The centre of gravity in global ESG, short for environmental, social and governance, is rapidly shifting to governance. In the United States, environmental and social shareholder proposals have plunged, while governance items hit a high of 202. Analysts say South Korea also faces urgent pressure to respond on governance as three rounds of Commercial Act revisions and mandatory cancellation of treasury shares take effect at the same time.

According to SK Securities, the number of shareholder proposals by category for Russell 3000 listed companies in 2026 was tallied at 202 for governance, 63 for environment, 24 for social and 44 for anti-ESG. After the launch of Trump’s second term, environment and social items fell but governance items rose. That means the balance of ESG management has shifted to governance. Activist funds and institutional investors are also moving their targets from environment and social issues to governance areas such as board composition, dividend policy and capital allocation.

Pressure is stronger in South Korea. Hanwha Investment & Securities analysed that governance reform, which had for decades remained a slogan, is beginning to take hold as binding norms after the first (July 2025), second (September 2025) and third (March 2026) Commercial Act revisions legislated an expanded duty of loyalty for directors, a strengthened 3 percent rule for audit committees, mandatory cumulative voting and mandatory cancellation of treasury shares. In particular, as directors’ duty of loyalty expands from the “company” to the “company and all shareholders”, succession-related transactions such as spin-offs, the use of treasury shares and intra-group transactions could become targets of shareholder derivative lawsuits.

Mandatory cancellation of treasury shares introduced in the third revision has an immediate impact. Newly acquired treasury shares must be cancelled within 1 year, while existing holdings must be cancelled within 1 year after a 6-month grace period following the effective date, for a total of 18 months. Hanwha Investment & Securities assessed that about 28 trillion won worth of treasury shares held by South Korean listed companies will be subject to mandatory cancellation. It also analysed that for companies holding 10 percent of their shares as treasury stock, cancelling them would have the effect of lifting earnings per share by about 11 percent.

Changes are also being detected on the supply-demand side. As outsourced asset managers exercise voting rights directly in their own names, institutional investors are expected to step up involvement in governance items. The National Pension Service will restructure how voting rights are exercised for 263.7 trillion won worth of domestic stocks as of the end of 2025. The first transfer targets are stewardship-type funds worth about 12.9 trillion won managed by 8 firms, about 10 percent of the total outsourced mandate. If voting results are linked to fund allocations and withdrawals, competition among managers over fiduciary responsibility will intensify and involvement in governance items such as board entry and executive pay will also rise, Hanwha Investment & Securities analysed.

Mixed responses by company: pre-emptive cancellation or exception clauses

South Korean companies’ responses to the pressure have split into two tracks. Companies focusing on restoring market trust and those seeking to soften the impact of the system through changes to articles of incorporation and board structures have become clearly divided.

A representative case of the former is KT&G. At its annual general meeting of shareholders, KT&G announced it would cancel all treasury shares it holds, while also adding a clause to its articles of incorporation allowing it to use treasury shares when there is a management purpose such as adopting new technologies or improving its financial structure. Hanwha Investment & Securities analysed this as a compromise case that secured market trust by pre-emptively complying with mandatory cancellation while also preserving flexibility in capital policy. Some large companies, including Samsung Electronics and SK Inc, also announced plans to pre-emptively cancel treasury shares worth several trillion won ahead of the law’s implementation.

By contrast, 27 KOSPI companies and 38 Kosdaq companies added or expanded exception clauses for management purposes in their articles of incorporation. Many are in growth stock, information technology, secondary battery and biotech sectors, including Goertek, Neowiz, Medytox, Seoul Semiconductor, Celltrion Pharm, Soulbrain, Seegene, Rainbow Robotics, Park Systems, Hancom and Wemade. They secured in advance a legal route to use treasury shares as consideration for mergers and acquisitions, employee compensation and funding for financial structure improvements.

Companies have also moved by adjusting board structures. According to Hanwha Investment & Securities, 21 KOSPI companies and 2 Kosdaq companies adopted articles of incorporation limiting directors’ terms to within 3 years. They include GS, GC, Youngone, Ottogi, HiteJinro, Hyosung Heavy Industries and Hyosung TNC.

As many as 25 KOSPI companies and 7 Kosdaq companies introduced or reduced caps on the number of directors. They include Kakao, Kakao Pay, Celltrion, Lotte Chemical, HYBE, Hankook Tire, EcoPro and EcoPro BM. An interpretation has emerged that this is a move to gradually dilute the effects of cumulative voting and separate election of audit committee members. Hyosung Heavy Industries and Hyosung TNC also specified in their articles of incorporation that director candidates must meet requirements such as working at a group company for at least 3 years or being recommended by one-third of incumbent directors, limiting entry by external figures.

There is also criticism that such defences may only provide short-term stability. Hanwha Investment & Securities analysed that while board downsizing and tougher qualification requirements may be read as a short-term signal of management control stability, over time they could raise the governance risk premium and widen the ESG discount.

If similar changes to articles of incorporation are repeated at companies that have faced activism or regulatory issues, such as Kakao, HYBE and EcoPro, they are likely to become targets of the National Pension Service or overseas activist funds, the report said. That could lead to follow-up events such as demands for further revisions to articles of incorporation or vote battles over director appointments. An industry official said, "As governance is drawing attention as a substantive ESG item, whether major South Korean groups respond pre-emptively will influence future valuations."