A Korean company can comply with every regulation and still trigger investor exodus.
In January 2021, Dutch pension fund APG divested its entire Korea Electric Power Corp. (KEPCO)’s stake — not for legal violations, but because KEPCO’s coal expansion plans violated APG’s moral responsibility standards.
The 528-billion-euro ($639 billion) fund’s complete exit demonstrates a critical investment reality: in Korean markets, legal compliance is the baseline, while moral responsibility determines value.
This gap has cost global investors hundreds of millions and reshaped institutional capital allocation across Korean equities.
MORAL RESPONSIBILITY AS MARKET SIGNAL
Korean corporate culture makes elevated moral responsibility predictable through executive responses that reveal systemic operational risks.
When HDC Hyundai Development faced a building collapse in January 2022, Chairman Chung Mong-gyu resigned from his CEO position within six days — signaling to investors that stakeholder pressure would persist regardless of legal outcomes and potentially disrupt operations for years.
When Kakao Corp.’s service outages paralyzed South Korea in October 2022, co-CEO Nam Goong-hoon’s immediate resignation demonstrated management’s recognition that moral responsibility failures create sustained business risk beyond courtroom liability.
These leadership changes are not merely ceremonial. They reflect companies operating under dual frameworks, where moral responsibility gaps trigger prolonged stakeholder pressure, regulatory scrutiny and market position erosion that directly impacts returns.
Global institutional investors have internalized this reality.
Norway’s Norges Bank Investment Management (NBIM), with $1.4 trillion in assets under management, excluded POSCO Holdings Inc., Daewoo Shipbuilding & Engineering Co. (now rebranded as Hanwha Ocean Co.) and France’s Eramet from its portfolio over moral responsibility concerns — all before legal rulings.
Leading institutional investors now screen for moral responsibility alongside compliance, creating financing disadvantages for companies that fail both tests.
REPUTATIONAL EQUITY: TRUST AS ASSET CLASS
This dynamic creates “Reputational Equity” — a company’s accumulated moral responsibility capital that determines stakeholder loyalty during crises.
Unlike traditional assets, Reputational Equity appreciates through consistent moral responsibility and rapidly depreciates when companies treat legal minimums as sufficient.
Strong Reputational Equity delivers quantifiable advantages: lower borrowing costs, stable institutional access, crisis resilience. Weak Reputational Equity creates persistent vulnerabilities, particularly in Korea where public opinion shifts rapidly and media extensively amplify moral responsibility failures.
Companies building Reputational Equity through proactive moral responsibility command premium valuations. Those with depleted trust face sustained pressure regardless of legal standing.
THE INVESTMENT CHOICE
Korean companies operate where moral responsibility equals legal compliance in stakeholder evaluation. Global institutional investors increasingly apply identical standards, making Korea’s moral responsibility culture a worldwide investment reality.
For international investors, the requirement is immediate: integrate moral responsibility assessment into standard due diligence and examine crisis response patterns and moral responsibility records with the same rigor applied to financial statements.
In Korean markets, moral responsibility often dictates whether investments yield returns or suffer impairment. Companies that treat legal obligations as the floor and moral responsibility as the ceiling are more likely to attract institutional capital.
The choice is binary: either expand due diligence to include moral responsibility evaluations, or accept systemic blind spots that have cost major investors hundreds of millions.
(This article was contributed by James S. Choi, senior vice president and partner at FleishmanHillard Korea)
