Responsible Investment (RI) has global trend over the past decade. In Korea, there is a recent growing interest in responsible investment, led by public pension funds, to analyze and to incorporate not only financial performance but also non-financial indicators, such as Environmental, Social and Governance (ESG) factors, into investment decisions. However, it has been shown that the response of public pension funds to responsible investment is still lacking. In this context, this report firstly reviews and summarizes prior studies on the necessity of expanding responsible investment and its expected results. Second, it is identified the challenges to recognizing and promoting responsible investment using the “Survey on Social Responsible Investment Awareness in Public Pension Funds” undertaken by Korea Sustainability Investing Forum in 2015. Finally, it is assessed whether risks are properly managed through analyzing the effectiveness and downward risks of responsible investment in terms of return rate.
    It is found that there are several obstacles to promote responsible investment principles in Korea: doubts on the effectiveness of responsible investment, difficulties in evaluating investments due to insufficient corporate disclosures, and a general lack of knowledge on responsible investment. In particular three public pension funds—the National Pension Fund, the Private School Teachers’ Pension Fund, and Government Employees’ Pension Fund— were shown not to have an adequate evaluation process for responsible investment.
    In terms of the performance of responsible investment, a series of studies have been released over the past years. The findings generally show the corporation Sustainable Management (SM), that actively manages non-financial factors like ESG issues, has a positive impact on financial results and stock prices. For instance, one analysis on the return of responsible investment suggests that the excess earning rates of responsible investment funds in the United States are similar to or better than the benchmark.
    To promote the responsible investment of public pension funds in the years to come, first of all, the evaluation standards on the funds’ operation (asset management) should be overhauled to bring in a long-term perspective. Second, adding provisions laying the relevant legal grounds which related to responsible investment to the “National Finance Act” or other Acts on public funds needs to be considered. Third, when choosing trust management firms, it is necessary to introduce qualitative assessments which include ESG factor analytic capabilities, management process, strategy implementation measures, and universe shaping methodologies so that can determine the sustainability of asset management. Finally, a comprehensive systematic shift is essential, such as to encourage corporations to further disclose information on ESG and to offer training to public pension fund managers to improve their understanding on responsible investment. In particular, the National Pension Fund should develop concrete guidelines for its entire portfolio to lay out directions to enhance responsible investment and its implementation.