World’s Third-Largest Pension Fund to Limit Coal-Linked Bets

South Korea’s National Pension Service, the world’s third-largest retirement fund, “will adopt investment-restriction strategies” for coal-mining and power-generation industries, another sign of global pressure on large funds to invest sustainably.

The NPS will implement “negative screening” to restrict its investments in these sectors, South Korea’s health ministry said in a statement Friday, without elaborating when the measures will take effect. The fund’s 873 trillion won ($783 billion) assets under management trails only its peers in Japan and Norway in size.

The fund will also stop investing in the construction of new coal-fired power plants, the ministry said. NPS plans to establish step-by-step action plans and conduct research on the screening strategy in the second half of this year before starting to apply the restrictions to its portfolio.

The decision to filter out companies from the coal space comes as money managers around the world face growing public pressure to adopt so-called ESG principles in investing to address issues hot-button issues like climate change. The NPS is an especially large force in South Korea, being the biggest institutional investor in the country’s 2,629 trillion won ($2.4 trillion) stock market.

NPS Chief Executive Officer Kim Yong-jin said at a forum in November that the pension fund will invest half its assets in ESG-active companies in 2022 from 38%, according to a report by the Maeil Business Newspaper.

The pension fund holds stakes in several Korean companies with coal-linked investments, among them Posco, OCI Co., LG International Corp., GS Holdings Corp., Korea Electric Power Corp., Samsung C&T Corp., Doosan Heavy Industries & Construction Co. and Kumho Petrochemical Co..

Some companies in which NPS is an investor have outlined their own efforts toward scrapping coal assets from their portfolios.

Samsung C&T Corp., which serves as the de-facto holding firm of the Samsung Group, said it will ditch coal after completing two ongoing thermal-power plant projects by 2024. Posco and five other steelmakers plan to be carbon neutral by 2050.

Still, Korean companies’ commitments to meeting ESG standards aren’t always clear cut, and have occasionally been criticized for “greenwashing” -- when firms promote their ESG credentials as a marketing exercise. Take the case of Kepco: the electric utility sold a $500 million green bond last year, while investing in new coal-fired power plants in Southeast Asia, sparking debate about its mixed messaging about its commitment to sustainable investing.

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