Korea catches green-bond fever for money and market cred

Green bonds are catching on in Korea.

A battery plant being built by SK Battery America, a U.S. subsidiary of SK Innovation, in Commerce, Georgia. [SK INNOVATION]

Green bonds are catching on in Korea.

Companies are issuing them not only to jump on the global going-green bandwagon, and on the expectation that the Joe Biden administration will continue to push relevant initiatives, but also to get some green cred in the markets.

Green bonds refer to debt securities issued to invest in environmentally friendly projects. They are a type of socially responsible investment, or environment, social, governance (ESG) investment.

Guidelines for green bonds in Korea were announced by the Ministry of Environment and Financial Services Commission last month. Companies that follow the guidelines can be listed on the Korea Exchange as green bonds.

Issuing green bonds is more complex than issuing corporate bonds because the process involves an extra step of receiving an external review from relevant institutions, like accounting firms or credit rating agencies.

Despite the complexity, a wide range of companies have started issuing green bonds.

SK battery America, a U.S. subsidiary of SK Innovation, issued $1 billion in green bonds earlier this month to build a second electric vehicle battery plant in Georgia.

“There aren’t notable benefits for issuing green bonds over other types of bonds,” said Yun Seon-ho, a spokesperson for SK Innovation. “But issuing green bonds is meaningful to the company because it proves that it has gained market recognition for its environmentally friendly businesses.”

Yun added that scarcity of green bonds issued by private companies and the expectation for long-term growth for green businesses have raised investor interest.

A total of 280 institutional investors took part in subscribing for the company’s green bonds with a five-year maturity, while 210 institutional investors participated in bonds with three-year maturity.

Lotte Global Logistics is issuing 50 billion won ($45.3 million) of green bonds later this month with the plans to convert to electric delivery trucks and to build an integrated logistics platform.

“There are various ways for us to raise capital because the logistics market has grown heated following the Covid-19 outbreak,” said Park Byung-jun, a spokesperson for Lotte Global Logistics. “But [for us], issuing green bonds is more of showing that the company is strengthening ESG management rather meeting the purpose of raising funds.”

Oil refiners SK Energy and GS Caltex are among others that have issued green bonds in 2019. They issued 500 billion won and 130 billion won, respectively.

The total amount of ESG bonds issued in Korea as of this month was 83.52 trillion won, up 163 percent on year, according to data from Korea Exchange. Social bonds account for 75 trillion won, while green bonds account for 3 trillion won, up 172 percent and 46 percent, respectively.

Development of “ESG bonds are still in the beginning phase, and there are a lot of hurdles that need to be overcome, like establishing a standards system, before the market stabilizes,” said analyst Lee Hwa-jin from Hyundai Motor Securities. “The ESG bond market [in Korea] is expected to become more active if the government offers incentives such as tax benefits, like in the overseas market.”

BY JIN MIN-JI [jin.minji@joongang.co.kr]