KCGS 한국ESG기준원

Korea Corporate Governance Service (KCGS) made public the year‘s final environmental, social, and governance (ESG) ratings of domestic companies. As for the scope, 908 listed firms were rated for ESG and 55 non-listed financial institutions for governance only.

On July 8, 2020, Korea Corporate Governance Service(KCGS) held the year‘s third ESG Rating Committee meeting and downgraded the Environmental(E), Social(S), and Governance(G) grades of 10 companies.

- KCGS analyzed the voting results of the agenda items submitted to the 2020 annual general meetings, the support levels of the outside shareholders, etc.

- A significant number of companies shared the trend of securing a close-to- majority insider ownership for stable business management. Still, outside and inside shareholders had differing views on a number of agenda items.

- A practical institutional tool is necessary such as demanding the board to provide an explanation for the items failing to obtain outside shareholders’ support as is the practice in the advanced capital markets. Companies on their part are advised to make efforts to support shareholders‘ faithful exercise of rights.

- Increased shareholder engagement by institutional investors was anticipated this year again, in line with the trend in 2019. KCGS reviews domestic institutional investors‘ shareholder engagement and compares the outcome with overseas cases.
- Compared to last year, domestic institutional investors‘ shareholder engagement decreased due to internal and external factors. In terms of the mix of the engagement themes, however, there are noticeable changes.
-？In the global markets, shareholder engagement activities and subsequent disclosure are markedly strengthening recently. As the stewardship code has yet to take root in a full swing in the domestic market, the level of engagement and disclosure is somewhat weak compared to that in overseas markets.
- Domestic institutional investors‘ shareholder engagement is expected to expand going forward as a means to enhance respective company value, along with the changes occurring at the asset owners.

For the details, please refer to the attached file.

- Directors’ compensation is an important corporate governance mechanism that provides incentives for directors to make business judgments that are aligned with shareholders’ interests and thereby reduces the agency problem.
- Severance pay and stock options are a form of compensation for directors. In some cases, however, a poor design weakens the effect of having such compensation schemes.
- Publicly traded companies need to be proactive in examining whether their compensation plans work as an effective incentive mechanism.

- Korea Corporate Governance Service looks at the changes brought by legal amendments this AGM season, including the amendments to the Commercial Act and the Financial Investment Services and Capital Markets Act.
- The amendments to the law and regulation governing listed companies relaxed the restrictions placed on large institutional investors, increased information disclosed regarding the agenda items tabled to the annual general meetings, and increased female director nomination.
- The legal changes are expected to serve as an opportunity to make the general meeting of shareholders the ‘supreme decision-making body‘ of the company both in name and reality.

For the details, please check the attached file.