'Socially Responsible Investment' ESG Bond Market Expands

39.3 Trillion KRW Issued by End of August This Year
Nearly 3000% Increase Compared to 2018

National Pension Service Announces 50% Investment Within 2 Years
Diversity Securing and Guidelines Needed

[Asia Economy Reporter Minji Lee] Since the outbreak of the novel coronavirus infection (COVID-19), interest in socially responsible investment has increased, leading to a significant expansion of the ESG bond market.

According to the financial investment industry on the 4th, as of the end of August this year, 39.3 trillion KRW worth of ESG bonds have been issued in the domestic market. Considering that the annual issuance volume was only 1.3 trillion KRW in 2018, this is estimated to be an increase of nearly 3000%.

The global market is also showing an increasing trend in ESG bond issuance. As of September this year, the global ESG bond issuance amount stands at 280 billion USD (305.032 trillion KRW). Having raised 301.6 billion USD (328 trillion KRW) over the past year, the total issuance volume this year is expected to surpass that.

In the domestic market, discussions on revitalizing ESG bonds have been active since last year. This year, following the spread of COVID-19, interest in sustainable development has increased, and with the government-led 'Korean-style Green New Deal' being promoted, investment sentiment toward ESG investments by government agencies and financial institutions has expanded. The National Pension Service has announced plans to invest 50% of its operating funds in ESG within two years, showing active movements by public investment institutions toward ESG investment.

As demand increases, more companies are issuing ESG bonds in Korean won. When market demand was not large, it was necessary to raise funds in dollars or euros and then convert them into Korean won, but now it is possible to raise funds solely through domestic demand. Recently, Busan Bank became the first regional bank to issue 100 billion KRW worth of won-denominated ESG bonds, and Korea Electric Power Corporation also succeeded in issuing 200 billion KRW worth of ESG bonds in Korean won.

Although the domestic ESG bond market is growing, voices are rising that the system must support it as it is still in its early stages. On the previous day, Moody's and Korea Credit Rating held a conference on 'The Current Status and Outlook of the Korean ESG Bond Market,' expressing the opinion that the domestic ESG bond market suffers from an extreme concentration of social bond issuance by issuers. ESG bonds are classified into green bonds, sustainable bonds, and social bonds. This year, there was only one issuance of green bonds, and as of the end of August, the issuance ratio was 37.5 trillion KRW for social bonds, 1.7 trillion KRW for sustainable bonds, and 100 billion KRW for green bonds.

The need for clear guidelines was also raised. Currently, there is no certification body in the domestic market, so issuers declare their bonds as ESG bonds themselves and then proceed with fundraising. Large domestic accounting firms are stepping forward as ESG qualification certification bodies, but even they have not been officially designated through clear guidelines on ESG. A financial investment industry official explained, "The market is at a very early stage, so if a bond is labeled as an ESG bond, it is mostly accepted," adding, "Considering that overseas markets have established a foundation for third-party institutions to provide certification, the lack of a clear certification body domestically is an issue that needs to be addressed."

There are also opinions that market expansion should be pursued through support measures for issuers. A bond industry official explained, "It is necessary to provide benefits such as external certification costs and stock exchange listing fees or simplify issuance procedures so that companies can raise funds through ESG bond issuance in the domestic market as well."

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