriction policies and criteria to the National Pension Service Fund Management Committee scheduled for April 29. Starting in May, it plans to establish phased implementation plans for the coal investment restriction strategy, covering asset classes, regions, implementation timelines, and methods.

As of now, we do not possess information on what specific policies and criteria are contained in the final research deliverables. This is because the NPS has completely excluded the input of civil society, which has long raised its voice on coal divestment, the climate crisis, and climate finance, right from the very beginning. However, the details presented during the public hearing on the interim results on March 17 provided an opportunity to gauge the direction and rigor of the coal investment exclusion policy planned by the NPS. We cannot help but express deep concern and point out that the various options proposed at the time regarding the NPS's coal exclusion policy and criteria are merely a "box-ticking" exercise. In particular, if these options are poorly combined, it is highly likely to result in a superficial response to the climate crisis. A coal investment exclusion policy built on a complacent combination of various options will ultimately amount to nothing more than "greenwashing.

The NPS is a major institutional investor representing the domestic financial market in the global arena and a "big hand" that accounts for over 7% of the total market capitalization in the domestic stock market. Naturally, domestic and international financial institutions and corporations are closely watching the NPS's coal divestment policy. For this reason, it must send a clear investment policy signal on coal divestment. Furthermore, the NPS is bound to the destiny of the national economy as it manages the retirement funds of the public. If it fails to establish an effective coal divestment policy, it will fail to manage the financial risks associated with coal investments, rendering the stable management of the fund a distant goal.

The first step toward an effective coal divestment policy is properly establishing the criteria for coal companies and the coal industry. The quantitative threshold for identifying coal companies should be set at "at least 30%" based on revenue share (or power generation share in the case of power utilities). During the public hearing, the NPS presented options for a 30% threshold and a 50% threshold. Considering that the widely accepted global benchmark by the "Global Coal Exit List (GCEL)" is 20%, both options lag significantly behind global trends. To prevent the policy from becoming meaningless, the NPS must adopt a minimum threshold of 30% and progressively strengthen it over time.

Furthermore, the scope of the coal industry must be defined to encompass the entire coal value chain. Today, as new coal-fired power plants have virtually disappeared worldwide, the biggest flaw in domestic coal divestment policies is that they are confined strictly to coal "power generation." The NPS must not repeat this mistake and should establish a policy that properly covers all coal-related industries.

Even if proper quantitative criteria are established, if the "qualitative criteria" are set loosely—leading to the rampant granting of "conditional approvals"—the policy will inevitably encourage greenwashing. To prevent greenwashing, strict evaluation criteria are necessary to determine whether a coal company's greenhouse gas reduction and energy transition plans align with the 1.5°C target derived from the Paris Agreement (the collective goal of limiting the global average temperature rise to within 1.5°C above pre-industrial levels). In the case of green bonds, while evaluations should be based on the Korean Green Taxonomy (K-Taxonomy), investments should only be permitted for projects that fall strictly under the "Green Category," excluding the "Transitional Category." In addition, an immediate and comprehensive investment exclusion must be implemented for all types of overseas coal assets, including stocks and bonds.

Such coal exclusion policies must be accompanied by active stewardship activities targeting coal companies. To fulfill its social role as a public pension fund, it is crucial to lead corporate responses to climate change through shareholder engagement with coal companies. Specifically, the NPS must demand coal divestment transition plans through intensive monitoring and engagement with coal companies, and disclose this process transparently. It should also monitor and evaluate the efforts of the relevant coal companies and devise counterstrategies, such as adjusting investment weights based on these evaluations. Furthermore, it must establish a roadmap to achieve Net-Zero across its asset portfolio before 2040 and exert maximum efforts to address the climate crisis by 2030.

When it comes to responding to the climate crisis, the NPS has remained a mere bystander until now. This irresponsible attitude stands in stark contrast to major overseas pension funds, such as APG of the Netherlands and KLP of Norway, which took action on coal divestment long ago. The NPS must now step out of the bystander's role and transform into a rule-maker that presents clear coal divestment policies to domestic and international markets. As the nation's largest public investor and fiduciary, we demand that the NPS take the lead in properly managing financial soundness risks stemming from coal investments and reducing risks driven by climate change.

Our Demands to the National Pension Service

1. In the era of the climate crisis, actively engage in climate action as a public pension fund to achieve the 1.5°C target established by the Paris Agreement.

2. Expand and define the scope of the coal industry to encompass the entire coal value chain.

3. Set the quantitative threshold for classifying coal companies at "at least 30%" based on revenue share (or power generation share for power utilities) and exclude them from investments.

4. Establish strict standards when determining whether to allow investments in companies that specify energy transition plans, ensuring this is not abused as a pretext for greenwashing.

5. Limit the approval of investments in "green bonds" (which falls under qualitative criteria) exclusively to projects that correspond to the "Green Category" of the Korean Green Taxonomy (K-Taxonomy).

6. Establish robust criteria for active stewardship activities regarding coal companies and enhance transparency.

7. Execute an immediate and comprehensive investment exclusion policy for overseas coal assets.

8. Establish a science-based carbon neutrality roadmap for the asset portfolio targeting a deadline before 2040, and maximize climate crisis response efforts by 2030.

April 28, 2022

Solutions for Our Climate (SFOC), Green Korea United, Plan 1.5,

Korea Sustainability Investment Forum (KoSIF), and Korea Federation for Environmental Movements (KFEM)

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