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The investors who responded on KEPCO

KEPCO is in financial strife because it has failed to invest in transition to renewable energy and is now relying on global bond markets to fund its operations. This gives bond investors a powerful opportunity to engage the company over its transition policies. And if KEPCO fails to deliver them – deny debt.

At the end of last year, members of the Toxic Bonds initiative sent letters to 71 major investors urging them not to purchase bonds in KEPCO, South Korea’s largest utility company, until the company adopts a 1.5°C aligned energy transition plan.

KEPCO presents a useful case study in how global investors can use bond markets to positively influence companies who lag behind on climate commitments. KEPCO is currently going through the worst financial crisis in its history, it is forecasted that KEPCO will experience a growing deficit this winter, with soaring energy demand and fuel prices. Without a Paris-aligned coal phaseout plan, KEPCO recently issued USD 800 million worth of green bonds. This comes after issuing a steep USD 8 billion in corporate bonds in the first quarter of 2022 after reaching a net debt of 40 trillion won (USD 31 billion) at the end of last year.

According to newest GCEL data KEPCO has installed coal capacity of 74358 MW, with a current output of 97.5 million metric tonnes in coal production, with expansion plans of 20840 MW in total. A fossil fuel company that still has plans for expansion in coal, cannot be Paris aligned, no matter the green or SLB-linked bonds they generate.

Here are the responses we received:

abrdn do not commit to deny dent to KEPCO

Many thanks for your letter of 25 August 2022. I am very happy to reply on behalf of abrdn regarding our holding in KEPCO but before doing so it may be worth providing some wider context. As a global investor we manage and administer approximately £508bn (as of September 2022) of assets for clients. We undertake this activity based on investment mandates set by our clients who seek exposure to a specific asset class or a combination of assets as part of a diversified portfolio which meets their investment horizons and risk/return requirements (such as institutional investors or pension funds).

Emerging Market Debt (EMD) is a widely used asset class in strategic asset allocation and portfolio construction. It is also a key source of finance for developing countries which require private sector capital to invest in economic and social infrastructure and other assets essential to long-term economic growth and stability.

As stewards of our clients’ capital we have a fiduciary duty to ensure such investments are aligned to their requirements but also to our own values as a responsible investor and the Environmental, Social and Governance (ESG) considerations which are integrated into our decision making.

As part of our investment processes we research and analyse sustainability and other risks regardless of where an investment is located. We apply these principles to all asset classes in four ways:

  1. Our investment processes – we integrate and appraise ESG factors in our investment processes to seek the best long-term outcomes for our clients.
  2. Our investment activities – we actively take steps as stewards to deliver long-term, sustainable value. >
  3. Our client journey – we clearly define and report on how we act in our clients’ interests in delivering our stewardship and ESG principles.
  4. Our corporate influence – we actively advance policy, regulation and industry standards to deliver a better future for our clients, the environment and society.

In relation to our holding in KEPCO, we have continued engagement with KEPCO, please see the attached Global ESG Investment Stewardship report for more detail. We remain in frequent contact with KEPCO on ESG matters including climate and energy transition. I hope this reply addresses the points you have raised in your letter. I can also give you an assurance that we will continue to act in accordance with our ESG principles and stewardship responsibilities.

Eurizon do not commit to deny debt to KEPCO
Union Investment commit to deny debt to KEPCO
SEB commit to deny dent to KEPCO
HSBC AM commit to deny dent to KEPCO.
BNP Paribas commit to deny dent to KEPCO in active holdings, but not passive.
APG commit to deny dent to KEPCO.
KEPCO abrdn BNP Paribas HSBC
Download Letter