[Exclusive] Democratic Party Promotes 'Social Responsibility Bonds' to Address COVID-19 Inequality

ESG (Environment·Society·Governance) Bond Method
Lee Nak-yeon "ESG Disclosure Mandate Should Be Accelerated"

Lee Yong-woo, Democratic Party of Korea lawmaker. / Photo by Dong-joo Yoon doso7@

[Asia Economy Reporter Park Cheol-eung] The Democratic Party of Korea is pushing for a plan to issue ‘social responsibility bonds’ by companies as a measure to alleviate the deepened polarization caused by the novel coronavirus infection (COVID-19). They intend to encourage voluntary participation by adding incentives such as tax credits to a method that has already been actively implemented. This is interpreted as an effort to minimize resistance from some quarters who see it as imposing burdens on companies and to maximize practical effects.

According to the Democratic Party on the 18th, at the first meeting of the Post-COVID Inequality Resolution Task Force (TF) held on the 15th, opinions were gathered to review and promote profit sharing between large corporations and their partner companies, reduction of fees by platform companies, and the issuance of ESG (Environment, Society, Governance) bonds and the establishment of a social solidarity fund. This can be seen as a more expanded form compared to the ‘voluntary profit-sharing system’ proposed earlier by Representative Lee Nak-yeon, which sparked controversy.

ESG bonds are special-purpose bonds issued by companies that pledge to investors to use the funds exclusively for environmental, social, or sustainability projects. The special purpose of the bonds can include ‘post-COVID inequality resolution.’ Recently, as public contribution has been recognized as one of the corporate competitiveness factors, the ESG bond market is rapidly growing. Last year, newly listed ESG bonds in Korea amounted to 59 trillion won, a 129% increase from the previous year, rising by about 33 trillion won.

Democratic Party lawmaker Lee Yong-woo, who previously proposed the social solidarity fund, will be in charge of both ESG and social solidarity fund tasks. In a phone interview with Asia Economy, Lee said, "The ESG bond market structure is already established domestically and internationally," adding, "We need to consider whether to handle ESG and the social solidarity fund separately or together."

The social solidarity fund is envisioned to secure some resources through government bond issuance and provide tax credit benefits when companies donate. Funds raised through ESG bond issuance could also be injected into the fund. At the TF meeting, Representative Lee mentioned, "The Financial Services Commission said it would mandate ESG disclosures for KOSPI-listed companies starting in 2030," adding, "That’s too late. We need to try to bring it forward as much as possible." Mandatory disclosure is considered one of the main conditions for activating ESG bonds.

Participation by pension funds can also be anticipated. Professor Han Sang-beom of Kyonggi University, who presented at the ‘ESG Bond Activation’ forum hosted by Representative Lee in September last year, pointed out, "It is necessary to reflect social responsibility investment evaluation factors of institutional investors such as pension funds in the performance evaluation of fund management."

Regarding the profit-sharing system for cooperation, bills by Democratic Party lawmakers have already been proposed and are expected to be pushed in the National Assembly next month. Currently, only a performance-sharing system is introduced where the entrusting company (large corporation) supports the entrusted company (small and medium enterprise) to achieve joint goals such as cost reduction and shares the results if successful. The government and ruling party are advancing one step further to promote a method of sharing the ‘profits of the entrusting company (large corporation)’ generated through joint efforts with partner companies.

Hong Ik-pyo, chairman of the Democratic Party’s Policy Committee and head of the TF, told reporters on the 15th that, citing examples of profit sharing by overseas companies, "Boeing has shared profits with its partners for 30 years by working together," adding, "Recently, some U.S. platform operators have reduced fees. People tend to focus only on sharing profits from their own pockets, but there is also the concept of sharing future profits created through cooperation."

He continued, "The COVID profit-sharing system is a concept that encompasses social and welfare policies and is a much broader concept than the cooperative profit-sharing system."

Lee Nak-yeon, leader of the Democratic Party of Korea, is delivering opening remarks at the first meeting of the Post-Corona Inequality Resolution Task Force held at the National Assembly Members' Office Building on the 15th. Photo by Yoon Dong-ju doso7@