On the morning of the 5th, at the Bank Hall in Jung-gu, Seoul, Kim So-young, Vice Chairman of the Financial Services Commission, reviewed the operation of the stewardship code and announced directions for operational improvements at the seminar on “Development Directions for the Stewardship Code.” There is a growing call for imposing penalties on institutions lacking in participation in voting rights to enhance the effectiveness of the stewardship code, which outlines the behavioral guidelines for institutional investors. The financial authorities and the Korea ESG Standards Board plan to gather various opinions from academia and industry to formulate development plans for the stewardship code within this year.
The Financial Services Commission and the Korea ESG Standards Board held a “Stewardship Code Development Direction Seminar” on the 5th at the Bank Hall and announced plans to develop the stewardship code within the year.
Vice Chairman Kim stated, “Essential improvements must be made to timely reflect market changes and the demands of general investors to enhance trust in the capital market,” and emphasized the need to begin discussions on expanding fiduciary responsibilities and target assets related to the stewardship code, considering cases from major countries.
The stewardship code refers to a set of behavioral guidelines created to maximize the benefits of clients by institutional investors managing customer assets, such as pension funds, acting like stewards. Institutional investors are expected to actively participate in decision-making for companies they invest in to enhance corporate value and report transparently. However, the financial authorities have reviewed amendments to the stewardship code, criticizing the formal nature of voting rights exercises by institutional investors. As of the end of last year, 239 institutions, including the four major pension funds and 133 asset managers, were participating in the stewardship code.
Kim emphasized the need to enhance the enforceability of the stewardship code to improve corporate governance, citing the importance of discussing whether to check and disclose adherence to the principles of the stewardship code by participating institutions, like in the UK and Japan. Following the amendment of the stewardship code guidelines in March last year, which established a basis for institutional investors to evaluate the long-term corporate value strategies of companies they invest in, active engagement was also encouraged.
During the seminar, Professor Kwak Jun-hee of the Economics Department at Sogang University noted the UK’s complete overhaul of the stewardship code in October 2019 to incorporate sustainability elements and expand the range of applicable asset classes beyond stocks, among other strengthened measures. He suggested that Korea should consider amendments reflecting domestic circumstances, such as expanding applicable asset classes and detailing non-financial information. He also proposed parallel measures, such as presenting exemplary cases and benefits to outstanding institutions, to enhance the efficacy of the stewardship code.
Hwang Hyun-young, a research fellow at the Korea Capital Market Institute, positively assessed the increase in opposition voting by domestic institutional investors and shareholder activities following the introduction of the stewardship code. However, he mentioned that post-measures, such as penalties, are needed to enhance the code’s effectiveness.
Hwang explained that, in the UK, failure to properly disclose the stewardship code could lead to the revocation of participating institutions’ status, and Japan requires regular evaluation and disclosure of compliance. He suggested that Korea should also establish implementation check measures to grant incentives to outstanding institutions and penalties to underperforming ones based on evaluation results.
Participants in the panel discussion, which included academia and industry representatives, agreed that the stewardship code needs to be improved step-by-step, tailored to specific national conditions and Korea’s unique circumstances.