Press releases & notable news

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Seoul bourse to launch new sustainability index

Date: Mar 24, 2009

The Korea Exchange said yesterday it would launch a new benchmark stock index to promote sustainable development principles and practices in the country.

The Socially Responsible Investment Index will be launched in the third quarter of the year, the bourse operator said.

"Green Growth has become a global buzzword. We are working on setting up an evaluation system to select a group of highly sustainable companies to be used in calculating the new benchmark index," a KRX official told reporters yesterday.

The KRX explained that the new SRI Index - a generic term referring to various sustainability indexes - will be designed to measure companies' policies, performance and reporting in relation to the three pillars: environmental, social and governance areas. A company must effectively address each of the three pillars to be said to have integrated sustainability into its business practices, it added.

Financial services industry officials predict the new index, if widely used, to be used as a benchmark index for major global SRI indexes such as FTSE4Good or Dow Jones Sustainability Indexes, leading an increasing number of Korean companies to be named on those indexes.

"If more Korean companies are named on the indexes, the companies will be able to attract more foreign investment as a result," Jun Young-gil, acting president of the Korea Corporate Governance Service, a corporate governance research and ratings agency under the KRX, said in a recent report.

Jun continued that only three Korean companies - Samsung SDI, POSCO and SK Telecom - are currently members of DJSI World Index, which is reviewed annually and quarterly to ensure that the index composition accurately represents the top 10 percent of the leading sustainability companies of the world. DJSI Asia Pacific and Asia Pacific index, which tracks the top 20 percent of the largest 600 companies in the Asia-Pacific market, has seven Korean companies including KT, LG Electronics and Lotte Shopping.

"The United Nations advises financial services firms to make loans to companies with high SRI performances first. In the long run, those companies will be able to sharpen their competitive edge in global trade," Roh Hee-jin, a researcher at Korea Securities Research
Institute, said in a report.

Industry specialist agrees that an SRI index can be a more reliable market indicator for investors than other market indexes, if related companies are run more transparently to investors and rating authorities.

"For highly sustainable companies to grow further, investment firms need to make it sure that the information provided by the companies are always truthful and reliable," continued Roh at KSRI.