Samsung Electronics Co. has been excluded from the MSCI KOREA ESG Leaders Index of Morgan Stanley Capital International (MSCI), the world's largest index firm. The MSCI removed the company from the index on the grounds that an exhaustive social controversy surrounding Samsung Electronics has had negative effects on business management after the Choi Soon-sil political scandal.
According to the MSCI and investment banking industry sources on January 8, Samsung Electronics was excluded from the MSCI KOREA ESG Leaders Index. ESG stands for Environmental, Social and Governance and it is a term meaning “sustainable management” of companies.
The MSCI Korea ESG Leaders Index is a capitalization weighted index that provides exposure to companies with ESG performance relative to their sector peers. Domestic companies must have an MSCI ESG Rating of “BB” or above and the MSCI ESG Controversies Score of 3 or above to be eligible for the index. However, only top 50 percent of companies in each sector are included in the index in order to prevent from leaning to a specific sector. An official from the MSCI said, “The ESG Leaders Index is an index that invests in best in class by each sector based on ESG performance.”
Samsung Electronics has a MSCI ESG Rating of “BB” or above but has failed in the MSCI ESG Controversies Score. The MSCI excluded Samsung Electronics because the continuous management vacancy caused by the hospitalization of chairman Lee Kun-hee and the arrest of vice chairman Lee Jae-yong can have adverse effects on business management.
An official from asset management industry said, “The MSCI excluded Samsung Electronics from the ESG index because there are concerns that the continuous social controversy can lower the corporate value of Samsung Electronics. It can stigmatize Samsung Electronics even after the company passed in the ESC sector.”