The Korea National Railway announced on the 4th that it had issued green bonds worth 150 billion won. It is the largest amount among the green bonds the agency has issued to date. The entire 150 billion won raised will go into roadbed construction for the Pyeongtaek-Osong double-tracking project, which will increase the transport capacity of the Gyeongbu high-speed rail line.
The issuance volume has grown fivefold in three years. It started at 30 billion won in 2023 for projects including phase 1 of the Honam high-speed rail line, followed in 2024 by 50 billion won for the metropolitan area high-speed rail construction project and 70 billion won for phase 2 of the Honam high-speed rail construction project. This bond received a rating of "suitable" in Korea Ratings' ESG bond certification assessment, which examined conformity with the K-Taxonomy guidelines, the appropriateness of project selection and the transparency of fund management. In March this year the agency was selected for the Korea Environmental Industry and Technology Institute's interest subsidy program for K-Taxonomy green bond issuance, and it will receive interest support of 0.2% a year.
Issuance volume has grown, but the share held by the side that takes in these bonds has fallen.
An analysis by the Solutions for Our Climate and the British think tank Positive Money of Bank of Korea data obtained through the office of Rep. Chung Tae-ho found that 53% of the corporate bonds and public institution bonds accepted in the Bank of Korea's collateral framework last year were issued by fossil fuel or carbon-intensive sectors. Carbon-intensive issuers accounted for 33% and fossil fuel issuers for 20%. The share of green bonds, including sustainability bonds, came to about 2%, and 45% were classified as neutral bonds. The two organizations sorted the bonds into four categories: fossil fuel, carbon-intensive, green and neutral.
The share of fossil fuel bonds rose from 9% in 2021 to 20% last year, and over the same period the share of green bonds fell from 4% to 2%. Bonds issued by Korea Electric Power Corporation and Korea Gas Corporation alone made up 18% of all collateral. As of 2024, fossil fuel generation accounts for 63.4% of output at KEPCO and its power generation subsidiaries.
The Bank of Korea takes bonds as collateral against lending to financial institutions and settlement risk between institutions. As of the end of last year the total accepted amount was 168.2 trillion won, and of that, 23 trillion won in corporate and public institution bonds across 1,368 issues, for which carbon emission characteristics can be identified, was the subject of the analysis. The announcement does not state whether the 2% figure is based on amount or on the number of issues.
A central bank's collateral list determines which bonds can be turned into liquidity at financial institutions. Even if an issuer obtains K-Taxonomy certification and adds an interest subsidy on top when issuing a green bond, if the benefit the holding financial institution gains from it as collateral is no different from that of a fossil fuel bond, no incentive to hold it arises outside the certificate. The K-Taxonomy guidelines are the official standard created by the Ministry of Climate, Energy and Environment and the Financial Services Commission to determine whether a given economic activity qualifies as an environmentally friendly business.
Construction on the Pyeongtaek-Osong section will require funding for years to come. What price the market puts on the agency's next issue will only be known once the issuance terms are out, and those terms will depend on where this 150 billion won ends up.
