First analysis on Korea’s green bond markets shows ROK is well positioned to be growth driver in Asian green bond markets
What’s it all about?
The Climate Bonds Initiative just released today its first report exploring Korea’s green bond market and proposing recommendations to policy makers, banks and market actors to take advantage of potential growth opportunities.
The study was commissioned by SK Securities and will be launched in London during the Climate Bonds Annual Conference 2018.
(Kwangyul Peck, Sean Kidney & Serena Vento at the 2018 Climate Bonds Annual Conference at the London Stock Exchange)
Korea’s positioning in the global green bond market
Korea Export-Import Bank (KEXIM) was the first issuer to come to market in 2013 and the only repeat issuer to date, accounting for 46% of total issuance. 2017 has seen two new issuers: Korea Development Bank and Hanjin International, signalling increased engagement within Korea’s governmental institutions and corporations.
Korea’s green bond market is still small compared to the global context, with only six green bonds coming from four issuers and totalling USD2.05bn to date. The country’s market characteristics provide an opportunity of climbing further up the ranks.
However, when analysing the Asia-Pacific region, Korea is the fifth largest cumulative issuer after China (USD47.7bn), India (USD6.6bn), Japan (USD6.1bn) and Australia (USD4.6bn). In the last six months, green bonds have also emerged from New Zealand, Fiji, Indonesia, Malaysia and Singapore.
Market & policies grow supportive of climate action
The government’s commitment to a 37% GHG emissions reduction by 2030, combined with the country’s emission trading scheme implemented in 2015, provide a policy environment that can effectively support the further development and expansion of the country’s green bond market.
Korea’s overall bond market size, one of the largest worldwide, financial system stability and strong industrial economy, issuance from key state-backed institutions, strong climate commitments and a large local investment market are hallmark factors that make Korea a prime candidate to lead new regional and global growth in green and climate bond issuance.
Report recommendations: The road ahead
- Strategic issuance from sovereign or public entities to mobilise the scale and liquidity needed to encourage trading and facilitate price discovery.
- Development of national green finance guidelines to promote best practice, raise awareness, and build investor confidence.
- Provision of tax incentives for investors in domestic green bonds.
- Strong market signals from central banks to encourage market development.
- Advocate for scale-up of green bond issuance to engage investors and ensure that investments meeting their criteria are available.
- Support market standards to strengthen transparency around green projects and facilitate decision making on future infrastructure investment.
Who’s saying what?
Kwangyul Peck, Senior Advisor, SK Securities:
“Our support for the Korea Climate Bond Market report is a reflection of the partnership between SK Securities and the Climate Bonds Initiative and our joint goal of growing climate based investment in Korean financial markets. The report gives stakeholders, market participants and regulators a valuable resource to help stimulate debate as we position for the future.”
Sean Kidney, CEO Climate Bonds Initiative:
“There are vast investment opportunities to implement climate resilient infrastructure both domestically and in the wider region. The capital re-allocation to meet climate and emissions targets must be accelerated. The report points to the policy shifts in support for green finance can help create the investment momentum needed in the region.”
“Korea’s bond market has grown at a rapid pace to become one of the largest in the world. The Korea Climate Bond Market report demonstrates how some of this scale and development could be replicated to stimulate domestic investment in climate and green based finance.”
The Last Word
A total universe of USD18bn outstanding bonds that are not labelled as green but are financing projects/assets aligned with a low carbon transition has been identified for Korea.
The country’s growth potential could be even greater, since this measure doesn’t capture financial institutions and property, which could become important issuers of green bonds in the future.
Current barriers such as lack of awareness from both issuers and investors have to be overcome for Korea to reach its full potential.
Blog readers will have noted our references to a wave of new policy announcements, green guidelines and green issuance from the SE Asia and Pacific nations in the last six months.
This report, our first on Korea, lays a new marker for the domestic discussions over where the ROK wants to be positioned as green finance markets grow across the region.
'Till next time,
Climate Bonds
