KCCI's Sustainable Linked Loans Surpass 50 Billion KRW in Just 4 Months

Interest Rate Reduced by Up to 1 Percentage Point Upon Achieving ESG Management Goals

[Asia Economy Reporter Oh Hyung-gil] A small and medium-sized enterprise (SME) A, manufacturing heavy equipment in Chungcheongbuk-do, prepared for the enforcement of the Serious Accident Punishment Act and sought to ensure the safety of workers in the workplace. While exploring the procedures for obtaining the international standard certification for occupational health and safety management systems (ISO 45001), the company confirmed that it corresponds to a key performance indicator (KPI) of a sustainability-linked loan product and was able to receive a loan interest rate reduction benefit.

The Korea Chamber of Commerce and Industry (KCCI) announced on the 4th that the sustainability-linked loan, introduced domestically for the first time in collaboration with IBK Industrial Bank of Korea, has surpassed a loan scale of 50 billion KRW.

Since February, KCCI has been providing an ESG (Environmental, Social, Governance) management success support loan worth 200 billion KRW, offering up to a 1 percentage point interest rate benefit with a limit of 1 billion KRW per company. As of the end of June, just four months after its launch, confirmation certificates have been issued to 130 companies.

Sustainability-linked loans are products where banks set the loan interest rate linked to the degree of fulfillment of ESG management goals by borrowing companies. The first case was in 2017 when Dutch financial group ING, together with 15 banks, lent 1 billion euros to Philips.

The global sustainability-linked loan market size was estimated at 366 billion USD last year, increasing by 181% compared to the previous year, reflecting growing interest from global companies in green finance.

KCCI explained that it provides practical financial incentives based on voluntary ESG goal setting to companies practicing ESG management, and the response from SMEs burdened by financing costs has been very positive.

Applicant companies set goals among 12 items such as carbon emission reduction, water usage, energy efficiency rating, raw material recycling rate, and expansion of female and disabled employees, submit them to KCCI, receive a confirmation certificate, and then submit it to the bank.

External ESG evaluation agencies verify the ESG management goals submitted by companies and monitor the ESG management implementation status of applicant companies when extending loans.

Woo Tae-hee, Executive Vice Chairman of KCCI, said, "As SMEs face difficulties in financing due to domestic and international interest rate hikes, sustainability-linked loans offering interest rate incentives are expanding and contributing to the spread of ESG management among SMEs. We plan to actively promote ESG projects that can provide practical support to SMEs, such as supply chain due diligence, consulting, and government incentive matching."