Global ESG Bonds Become a '1000 Trillion Market'... 20x Growth in 6 Years

Exterior view of the Korea Chamber of Commerce and Industry building in Jung-gu, Seoul. (Photo by Korea Chamber of Commerce and Industry)

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[Asia Economy Reporter Moon Chaeseok] A survey revealed that the global ESG (Environmental, Social, and Governance) bond market has grown to a scale of 100 trillion KRW, marking a 20-fold increase over six years.

The Korea Chamber of Commerce and Industry (KCCI), together with Deloitte Anjin, announced these findings at the '9th KCCI ESG Management Forum' held on the 21st. The online broadcast of the meeting was attended by Woo Taehee, Executive Vice President of KCCI; Lee Hyunghui, Chairman of SK SV Committee; Kim Kwangil, Director of Fair Market Division at the Financial Services Commission; Park Taeho, Partner at Deloitte Anjin; Lee Oksu, Director at Deloitte Anjin; Na Seokgwon, President of the Social Value Research Institute; Lee Seongyeong, Center Director of the Korea ESG Research Institute; and Son Jaesik, Team Leader at the Korea Exchange.

It was first found that the global ESG bond market size reached approximately 100 trillion KRW last year, a 20-fold growth compared to 2015. Director Lee Oksu stated, "Investors are expanding investments in pro-climate and pro-ESG businesses or companies, while reducing investments in anti-climate and anti-ESG businesses or companies." He added, "Especially, investments centered on anti-climate sectors are shrinking. European banks have already implemented policies to reduce credit limits for high greenhouse gas-emitting industries and companies, and domestic banks are following suit."

He mentioned that the National Pension Service and domestic private equity funds are demanding improvements from companies facing ESG management issues. This sends a message that companies must resolve ESG problems to raise capital. He said, "There have been cases where domestic companies that raised funds through ESG bonds faced greenwashing issues," adding, "To prevent trust damage caused by greenwashing risks, a sophisticated plan is necessary to ensure that ESG bond issuance genuinely contributes to greenhouse gas reduction efforts."

Advice was also given that due to European regulations, companies will face significant difficulties in management if they do not improve ESG standards such as environment and human rights throughout their supply chains. Center Director Lee Seongyeong informed that the European Union (EU) Commission adopted the Corporate Sustainability Due Diligence Directive last February. This means companies must enhance their environmental and human rights standards when managing governance and operations.

Lee emphasized, "The key point is that supply chain ESG due diligence and reporting have shifted from voluntary areas to policy and regulatory domains." She pointed out, "EU companies trading with firms violating supply chain due diligence guidelines may face fines and administrative sanctions. Therefore, not only large corporations with local subsidiaries but also small and medium-sized enterprises exporting to the EU must certify and report ESG compliance." She added, "As the scope of ESG management expands to supply chains due to this legislation, ESG is expected to become a major consideration in selecting and maintaining global partners. Companies entering or exporting to the EU need to establish policies and systems related to human rights and environment, and build systems to conduct due diligence, inspections, and implement and report necessary measures."

Domestically, ESG disclosure is also being strengthened. According to Team Leader Son, from this year, the mandatory disclosure of corporate governance reports has expanded from companies with assets over 2 trillion KRW to those with assets over 1 trillion KRW. He explained, "The corporate governance report guidelines were revised last March, and companies must apply these standards when preparing reports this year." He added, "Key points include measures to protect shareholders when there are changes in ownership structure or major business content, mandatory explanations to shareholders about internal and related-party transactions, and detailed reporting on CEO succession programs." He continued, "The core of this guideline revision is to enhance governance transparency and protect shareholder rights," emphasizing, "Especially, if a company intends to change its ownership structure through physical division or mergers, it must collect opinions from minority shareholders, prepare shareholder protection measures including protecting dissenting shareholders’ rights, and describe detailed implementation plans."

Participants in the subsequent open discussion unanimously agreed that ESG is no longer a mere trend but has become a key management requirement for companies. They urged raising the level of corporate response. Woo Taehee, Executive Vice President of KCCI and chair of the meeting, said, "ESG, which began in earnest due to investor demands, now significantly impacts overall management activities such as fundraising and overseas exports." He added, "It is time for companies to shift their paradigm and approach efforts related to ESG management not as costs but from an investment perspective." The presentation can be viewed from the 2nd of next month through the 'Online Seminar' section on the KCCI website.

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