South Korean investment firm Truston Asset Management has launched a new equity fund solely focusing on ESG (environment, social, and governance) principles.
Announced on Thursday (January 28), the fund will reflect Truston’s primary focus on governance aspects, setting it aside from other ESG funds which mostly concentrate on environment factors. Governance structure is one of the items most frequently discussed at general meetings of shareholders, and the firm plans to introduce activities that will encourage more shareholder engagement.
Truston said the weak governance of South Korean companies harms shareholder value and encouraged shareholders to speak up on issues, including a change of chief executive and board members, inter-subsidy dealings and illegal inheritance.
The firm has limited the number of portfolio companies in the new fund to around 30 in an attempt to pursue shareholder activism through concentrated investing. It is targeting companies in which ESG improvements could lead to higher profits. Truston uses its in-house ESG criteria, based on advice from ESG research firm Sustinvest.
Truston has a long track record of shareholder engagement with Korean companies. In 2012 it filed for an injunction to stop Mando injecting capital into Halla E&C after Halla Group decided to buy new shares issued by its cash-strapped construction arm.
In 2017 Truston became the first independent domestic investment firm to adopt a stewardship code. The firm voiced support for Hyundai Motor’s restructuring plan in 2018, despite opposition from proxy adviser Daishin Economic Research Institute.
The company differentiates its ESG equity fund from others in South Korea, whose performances mostly track large-cap stocks that tend to have high ESG grades.
Truston has four categories of ESG criteria – Leader, Momentum, Laggard A, and Laggard B. It will focus investment on companies in the Momentum category that have potential to improve through companies’ own efforts, while those listed in Laggard A have lower ESG grades but could improve through shareholder activities.
The firm has decided to manage the fund without a set benchmark and will aggressively search for small-cap portfolios, which is a rare strategy for South Korean asset management firms. (Reporting by In-hye Heo)