[Financial New Paradigm ESG] Green Bonds, ESG Bonds, and Coal Phase-Out Drive Growth in 'Green Finance'

Establishment of Dedicated Department Through Organizational Restructuring
Raising Green Investment Funds via Issuance of Green Bonds and ESG Bonds
KB Financial Scores A+ in All ESG Areas... Financial Company Declares Coal Phase-Out

[Asia Economy Reporter Kangwook Cho] "As a responsible corporate citizen, creating a sustainable future together with customers, shareholders, and society is a core element of a first-class company." (Cho Yong-byeong, Chairman of Shinhan Financial Group)

"The essence of ESG is sustainability, and finance must respect and consider society and the environment to become a driving force for mutual growth." (Yoon Jong-kyu, Chairman of KB Financial Group)

It has become an era where improving corporate Environmental, Social, and Governance (ESG) values is a priority. Especially in the financial industry, where customer trust is fundamental, ESG management has become a necessity rather than a choice.

Financial holding companies are creating dedicated ESG departments through successive organizational reforms. As 'green finance' has re-emerged as a keyword, domestic financial institutions are actively issuing green bonds and ESG bonds to raise funds for eco-friendly investments, and the number of financial companies declaring 'coal phase-out' is increasing.

In the ESG evaluation results by the Korea Corporate Governance Service last October, KB Financial Group was the only financial company to receive an A+ rating in all categories, and Shinhan Financial declared the 'Zero Carbon Drive' pursuing carbon neutrality. Hana Financial established the 'Group ESG Management TFT,' and Woori Financial declared itself a '2050 Carbon Neutral Financial Group.' NH Nonghyup Financial plans to establish and fully implement a specialized ESG management strategy.

Shin Jin-young, President of the Korea Corporate Governance Service, said, "ESG management is not a corporate social contribution activity but an essential task," adding, "Companies must discover and implement management strategies and business models that enhance corporate value in the mid-to-long term while contributing to social development and environmental improvement."

In line with the government's Green New Deal policy and the '2050 Carbon Neutrality' declaration, a wave of eco-friendly management and investment is sweeping through the domestic financial sector. Financial institutions are formalizing coal phase-out finance and joining the Equator Principles one after another. Judging that pursuing profit alone cannot satisfy the demands of various stakeholders, they are putting forward management policies that pursue value as social enterprises. Globally, ESG (Environmental, Social, Governance) investment is expanding, and with U.S. President Joe Biden emphasizing climate change response as a core policy, this trend is expected to continue.

Financial Sector Rushes to Issue ‘ESG Bonds’

Last year, ESG bond issuance became a trend in the financial sector. ESG bonds are categorized into green bonds for financing eco-friendly projects, social bonds for solving social issues, and sustainability bonds that combine both purposes. Banks that raise funds through ESG bond issuance must use the funds according to the intended purposes such as addressing environmental and social issues.

The scale of ESG bonds issued by private banks last year exceeded 5 trillion KRW. KB Financial Group and KB Kookmin Bank issued ESG bonds four times in total in KRW, USD, and EUR, raising about 2.15 trillion KRW. Shinhan Financial, which first issued ESG bonds combined with green bonds among domestic financial holding companies in 2019, additionally issued 500 million USD last year. Shinhan Bank issued a 50 million USD social bond to support COVID-19 and a 400 million AUD foreign currency Kangaroo bond. NH Nonghyup Bank, which had no prior ESG bond issuance record, successfully issued a 500 million USD social bond for the first time in July last year. Hana Bank (150 million USD) and Woori Bank (750 billion KRW, 400 million AUD) also joined the issuance trend one after another.

The increase in ESG bond issuance by financial companies is due not only to the image enhancement effect of strengthening sustainable management but also to the diversification of fundraising.

According to the Korea Exchange, the scale of domestic ESG bond issuance surged from 1.25 trillion KRW in 2018 to 25.687 trillion KRW in 2019. Last year, it recorded 58.884 trillion KRW, more than doubling compared to the previous year.

