NPS pledges to end coal investing, increase alternative exposure

The National Pension Service, the world’s third-largest pension fund, will pull the plug on coal-related investments, according to a plan approved on Friday by its investment management committee.

Under the plan, NPS will no longer finance any new projects that involve building coal-fired power plants. It will also come up with an action plan to implement negative screening in order to exclude investment targets associated with climate change. The plan is to support a low-carbon ecosystem as a long-term investor, it added.

“(NPS) is facing a need of risk management by addressing climate change and dealing with tougher environment-related regulations globally such as the introduction of the carbon border tax,” said Welfare Minister Kwon Deok-cheol, who chairs the 20-member committee.

The committee’s regular meeting held in Seoul, the sixth this year, also approved the public pension scheme’s plan to increase its exposure to alternative assets in Korea and abroad by 2022.

NPS’ weighting on alternative assets -- or assets excluding equities or fixed-incomes -- will rise to 13.5 percent by end-2022, from 10.8 percent as of March. The institutional investor aims to deploy 34 trillion won ($30.5 billion) of dry powder, or unused capital, to such assets in less than two years.

Its weighting on equities will dip to 44 percent, from 45.1 percent in March. Fixed-income exposure will shrink to 42.5 percent, from 43.7 percent. 

Meanwhile, the midterm allocation target of equities, fixed incomes and alternatives for 2026 will remain unchanged from 2025, at 50 percent, 35 percent and 15 percent, respectively.

The announcement comes as the pension fund gained 3.94 percent, or 38.8 trillion won, during the first quarter.

In particular, returns on domestic and foreign equity investments both came to around 9 percent, offsetting a 1 percent loss from domestic fixed-income investing. NPS was managing 872.5 trillion won in assets as of March.

By Son Ji-hyoung (consnow@heraldcorp.com)