FSS to inquire actual use of funds raised by issuing ESG bonds

From now on, companies in South Korea that have raised funds by issuing ESG (environmental, social, and governance) bonds will have to answer questions by credit rating agencies about whether the funds were spent actually on ESG-related projects.

The Financial Supervisory Service said on Sunday that it would enact the "ESG bond certification evaluation guidelines" containing such provisions and implement them from next month.

As more and more companies issue ESG bonds, credit rating agencies are undertaking certification evaluations on ESG bonds in the form of credit ratings. Still, there are many limitations in supervision as no laws related to ESG certification exist as of now.

In addition, the current ESG evaluation has been meaningless since most companies are given the top rating. This time, however, guidelines introduced by the financial regulator contain the principles and rules that credit rating agencies must abide by when evaluating ESG bonds.

More specifically, credit rating agencies must sign an agreement that includes a clause stating that they would "verify the funds are used" when taking on ESG bond certification evaluation projects.

The Financial Supervisory Service expected that the new guidelines would have an effect on preventing "greenwashing" (using funds where there is no positive environmental effect but classified as green bonds nonetheless).

Write to Dong-Hun Lee at leedh@hankyung.com