[THE INVESTOR] National Pension Service, the world’s third-largest pension fund operator, on July 17 unveiled a draft of the stewardship code which excludes its direct involvement in management activity.

The most influential investor operating more than 600 trillion won (US$532 billion) in assets will not directly be involved in management such as appointment or dismissal of officials in an effort to fend off criticism over the pension fund’s excessive interruption and to minimize impact on the market. 

The draft does not appear to be as progressive as initially anticipated. Markets expected NPS would more directly participate in management as it has often been under fire for rubber stamping agendas at shareholders meetings, catering to the interests of large shareholders.

“There need to be some warning messages to companies that NPS could get involved in management so that they at least try to change,” Ryu Young-jae, CEO of Sustinvest, a research firm focusing on environmental, social and governance issues, during a public hearing on NPS’ stewardship code on July 17.

The number of companies in which NPS has more than 5 percent in stake reaches about 290, including Shinsegae and GS E&C.

NPS’ participation in the stewardship code would still have a positive impact as it would lead to a re-rating of Korean stocks, according to an analyst at Cape Investment and Securities on July 18. “There is some criticism on not participating directly in management activity but the NPS’ participation itself is quite meaningful,” Han Ji-young, Cape Investment and Securities analyst wrote.

“Korea’s adoption is relatively slower than major countries like the UK, Canada, the Netherlands and Japan, but more and more domestic investors are participating in the move, which will lead to a re-rating of the domestic stock markets in the mid- and long-term,” Han added.

The new draft includes establishing an expanded special investment advisory committee, expansion of activity on dividends and abstaining from investing in companies cited for harming the environment or bad governance.

NPS, which is under the Ministry of Health and Welfare, will decide on the stewardship code during a meeting on July 26.

The stewardship code is a set of guidelines for more responsible investment practices among professional investors, to be finalized at a scheduled meeting on July 26. 

Following the suit of NPS, Government Employees Pension, another institutional investor managing assets worth 11 trillion won as of end-June, will adopt the code from next year, its chief investment officer said earlier this week.

By Park Ga-young (gypark@heraldcorp.com)