1

The Trend of SRI market

and SRI Index Development in Korea

SuJeong Moon

Senior Analyst, Sustainable Finance Center

Eco-Frontier Co.

TBLI Asia 2010Tokyo, Japan (27-28 May, 2010)

2TBLI Asia 2010

Introduction of the Eco-Frontier

ClientsClients

Banks

Insurance companies

Government & Local authorities

Private companies

Public institutions

Securities &Asset managers

Eco-Frontier BusinessEco-Frontier Business

• Biomass Business Development• Renewable Energy Business Develop-

ment

Energy & Environmental Business Development

Established: January, 1995

Employees: 100

Low Carbon Green Growth Strategy Consulting

Sustainability/Green Finance

Carbon Business Development • CDM Project Development• Carbon Finance • Green Real Estate Fund

• Carbon Management Strategy • Corporate Sustainability Management• e- Sustainability Management Solution

• ESG & Carbon Rating Service• Green Loan Rating Service• ESG Engagement • Green Finance Consulting

3

Contents

1. Trends of the SRI in Korea

2. The SRI Index development in Korea

3. Outlook of the Korean SRI

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1. Trends of the SRI in Korea

5TBLI Asia 2010

Green Finance

Korea supports for Green Finance through an enactment of “ Basic Act on Low Carbon Green Growth”.

Funding to promote green growth

- To establish funding to support a green economy and green industries

- To develop new financial products to support a low carbon green growth

- To promote private investment to build green infrastructure

Promotion the green management of companies

- To strengthen a corporate disclosure of green management and expand financing for green companies

Introduction of the emission trading system

- To set up a carbon market and promote active trading

Promotion of Green Finance(Article 28)

6TBLI Asia 2010

Initiatives SignatoriesNo. of Signa-

tory Organiza-tions

Signing Date

Coordinator/Partner Organization

GRI ReportingPOSCO, Samsung SDI, Hyundai

Motors, KDB, Shinhan Bank, etc.

55 2003 _

UNEP/FIWoori Bank, KB, Korea EXIM

Bank, etc.8 2006 Eco-Frontier

UN PRINPS, Mirae Asset Global In-

vestment, NH-CA Asset Man-agement, Eco-Frontier, etc.

14 2007 Eco-Frontier

UN Global Compact

IBK, KDB, Woori Bank, etc. 162 2007Global Compact Net-

work Korea

CDPMirae Asset Global Investment,

KB, KDB Asset, etc20 2008 Eco-Frontier, KoSIF

Korean Financial Institutions participates in International Initiatives on Green Finance.

End of March2010 Data

Initiatives on Green Finance

7TBLI Asia 2010

The number of the SRI funds has been increased.

The SRI market is expected to further increase since Pension Funds has begun to pay

attention to SRI and Climate Change.

Source: Korea Financial Investment Association, 2009

Growth of the SRI

2005 2006 2007 2008 20090

10

20

30

40

50

60

70

80

OverseasDomestic

8TBLI Asia 2010

Growth of the SRI

Date Public Pension Private Total

2009.4.30 1,290,866(44%)

952,200(33%)

668,663(23%)

2,911,729

Amount composition ratio of the SRI Funds by investment region

(as of 30 Apr 2009, KRW 1million)

Domestic Overseas Total

484,805(38%)

806,061(62%)

1,290,866

Public funds (as of 30 Apr 2009, KRW 1million)

Public44%

Private23%

Pension33%

9TBLI Asia 2010

Growth of the SRI

Composition ratio of SRI funds(public+private+Pension) by a screening strategy

(as of 30 Apr 2009, KRW 1million)

ESG Environment Governance Total

1,511,612(52%)

1,211,227(42%)

188,890(6%)

2,911,729

Public funds (as of 30 Apr 2009, KRW 1million)

Date ESG Environment Governance Total

2009.4.30321,661(25%)

803,945(62%)

165,260(13%)

1,290,866

ESG 52%

Governance 6%

Envi-ron-

ment 42%

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2. The SRI Index development in Korea

11TBLI Asia 2010

Overview the KRX SRI Index

Governance

Environmental Social

KCGS’s Evalua-tion

SRI Assessment Tool

Eco-Frontier’s Evalua-tion

Develop the SRI Index

As a part of “Plan for Green Growth”, the SRI Index had been developed in the first half of

the 2009.

Considering the accessibility of information, the 330 listed companies under the 21sectors

have been assessed.

12TBLI Asia 2010

Assessment Method

• Strategic scanning capability• Agility adaptation• Traditional governance concerns• Intellectual capital• Product Safety

Strategic Governance

IVA(Intangible Value Assessment)

Stakeholder Capital

Human Capital

Environment

• Partnerships with stakeholders• Relationships with host communities• Management of supply chains• Emerging market strategies• Operations at risk of human rights abuses

• Workplace practices, including recruitment & retention• Labor relations• Health & safety

• Risk management systems, including board & management over-sight

• Disclosure/verification• Efficient use of resources• Effective waste management & reduction• Climate risk assessment• New product development

13TBLI Asia 2010

Assessment Results

500~

600

600~

700

700~

800

800~

900

900~

1000

1000

~110

0

1100

~120

0

1200

~130

0

1300

~140

0

1400

~150

0

1500

~200

00

102030405060708090

100

EV21 IVA

Ratings AAA AA A BBB BB B CCC

No. of Components 40 19 25 47 55 70 74

(%) (12%) (6%) (8%) (14%) (17%) (21%) (22%)

RiskMetrics Group Methodology assigns 7 ratings

Among 330 companies assessed, 131 companies(40%) were eligible investee companies(BBB).

