ESG Bond Certification, Accounting Firms vs Credit Rating Agencies 'Competition'

New Listings Surge 129%
Competing with Differentiators Like One-Stop Service and Continuous Evaluation Management

[Asia Economy Reporter Park Jihwan] As domestic ESG (Environmental, Social, and Governance) bond issuance surges, competition in the related certification market is intensifying. Starting this year, the credit rating industry has joined the accounting industry, which has led the ESG bond certification market so far, setting the stage for fierce competition. Accounting firms offer one-stop services for ESG-related tasks, while credit rating agencies emphasize their long-standing expertise in corporate evaluation and differentiated factors such as continuous evaluation management at least once a year.

According to the Korea Exchange on the 14th, the scale of newly listed ESG bonds in Korea last year was 58.9 trillion won, a 129% increase compared to 25.7 trillion won the previous year. Compared to 1.3 trillion won in 2018, it has increased more than 45 times.

ESG bonds are issued with funds used for environmentally friendly or socially beneficial projects. Unlike general bonds, they must be certified by an external institution to verify that the use of bond funds complies with ESG principles. Even after issuance, annual post-reporting in the form of investor guidance must be conducted until all procured funds are fully utilized.

With the expansion of the government's Green New Deal policy, demand for ESG bonds investing in eco-friendly projects such as renewable energy is expected to increase further. The National Pension Service has set a goal to expand assets reflecting ESG to half of its total assets by 2022. From a corporate perspective, there is growing expectation that issuing ESG bonds can secure more investment demand than general corporate bonds.

So far, the ESG certification market has been led by accounting firms. Based on their global networks, they have advised government agencies and companies on global trends related to climate change and sustainable management. Their strengths include providing knowledge on various industries and countries, as well as offering one-stop services related to ESG operations such as investment advisory, data verification, and taxation. An accounting industry official emphasized, "In transactions with overseas companies, collaboration with experts who understand the global regulatory environment is essential, enabling comprehensive consulting beyond the relatively simple task of ESG bond certification."

In the credit rating industry, Korea Credit Rating entered the ESG certification market for the first time in June last year, followed by NICE Credit Rating and Korea Investors Service joining at the end of last December and early this year, respectively. Although latecomers compared to the accounting industry, their influence on the market is expected to be significant. Above all, the fact that their main business, credit rating evaluation, and ESG bond certification target corporate bonds is noted. A credit rating industry official explained, "Accounting firms only verify whether bonds comply with international ESG standards, but credit rating agencies classify the degree of ESG compliance of bond-issuing companies by rating." He added, "Through post-verification at least once a year, we also prevent the issue of 'Green washing,' where issued funds are not used for their intended purposes."

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