[Edaily Marketin Reporter LEE GEON-EOM ] It has been confirmed that Korea Ratings ( Korea Ratings Corporation(034950)) has downsized its “ESG Evaluation Center,” which had been dedicated to environmental, social, and governance (ESG) evaluations, to the “ESG Evaluation Division.” Analysts suggest this downgrade—five years after the unit was elevated to center status—reflects the company’s efforts to streamline its organization in response to waning interest in ESG and declining demand for ESG bonds.

According to a comprehensive report by Edaily on the 24th, Korea Ratings downsized its ESG Evaluation Center to the ESG Evaluation Division this year. With the center—which previously held a status equal to that of a division—being downgraded, its standing within the organization has also diminished. Jo Hyun-sung, the executive director who had served as head of the center, has been reassigned, and Kim Young-kyu, the division head, is now leading the ESG Evaluation Division.

The ESG Evaluation Center was exceptionally promoted from a team to a center in March 2021 to keep pace with the expansion of the relevant market. Since the promotion, it has established itself as a core business of Korea Ratings by leading ESG evaluation services for the top 500 companies, in addition to certifying sustainable financial products such as bonds and funds.

In particular, in October 2024, the center officially launched its corporate ESG evaluation service based on its own revised methodology. It expanded the scope of evaluation to the top 750 companies by market capitalization and simplified the existing seven-tier ESG rating system to a five-tier system—ranging from “ESG1” to “ESG5”—to reduce confusion with credit ratings.

At the time, HanKPI drew market attention by becoming the first domestic ESG rating agency to introduce a methodology that separately assesses risk exposure in addition to the level of ESG risk management.

Analysts suggest that the recent sharp downturn in the ESG market played a decisive role in the downgrading of this unit, which had been considered a core business, after just four years. In fact, the outstanding balance of domestic ESG bonds last year stood at 258 trillion won, a decrease of 11 trillion won from the previous year, marking the first time since statistics were first compiled in 2018 that the market experienced negative growth. Annual issuance volume also plummeted by 16%, clearly indicating a market contraction.

This contraction is continuing this year. According to data from the Korea Exchange’s ESG Portal, the trading value of ESG bonds from January 1 to August 24 of this year was 71.2 billion won, down more than 15% from the same period last year (84.1 billion won). During this period, the trading value of green bonds plummeted by 44%, from 25.4 billion won to 14.3 billion won, marking the sharpest decline. The number of issuing institutions and the number of issues also declined, from 88 to 83 and from 146 to 142, respectively.

The situation at competing firms lends credence to this observation. Among the three major credit rating agencies, Korea Ratings and NICEHoldings also operate their ESG evaluation units at the division level. Korea Ratings had been the only one to maintain a center-level organization until now, but analysts say this reorganization brings it in line with the industry-wide standard of division-level operations.

In the market, the prevailing view is that this reorganization effectively marks the beginning of a process to scale back investment in the ESG business. Analysts interpret this as a signal of business contraction, given that the center—which previously held a status equivalent to a division—has been downgraded to a department, coupled with a decline in market demand.

In this regard, Korea Ratings maintains that it plans to continue its ESG rating operations. The agency asserts that, as this is merely an organizational restructuring, there will be no issues with business operations.

An official from HanKiPyeong explained, “The only change during the reorganization was the renaming of the ESG Evaluation Center to the ESG Evaluation Division; nothing else has changed significantly,” adding, “We plan to continue conducting ESG-related business under the leadership of the ESG Evaluation Division.”