Hyundai held up by $8 billion asset manager for its ESG moves

VI Asset Management points out Seoul-based automaker's ESG improvements evolved out of 2019 proxy fight.

An $8.3 billion asset management firm says Hyundai Motor Group, South Korea’s largest automaker, is setting an example for other companies in the nation that are serious about improving environmental, social and governance practices.

Seoul-based VI Asset Management has recently created an ESG team as socially responsible investing expands globally, said Park Sun-ho, the head of the firm’s ESG division. It is developing an ESG model for stocks that will become applicable to other investments such bonds and alternative assets.

“Although Hyundai Motor is not one of the top tier companies in terms of ESG grades, it is among those showing the fastest ESG improvement,” Park said, adding that the automaker’s move to produce eco-friendly cars is helping its score. “We are considering adding the stock more if it continues to improve.”

Corporations are increasingly having to adopt higher ESG standards as more investors factor in issues such as climate change and gender equality into their investment decisions. Hyundai Motor’s effort to improve governance is worth highlighting because of how far it’s come, Park said.

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In May 2018, the nation’s No. 2 conglomerate scrapped an $8.8 billion deal between two units after activist hedge fund Elliott Management Corp. balked at the proposal. The fund lost a proxy fight in March 2019 over dividends and board reforms, but sparked investor activism.

Things have changed ever since. The conglomerate has tried to be more active in investor relations and more transparent in information disclosure and governance, said Kwon Soonwoo, an analyst at SK Securities, adding that the company appointed a foreign member to the board.

Kwon also pointed out that Hyundai Motor’s governance practices started to improve when Euisun Chung was picked as executive vice chairman in September 2018.

A Hyundai spokesperson said in an emailed response to Bloomberg queries that the firm believes investments in good governance can “foster greater business resilience.” The company’s shares rose 0.4% on Friday.

Hyundai’s ESG efforts may come from lessons learned during a controversial land deal in 2014, according to Kwon at SK Securities. The automaker attracted international criticism after buying the land from Korea Electric Power Corp., a state-run company, for $10 billion, a price three times the assessed value.

“Hyundai won’t be able to avoid the rising trend of ESG, as foreign investors are increasingly interested in it,” VI Asset’s Park said. “Not only is it seen as doing the right thing, but investors see it as helping profits.”