"Ask and Double Down"... Flood of ESG Bond Issuance by Financial Companies

Domestic ESG Bond Issuance from January to October Reaches 48.653 Trillion KRW
Tripled in One Year
Overseas ESG Bond Issuance Also Continues to Rise

[Asia Economy Reporter Park Sun-mi] The issuance scale of environmental, social, and governance (ESG) bonds by domestic financial companies and institutions is rapidly increasing. Amid an atmosphere emphasizing corporate social responsibility, the spread of the novel coronavirus disease (COVID-19) has heightened the need for financial firms to secure funds to support affected companies. Additionally, successful cases of low-interest issuance have emerged one after another, leading to a surge in ESG bond issuance in both domestic and overseas bond markets.

According to the Korea Exchange and financial authorities on the 19th, the scale of domestic ESG bond issuance from January this year to the present day totaled 48.653 trillion won issued by 14 institutions. During the same period last year, ESG bond issuance was only 15.083 trillion won issued by 11 institutions, meaning the issuance scale has more than tripled in one year. If the current pace of ESG issuance continues, the total issuance amount this year is expected to exceed twice last year's total issuance of 25.68 trillion won.

The overseas situation is similar. From January to July this year, global ESG bonds were issued amounting to 172.6 billion dollars, a 5% increase compared to the same period last year. The issuance scale has been steadily increasing, with 161 billion dollars in 2017, 170.6 billion dollars in 2018, and 278.6 billion dollars in 2019.

ESG bonds refer to bonds issued to raise funds related to improvements in Environment (E), Social (S), and Governance (G). They are categorized into green bonds, social bonds, and sustainability bonds, and are collectively called socially responsible investment bonds.

KB Financial to Issue 500 Billion Won ESG Bonds on the 20th

Domestic financial institutions are experiencing a surge in ESG bond issuance in both domestic and overseas bond markets. KB Financial Group plans to issue ESG bonds in the form of perpetual bonds worth 500 billion won on the 20th of this month. This is the first time a domestic financial holding company has issued won-denominated ESG bonds.

Initially, KB Financial planned to issue 270 billion won worth of 5-year maturity ESG bonds, but just before the issuance date, the amount was nearly doubled to 500 billion won. The interest rate is expected to be set at around 3%, lower than the rate of previously issued perpetual bonds. A KB Financial official stated, "We confirmed explosive investor interest in ESG bonds during the demand forecast on the 13th, which ultimately led to the increase in issuance size," adding, "KB Financial is currently promoting 'KB Green Way 2030,' aiming to expand ESG-related products, investments, and loans from about 20 trillion won to 50 trillion won."

Woori Bank also issued ESG bonds worth 400 million Australian dollars (approximately 327 billion won) in the Australian bond market this month. The funds are intended to support companies affected by COVID-19 and align with the 'Korean New Deal' policy, targeting sustainable activities such as job creation and eco-friendly projects. The issuance conditions were divided into 3-year maturity floating-rate bonds (250 million Australian dollars) and fixed-rate bonds (150 million Australian dollars). The interest rate for the floating-rate bonds was set at 3-month BBSW (Australian dollar floating-rate bond benchmark rate) plus 72 basis points, and the fixed-rate bonds were issued at an annual rate of 0.839%, which is 8 basis points lower than the initially proposed rate.

Shinhan Card also issued ESG bonds worth 400 million dollars with a 5-year maturity. This is the first foreign currency ESG bond issued by a domestic card company, attracting participation from 100 global institutional investors, with orders exceeding 1.5 billion dollars, about 3.8 times the amount offered, marking a successful issuance.

Why the Surge in ESG Bond Issuance?

The Export-Import Bank of Korea also made a historic achievement by issuing its first euro-denominated ESG bonds in overseas markets at a negative interest rate. Among the total 1.5 billion dollars of overseas bonds issued by the bank last month, the 3-year maturity 500 million euro ESG bonds recorded the lowest issuance rate among Korean institutions at -0.118%.

Recently, financial companies have actively issued ESG bonds in the capital market partly because the spread of COVID-19 has increased the need to supply funds to self-employed individuals, small business owners, and low-income groups. Additionally, as global awareness of ESG bonds has risen, financial firms have been able to raise capital at even lower interest rates. Securing an image as a 'good company' actively engaged in ESG management is an added benefit.

According to the corporate ESG rating released by the Korea Corporate Governance Service, KB Financial, Shinhan Financial Group, BNK Financial Group, DGB Financial Group, and JB Financial Group received an A+ rating in the integrated ESG grade for various ESG-related activities including ESG bond issuance. Samsung Fire & Marine Insurance, Hyundai Marine & Fire Insurance, Hyundai Motor Securities, Mirae Asset Daewoo, Hana Financial Group, and Hanwha Life Insurance also earned an A grade.