14TBLI Asia 2010

Analysis of the assessment Results

The remarkable results

Finance sector: Human Capital

Electricity & Electronics sector: Products & Service

Machinery sector: Environmental Opportunity

Environmental Risk Factors

Environmental Management Capacity

Environmental Opportunity Factors

Sustainable Governance

Human Capital

Stakeholder Capital

Products&Services

Emerging Markets

3.00

5.00

7.00

금융서비스

기계

전기전자

Finance

Machinery

Electricity & Electronics

15TBLI Asia 2010

SRI Index Components

NO. Company name NO. Company name NO. Company name NO. Company name1 AmorePacific 21 Hanhwa Chemical 41 LG 61 Shinsegae 2 Asia Cement 22 Hanil Cement 42 LG Chem 62 SK3 Asiana Airline 23 Hanjin shipping 43 LG Display 63 SK Energy 4 Cheil Industrial 24 Hansol Paper 44 LG Electronics 64 SK Telecom 5 Cheil Worldwide 25 Hynix 45 LG Fashion 65 S-Oil

6 CJ CheilJedang Corporation 26 Hyosung 46 LG Household and Health Care

66 Ssangyong Cement

7 Dae Kyo 27 Hyundai Department Store 47 LG Life Science 67 Woonggin Thinkbig 8 Daegu Bank 28 Hyundai Heavy Industrial 48 Lotte Shopping 68 Woongjin Coway 9 Daelim Industrial 29 Hyundai Mobis 49 NHN 69 Woori Financial Group

10 Daewoo Securities 30 Hyundai Motors 50 POSCO 70 Yuhan Corporation

11 Daewoo shipbuilding & Marine Engineering

31 Hyundai Steel 51 Pulmuone Holdings

12 Daewoong Pharmaceutical 32 Industrial Bank of Korea 52 Samsung C & T

13 Daum 33 KB Financial Group 53 Samsung Electronic Mechanics

14 Dongbu HiTek 34 KCC 54 Samsung Electronics

15 Dongbu Insurance 35 KEPCO 55 Samsung Fire and Marine Insurance

16 Doosan Heavy Industrial & Construction

36 Kia Motors 56 Samsung SDI

17 Doosan Infracore 37 Kogas 57 Samsung Securities 18 GS 38 Korea Airline 58 Samsung Techwin 19 GS E&C 39 KT 59 SBS20 Hana Financial Group 40 Kumho Petrochemical 60 Shinhan Financial Group

Considering market capitalization, liquidity, and Rating, SRI Index components were selected.

16TBLI Asia 2010

SRI Index Components Distribution

Industry No. of ComponentsRating

AAA AA A

Commodity 3 2 1Construction 3 1 1 1

Metal 2 1 1Finance 10 5 2 3

Machinery 2 1 1Non-metallic Minerals 3 1 2Entertainment & Media 4 3 1

Transportation 3 2 1Logistics 3 1 2

Food & Beverage 1 1Textile & Clothing 1 1

Automobile 3 1 1 1Electricity & Electronics 7 3 3 1Electronic Power & Gas 2 2

Pharmaceutical 3 2 1Shipbuilding 2 2

Paper & Wood 1 1Holdings Company 4 2 2Telecommunication 2 2

Chemical 9 3 4 2IT Service 2 2

The SRI Index is composed of the large portion of financial industry with the 10 components.

In terms of market capitalization, the electricity and electronics industry accounts for 28%.

17TBLI Asia 2010

SRI Index Movement

As of December 16, 2009, SRI Index is 1,518.62P, 51.86% up from 1,000P.

The SRI Index moves similarly to KOSPI 200. However, it has outperformed 6.76% than KOSPI 200 in 2009.

KTB Asset Management launched SRI ETF in December 2009.

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3. Outlook of the Korean SRI

19TBLI Asia 2010

Outlook of the Korea SRI

Develop Green/Carbon Index

- Develop ‘Green Enterprise Index’ and ‘Carbon Index’ to promote green investments

Expand on Integration of ESG and Engagement

- Investors will consider the ESG and a carbon risk in investing decisions

- Financial Institutions will be engaged with companies on ESG Issues

Spotlight on the SRI and Green Finance

- Annual joint conference of P8 Pension Group and UNEP FI. ( “Financing a Low-Carbon Growth in Asia Summit”, 16~17 June, 2010)

- National Pensions Service of Korea is expected to seek progressive movements for the SRI and the Green Finance

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Thank you very much!

SuJeong Moon sjmoon@ecofrontier.co.kr Tel 02-3153-7801 Fax 02-3153-7703 6F DMC Hi-Tech Industry Center, 1580 Sangam-dong, Mapo-gu, Seoul www.ecofrontier.co.kr