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Green bond seller investing in coal shows how tricky ESG can be

(Bloomberg) – When a South Korean electric utility issued green bonds last year while investing in new coal-fired power plants in Southeast Asia, mixed environmental messages fueled skepticism from investors as to the sustainable debt which has only increased since then. ranking greenback sales this year with $ 10.5 billion in transactions, the most in Asia after China, according to data compiled by Bloomberg, but sellers include many companies in emissions-intensive industries . According to founder Ulf Erlandsson, the nonprofit Anthropocene Fixed Income Institute, more than half of all Korea’s green bonds come from “potentially controversial sectors” such as autos, chemicals, power producers and oil and gas. in the commercialization of sustainable debt, known as greenwashing, is a risk facing investors around the world. This is a danger to Korean borrowers, as the chimney industries are such a big part of its economy dependent on exports. While fundraising via greenbacks can be a way for companies to shift to more climate-friendly operations, if they are misleading about how the funds will be used, it could make investors more hesitant to buy the debt in the future. the reputation of the green bond market and depresses demand for Korean green bonds, ”said Christina Ng, senior fixed income analyst at the Institute for Energy Economics & Financial Analysis. “This is something, I think, that the Korean government is very aware of.” The utility that sparked debate over some of the issues facing investors was Korea Electric Power Corp., which sold a $ 500 million green bond last year. The debt deal, the proceeds of which was to go to renewable energy projects, attracted more orders than tickets available. But it happened as the company was preparing to invest in new coal-fired power plants in Indonesia and Vietnam. Proceeds from green bonds were not used for investment in factories. The combination “sent false signals to the international market,” Hong Jong Ho, a professor at the Graduate School of Environmental Studies at Seoul National University, said by phone. “Being a large state-owned company creates skepticism among global investors as to whether South Korea’s green bonds are managed transparently.” A spokesperson for Kepco said the company announced last October that it would transition to low-carbon businesses, and it won’t. financing of any new coal project. For investment in factories in Vietnam and Indonesia, the company had to consider various elements, including its ties with those countries, as well as partnerships with other companies, the spokesperson said. work on publishing a draft labeling system, known as a taxonomy, in the next two months to help investors classify green investments, according to the Environment Department. guidelines for green bonds in December, but it lacks binding power. Although the rules require borrowers to seek an external review before issuing such notes, obtaining a verification or rating after issuance by a second party is voluntary. There is also a lack of clarity at present as to who is qualified to be an external appraiser. Investors from private asset management companies to public pension funds face increasing pressure to boost bonds. and sustainability-focused stocks in their portfolios, the lack of clarity drives Seoul-based NH-Amundi Asset Management Co. to rate green bonds using its own credit research, in addition to credit systems. external analysis and rating, said Han Sooil, chief investment officer of the firm’s fixed income division. ESG information from issuers can often be insufficient, especially for companies that are not listed, he said. “The Asian green bond market is still evolving, which means we can expect changes in investor reaction and regulatory frameworks,” he said. Says IEEFA. “It’s a learning process, which allows you to sort the good and bad numbers.” More articles like this are available at bloomberg.com Subscribe now to stay ahead with the most trusted source of business information. © 2021 Bloomberg LP



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