ESG Bonds
ESG bonds refer to bonds whose proceeds are used to fund environmentally-friendly projects or projects that can create social benefits. Examples of such bonds include green, social, sustainability and Sustainability-Linked Bonds. Terms such as Thematic bonds, Social Imppact bonds, or SDGs(Sustainable Development Goals) bonds are also widely used among issuers and market players to refer to these ESG bonds.
Green Bonds
Green bonds refer to debt securities issued with special purposes to raise capital to invest in environmentally-friendly projects such as renewable energy projects or social infrastructure.
Social Bonds
Social bonds refer to debt securities issued to raise capital to invest in businesses that can create social values.
Sustainability Bonds
Sustainability bonds refer to debt securities issued to fund businesses that are environmentally-friendly and can create social values
Sustainability-Linked Bonds
Sustainability-Linked Bonds refer to debt securities for which the financial and/or structural characteristics can vary depending on whether the issuer achieves predefined Sustainability/ESG objectives
Year Milestones
1972 The United Nations Environment Programme (UNEP) is launched
1991 The UNEP announces the Finance Initiative
2007 The European Investment Bank (EIB) issues green bonds for the first time in the world
2008 The World Bank issues its first green bonds
2013 The Export-Import Bank of Korea issues its first overseas green bonds by a Korean issuer that raise USD500m
2014 The International Capital Market Association (ICMA) announces the Green Bond Principles (Subsequently, the Social Bond Principles and Sustainability Bond Guidelines are separated from the Green Bond Principles)
2015 The UN adopts 17 Sustainable Development Goals (SDGs)
2018 The Korea Development Bank issues the first domestic green bonds that raise KRW300bn (This is based on its registration and goes the same for the following)
The Korea Development Bank issues the first domestic social bonds that raise KRW300bn
The Export-Import Bank of Korea issues first domestic sustainability bonds that raise KRW350bn
2019 The Korean Government issues domestic green and sustainability bonds (Foreign Exchange Equalization Fund Bond) that raise USD500m
Guidelines on the management of the SRI(Socially Responsible Investment) bonds market(Currently ESG Data Platform) are set out
2020 In Jun., The KRX launches SRI(Socially Responsible Investment) bonds market(Currently ESG Bonds Data Platform) / The International Capital Market Association(ICMA) announces the Sustainability-Linked Bond Principles
In Aug., The Green Finance Taskforce is launched (comprising ministries and authorities, such as the Financial Services Commission and Ministry of Environment, policy financing institutions, private financial companies, advisory group)
In Dec., Korea's Green Bond Guideline (K-GBG) is announced (jointly by the Ministry of Environment, Financial Services Commission, Korea Environmental Industry & Technology Institute, and Korea Exchange)
2021 In Apr., The outstanding amount of the SRI(Socially Responsible Investment) bonds market(Currently ESG Bonds Data Platform) passes the KRW100tn mark
In Aug., The Korean Government announces a plan to increase the ESG infrastructure
In Oct., The Korean Government issues the first euro-denominated green bond by an Asian sovereign that raises EUR700m)
In Dec., Korea's Green Taxonomy (K-Taxonomy) is announced by the Ministry of Environment
2022 In Jun., The listed outstanding amount of the SRI(Socially Responsible Investment) bonds market(Currently ESG Bonds Data Platform) exceeds KRW 200tn
In Sep., Korea Exchange adopts Sustainability-Linked bonds into the ESG bond Data Platform
ESG Bonds - Principles
There are no existing laws or regulations on ESG bond issuance in Korea, but nonbinding international guidelines are generally accepted. To name a few, there are the Green Bond Principles(GBP), the Social Bond Principles(SBP), the Sustainability Bond Guidelines, and Sustainability-Linked Bond Principles(SLBP), all published by the International Capital Market Association (ICMA), and there is also the Climate Bond Standards (CBS) developed by the Climate Bonds Initiative (CBI).
GBP, SBP and Sustainability Bond Guidelines
These are voluntary guidelines for issuing green bonds, social bonds, and sustainability bonds, which is based on Use of Proceeds, and they are comprised of 4 core elements: 1) Use of Proceeds, 2) Process for Project Evaluation and Selection, 3) Management of Proceeds and 4) Reporting.
