Although investment products related to ESG (environmental, social, and governance), which have become a new trend, are increasing rapidly, concerns about green washing are growing. This is because’patterned ESG products’ with ESG signs are being sold to investors without being properly filtered.
As a result of analyzing all domestic active equity-type ESG funds (16) by the Korea Economic Daily, it was found that there were only 3 funds that used ESG-related indices as a benchmark (comparative index). These include Mirae Asset Asset Management’s’Mirae Asset Good Enterprise ESG Fund’, Korea Investment Trust Management’s’Korea Investment ESG Fund’, and NH Amundi Asset Management’s’NH Amundy 100 Years Enterprise Green Korea Fund’.
Benchmarks are indicators that funds use to compare performance. It is used as a type of fund guideline used by fund managers when constructing a portfolio. Not following this benchmark index means that only the packaging was made with ESG. This is the reason why, although the net assets of socially responsible investment (SRI) funds, which belong to ESG funds, have soared more than 180% in two years, there are criticisms that there are many funds with only ESG.
Some argue that the ESG scores of companies invested by domestic ESG funds are not much different from those of general funds. According to the Korea Capital Market Research Institute, the average ESG score of companies incorporated into the portfolio by domestic ESG funds was 51.7 points out of 100, similar to 217 general equity funds (average 51.5 points). This is due to the high proportion of SK Hynix, Samsung Electronics, which is the top stock in the market cap.
Even in this situation, investment in ESG-related funds is increasing. According to F&Guide, a fund evaluation company, 658.1 billion won in total domestic active equity-type funds in the past six months has been lost, but 8533 billion won has been inflow to domestic socially responsible investment-type funds including ESG.
Graphic = Reporter Hur Rami [email protected]
When I surveyed 16 domestic ESG funds… 14 funds ranked first in Samsung Electronics
Global ESG investment volume tripled in 8 years ↑… Breaking 40 trillion last year, getting bigger
‘Samsung Electronics 24.94%, SK Hynix 5.19%, LG Chem 5.03%’ vs’Samsung Electronics 23.54%, SK Hynix 4.69%, LG Chem 3.33%.’
We compared three stocks that the two funds bought a lot. One is the Kiwoom Correct ESG Fund, and the other is the KB Korea Representative Group Stock Fund. The order and proportion of stocks that account for more than 30% of the fund are almost the same. Even if it is increased to the top 10 stocks, the incorporation ratio overlaps with many stocks such as Naver, Hyundai Motor Company, and Hyundai Mobis.
If you look at the contents to invest in ESG (environmental, social and governance), it is a stock portfolio that can be criticized that there is no difference from the existing fund. Not only in Korea. Globally, there is a growing awareness of “green washing”. This is due to the rapid increase in cases of ESG advocating only patterns as ESG, with the environment, society, and governance at the fore, emerged as a new standard for evaluating companies.
ESG fund containing only Samsung Electronics
As a result of examining 16 ESG funds in Korea, the Korea Economic Daily found that a total of 14 funds included Samsung Electronics the most. The share of incorporation is up to 26%, similar to the existing large-cap funds. SK Hynix and LG Chem, which are ranked second and third in the market cap, are also essential.
An official in the management industry said, “As we create investment products with the ESG evaluation not properly established, we have no choice but to focus on the representative stocks that can generate returns.” Of course, it is true that such companies cannot be seen as not outstanding in terms of ESG, but they are not offering investors a portfolio of investments according to ESG strategies, but rather selling trendy temporary funds.
Another problem is that out of the 16 active domestic equity-type ESG funds in Korea, only three funds use ESG-related indices as benchmarks (comparative indices). This means that the indicators that evaluate funds are not aligned with ESG. The total number of SRI (Socially Responsible Investment) funds, including ESG, has soared from 38 to 51 in the last year, but it is pointed out that it is virtually impossible to distinguish between real ESG funds.
ESG investment exceeded 40 trillion won
Concerns over the ESG craze and greenwashing are coming from major countries. According to the Global Sustainable Investment Association (GSIA), the amount of ESG investment in the world exceeded 40 trillion won for the first time last year. It is increasing rapidly from 1.32 trillion won in 2012.
However, there are also greenwashing phenomenon in which asset managers showing ESG funds package fund information without sufficient analysis of ESG. It is an analysis that the ESG-related funds have started to appear as ESG-related funds have produced unexpected returns. According to Heungkuk Securities, ESG funds in Europe produced an average of 1.2 percentage points lower than the benchmark from 2000 to 2019.
Some point out that the industry has not yet established a standard to accurately evaluate ESG. This is because, except for MSCI and Goldman Sachs, there is no place that evaluates the ESG rating of a proper company. A representative of an asset management company said, “Korean ESG investment is in its infancy, and there is not even a proper ESG index to evaluate it.”
“Always self-monitoring is essential”
Experts pointed out that the investment system and government policies related to ESG should not be limited to a simple trend, but should be achieved with the aim of achieving eco-friendly and social goals. In the industry, ESG fund conditions △Apply ESG evaluation methodology in the process of selecting an investment item △Separate ESG research personnel within the management company △Use ESG-related indices as benchmarks.
Some advise that Eurosif (European Sustainable Investment Forum)’s SRI Transparency Code example, which provides disclosure guidelines for ESG funds, is worth referencing. Overseas, financial companies are voluntarily establishing a reporting system for ESG funds. The European Socially Responsible Investment Forum has prepared guidelines for ESG funds, and 800 out of 884 SRI public offering funds in Europe have adopted the code.
Park Hye-jin, a research fellow at the Capital Markets Research Institute, said, “If you do not use the ESG index as a benchmark, you should inform investors of how the fund invests and how well the portfolio is formed through periodic management reports and investment prospects.” “Even considering that the company is still in its infancy, it can be seen that such efforts are insufficient.”
“The ESG rating is only a supplementary indicator for grasping the general status,” said Park Tae-woo, head of Hanwha Asset Management’s credit division, and emphasized that “regular self-monitoring and follow-up management are essential to properly manage ESG funds.
Reporter Park Jae-won/Jeon Beom-jin [email protected]