ESG bond market to thrive as Korea's top banks accelerate issuances

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The top four commercial banks here are expected to continue issuing ESG bonds aggressively this year, as their lower interest rates can reduce capital costs. There is also a high demand from foreign investors.

ESG bonds are a type of bond used to fund projects that create environmental or social benefits. They are categorized into three types based on their issuance purpose: green, social and sustainability bonds.

On Tuesday, Shinhan Bank announced its successful issuance of foreign currency-covered bonds, valued at 500 million euros. These particular ESG-covered bonds are the first of their kind in the country, issued as a "green mortgage," according to the bank. They are designed to allocate and support funds for environmentally-friendly apartment mortgages.

Throughout this month, the bank conducted a tour of five European cities, aiming to maximize investment by presenting and explaining the details of this product.

Last week, Woori Bank also succeeded in issuing foreign currency ESG bonds valued at $700 million, marking the first issuance of ESG bonds by commercial banks this year. The funds raised from this issuance are intended to support domestic cooperative finance as well as to invest in overseas green energy projects.

Additionally, KB Kookmin and Hana Bank are reportedly considering the quantity of their respective issuances, taking into account the market situation.

Since 2019, the four major commercial banks have consistently issued ESG bonds, exceeding an annual total of 4 trillion won ($2.9 billion). In the previous year, the combined issuance by KB Kookmin, Shinhan, Hana and Woori Bank amounted to 4.17 trillion won.

The primary incentive for these banks to issue ESG bonds is their relatively low cost of funding. These bonds typically offer interest rates around 0.02 percentage points lower than those of regular bonds issued by banks under similar conditions.

Issuing ESG bonds is not only aimed at enhancing corporate value through improved sustainability practices, but also at expanding the investor base. This expansion is driven by the growing global institutional investor preference for sustainable investments.