[2023 IPR Forum] "KCGI Invests Beyond Governance into Climate Change"

Im Hyeoncheol KCGI Vice President

"Money from around the world is pouring into the climate crisis. KCGI plans to focus not only on corporate governance, which it has concentrated on so far, but also on responding to climate change going forward."

Lim Hyun-chul, Vice President of KCGI, delivered a lecture titled "Generating Investment Returns through Corporate Governance Improvement and Climate Change Response" at the '2023 Asia Economy IPR Forum' held on the 19th floor of the Korea Press Center in Jung-gu, Seoul on the 8th.

Lim Hyun-chul, Vice President of KCGI, is giving a lecture on the theme of "Creating Investment Returns through Governance Improvement and Climate Change Response" at the "5th Asia Economy IPR Forum" held at the Press Center in Jung-gu, Seoul on the 8th. Photo by Yoon Dong-joo doso7@

KCGI is an activist private equity fund (PEF) known for its corporate governance improvement fund for Korean companies. ESG is a concept that considers environmental, social, and governance factors in addition to financial elements in investment and management decision-making. KCGI views governance (G) as a core mechanism operating environmental (E) and social (S) principles and decision-making processes.

Lim Hyun-chul, Vice President of KCGI, stated, "The Korea discount has occurred due to backward corporate governance," and “on the other hand, companies with good governance show sound cash flows such as controlling shareholders entrusting management to professional executives, employee performance bonuses, and investments in new growth businesses.”

Ultimately, good governance is explained as a rationally designed structure that allows shareholders to exercise rights proportional to the number of shares they hold. The so-called "owner" controlling shareholder holding enormous decision-making authority despite a low shareholding ratio undermines a rational decision-making structure. In such cases, there is a high possibility that the owner may engage in actions harmful to shareholder value, such as misappropriating or embezzling business opportunities of the company.

KCGI focuses investments on such companies and enhances shareholder rights through activist strategies. They directly meet with management or engage in activities such as shareholder proposals and proxy battles to bring about corporate change.

Vice President Lim said, "Undervaluation due to backward governance functions as a definite downside safety net for investment," and “however, we do not simply focus on backward governance and undervaluation; we screen with our own criteria, such as not investing if the controlling shareholder’s stake exceeds 50%, and analyze whether actual change can occur.”

He introduced KCGI’s investment approach with actual cases. First, he cited the case of Ostem Implant. He explained, "Ostem Implant is an excellent company in terms of growth and stability, ranking first in market share in Korea and China," but "its reputation was damaged by owner risk, and there was room for improvement, such as a 20 billion KRW embezzlement incident due to inadequate internal controls."

Accordingly, KCGI proceeded with the investment and took action such as sending shareholder letters. Eventually, the largest shareholder transferred shares to Unison-MBK, leading to improved governance, according to analysis. Hanjin Kal was also introduced as a company with great potential but hampered by owner risk and low return on equity, which KCGI improved through shareholder activism.

Having focused on governance improvement, KCGI now plans to enter industries responding to climate change. Vice President Lim said, "Korea’s response to the climate crisis is very insufficient," and predicted, "Ultimately, capital logic must be reflected for efforts related to climate response to be activated."

He also added, "In future new funds, we will also invest in social development by donating 10% of performance fees to environmental and climate crisis research, youth protection organizations, and others."