South Korea’s Financial Supervisory Service (FSS) will enact the environmental, social, and governance (ESG) bond certification evaluation guidelines for credit rating agencies to determine whether bond issuers spend the proceeds on ESG-related projects, as reported by the Korea Economic Daily on January 16. Effective from February 1, the guidelines include the principles and rules that credit rating agencies must abide by when evaluating ESG bonds. According to the guidelines, credit rating agencies must sign an agreement that includes a clause requiring them to “verify the funds are used” when evaluating ESG bonds. 

Global issuance of ESG bonds grew 4.4% YoY to USD46.17bn during the first 11 months of 2022, outperforming the overall green, social, sustainability and sustainability-linked bonds market that shrunk by 30% YoY in the same period. Aside from a slowdown in the global economy, the mounted concerns over greenwashing also resulted in the plunge. Currently, financial watchdogs around the world have limited laws and regulations in place to oversee the rapidly growing ESG bond market. In addition, due to the lack of certification standards, credit rating agencies evaluate and certify ESG bonds in the form of credit ratings, with most of them being given top ratings. According to the FSS, the new guidelines will improve the transparency and reliability of the evaluation process, while providing investors with more decision-useful information to prevent greenwashing.

Sources:

https://www.kedglobal.com/regulations/newsView/ked202301160003

https://www.bloomberg.com/news/articles/2022-12-07/global-esg-bond-issuance-headed-for-first-full-year-decline-ever

https://www.reuters.com/business/sustainable-business/global-esg-bond-issuance-posts-h1-dip-supranationals-cut-back-2022-07-14/

https://www.esginvestor.net/live/korea-targets-more-transparent-esg-bond-ratings-with-new-guidelines/