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ESG bonds boom in South Korea

Following strong growth of the country’s sustainable finance market in 2018, South Korea is rapidly cementing its reputation as an Asian leader in raising awareness of various environmental, social and governance (ESG) debt capital market instruments.

Export-Import Bank of Korea (Kexim) was the pioneer, issuing South Korea’s first ‘green’ or climate-friendly bond in February 2013, which was for US$500 million with a five-year tenor. It was heavily oversubscribed, with much of the demand from US and European investors.

This month has seen several issuers from the country active in funding environmental, social and governance (ESG) projects. The Republic of Korea went first, issuing its first green and sustainability bonds that raised US$500 million from investors.

The move was quickly followed by several more deals including the issuance of Korea Electric Power Corporation’s (KEPCO) US$500 million green bond, with proceeds aimed at renewable energy and clean transport. The offering was similar in structure to Korea Water Resources Corporation’s US$300 million green/water bond issue in 2018, which also focused on renewable power.

Government initiative

The drive for less carbon-intensive sources of energy is a major policy initiative from South Korea’s government. The country is one of the world’s top 10 carbon emitters and four years ago announced plans to cut its greenhouse gas emissions by 37% by the year 2030, against an earlier target of 15-30%. Last July, it said that national emissions would peak in 2020 and then steadily decline over the next decade.

Korea Housing Finance Corporation (KHFC) is also following the sustainability trend, issuing its second social covered bonds this month following a successful debut last October. Demand for the bond, aimed at promoting housing welfare, saw significant demand with the order book peaking at €1.5 billion (US$1.7 billion), and eventually obtaining €500 million from investors including social responsible investing (SRI).

Financial institutions have joined the ESG activity with issuers such as Kookmin Bank and Shinhan Financial Group looking to raise their own respective sustainability bonds with proceeds aimed towards green and social projects in the near future.

The growth of South Korea’s market reflects the steady growth of and demand for sustainable finance globally. The non-profit Climate Bonds Initiative reports that green bond issuance worldwide in the first half of 2019 has already surpassed the US$100 billion mark – currently standing at US$107.1 billion, which is a remarkable achievement for an asset class founded little more than 10 years ago.

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