Korea’s National Pension System (NPS) is falling behind other large public pension funds on proxy voting, according to a study by local policy think tank the Economic Reform Research Institute (ERRI).

With $818 billion in AUM, NPS is the second-largest pension fund in the world after Japan’s Government Pension Investment Fund. However, analysts at ERRI said an inadequate voting policy on sustainability issues means the fund consistently ranks low among peers on support for global ESG proposals.

The study compares NPS with six European, North American and Japanese public pension funds.

It found that the approval rate for ESG shareholder proposals over the period considered – January 2019 to June 2024 – was highest for Dutch fund ABP at 76 percent. Sweden’s AP1 was second with 75.7 percent support, followed by CalPERS at 73.4 percent, CalSTRS at 62.4 percent and Canada’s CPPIB at 55.3 percent.

NPS’s approval rate for ESG proposals was 49.8 percent for ESG AGM items, ranking it sixth out of the seven pension funds. Japan’s GPIF supported just 42.3 percent of proposals.

The study was based on 482 ESG shareholder proposals voted by the NPS. The remaining six pension funds were assessed on votes cast for at least 470 proposals across the same period, except for ABP and AP1, which clocked in at 442 and 383 proposals respectively.

However, the analysis found that NPS’s support for ESG proposals declined significantly between 2019 and 2024. The fund backed more than 60 percent of ESG proposals between 2019 and 2021. That fell 50.9 percent in 2022 and slumped to around 40 percent in the past two proxy seasons.

With regard to individual ESG factors, NPS was ranked fourth for governance resolutions and fifth for environment resolutions, having voted in favour of 79.6 percent and 43.9 percent resolutions respectively from 2019.

But the Korean fund came last among all seven pension funds on support for social proposals, with just 37.6 votes cast in favour.

NPS has already missed a 2021 deadline it set for itself to adopt guidelines for stewardship activities on overseas equities, including a framework for engaging with companies on E&S issues that could impact corporate value.

The fund adopted a broad responsible investment policy for its local exposures in 2021. However, it has only established governance voting guidelines for domestic equities and none for E&S issues.

The ERRI has called on the NPS to establish comprehensive stewardship policies on ESG issues and publicly disclose its expectations for investee companies. These should cover issues that have already gained significant international consensus, such as transition plans and net zero targets.

“Currently, the NPS lacks political independence and is heavily influenced by government policies. As a result, it has been passive on environmental issues due to its sensitivity to the current administration’s stance,” an ERRI spokesperson told Responsible Investor.

“It is essential for the international community to provide constructive criticism regarding the NPS’s passive approach to stewardship activities.”

NPS was contacted for a response to the paper’s findings.

RI understands that ERRI has been in discussions with NPS representatives ahead of the report’s publication. It has also hosted a meeting with members of the Korean legislature to advocate for the urgent introduction of an E&S stewardship policy for both overseas and domestic investments.

Read more @responsible investor