Sustainability-Linked Bond Principles(SLBP)
These are voluntary guidelines for issuing Sustainability-Linked bonds, which is based on General Corporate Purpose, and they are comprised of 5 core elements: 1) KPI, 2) SPT, 3) Characteristics of Bonds, 4) Reporting, 5) Verification.
Climate Bond Standards (CBS)
These are standards to assess the eligibility of bonds and other debt instruments as green bonds, and their key features include: requirements on the use·tracking·reporting of proceeds based on full alignment with the Green Bond Principles (GBP), specific standards on the eligibility of low-carbon·climate adaptation projects and assets, verification process with independent verifiers and consistent procedures, and independent certification by the Climate Bonds Standard Board.
Green Bond Guidelines, K-GBG
These are Korean guidelines for green bonds which were established in cooperation with the ministry of environment, Financial Services Commission, Korea Environmental Industry & Technology Institute, Korea Exchange, and they include definitions, framework, external review and supplements.
Benefits Anticipated
Benefits to Issuers
  1. A more advanced sustainable management
    External evaluation and accreditation of ESG may facilitate a progress towards a more systemized sustainable management. Since an issue of ESG bonds, in particular, also serves as an indicator of ESG activities, it may lead to higher performance in external ESG evaluations and ultimately, greater corporate values.
  2. An enhanced corporate image
    An issue of ESG bonds may raise awareness of the company's carrying out of a project that is in line with sustainable development goals of our society, thereby actively improving corporate reputation, social contribution, corporate image and brand value.
  3. A greater accessibility to ESG investments
    The issuer may have a greater accessibility to investments from investors around the world who value corporate social responsibility. Also, domestically, a growing number of pension funds and private institutional investors are increasing their socially responsible investments. Already, the demand for ESG bonds is higher than that for other bonds, making it easier to raise capital.
Benefits to Investors
  1. Pursuing both investment returns and contribution to sustainable growth at the same time
    Robust investment in bonds that invest in socially responsible investment projects is likely to contribute to both achieving stable returns (interest and principal) and building a sustainable society, such as improving environment and creating social values.
  2. Joining in the Sustainable Development Goals (SDGs)
    There may be demand for sustainability-themed projects mandated by international agreements and other arrangements for institutional investors. Investing in ESG bonds may help fulfill such obligations.
  3. Managing risks through alternative investment
    ESG bonds can be classified as alternative investing as they invest in specific projects with special purposes. If the investments are mixed with less-correlated traditional assets, risks associated with investment may effectively be managed through diversification.
Benefits to Society
  1. Contributing to environmental protection
    A vibrant investment in green projects can contribute to environmental protection by, for example, curbing emissions, preventing air pollution, and combating global warming.
  2. Contributing to building a sustainable society
    If a sustainability project ESG bonds are invested in starts to make progress effectively, it can contribute to addressing social and economic issues, such as saving energy, protecting environment, and improving social values. Furthermore, a country can benefit from a reminder and a heightened awareness of the need for socially responsible investing, charting a path to a more sustainable growth of our economy.
KRX’s Support for ESG & Sustainable Business
The KRX has been doing its utmost to ensure listed companies take more social responsibilities and grow green and sustainable finance.
  • In 2010, the KRX adopted ESG disclosure of listed companies.
  • In 2015, the KRX joined the SSE Initiative.
    Sustainable Stock Exchanges (SSE) Initiative: a partnership programme initiated by the UN to promote corporate ESG.
  • In 2015, the KRX developed ESG-related products including ESG indices.
  • In 2020, the KRX launched SRI(Socially Responsible Investment) bonds market(Currently ESG Data Platform), joined the establish of Korean Green Bond Guidelines, and exempted listing fee and yearly fee for 3 years.
  • In 2022, the KRX adopted Sustainability-Linked Bond.
  • In 2023, the KRX extended the exemption period of 2 years for listing fee and yearly fee.(~'25.6.14)
Going forward, the KRX will spare no effort to promote ESG and sustainable business.