IMM Private Equity Chief Investment Officer Kim Young-ho speaks during an interview with The Korea Times at the private equity firm’s head office in Seoul, May 26. Korea Times photo by Choi Won-suk
This article is the last in a series of interviews with ESG experts intended to make suggestions for Korea’s financial, industrial and public sectors to come up with better ESG strategies for sustainable growth. ― ED.IMM learns from SK, Shinhan to enhance sustainable investments
By Park Jae-hyuk
The global trend of considering the environmental, social and corporate governance (ESG) factors in business managements and investments have apparently prompted domestic private equity firms (PEFs) to upgrade their strategies to catch up with their peers in developed markets, such as the Carlyle Group and Blackstone.
Local PEFs have started betting on companies that are more likely to bring them opportunities and profits in this era of ESG, amid their aggressive efforts to enhance socially responsible and sustainable investments.
IMM Private Equity Chief Investment Officer (CIO) Kim Young-ho, who has represented the PEF Association consisting of more than 50 domestic PEFs since October 2020, picked shared mobility and healthcare as the industry sectors to attract larger investments.
He indicated IMM itself will also focus more on those sectors, utilizing its relatively more diverse experience of investing in pharmaceutical and car-sharing companies, compared to its rivals. The PEF has already made handsome profits through its investments in biotech companies, including Celltrion, Handok, Genexine, iNtRON Biotechnology and Alvogen. It is also expected to benefit from the envisioned initial public offering of Socar in which it invested in 2018.
“It seems that industry sectors that can directly contribute to people in terms of ESG will receive favorable reviews,” the CIO told The Korea Times in a recent interview. “Considering Korea’s demographic characteristics and its competitiveness, the healthcare industry is definitely an important sector from the perspective of an investor. Shared mobility also draws attention as it can reduce carbon emissions.”
However, he emphasized that consistent efforts to enhance the ESG management are necessary for companies in those sectors to keep grabbing attention from investors. He added that there is room for firms with higher carbon emissions to receive favorable reviews from investors including PEFs, if they aggressively make efforts to become environmentally friendlier.
Seen is IMM Private Equity’s investment philosophy, 4S.
Rebuilding ESG strategies
Kim’s remarks are in line with IMM’s latest attempts to reform its ESG-related activities that have been conducted partially for several years with its own compliance checklist, based on the firm’s investment philosophy, “4S,” which stands for “stable profitability, social responsibility, sound professionalism and steadfast relationship.”
After organizing an in-house ESG taskforce team led by Kim in January, IMM joined the U.N. Principles for Responsible Investment (PRI) in May and its portfolio companies began to declare support for the Task Force on Climate-related Financial Disclosures (TCFD). The PEF also joined hands with PwC and Deloitte Anjin to conduct ESG-focused due diligence, which was applied to the due diligence of Genuone Sciences recently on a trial basis.
“We are establishing the system for ESG investing by learning from the cases of SK and Shinhan Financial Group, both of which have pioneered ESG-related activities in Korea,” Kim said.
IMM is one of Shinhan’s major shareholders with around 4 percent stake. The PEF also acquired a 40 percent stake in SK lubricants through its subsidiary, IMM Credit Solution in May.
According to the CIO, his team especially learned a lot from its counterpart in Shinhan in terms of the role of financial institutions for the environmental factors, such as carbon emissions and climate risks, because the banking group has offered benefits to borrowers satisfying its ESG standards.
“While learning from Shinhan, we asked our portfolio companies earlier this year to form their own ESG taskforces and ESG committees inside their boards,” he said. “After inspecting their business plans every month in terms of ESG, our portfolio firms, including the unlisted ones, will voluntarily disclose their sustainability reports at the end of this year.”
Roles of PEFs
The PEF Association’s leader noted that one important role of asset managers is to come up with long-term measures to improve insufficient ESG-related activities of companies in which they have investments.
On a related note, some market observers expect the recent revision of the Capital Markets Act will contribute to the ESG management of Korean companies as it lifted regulations that have barred domestic PEFs from making more diverse types of investments.
Although Kim was wary of directly associating the revision with ESG at this moment, he did not rule out the possibility that the deregulations can help both conglomerates and small- and medium-sized enterprises (SMEs) enhance their sustainability.
The revised law enables PEFs to hold less than 10 percent voting shares in companies in which they have invested. Kim said PEFs will have more chances to reform the governance structures of family-controlled conglomerates here because they are allowed to hold a smaller number of shares to engage in the management of other companies.
Regarding SMEs, he said they will be able to borrow money from PEFs to upgrade their ESG ratings because the law allows PEFs to manage “private debt funds,” which specialize in lending activities.