S.Korea's ESG bond issues could top $920 mn in Jan

South Korea's environmental, social and governance (ESG) bond market is seeing strong growth as companies are driven by institutional investors' increased emphasis on ESG investments.

Until now, state-owned companies and financial institutions were the key players in the domestic ESG bond market. But this month, non-state-owned companies and non-financial institutions are set to issue ESG bonds worth over 1 trillion won ($920.5 million), according to the investment banking industry on Jan. 5.

First-time issuers Hyundai Steel Co., Hyundai Oilbank Co. and Lotte Global Logistics Co. are slated to issue a combined 530 billion won ($488 million) worth of ESG bonds. Lotte Corp. is also set to issue 50 billion won worth of ESG bonds.

Total ESG bond issues will top 1 trillion won if Hyundai Steel and Hyundai Oilbank raise up to 500 billion won and 400 billion won, respectively, backed by successful bookbuilding.

This is a notable change considering that only SK Energy Co., GS Caltex Corp., TSK Corp., and Lotte Corp. have issued ESG bonds in Korea to date, aside from state-owned companies and financial institutions. The four companies issued a total of 790 billion won in ESG bonds. 

ESG bonds were first introduced in Korea in 2018. That year, 1.5 trillion won worth of ESG bonds were issued, which surged to 39.3 trillion won in 2020. However, non-state-owned companies and non-financial institutions did not even account for 1% of them.

The country's ESG bond market growth was primarily driven by state-owned companies and financial institutions, which are largely influenced by the government. But domestic institutional investors' shift in fund management strategy has prompted a wider range of companies to participate in the ESG bond market.

The country’s largest pension fund, the National Pension Service, declared that it would invest half of its assets into ESG companies by 2022. The pension fund also decided to incorporate ESG criteria when mandating external managers for equity and bond investments.

In a similar move, asset management companies are increasing their ESG investments, such as setting up more ESG funds to reflect rising demand for ESG bonds.

“We have expectations that we'll be able to secure higher demand for ESG bonds compared to general corporate bonds,” said an investment banking industry official. “If we see actual change in the demand, then it's likely that interest rates will be set on beneficial terms," the official explained.

Market watchers expect to see more companies issuing ESG bonds to demonstrate their commitment to the ESG initiative while seizing the opportunity to issue bonds under favorable conditions.

“We're suggesting ESG bond issues as they offer an opportunity to raise funds on advantageous terms," said a securities firm official. "We're going to see a rise in the number of companies partaking in the local ESG bond market," the official added.


Write to Jin-sung Kim at jskim1028@hankyung.com
Danbee Lee edited this article.