SK Geo Centric completes landmark sustainability-linked loan

As Asia’s fourth largest economy, South Korea has an important role to play in the region’s development of sustainable business strategies. The country has a target to become carbon neutral by 2050. Transition is critical to achieve this target, given the economy’s reliance on petrochemicals, and prevalence of carbon-intensive industries, including steelmaking, chemicals and shipbuilding.

Sustainable finance is an essential part of South Korea’s transition, with the country already an active issuer of sustainable debt in global capital markets. In the first half of 2022, the country was the world’s seventh largest issuer of green bonds, including both corporate and sovereign bonds, behind only China in Asia. In addition to green bonds, new sustainable financing options are now being utilised by some of South Korea’s largest corporates.  

“South Korean companies recognise that sustainable business is the future. Utilising the full range of ESG financing options can bring them closer to the realisation of their net zero targets. This deal demonstrates that well despite the challenging market conditions,” says Jong Gab Seo, Co-Head of Corporate Coverage Group, South Korea, BNP Paribas.

In November, SK Geo Centric (SKGC) closed a KRW 475 billion (US$ 366.5 million) sustainability-linked loan (SLL). Arranged by BNP Paribas, this is the first ever sustainability-linked financing in South Korea that is in line with international standards. The framework aligns to both the International Capital Market Association’s (ICMA) Sustainability-Linked Bond Principles (SLBP) and the Loan Market Association’s (LMA) Sustainability-Linked Loan Principles (SLLP). 

SKGC is an international petrochemical company focused on developing more sustainable products, with a target to reduce its carbon emissions by 50% by 2030 and achieve net zero by 2050. Under its vision ‘Green for Better Life’, the company’s focus is on eliminating its plastic waste by following the three ‘R’s’: reducing the consumption of plastic, replacing pollutants with cleaner alternatives, and recycling plastic products. At the core of its Plastic Zero strategy is to have a recycling capacity of 2.5 million tonnes in place by 2027.

“This large-scale sustainability-linked loan is the first of its kind in Korea, verified by a global certification body. It is very meaningful for our business as we transition into a more sustainable business model.” says Na Kyung-Soo, CEO of SK Geo Centric. “SK Geo Centric will operate in a sustainable manner and carry out social responsibility at the same time, expanding its position as a global market leader in the circular economy field” he emphasised.

The borrower has engaged DNV, a qualified independent reviewer, to provide a second-party opinion on the targets in the loan’s framework. DNV has described SKGC’s plans for carbon emission reduction and recycling expansion as “highly ambitious”.

“Engaging a recognised body to monitor SKGC’s SLL is a crucial part of the loan documentation,” comments Chaoni Huang, Head of Sustainable Capital Markets Asia Pacific, BNP Paribas. “The independent assessment provides lenders confidence that the loan’s framework is robust, while at the same time aligning with the company’s overall operational and investment plans.”

The completion of SKGC’s landmark SLL is significant, as it demonstrates that South Korean corporates in carbon-intensive industries can align their sustainability and debt requirements to the highest international sustainable finance standards, such as the LMA SLL Principles. Going forward, harmonisation with international standards will support more South Korean companies to drive capital to projects that help both the environment and society, paving the way to further expand the country’s SLL market.