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<HANKYOREH>
2003.06.12

Series One
A New Wind Blowing in the World Financial Market

"The Morgan Stanley Capital International World(MSCI World), that selected representing corporations with standards in sales and profit, has risen by 43 percent this May since December of 1993. In the same time period, the Dow Jones Sustainability Indexes (DJSI), which created new admissions standards that inquires into social responsibility such as in environment, labor, and human rights, rose 64 percent. The gains are good enough for the big league players to join in, aren't they?"

The marketing director of the Swiss Sustainable Assets Management (SAM), Christian Siegfried was confident that Socially Responsible Investment (SRI) funds are slowly gaining elasticity. Last year, funds that invested according to the Dow Jones Sustainability Indexes have come to number 42 and their assets have come to total nearly $2 billion. Considering the fact that the index has only been around since September 1999, it has undergone a considerable growth.

Socially Responsible Investment (SRI) is causing a shift in the world financial markets. According to a multinational organization promoting socially responsible investment, Social Investment Forum (SIF), SRI fund assets that lingered around $40 billion in 1984 in the US increased to $639 billion by 1995, and rose to $2.34 trillion by 2001. By estimates derived from SIF analysis, one-eighth of the total fund assets in the US follow the guiding principles of social investing. Analysis also shows these assets reached $3 trillion worldwide. The organization also investigated fund managers of approximately 500 pensions and found that 59 percent took social responsibility into consideration when framing their investment strategies.

The reason socially responsible investment principles are gaining strength in various nations' pension funds in the mainstream monetary market is because they have resulted in stable profit return rates. Two well-known firms are Domini Social Investment that invests neither in the defense industry nor the pleasure industry and Sustainable Assets Management(SAM) that measures corporate social and environmental hazards and adjusts assets rates accordingly. These companies that deal specifically in social investing are becoming renown for such rates.

Also, last year's recurrent financial scandals of global corporations served to add fuel to the fire in promoting socially responsible investment. Even corporations that used to attract attention in the stock market with high profit returns found themselves being shunned by society instantly for their unethical practices.

Continued by low interest rates, the stock market saw a gravitational shift toward long-term investments, which is playing a role in cultivating socially responsible investment. As long as investors have to consider the risks in the long-term, the importance will lie less on short-term financial outcomes and more on corporate sustainability. There is higher recognition that a company that takes the environment, human rights, consumers, labor, and other interest groups into account will be far more sustainable.

Methods to numerically assess a company's social achievements and degrees of responsibility are progressing on a daily basis. Firms such as Innovest and Aeries that specialize in analyzing companies' performance in social responsibility provide investors with their evaluations. The Dow Jones Sustainability Indexes (DJSI), FTSE4GOOD, and others show the relationship between corporate social responsibility and stock values.

Socially Responsible Investment has gotten off to a start under the message that "virtuous money and an aware investor" must move in order to bring about a sustainable company and a sustainable society. However, this principle is on the actual financial battlefield and is proving true that, "the virtuous survive long." Domini Social Investment's president, Amy Domini noted, "Members of our company funds can expect high profit return rates as well as being allies of the social values we advocate."

Socially Responsible Investment is taking hold as "a unique long-term investment plan for profitable earnings" instead of "a way of investing money in order to do a good deed." In other words, SRI is going from "an investor's power" to "an investor's wisdom."

By Choi Woo-Sung  <Economy21>  morgen@economy21.co.kr

Series One - Interview

"In contrast to the situation ten years ago, socially responsible investment has become a subject of interest and attention among the finance sectors in North America, Europe, and Australia." Tessa Tennant, the Executive Chair of the Association for Sustainable & Responsible Investment in Asia (ASrIA), whom I met recently in Japan, explained socially responsible investment is headed toward becoming a crucial investment approach.

Tennant, who co-founded the first environmental fund in the United Kingdom in 1988, set sail in Hong Kong the Association for Sustainable & Responsible Investment in Asia in 2002.

