NPS has designated climate change as a focus area and is making efforts to mitigate climate risk through dialogues with investee companies with high GHG emissions. However, its climate risk management still falls short compared to leading overseas pension funds. As one of the world’s three largest pension funds and a universal owner, NPS must enhance the effectiveness of its climate strategy and send a clear signal to the market and companies to accelerate their climate action.

Expand the Focus List and Broaden the Scope of Engagement

NPS operates a framework and system that allows the designation of confidential dialogue and focus list companies for insufficient climate action, yet not a single company has been designated to date. To align with the pace of climate action taken by global pension funds, NPS must proactively identify high-risk companies and conduct continuous monitoring and strengthened engagement. Moreover, the current selection criteria lack objectivity, and the strict limit of engaging with only three companies per year is overly restrictive. A more comprehensive and flexible approach should be adopted. To this end, NPS should assess its portfolio composition and financed emissions to expand the number of companies under engagement. Industries and corporations with high GHG emissions—including KEPCO, POSCO Holdings, and Hyundai Steel—should be prioritized for more active climate risk management.

Strengthen Dialogue with Overseas Companies

Despite the increasing share of NPS's overseas investments, its climate-related engagement with foreign companies remains minimal. As a result, climate risk management is largely confined to domestic companies, failing to provide a comprehensive, portfolio-wide approach. NPS plans to directly engage with overseas companies starting in 2027, following a two-year outsourcing phase (2025–2026). During this transition, institutional and strategic shortcomings must be thoroughly reviewed and addressed. Moreover, NPS must rapidly build internal expertise and resources to ensure effective shareholder engagement with foreign investees.

Enhance Transparency and Improve Information Disclosure

As a public pension fund, NPS has a responsibility to transparently disclose its climate risk management efforts and corporate engagement outcomes. Currently, key information—such as financed emissions data, the focus list companies, details of climate-related discussions, and case studies of corporate improvements—remains undisclosed, making it difficult for stakeholders to accurately assess NPS’s climate risk management performance. Therefore, in line with major overseas pension funds, NPS should utilize its website to provide up-to-date information on climate risk management and ensure that its annual stewardship report includes detailed disclosures on climate engagement strategies.

In addition, NPS should define clearer objectives for its engagement activities and implement robust follow-up measures to drive meaningful change. Beyond passive monitoring, it must adopt stronger actions such as issuing public letters, filing shareholder proposals, and imposing investment restrictions if companies fail to make improvements within a specified timeframe. Furthermore, corporate engagement should be closely aligned with investment strategies, setting net-zero targets while increasing investments in companies demonstrating progress and actively considering reductions or divestments from those that do not.