KEPCO's Green Bond failed the ESG market test
Christina Ng, Institute for Energy Economics and Financial Analysis | 24 Nov 2020
In June 2020, KEPCO took what appeared to be a positive step forward and issued a green bond, raising US$500m from overseas financial markets. According to its Green Bond Framework, the company’s new strategy involves “focusing its resources on creating a clean and efficient energy ecosystem as part of its effort to cut down greenhouse gas emission[s]”.
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While KEPCO’s green bond was oversubscribed, IEEFA’s analysis found that the mix of bondholders lacked breadth compared to other recently issued utility company green bonds, and many seasoned environmental, social and governance (ESG) investors passed on the issuance.
Based on holdings data and IEEFA’s own market engagement, it appears that the leading green investors were unconvinced by the state-owned company’s overall strategic direction related to climate risk management, with its recent track record of inconsistent and ambiguous investments and policies. Experienced ESG green bond investors are particularly reluctant to fund a company’s “green projects” while the company has significant new coal projects in the pipeline.
Only a few weeks after the green bonds were oversubscribed, KEPCO confirmed it would be investing in new coal power plants, Jawa 9 and 10 in Indonesia and Vung Ang 2 in Vietnam.
Coal is the worst kind of fossil fuel in terms of its contribution to the climate crisis. KEPCO’s ongoing investment in fossil fuels is not only inconsistent with the company’s green ambitions but also damages the credibility of the Korean government’s Green New Deal which was announced in July 2020 and which is supposed to phase out coal financing.
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