The author is an analyst at NH Investment & Securities. He can be reached at [email protected] — ed.
Corporate governance report disclosure comes from the root. Expectations are high that Korean companies will enter a responsible investment cycle by strengthening disclosure targets, ESG management systems and ESG funds.
Disclosure of corporate governance reports is gaining ground
In order to increase enterprise value by providing consistent and comprehensive corporate governance information, Korean companies have been mandated to provide corporate governance reports since 2019. Their compliance rate with key indicators is highly correlated with the ESG rating, which acts as a simple governance (G) scorecard.
The mandatory disclosure target of the corporate governance report has been expanded from 2022 for companies listed on the Kospi with assets of W1tn or more (compared to previously: W2tn). Policy is being reformed to clarify disclosures. The mandatory disclosure target for 2022 is 304 companies (up to 129 years).
Governance (G) continues to show quality improvements
The average compliance rate with key indicators has fallen from 64.5% last year to 60.6% this year. However, we note that the main reason for this decline is that the average compliance rate for companies with W1tn~W2tn assets was only 50.4%, as these companies have only been disclosing since this year. For companies with assets of W2tn or more, the average compliance rate was 66.7%, an increase of 2.2% per year.
Efforts are being made to strengthen shareholder rights. Considering that companies with assets greater than W2tn have better compliance rates, including the following indicators: General meetings of shareholders are held on a different day than the day when most general meetings of shareholders are held. Hm; Electronic voting is conducted; Provides dividend policy and future dividend plans to shareholders at least once a year; And the convocations are made four weeks before the general meetings. As for firms with W1tn-W2tn assets, they were comparatively weak on indicators such as: internal auditors holding meetings with external auditors without management present more than once a quarter; Formulate and implement succession policies (including emergency placement policies) for CEOs; The convocation takes place four weeks before the general meeting; and to provide training on the internal audit system at least once a year.
POSCO Holdings reported the highest compliance rate (100.0%). Among the business groups, LG Group showed the highest average compliance rate (82.2%). The Hanwha Group showed the strongest improvement, from 58.3% in 2020 to 70.0% in 2021.
More companies are establishing ESG committees (39.8%) and appointing women directors (68.1%). On the other hand, an average of 6.0 out of 7.1 directors were in their 50s or 60s.
Expanding Responsible Investment
The attributable fixed assets of the NPS amounted to 13.7% of its total assets at the end of 2021 (+1.5% pa). The AUM for publicly offered equity-style ESG funds is around W1.9 trillion managed by 18 asset managers. With the expansion of responsible investing from 2021, domestic ESG indices (which previously did not provide consistent results) have started to outperform the market. In line with the efforts outlined above, expectations are high that Korean companies will enter a virtuous circle of responsible investment.
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