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The Growth of ESG Bond Issuance in Korea

The issuance of bonds focused on environmental, social and governance (ESG) matters has been sharply rising in Korea. The value of ESG bonds issued in 2021 reached KRW 20.3 trillion, accounting for around 30% of the total issuance of corporate straight bonds worth KRW 67.2 trillion, as a growing number of issuers have been seeking to meet demand from investors who are paying greater attention to climate risks and other ESG issues.

The growth of the ESG bond market is also being fueled by the COVID-19 pandemic and the government's commitment to achieving national carbon neutrality goals by 2050. Another driver behind the growth of ESG bond issuance is a lower cost of borrowing. Companies can take advantage of ESG bonds in a rising interest rate climate because such bonds are often tied to a lower lending rate.

There are three major types of ESG bonds: green, social and sustainability bonds. Green bonds are fixed-income instruments designed specifically to support environmentally friendly projects. Social bonds target to raise money for projects with the aim of creating positive social outcomes, such as education, transportation, and healthcare. Sustainability bonds are a mixture of green and social bonds.

Companies from a wide range of industry sectors issue green, social and sustainability bonds in a bid to demonstrate their commitments to carbon footprint reduction and social responsibility. The manufacturing industry increasingly relies on ESG bond issuance to raise capital. ESG bonds make up 70.3% of steelmakers' debt issuance, while the portions of ESG bonds were 45.5% and 31% for the power generation and petrochemical sectors, respectively, according to data from Shinyoung Securities Company.

Financial companies also borrow an increasing amount of money via ESG bonds. The banking sector in Korea issued ESG bonds of KRW 11 trillion in 2021, up from KRW 4.2 trillion in 2020. Social bonds accounted for the largest share (67%) of the total ESG bonds issued by banks in 2021, followed by sustainability bonds (22%) and green bonds (11%). It is becoming more and more mainstream for financial companies to incorporate ESG factors into debt capital markets, as a growing number of financial companies in Korea are embracing ESG principles and setting sustainability goals for the future.

(Source: Yonhap Infomax)

The ESG bond market is poised for continued growth going forward as corporate boards and executives will face mounting pressure to demonstrate their corporate sustainability efforts. Many investors increasingly believe that a company's focus on sustainability performance can be a measure of innovation and corporate success as well as an indicator of good and responsible management.