[EXCLUSIVE] MSCI cuts Naver's ESG score after bullying incident

[EXCLUSIVE] MSCI cuts Naver's ESG score after bullying incident

Investor BlackRock stays mum over controversy

By Park Jae-hyuk

MSCI confirmed that a workplace bullying incident at Naver, which eventually led to an employee’s suicide in May, resulted in a “scoring deduction” in its ESG rating that measures a company’s resilience to risks related to the environmental, social and corporate governance (ESG) factors.

The American financial company, known as one of the world’s most credible providers of ESG ratings, also warned the Korean internet portal operator of a potential downgrading in rating.

“We have incorporated development of the incident until now in the rating,” MSCI’s ESG research team told The Korea Times via email, Wednesday. “Depending on further development, it may incur a further deduction in scoring, which may result in a rating change in the future.”

MSCI has maintained Naver’s corporate rating at AAA since its latest upgrade in May, in contrast to the Korea Corporate Governance Service, a local proxy adviser that decided earlier this month to lower the IT firm’s “social grade” to B+ from A, based on the assessment that the bullying incident stemmed from problems in its corporate culture.

The U.S. firm’s ESG research team partially attributed its stance to Naver’s employee-management programs to support workers and the swift actions of the risk committee, which demonstrated that internal control processes were functioning properly.

The team, however, vowed to continue to monitor any developments.

“We do acknowledge the severity of the incident, which may call into question the efficacy of the company’s formal workforce support structures,” it said. “Such an incident, even with these structures in place, may have repercussions for employee morale, attrition and its ability to attract new talent.”

[EXCLUSIVE] MSCI cuts Naver's ESG score after bullying incident

BlackRock’s sign on its building in New York in this July 2018 file photo. Reuters-Yonhap

MSCI’s opinion will have a visible impact on the decision-making procedures of global investors, including BlackRock, Naver’s second-largest shareholder, which owned a 5.04-percent stake as of March of this year. The world’s largest asset manager is considered as a frontrunner in ESG investments. BlackRock CEO Larry Fink sent a letter last year to the heads of its portfolio firms urging them to pursue ESG management criteria.

However, there has been no disclosure made on the Financial Supervisory Service’s data analysis, retrieval and transfer (DART) system, regarding any change in BlackRock’s stake in Naver since May. BlackRock has also kept silent about the possibility of its direct engagement in Naver’s management over this ESG issue.

“We do not comment on our investee companies,” BlackRock Director Won Shin-bo told The Korea Times via email, recently.

Naver’s labor union leader, Oh Se-yoon, said Wednesday that unionized workers did not ask BlackRock to take action against the company. Instead, the company’s unionized workers plan to visit the National Pension Service (NPS) to urge Naver’s largest shareholder to exercise its voting right by holding an extraordinary shareholders’ meeting. The NPS owns a 10.3-percent stake in Naver.

They are primarily calling on management to dismiss Naver Financial CEO Choi In-hyuk, who only stepped down from his position as chief operating officer (COO) after it was revealed that he was one of the executives involved in the workplace bullying incident.

[EXCLUSIVE] MSCI cuts Naver's ESG score after bullying incident

Unionized workers at Naver hold a press conference in front of the company’s headquarters in Seongnam, Gyeonggi Province, June 7. Korea Times photo by Bae Woo-han

Choi is said to have pushed ahead with the rehiring of the deceased worker’s boss from Netmarble, a local game firm, in 2019, despite opposition from Naver employees who had worked under the man in the past. The former COO is also said to have defended the man in question, even though several Naver employees complained about his violent behavior, which he displayed at work after his return.

The union has criticized Naver’s management for defending Choi, who is known as one of the closest friends of Naver founder Lee Hae-jin.

Although the NPS has vowed to take into account ESG principles in its investments, it remains unclear whether the pension fund will accept the Naver union’s demand, because Naver Financial is an independent entity that is separate from Naver.

Amid the intensifying conflict, Naver will hold a conference call on Thursday morning to unveil its second-quarter earnings. Attention is being focused on whether the company will comment on the bullying incident and its ESG rating.

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