- Why should investors come forth to resolve social and environmental problems?
Tennant: Last year at the Johannesburg World Summit, Participants agreed that corporations in the modern capitalist world have grown to overwhelm governments' power to resolve social and environmental problems. However, it is not a simple task for corporations to forsake short-term profits in order to contribute to the environment's well being. The capital market, where long-term investors are, can consider social dangers and influence corporations.

-Why is Socially Responsible Investment important in Asia?
Tennant: The time has come for Asian countries to contemplate the social and environmental problems that have been brought forth by rapid economic and financial market growth. The side effects of this lightening paced development, such as the gap between rich and poor and the destruction of the environment, are starting to overflow. Nevertheless, the Asian nations have hope because their financial markets are not in the completed stage, but are still in the developmental stage.

-Do you mean Asia could surpass the West in terms of socially responsible investment?
Tennant: It is possible if the seeds are planted before the market completely congeals. In the West it was difficult to bring about changes in the market after it had been constructed firmly based on the logic of growth. Asian markets should start off thinking of society and the environment as a friend, not foe.

-In a situation where the world markets are having a rough time, wouldn't socially responsible investment also be difficult?
Tennant: The more critical a situation is, the more necessary socially responsible investment becomes.

By Lee Won-Jae  <Economy21> wjlee@economy21.co.kr

<HANKYOREH>
2003.06.13

Series Two
The Domestic Situation

The first fund with Socially Responsible Investment(SRI) characteristics in Korea is ECO-FUND. As a fund made available by Samsung Investment Trust Management Co. in 2001, it targets companies that are environmentally friendly. At one time, the fund's scale totaled 250 billion Korean Won but has recently been reduced to 92.2 billion Won due to repurchase agreements.

Following Eco-Fund, the Kyobo Investment Trust Management Co. promoted the Women Employment Equality fund, which in turn led to other corporations such as Hyundai Investment Trust Management and Mirae Asset Securities to consider making SRI funds available. However, they were not as successful as Eco-Fund, which remains Korea's unrivaled socially responsible investment fund.

According to financial product development experts, there are no other funds to parallel Eco-Fund yet because SRI funds have uncertain productivity level. It is challenging even to gather enough funds to begin with. Jang Kwang-Sung, who was the marketing manager in charge of Kyobo's Women Employment Equality fund last year related, "Even if the capital is guaranteed, a large number of corporations for investment and the high liquidity of the securities are needed to establish a fund. After careful investigation we reached the conclusion that there is just too little of such corporations."

Though there are few independent funds being established, many are encouraged by the efforts of analysts and fund managers to expand social responsibility in corporate analysis and constructing general portfolios.

Song Young-Sun, a corporate analysis manager for Korea Investment & Securities Co., said "Management that is environmentally friendly or contributions to society not only improve the company image, but also functions positively in long-term development." He also said, "Of course, these aspects should be included in long-term corporate analysis."

It is worth noting that in relation to socially responsible investment, The Korea Teachers Pension created a long-term investment account amounting 100 billion Korean Won from their annual capital. Lee Se-Woo at The Korea Teachers Pension mentioned, "In order for long-term investment, we look for a company that will survive a long period of time in the market and produce a good return as well. Those companies are transparent, attach importance to the shareholders, and are socially and environmentally friendly." In effect, he revealed social responsibility is being considered in making a line of selections for investment. Lee said, "Although the rate at which socially responsible investment is expanding among fund managers is slow, I sense their affinity toward it."

In order for socially responsible investment to come into actualization, companies must provide, not only financial reports, but also material that discloses social outcomes regarding social responsibility. The field in which corporations are beginning to do so, is the environmental domain. Currently, 40 companies are participating in releasing environmental reports. This increase of reports is the result of demands from overseas investors and the Ministry of Environment that requires quantitative data of outcomes.

