KB Financial to end coal project financing for low-carbon economy

KB Financial Group will no longer finance coal power projects at home and abroad, nor invest in them, said the South Korean banking group, with a set of bills aimed at prohibiting state-run banks and utilities from financing foreign coal projects pending in parliament.

The parent group of Kookmin Bank and KB Securities Co. decided not to provide financing for new coal-fired power plants nor to underwrite their debts, at its environmental, social and governance committee meeting held last week.

“This decision is to step up our social responsibility, as governments at home and abroad are tightening policies and regulations over coal power plants,” said a KB source.

It is the first South Korean financial holding group to announce a plan to contribute to a low-carbon economy as climate change and the COVID-19 impact heighten environmental awareness.

In July, four lawmakers from the ruling Democratic Party proposed a set of bills to ban utility Korea Electric Power Corp. (KEPCO), two state-run Korean banks and the state trade insurance provider from financing foreign coal projects.
The draft bills, concerning KEPCO, Korea Development Bank, Export-Import Bank of Korea and Korea Trade Insurance Corp., have not yet passed through the National Assembly.

Last week, Environment Minister Cho Myung-rae told a parliamentary committee that in principle the country needs to stop exporting coal-fired power plants unless the importing countries have no alternative to generate electricity, or adopt strict emissions standards.

KB Financial will also boost the size of its ESG-related investment and lending to 50 trillion won by 2030 from the current 20 trillion won, as part of the KB Greenway 2030 initiative unveiled last month. The investment will go to environmentally friendly private projects in sectors such as vessels and automobiles.

To fund those investments, KB will sell ESG bonds. Kookmin Bank has raised $1.8 billion in ESG bonds this year in three currencies.

KB Financial’s move toward the low-carbon economy, however, could be seen as an effort to be selected as the depository institution of about 50 municipal governments across the country, according to financial industry sources. They give extra points for decarbonization factors when selecting depository institutions.

The National Pension Service is seeking to incorporate ESG criteria into domestic equity and bond investments to boost responsible investments.

South Korean companies’ issues of ESG bonds have almost doubled to 5.7 trillion won so far this year from the year-earlier period, with a broader range of companies participating in the sustainable bond market.

Write to Young-chan Song at ofull@hankyung.com