Limitations of Industry Self-Regulation... First Revision in Nine Years Since 2016 Introduction
Compliance Checks Introduced... Expanded to Environmental and Social Sectors
"Lack of Concrete Incentives and Sanctions for Non-Compliance"
The financial authorities have decided to revise the "Stewardship Code," which had been left to industry self-regulation, for the first time in nine years. This move comes amid ongoing debates about the code's effectiveness, as it has not been properly implemented despite an increase in the number of participating institutions. In particular, for the Lee Jaemyung administration, which has set the goal of achieving a "KOSPI 5000 era," strengthening the Stewardship Code to encourage responsible investment by institutional investors is seen as essential to further drive corporate value enhancement and capital market reform.
According to the Financial Services Commission and related agencies on December 29, the "Measures to Enhance the Effectiveness of the Stewardship Code," released the previous day, focus on strengthening the effectiveness of institutional investors' fiduciary duty implementation by introducing regular compliance checks and disclosure of results. The scope of assets covered by the Stewardship Code, which was previously limited to stocks, has also been expanded to include all assets such as bonds and real estate. Introduced in December 2016, the Stewardship Code is a voluntary private-sector guideline designed to ensure that institutional investors fulfill their fiduciary duties in the asset management process.
"Lack of Effectiveness... Fails to Reflect Changes in the Capital Market," Criticisms Continue
The debate over the effectiveness of the Stewardship Code is not new. Although the number of participating institutions has increased to 249, as of the end of November, only 23 institutions-less than 10% of the total-had disclosed their shareholder engagement activities. Since both participation and the level of implementation are left entirely to the discretion of the institutions, the absence of a compliance monitoring system has led to assessments that even the core principles have not been properly observed.
Hwang Hyunyoung, a research fellow at the Korea Capital Market Institute, pointed out, "Most participating institutions do not systematically disclose their fiduciary activities, and there are many cases where the exercise of voting rights is merely a formal disclosure. If an institution declares itself as a participant or prospective participant in the Stewardship Code but does not actually engage in activities, it is failing in its fiduciary duty to manage the assets of clients and beneficiaries." As of the end of November, 51 out of 55 institutions listed as "prospective participants" had remained in that status for over a year.
Furthermore, the fact that the code has not been revised even once since its introduction in 2016 has also drawn criticism for failing to reflect changes in the capital market. This contrasts with the United Kingdom and Japan, where the code has been revised at least three times. In particular, in Japan, the introduction of the Stewardship Code is cited as a core factor in capital market reform and is credited with playing a major role in market development. Hwang emphasized, "As interest in capital market advancement and corporate value enhancement grows, the importance of the Stewardship Code in encouraging responsible investment by institutional investors is increasing."
Examining the Revised Plan... Including ESG and Expanding Asset Scope, Why?
Under the new revision, starting next year, participating institutions will be required to prepare self-assessment reports on 12 items, which will then be reviewed and approved by the Stewardship Code Development Committee as part of a new compliance check process. The scope of application will be gradually expanded: beginning with asset management companies and pension funds in 2026, followed by private equity fund (PEF) managers and insurance companies in 2027, securities firms, banks, and investment advisory firms in 2028, and finally venture capital (VC) and service institutions in 2029. In particular, a new separate compliance item for "corporate value enhancement engagement activities" has been established, requiring disclosure of how actively institutional investors have engaged in activities such as shareholder returns at investee companies.
The code will also be revised to align with global standards. First, the scope of fiduciary duty will be expanded to cover the full range of ESG-environmental (E) and social (S) factors. The range of applicable assets will also be broadened from domestic listed stocks to include bonds, infrastructure, real estate, unlisted stocks, and overseas assets. This reflects the fact that, unlike at the time of its introduction-when the Stewardship Code was designed with listed stocks and voting rights in mind-the asset composition of institutional investors has now changed significantly. One market insider noted, "This move follows global standards that consider ESG. In today's investment environment, it is impossible to ignore environmental risks, governance and internal control failures, or social issues."
Will Effectiveness Be Ensured? "The Role of the National Pension Service Is Crucial"
Experts agree that if the Stewardship Code functions properly, it could have a significant impact on advancing the domestic capital market, especially in conjunction with recent amendments to the Commercial Act and value-up initiatives. However, questions remain as to whether the new measures alone are sufficient to ensure the code's effectiveness. Some have already pointed out that the evaluation criteria, such as those for the ESG sector, remain ambiguous.
Concerns have also been raised about the lack of sanctions, as the code is a voluntary standard with no separate penalties. Many experts have cited the absence of clear incentives for faithful implementation or sanctions for non-compliance as one of the main reasons for the code's limited effectiveness. The new revision includes one-on-one feedback for underperforming institutions, but does not specify concrete incentives or sanctions.
Currently, both inside and outside the market, attention is focused on the role of the National Pension Service. As the largest institutional investor in Korea, with over 1,300 trillion won in assets under management, the degree to which the National Pension Service responds to the authorities' policy will likely set the tone for the market. Hwang emphasized, "Pension funds such as the National Pension Service need to faithfully implement and disclose their own fiduciary activities, and at the same time, qualitatively evaluate and disclose the code implementation of their external managers, thereby strengthening their role as a key driving force for market-wide compliance."
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