The National Pension Service (NPS) is expanding its environmental, social, and governance (ESG) investment principles, which were previously limited to traditional assets like stocks and bonds, to include alternative investments such as private equity, real estate, and infrastructure. This move is expected to enhance the public nature of fund management and the accountability of national finances.
The Ministry of Health and Welfare announced on August 20 that the National Assembly approved an amendment to the National Pension Act, which expands the asset classes eligible for responsible investment principles.
Under current law, the NPS can consider ESG factors when managing and operating the fund to achieve long-term and stable returns. However, until now, this consideration was restricted to traditional asset classes like stocks and bonds.
The fund management headquarters has employed an 'ESG integration strategy' that incorporates ESG factors into the financial analysis of directly managed stocks and bonds. In cases of outsourced management, responsible investment criteria were considered during the selection and monitoring of asset managers.
With the recent amendment to the National Pension Act, explicit legal grounds have been established for considering ESG factors in alternative investments, which include assets outside of securities as defined in Article 4 of the Capital Markets and Financial Investment Business Act.
This amendment addresses regulatory gaps as the proportion of alternative investments, such as private equity, real estate, and infrastructure, continues to rise. Additionally, the amendment mandates that the 'National Pension Fund Management Guidelines' include criteria and methods for considering environmental (E), social (S), and governance (G) factors.
The NPS, which currently outsources about 99% of its alternative investments, plans to actively consider ESG factors when selecting and evaluating alternative investment managers based on this legal change.
The amended law will take effect six months after its promulgation, following approval at the Cabinet meeting. The specific scope of alternative investments will be defined in the enforcement decree of the National Pension Act, and the government will finalize the revised fund management guidelines through discussions with the National Pension Fund Management Committee, which includes representatives of fund members.
Minister of Health and Welfare Jeong Eun-kyeong stated, “This amendment to the National Pension Act is significant as it allows the application of responsible investment principles across all asset classes. We will strive to enhance fund returns in a long-term and stable manner to ensure reliable income for retirement.”
* This article has been translated by AI.
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