Kepco Accelerates 'Decarbonization' Efforts

Jong-gap Kim, President of Korea Electric Power Corporation. (Photo by Korea Electric Power Corporation)

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[Asia Economy Reporter Moon Chaeseok] Korea Electric Power Corporation (KEPCO), the largest energy public enterprise in South Korea, has declared a 'coal phase-out management' and embarked on environmental, social, and governance (ESG) responsible investment. It has also succeeded in issuing ESG bonds worth 200 billion KRW for two consecutive years.

KEPCO announced on the 10th that it published the '2020 Sustainability Management Report,' which contains financial and non-financial performance as well as details of sustainability management activities from last year through the first half of this year. This year's sustainability management report set corporate environmental and social responsibility, transparency in governance, and other ESG sector-specific management activities as core themes and reorganized the report itself from an ESG perspective.

In particular, the report specified plans to reduce and halt domestic and overseas coal-fired power generation projects. First, it will close aging domestic coal-fired power plants early and convert them to liquefied natural gas (LNG) power generation. It will stop pursuing new overseas coal-fired power projects and develop overseas businesses centered on low-carbon and eco-friendly initiatives.

KEPCO's declaration to properly conduct ESG responsible investment focused on coal phase-out is expected to have a significant impact on the domestic and international energy industries and financial sectors. Since this is a management strategy justified by 'climate crisis response,' it is anticipated to positively influence the investment sentiment of overseas investors.

KEPCO stated, "The report faithfully includes detailed information on KEPCO's climate crisis response activities by reflecting the recommendations presented by the international organization 'Task Force on Climate-related Financial Disclosures (TCFD).'" It added, "The report also contains specific achievements of ESG activities, including greenhouse gas reduction effects." TCFD is a task force established by the Financial Stability Board (FSB), a consultative body under the Group of Twenty (G20) finance ministers and central bank governors.

Since his appointment in 2018, KEPCO President Kim Jong-gap has emphasized 'sustainable management.' While the primary goal is to supply high-quality electricity stably, KEPCO plans to enhance financial stability and gain recognition in domestic and international financial markets through ESG responsible investment.

KEPCO recently established an ESG Promotion Committee under its board of directors to establish a management and supervision system for ESG management and to continuously promote it. This reflects KEPCO's intention to faithfully incorporate the opinions of stakeholders who have invested in KEPCO into its management.

KEPCO continues to procure ESG bonds as before. On the 4th, KEPCO announced that it succeeded in issuing 200 billion KRW worth of won-denominated ESG bonds for two consecutive years, the first among Korean energy companies. The won ESG bonds were issued in three tranches: 30 billion KRW for 2 years, 100 billion KRW for 3 years, and 70 billion KRW for 5 years.

The issuance yield was on average 2.65 basis points (1bp = 0.01 percentage points) lower than the yield of tradable power bonds. This is the lowest level ever for ESG bonds issued in won by energy companies in Korea. Generally, a lower interest rate means higher creditworthiness of the borrower and is interpreted as lower investment risk. KEPCO expects to significantly reduce financial costs by diversifying funding sources and raising funds at low interest rates.

KEPCO stated that the funds raised through bond issuance will be used for domestic and overseas new and renewable energy projects, expansion of new and renewable energy-related facilities, energy efficiency projects, job creation, and support for small and medium-sized enterprises. This policy aligns with the government's energy transition policy represented by the 'Green New Deal' and reflects KEPCO's commitment to sustainable investment in new and renewable energy industries.

Earlier, KEPCO issued overseas green bonds worth 500 million USD (approximately 560.8 billion KRW) in the first half of this year and succeeded in issuing won-denominated ESG bonds for two consecutive years, the first among domestic energy companies. KEPCO said, "We have issued won-denominated ESG bonds for two consecutive years for the first time among domestic energy companies," and added, "We will actively fulfill the demands to confirm investors' continuous trust and to take the lead in energy transition investments for eco-friendliness and enhancing social value."

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