Strengthening Fiduciary Responsibility of Institutional Investors... Mandatory Implementation Monitoring and Disclosure of Stewardship Code

The government and the private sector are working to strengthen the stewardship code in order to enhance the fiduciary responsibility of institutional investors. As there have been criticisms regarding the inability to monitor implementation and inadequate disclosure systems, they plan to introduce post-management and inspection procedures.

On December 28, the Stewardship Code Development Committee and the Korea ESG Standards Institute, together with the Financial Services Commission, Ministry of Health and Welfare, Ministry of Personnel Management, Ministry of Education, Korea Post, Financial Supervisory Service, and other relevant ministries and agencies, announced measures to enhance the effectiveness of the "Principles on the Fiduciary Responsibility of Institutional Investors (Stewardship Code)."

The stewardship code is a voluntary private sector standard designed to encourage institutional investors who manage assets to faithfully fulfill their fiduciary responsibilities. It was introduced in December 2016. Since its introduction, a total of 249 institutional investors have participated, including the four major pension funds-National Pension Service, Government Employees Pension Service, Teachers’ Pension, and Korea Post-as well as asset management companies, insurance companies, private equity fund (PEF) managers, and venture capital (VC) firms.

Since the introduction of the stewardship code, the exercise of shareholder rights by institutional investors has become more active to some extent. The rate of opposing votes rose from 1.84% in March 2016 to 4.59% in March 2024. There has also been an increase in shareholder proposals, reflecting ongoing changes. However, there has been no system for monitoring implementation, and the disclosure system has been inadequate. In addition, unlike major countries such as the United Kingdom and Japan, which have revised their stewardship codes to expand ESG (environmental, social, and governance) factors and the scope of applicable assets, South Korea has not revised its code even once.

Accordingly, the relevant agencies have prepared a set of measures focused on strengthening implementation monitoring, disclosure, and global alignment. First, a new implementation monitoring procedure will be introduced, in which the Stewardship Code Development Committee will conduct final reviews and approvals. Participating institutions will prepare self-assessment reports on 12 monitoring items. After a practical review, the Development Committee will make the final determination. For pension funds with independent committees led by the private sector, the results of those committees' reviews may be shared with the Korea ESG Standards Institute.

To prevent conflicts of interest, the stewardship code support organization within the Korea ESG Standards Institute will be physically separated from other departments, such as proxy advisory, by implementing a "Chinese Wall" to block personnel and information exchanges.

The scope of implementation monitoring will be gradually expanded, starting with asset management companies and pension funds next year. In 2027, it will include PEF managers and insurance companies; in 2028, securities companies, banks, and investment advisory firms; and in 2029, VC firms and service providers will be sequentially added.

Disclosure regarding the results of implementation monitoring will also be strengthened. The implementation reports prepared by participating institutions will be released not only on their individual websites but also on the official stewardship code website. In addition, a comprehensive report that allows for itemized comparison of implementation status will be released separately. The plan is to identify best practices, share the results with asset owners such as pension funds, and encourage participating institutions to fulfill their responsibilities.

To enhance global compatibility, revisions to the stewardship code will also be pursued. ESG factors such as environment and society, in addition to governance, will be added to the considerations for fulfilling fiduciary responsibilities. Furthermore, the scope of fiduciary responsibility will be expanded to include not only shareholder activities regarding investment targets, but also the selection of investment targets themselves. Referring to major countries that have expanded the scope of applicable investments to include bonds, infrastructure, real estate, and unlisted stocks in addition to listed equities, the Stewardship Code Development Committee will review and prepare amendments.

Starting next year, the Stewardship Code Development Committee will conduct implementation monitoring for asset management companies and pension funds. The results report will be released every December. In the first half of 2026, revisions to the stewardship code and its guidelines will also be pursued.