ESG Bonds Surpass 60 Trillion Won... One-Quarter of Corporate Bonds Carry 'ESG Label'

[Asia Economy Reporter Park So-yeon] This year, the scale of domestic ESG (Environmental, Social, and Governance) bond issuance has exceeded 60 trillion won.

◇Domestic ESG Bond Issuance Reaches 64.8 Trillion Won by August... Expected to Approach 100 Trillion Won by Year-End

According to the financial investment industry on the 7th, the scale of ESG bonds issued domestically from the beginning of this year to August totaled 64.8372 trillion won. This accounts for about 12% of the total domestic bond issuance amount of 539.5522 trillion won this year.

If this trend continues, domestic ESG bond issuance is expected to approach 100 trillion won by the end of the year. Considering that ESG bonds worth 26 trillion won were issued in 2019 and 53 trillion won in 2020, the issuance of ESG bonds has roughly doubled each year.

Specifically, while there are no ESG bonds in the government and public bond market, 65.4% of the total 52.6598 trillion won issued by public organizations or official institutions as special bonds this year, amounting to 34.4296 trillion won, were issued as ESG bonds.

The high proportion of ESG bonds in special bonds is mainly attributed to the fact that the Korea Housing Finance Corporation issues MBS (Mortgage-Backed Securities) in the form of social bonds to stabilize housing for low-income households, accounting for about half of the special bond issuance volume.

In financial bonds, excluding the Monetary Stabilization Bonds (MSBs) issued by the Bank of Korea, ESG bond issuance was significant in bank bonds and bonds from other financial institutions.

From January to August this year, bank bonds worth 95.935 trillion won were issued, of which 9.1%, or 8.695 trillion won, were ESG bonds.

It is noteworthy that ESG bonds issued by other financial institutions (comprehensive financial companies, specialized credit finance companies) exceeded those issued by banks. Among bonds issued by other financial institutions totaling 48.7785 trillion won, 12.3%, or 5.99 trillion won, were ESG bonds.

Regarding corporate bonds, a total of 61.3378 trillion won were issued this year, with 25.6%, or 15.7226 trillion won, identified as ESG bonds. This means about one-quarter of all corporate bonds issued were ESG bonds.

◇Expansion of ESG Bond Investments by Pension Funds and Mutual Aid Associations... 'Green Washing' Risks Also Increase

The rapid increase in ESG bond issuance is due to a significant rise in demand from investment institutions recently. Institutional investors such as the National Pension Service and the Teachers' Pension have been expanding ESG bond investments as part of their policies, and asset management companies are continuously setting up ESG funds. For companies, this allows them to borrow more money at lower interest rates while enhancing their image as 'eco-friendly companies.'

However, as ESG bond issuance increases, the risk of 'Green Washing'?promoting something as environmentally friendly when it is not?also grows. In the market, a trend has been observed where specialized credit finance bonds, characterized by short maturities, are gaining popularity to reduce green washing risks. The ability to provide post-issuance reports within a short period differentiates these bonds from general corporate bonds, public bonds, and bank bonds.

The lack of differentiation in ESG ratings and the limited number of institutions issuing ESG bonds have also been pointed out as problems. In Korea's three major credit rating agencies, ESG bond issuers undergo certification procedures and disclose ESG bond ratings separately from general corporate bonds or commercial papers. The issue is that all approximately 60 institutions and companies that issued ESG bonds this year received the highest rating. Despite the credit ratings of companies issuing ESG bonds ranging across eight levels from AAA to BBB+, the ESG bond evaluations fail to provide any differentiation, drawing criticism.

An official from a pension fund stated, "Companies or financial institutions are focusing more on actively promoting ESG activities in the market than on performing their core business well," adding, "If this progresses excessively, it could lead to a bizarre phenomenon where not only 'Green Washing' blinds the market's eyes and ears but also the essence of the business itself is distorted."

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