Kepco raises greenhushing questions
Market participants are keeping a close eye on green bond trends as geopolitical headwinds may be moving volume in a new direction.
Earlier this month, Korea Electric Power Corporation printed a US$400m three-year conventional bond, bucking its prior trend of selling ESG-labelled deals. Since 2019, all of its US dollar offerings had come with either green or sustainability labels.
Bankers on the latest deal said the change was not politically motivated and merely reflected Kepco’s modest fundraising size, but the move has spurred market chatter and concerns that “greenhushing” – or keeping quiet about sustainability goals – may become a new trend.
Companies may resort to greenhushing while still pursuing internal targets and policies. Choosing not to label a bond as green could be considered greenhushing, as it takes attention away from a issuer’s green plans, even though it continues along the same path.
Ulf Erlandsson, CEO of Anthropocene Fixed Income Institute, drew attention to the Kepco deal’s lack of label in a pre-pricing note, calling on investors to enquire about the reason. He told IFR that Kepco is a transitioning entity that still operates in coal, meaning many ESG investors already may not be comfortable investing in its green notes.
Kepco stated in its description of the use of proceeds, as it has in the past, that funds from the bond would not be used for activities related to the construction of new coal-fired power plants.
Market participants are closely watching the market for examples of greenhushing or a pull-back from labelled transactions, given the current political climate. Populist movements in Europe and the US have pushed back against ESG regulations, and the new Trump administration in the US has cancelled some environmental policies. A group of 11 US states led by Texas is suing asset managers BlackRock, State Street and Vanguard Group for committing to net-zero goals, accusing them of conspiring to reduce coal output.
David Tsai, partner at Clifford Chance in Hong Kong, said that issuers may find themselves “between a rock and a hard place” as they court investors as global attitudes towards green practices diverge.
“It was debated previously more on a state-by-state level but is now likely to become a federal government level initiative,” said Tsai about the US, pointing to the new administration’s recent announcements.
'It boils down to risk'
Tsai believes issuers will need to remain ESG-compliant to work with investors and banks in Europe and other jurisdictions that have strict sustainability regulations, but they may become less vocal about ESG when fundraising or communicating with shareholders and investors. “If the majority adopts this approach, then we will likely see a growing greenhushing trend,” he said. “Given the potential for rapid changes in the attitude towards green practices between key jurisdictions, the management of each of these companies … needs to be very proactive in assessing risk. It boils down to risk.”
Other considerations for issuers may include the cost of getting a green label and certification. Issuers have long grumbled about the lack of “greenium” they receive for their efforts.
“The additional cost, additional reporting requirements, may be something companies consider,” said Nneka Chike-Obi, head of Asia Pacific ESG ratings and research at Sustainable Fitch. “If a company wanted to issue a conventional bond and still continue to report on its sustainability efforts … they can do that. The challenge would be from the investors’ perspective, that a general corporate proceeds bond can be spent on anything.”
Bankers away from the Kepco deal voiced surprise that it did not attach a green label to its most recent bond, given its history of doing so. One said the optics were not good as a step back from green labels “can imply investor feedback that the issuer’s … transition strategy is not coherent to the green label".
Banks and other institutions have recently grabbed headlines for their decisions to pull back from ESG commitments. US banks JP Morgan, Citigroup, Bank of America, Morgan Stanley, Wells Fargo and Goldman Sachs – three of which were bookrunners on the Kepco trade – have withdrawn from the UN’s net-zero banking alliance in recent months. BlackRock pulled out of the Net Zero Asset Managers Initiative last month, and the initiative has been suspended while its approach is reviewed.
“There’s a clear risk,” said Anthropocene's Erlandsson, cautioning that there will be much to watch in the coming months. “If there is going to be a culture war being fought over such a thing as use-of-proceeds issuance … then there could very much be concerning effects.”
For now, sources agree that there is still strong demand from investors for green debt and data on companies’ sustainability efforts. AXA Investment Managers estimates that green bond issuance globally could reach US$600bn this year, up from the US$447bn raised in 2024. The asset management company wrote in early February that Trump's policies and backlash in the US are unlikely to hurt the broad asset class. Sovereigns, local governments and multilateral development banks have consistently led the green charge, and are expected to still do so. China is preparing for a debut green offshore renminbi bond offering this year.
“We think that the green bond market can still remain relatively healthy,” said Erlandsson.