In recent years, the issuance of social bonds has taken off. From 2018 to 2022, the amount raised globally by these debt securities surged from US$14.3 billion to US$164 billion. The social aspect of ESG is an area of sustainability where Asia Pacific leads the way, with the region accounting for 85.1% of the world’s social bonds, and 72.6% of the capital raised in Q3 2022.
Social bonds help promote a wide range of positive social outcomes. These include broadening access to healthcare, education, employment and affordable housing, as well as providing finance to disadvantaged groups in society. South Korea is Asia’s second largest issuer of green, social, sustainable and sustainability-linked bonds (GSSSB), with social bonds accounting for more than half of the country’s total GSSSB issuance.
“Corporates and institutions in South Korea are very enthusiastic about social bonds. They recognise the growth in demand for social bonds amongst investors and see these instruments as a way to effectively raise capital, while at the same time targeting meaningful social matters,” says Yong Kwan Kwon, Head of Debt Capital Markets, BNP Paribas Securities Korea.
❝ Corporates and institutions in South Korea are very enthusiastic about social bonds. They recognise the growth in demand for social bonds amongst investors and see these instruments as a way to effectively raise capital, while at the same time targeting meaningful social matters. ❞
The provision of affordable housing to low- and middle-income families is a key driver of the country’s social bond issuance, but two recent deals highlight how the use of proceeds is broadening.
Pioneering social bond issuance
In April, Shinhan Bank priced a US$500 million five-year gender equality social bond – the first ever gender-themed bond from South Korea. The funds raised will be used exclusively to finance and refinance social projects for women borrowers, as set out by the bank’s Sustainable Development Guidelines framework.
The new bond comes a year after the Shinhan Bank issued its first climate bond and demonstrates that the bank is implementing ESG values across the sustainability spectrum.
The proceeds raised will contribute to efforts that improve the position of women in South Korean society. The country ranks 99th out of 146 countries in the 2022 Global Gender Gap Index, and 115th in the Economic Participation and Opportunity sub-index. Increased access to credit empowers women in the country by providing the capital to start a business, purchase their own home, and generally be more financially independent.
In the same month, KEB Hana Bank raised €600 million via an SME Empowerment Social Covered Bond that will increase the lender’s capacity to extend loans to small and medium-sized enterprises.
Although South Korea is best known for its giant conglomerates, local SMEs are a vital part of the economy – they account for as much as 99% of the country’s companies, 82% of employment, and 48% of exports. The KEB Hana Bank social bond will help these small but collectively important businesses obtain the funding they need to maintain operations, and even expand. It could also further promote gender equality, as around three million SMEs in South Korea are owned by women.
“Both of these social bonds showcase how businesses in South Korea are aligning their operations to incorporate ESG considerations. This is being recognised by investors, as both deals were completed in challenging market conditions,” says Won Jae Lee, Senior Director, Financial Institutions Coverage, BNP Paribas Korea.
❝ Both of these social bonds showcase how businesses in South Korea are aligning their operations to incorporate ESG considerations. This is being recognised by investors, as both deals were completed in challenging market conditions. ❞
BNP Paribas was one of the Joint Lead Managers and Bookrunners for the Shinhan Bank and the KEB Hana Bank social bonds.
“The recent bond deals in South Korea highlight how all the institutions along the capital market value chain – corporates, financial intermediaries, and investors – are taking social issues seriously, especially gender equality,” concludes Chaoni Huang, Managing Director, Head of Sustainable Capital Markets APAC, BNP Paribas.
❝ As social bonds become an increasingly mainstream asset class, we expect that their role in promoting important social issues will only continue to rise. ❞
Scaling up social impact
Thematic investing is expected to grow dramatically over the next three years, including social finance. In 2022, BNP Paribas launched its inaugural structured social index-linked bond, which integrates social criteria aligned to social UN Sustainable Development Goals (SDGs).
With an aim to address social impact focus, BNP Paribas’ Social Bond Framework is built around three key building blocks: Social Bond Issuance, Social Index and Social Sharing.