South Korea ups its sustainability drive

With strong government support of late, South Korea is emerging as a major player in sustainable finance, and only time will tell if the country becomes a leader in Asia

Over recent years South Korea has slowly emerged as an active player in advocating sustainable finance in Asia alongside several other countries in the region. Since the country's first green bond by Korea Export-Import Bank (KEXIM) in 2013, the number of green bonds issues has blossomed, from Hyundai Capital's US$500 million issue in 2016 to Korea Development Bank's (KDB) US$300 million trade in 2017.

Last year was a particularly impressive period for the country's sustainable finance sector. KDB and Korea Hydro & Nuclear Power Company continued to issue green bonds, whilst South Korean companies started to tilt towards social bonds and sustainability bonds. Unlike green bonds, whose bond proceeds are funnelled towards projects with environmental benefits, social bonds have proceeds directed at projects with positive social incomes, while sustainability bonds have proceeds aimed at a combination of both environmental and social projects.

Korea East-West Power (EWP) led the charge last summer when it issued the first sustainability bond, raising US$500 million from investors, with capital generated earmarked for constructing energy storage projects and also providing employment for local South Korean communities.

EWP's landmark bond was soon followed by other social impact bonds, such as Industrial Bank of Korea's social bond in July 2018 and Korea Housing Finance Corporation's (KHFC) 500 million euro social covered bonds. The KHFC bond was the first time a covered bond had been structured with a sustainable social element.

This shift from green bonds in South Korea reflects similar movements in the overall sustainable finance activity in the region, with issuers looking to expand financing projects that address wider sustainability goals. According to Dealogic, US$22 billion social and sustainability bonds were brought to the global market in the first nine months of 2018, an 82% increase compared to the same period in 2017.

The sustainability drive has continued during the early stages of this year, with Midland Power's US$300 million green bond representing the first South Korean deal this year. Most recently, KEB Hana Bank raised US$600 million in its dual-tranche sustainability bond, led by Bank of America Merrill Lynch, HSBC, J.P. Morgan, UBS and KEB Hana Global Finance.

Though South Korea has been noticeably active in sustainable finance, the country still has some way to go to match the likes of China and Japan, the two leading Asian countries for green bond issuance, according to data provided by law firm Linklaters.

Nevertheless, the future looks bright in South Korea, with the government focused on creating a cleaner environment by, for instance, pledging to reduce greenhouse gas emissions by 37% by 2030. According to the Climate Bonds Initiative, key factors supporting the growth of sustainable finance in South Korea are national green finance guidelines and tax incentives to incentivize environmental improvement.

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Date

28 Jan 2019

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