Declaration of ‘Coal Phase-Out Finance’

The coal phase-out stance is also one of the most prominent trends in ESG management in the financial sector recently. In September last year, KB Financial became the first domestic financial group to declare 'coal phase-out finance,' involving all affiliates including KB Kookmin Bank, to proactively respond to the climate change crisis. As a result, it plans to completely stop participating in new project financing and bond underwriting for domestic and overseas coal-fired power plant construction, which is a prerequisite for curbing global warming. KB Financial also established the mid-to-long-term ESG management roadmap 'KB Green Way 2030.' The strategic goal is to reduce KB Financial Group’s carbon emissions by 25% by 2030 (compared to 2017) and expand the current approximately 20 trillion KRW scale of 'ESG products, investments, and loans' to 50 trillion KRW.

Shinhan Financial announced in November last year that it would promote the 'Zero Carbon Drive.' The goal is to achieve zero carbon emissions from the group’s asset portfolio by 2050. Through this, Shinhan Financial plans to reduce the group’s own carbon emissions by 46% by 2030 and 88% by 2040, and the carbon emissions of the group’s asset portfolio by 38% by 2030 and 69% by 2040. The group will further advance its carbon emission measurement model and pursue joining international organizations to have its emission reduction targets internationally verified. Shin Yong-byeong, Chairman of Shinhan Financial, emphasized, "Expanding eco-friendly finance is an essential role of finance for future generations."

Woori Financial announced plans to become a carbon-neutral financial group by 2050. To this end, it expanded and reorganized the 'New Deal Finance Support Committee' within the group and decided to support a total of 10 trillion KRW over the next five years, including 4.2 trillion KRW for the Digital New Deal, 4.7 trillion KRW for the Green New Deal, and 1.1 trillion KRW for strengthening safety nets. It will actively support the '2050 Carbon Neutral Policy' and expand project financing investments in renewable energy such as hydrogen fuel cells, wind power, and solar power to transition the economic ecosystem to a low-carbon economy.

Hana Financial is currently reviewing strengthening environmental management to respond to climate change, introducing environmental and social risk management processes, refining sustainable finance product classification systems, joining the Equator Principles, and adopting the TCFD guidelines. It also plans to reset and manage mid-to-long-term carbon emission reduction targets reflecting the 'Carbon Neutral 2050' policy. NH Nonghyup Financial is establishing an ESG management strategy that includes group ESG management systems, ESG investment processes, and ESG response management systems.

Organizational Restructuring... ESG Performance Reflected in CEO and Executive Evaluations

ESG management in the banking sector is expected to expand and become more systematized in the future. This is because each financial holding company is establishing ESG goals as a key part of their management strategies one after another.

The KB Financial Chairman Candidate Recommendation Committee added 'willingness to practice ESG' as a qualification requirement for the chairman last year. In March of the same year, it also established an ESG Committee within the board of directors. The ESG Committee consists of nine members, including KB Financial Chairman Yoon Jong-kyu, and plays the highest decision-making role in establishing group ESG strategies and policies, as well as managing and supervising progress.

Shinhan Financial carried out organizational restructuring to accelerate ESG management. It established an ESG Planning Team under the Group Strategy and Sustainability Division (CSSO). Previously, ESG was handled within the strategy-related team, but through this restructuring, a separate team was created. Since 2017, Shinhan Financial has added ESG-related items to the evaluations of the group CEO and subsidiaries to establish a sustainable management system. From 2019, ESG was made an independent evaluation item.

Hana Bank’s new 10-year growth strategy is 'NEXT 2030, Big Step.' To expand ESG management, it established an ESG Planning Section, a dedicated ESG department within the Management Strategy Headquarters. The goal is to introduce ESG philosophy across all areas of corporate activities and strengthen an execution-focused ESG management system.

Woori Financial strengthened the holding company’s control tower role for group-level ESG management and brand management and established an ESG Management Department. To improve the efficiency of managing the group’s key businesses, it abolished the Asset Management, Global, and CIB business divisions, integrating their functions into the Business Growth Division.

Son Tae-seung, Chairman of Woori Financial, emphasized at the group management council held last month, "We will strongly promote ESG management by reflecting ESG as a core strategy in the new year’s group management plan and mid-to-long-term strategy," adding, "Subsidiaries should actively link ESG elements when promoting their businesses."