5 Major Financial Holding Companies Compete to Issue ESG Bonds... Already 2.6 Trillion Won This Year (Comprehensive)

Shinhan Financial Issues 850 Billion KRW... Focuses on Sustainable Bonds
ESG Management a Global Hot Topic... Global Credit Rating Agencies Also Reflect ESG Capabilities

ESG Bonds: Not a Choice but a 'Must'

[Asia Economy Reporter Lee Kwang-ho] As ESG (Environmental, Social, and Governance) management emerges as a global hot topic, financial companies are rushing to issue ESG bonds. This is because they can strengthen sustainable management and social responsibility management while also securing various foreign currency funds at reasonable costs.

According to the financial sector on the 13th, the total amount of ESG bonds issued by the five major financial holding companies?KB, Shinhan, Hana, Woori, and NH Nonghyup?from January to April this year reached 2.63 trillion KRW, a 59.2% increase compared to 1.0723 trillion KRW a year ago. This accounts for 34.3% of the ESG bonds issued throughout last year (7.6888 trillion KRW).

Shinhan Financial issued 850 billion KRW worth of ESG bonds, followed by Hana Financial (760 billion KRW), KB Financial (710 billion KRW), Woori Financial (200 billion KRW), and Nonghyup Financial (110 billion KRW). Notably, Woori Financial issued ESG bonds for the first time since its holding company was established on the 31st of last month.

ESG bonds refer to special-purpose bonds where the issuing institution promises to use the raised funds for projects that create environmental or social value. They are similar to general bonds in that they can be raised through public or private offerings and are classified as senior or subordinated bonds or hybrid capital securities (perpetual bonds) depending on repayment priority. However, they are categorized into green bonds, social bonds, and sustainable bonds based on their usage purpose.

Looking at the ESG bond issuance trends of the five major financial holding companies, there is a strong focus on sustainable bonds. Since 2018, green bonds issued amount to only 1.0587 trillion KRW, whereas sustainable bonds total 9.8132 trillion KRW, more than eight times higher. This is analyzed to be because green and social bonds are designated for environmentally friendly and social value-creating projects respectively, while sustainable bonds can be used for projects that are both environmentally friendly and socially valuable.

However, this year, green bonds are expected to increase due to the Moon Jae-in administration's New Deal policy and U.S. President Joe Biden's green economy initiatives. In fact, in the global market, the issuance proportion of green bonds overwhelmingly exceeds that of sustainable bonds. According to Bloomberg, a U.S. economic news agency, and the Capital Market Research Institute, the size of green bonds issued globally last year was $175.2 billion (approximately 196.3992 trillion KRW), accounting for 63% of the entire ESG bond market.

Strengthening Sustainable Management and Social Responsibility

A financial sector official said, "The reason the financial sector is focusing on ESG is that the era of discussing corporate success and performance solely based on sales or profits has passed," adding, "Financial consumers also tend to value financial companies practicing ESG more highly and their actual usage rates are increasing."

He continued, "Issuing ESG bonds can instill an image of strengthening sustainable management and can improve the BIS (Bank for International Settlements) capital adequacy ratio through fund procurement," adding, "It can also earn good scores from global credit rating agencies and institutional investors." Recently, global credit rating agencies such as Moody's and S&P have started reflecting ESG capabilities in their credit ratings.

In response, KB Financial established an 'ESG Committee,' the highest decision-making body for ESG management within its board, showing the fastest move among domestic financial companies. Shinhan Financial is focusing on enhancing its ESG sustainable management system based on its core financial business to realize its mission of 'Warm Finance for the Future.' To this end, it is promoting Creating Shared Value (CSV) management to build a virtuous cycle of coexistence that raises the value of customers, society, and the nation through two main projects: the Hope Society Project and the Innovation Growth Project.

Hana Financial is emphasizing ESG management this year and is pursuing the advancement of sustainable management by maximizing the value of all stakeholders. Woori Financial has established a dedicated ESG department to comprehensively manage ESG responses of major subsidiaries and related departments and is building a sustainable management system linked to group management strategies. NH Nonghyup Financial aims to respond to climate change risks and align with the government's carbon neutrality declaration and Green New Deal policy to leap forward as an eco-friendly financial group.

Professor Sung Tae-yoon of Yonsei University's Department of Economics said, "The financial sector's leadership in issuing ESG bonds aligns with the global trend of considering environment and sustainability," adding, "The issuance of ESG bonds in the financial sector is expected to increase significantly this year, but the issued bonds should be connected to ESG to create synergy effects, not just serve as an ESG tool."

Meanwhile, according to the Korea Exchange, domestic ESG bonds were only 1.5 trillion KRW in 2018 but surged to 39.3 trillion KRW last year and reached 96.5853 trillion KRW by the end of March, approaching the 100 trillion KRW mark. The number of issuing institutions also increased from only four in 2019 to 56 currently.

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