However, there just isn't a performance report on social outcomes worth having much confidence in. The Federation of Korean Industries has been releasing a biennial economic white paper, which includes the activities undertaken by companies to contribute to society, since 1993. Other sections of corporations have chosen to publish reports as well. But these are essentially for publicity and improving company image and they are insufficient to be used as an indicator for SRI. The general manager of Eco Frontier Co. Lim Dae-Woong remarked, "Social responsibility must first be measurable in order for corporate social responsibility to become a reality. For this to happen, companies must publish sustainability reports and other evaluations that deal with environment, labor relations, human rights, etc. Of course, these reports must be up to international standards." As of yet, these are no enterprises in Korea that issue sustainability reports. Presently, Hyundai Motor Company and Samsung Electronics Co. are the only two corporations with such releases in the making.
Choi Jeong-Chul, the Executive Chair of 'The Center for Corporate Social Responsibility' emphasized, "Because socially responsible investment is, by nature, a long-term investment, it is vital for the stability of the capital market." He also said, "Efforts should be made to speed up socially responsible investment for the sake of the national economy."

By Kim Jeong-Soo   jsk21@hani.co.kr

<HANKYOREH>
2003.06.14

Series Three
Future Tasks

"Large organizations such as the National Pension Corporation have to get the ball rolling. That way, management firms would develop SRI commodity and socially responsible investment would quickly become the leading investment approach. The current trend of short term trading for quick gains must change as soon as possible." This is according to a marketing manager of an investment trust corporation.

Most financial experts agree that in Korea the large corporations, especially the National Pension Corporation, must take the initiative in order for socially responsible investment to take hold in a shorter period of time. The rationale is: if the pension takes social values into account in its investments, the finance market will accordingly reshuffle its immense capital into the sectors that respect those social values. Finance companies that need to sell capital commodities will have no choice but to make funding available correspondent to the evaluation of each company's social responsibility. Thus, these companies will report the outcomes of their social endeavors.

According to Tessa Tennant, the Executive Chair of the Association for Sustainable & Responsible Investment in Asia (ASrIA), "Socially Responsible Investment rapidly expanded from pensions in Western Europe as well." Research conducted by England's Social Investment Forum (2000) revealed 69 percent of the UK's pension funds had the fund managers refer to an environmental, social, or ethical influences when they decide to invest. The leading US pension fund, The California Public Employees' Retirement System (CalPERS), added social responsibility factors such as freedom of speech, labor market, political stability, accounting system's transparency, etc. in their newly emerging market investment approach.

The Office Deputy General Manager of the Citizens' Action Network (CAN), Ha Seung-Chang said, "Because the National Pension fund was created through the collection of the citizens' money, it is proper that it be used to invest in companies that contribute to the whole of society."

Another analysis asserts that socially responsible investment is desirable for long-term investment earnings. "In the case where a pension's investment term is long, one should invest based on long term sustainability and not so much on financial productivity, in order to enjoy stable financial returns." said Rob Katridge, a researcher in the UK's pension fund research institute, Just Pensions. Last year the New York and Florida pension funds, which ranked second in the US, suffered a tremendous loss of $300 million due to the Enron and WorldCom financial scandals. It was due to their pursuit of immediate financial returns.

Because of these mishaps, much attention is being given to the national pension Investment Policy Statement (IPS) that will be presented by next month. In England a pension legislation aimed in the direction of social responsibility has been enforced since 2000. The socially responsible investment initiative taken on by CalPERS is also based on provisions in investment policy guidelines.

However, the National Pension Corporation in Korea is reluctant to encompass standards other than investment returns within their capital management. An officer of the National Pension Corporation said, "The citizens are concerned that mismanagement of the national pension will dry up the funds." In addition, "There is no choice but to focus on increasing return rates in this situation."

On the other hand, the results of a research undertaken by <Economy21> revealed that fifty-six percent of the 500 adults who were told about this new concept of socially responsible investment believed it was befitting of the new economic environment. Ninety-eight percent of financial experts responded they would take SRI into consideration in their investment decision-making if corporate responsibility could be objectively evaluated.

The general atmosphere is ripening. Major corporations such as Samsung, LG, Hyundai, Posco etc. are giving careful consideration to sustainability reports that include social issues as well as financial productivity. Several companies such as Eco-Frontier Co. are even venturing into the business of quantifying a corporation's environmental and social achievements.

Although it is still insufficient, the Korean economy is slowly improving corporate governance through the conglomerate reform policies. The predominant problem now is how the newly reformed, transparent companies will coexist with society.

By Lee Won-Jae  <Economy21>  wjlee@economy21.co.kr