Banks and Corporations Rush to Issue ESG Bonds

Actively Responding to COVID-19
KDB Issues 1 Trillion KRW Social Bonds
Support for SMEs and Employment-Stable Companies
KEXIM Successfully Issues Foreign Currency Bonds
LG Chem and Others Secure Green Loans

[Asia Economy Reporter Kangwook Cho] This year, major banks and corporations have been actively issuing ESG (Environmental, Social, and Governance) bonds to respond to the novel coronavirus infection (COVID-19). While fulfilling corporate social responsibility, they can simultaneously secure liquidity under favorable conditions, making this a new issuance trend in the bond market recently. ESG bonds are special-purpose bonds in which the issuer commits to using the funds raised exclusively for environmental, social projects, or sustainability enhancement initiatives.

According to the financial sector and related industries on the 15th, KDB Industrial Bank recently issued social bonds worth 1 trillion KRW to major domestic institutional investors. The issuance interest rates are 1.09% for 800 billion KRW (2-year maturity) and 1.39% for 200 billion KRW (5-year maturity). Social bonds are one of the three types of ESG bonds (green, social, and sustainability bonds) and are special-purpose bonds that restrict the use of raised funds to socially contributive areas such as supporting small and medium-sized enterprises and employment stability. KDB Industrial Bank plans to use the raised funds to support SMEs and companies contributing to employment stability, which have been struggling due to the COVID-19 crisis, thereby fulfilling its social responsibility in finance.

Earlier last month, KB Kookmin Bank successfully issued social bonds worth 400 billion KRW and sustainability bonds worth 500 million USD aimed at supporting companies affected by COVID-19. Notably, the issuance of dollar-denominated bonds attracted attention as the first domestic issuer's public bonds responding to COVID-19. The Export-Import Bank of Korea successfully issued foreign currency bonds worth 700 million USD and 700 million EUR. Among these, the euro-denominated bonds were issued as green bonds. Accordingly, the funds raised from the euro bonds are restricted to environmentally friendly projects.

Additionally, Shinhan Bank issued 50 million USD worth of social bonds in March, marking the first domestic company to specify "COVID-19 damage support" as the use of funds. In the same month, IBK Industrial Bank and Woori Bank issued sustainability bonds worth 400 billion KRW and 250 billion KRW, respectively.

Corporations are also actively securing liquidity through ESG bonds.

LG Chem recently raised 550 million EUR in green bonds (green loans) from KDB Industrial Bank, Korea Development Bank, and NH Nonghyup Bank. Through this, LG Chem was able to stably secure investment funds required for expanding its electric vehicle battery plant in Poland. This green loan procurement is the first result of the 5-year, 5 billion USD "Industry-Finance Cooperation Program" signed by LG Chem and financial institutions including KDB Industrial Bank in December last year. Furthermore, LG Chem and KDB Industrial Bank completed the establishment of a 150 billion KRW "win-win growth fund" in March and began supporting small and medium-sized material, parts, and equipment (SoBuJang) partner companies facing financial difficulties due to COVID-19.

POSCO successfully issued sustainability bonds worth 500 million EUR in January this year. This is POSCO's first euro-denominated sustainability bond issuance. The funds will be used for eligible green and social projects for POSCO's sustainable management.

A financial sector official said, "Globally, more institutions are making investment decisions considering the enhancement of social value effects," adding, "Especially since the raised funds are used to solve social issues related to COVID-19, ESG bonds including sustainability bonds are expected to become the mainstream in the global financial market."

This content was produced with the assistance of AI translation services.