SK hynix received the Best ESG Bond award at the 2023 IFR Asia Awards for its innovative USD 2.5 billion triple-tranche combination trade. Held in Hong Kong by International Financing Review (IFR) Asia on April 16, the awards acknowledged the best practices from the Asian financial sector in 2023. Issued in January 2023, SK hynix’s triple-tranche bond was recognized for striking a balance for investors, offering either a conventional, green, or sustainability-linked note. In particular, the green bond supports the company’s environmental efforts as proceeds fund various sustainability-related projects and innovations.
Figure 1. SK hynix received the Best ESG Bond award at the 2023 IFR Asia Awards dinner
The Inner Workings of SK hynix’s Triple-Tranche Bond
SK hynix’s triple-tranche bond was noted for being creative and offering a variety of investment options while adhering to the needs of both the issuer and investors. The bond was comprised of three segments: a USD 750 million 6.25% 3-year conventional bond, a USD 1 billion 6.375% 5-year sustainability-linked bond (SLB)1, and a USD 750 million 10-year 6.5% green bond2. The balance of the SLB and green bond in the same transaction drew particular attention for offering something unique to the market.
The SLB, which was a first for a global semiconductor memory manufacturer, has a core environmental-related KPI. By 2026, it aims for at least a 57% reduction in Scope 1 and Scope 23 greenhouse gas (GHG) emissions intensity4 compared to a 2020 baseline.
1Sustainability-linked bond (SLB): A fixed-income bond tied to predefined ESG objectives that are measured through predefined KPIs. The interest rates of the bond can vary depending on whether the issuer achieves its objectives.
2Green bond: A debt security issued by an organization to finance or refinance projects that are positive for the environment and/or the climate.
3Scope 1 and 2: Scope 1 refers to direct emissions generated in the production stage, while Scope 2 describes indirect energy-related emissions generated in the process of making electricity or steam used in the workplace.
4Greenhouse gas (GHG) emissions intensity: The amount of GHG released per production capacity for SK hynix’s semiconductor memory.
Meanwhile, the net proceeds from the green bond have been allocated towards the financing or refinancing of environmental projects outlined in SK hynix’s Green Financing Framework. These include sustainable water and wastewater management, energy efficiency, pollution prevention and control, and terrestrial and aquatic biodiversity conservation.
These bonds play a key role in helping SK hynix reach its sustainability goals, such as reaching net zero emissions by 2050. Its environmental commitments are further highlighted by its status as a founding member of the global Semiconductor Climate Consortium, the first consultative body which targets GHG reductions throughout the semiconductor value chain.
Green Bond Funds a More Sustainable Semiconductor Ecosystem
Figure 2. Allocation by category of the green bond’s USD 750 million proceeds
In addition to being the most popular portion of the triple tranche deal, the green bond has realized significant advancements in SK hynix’s products as well as its environmental efforts. A total of 92.8%, or USD 696 million, of the bond’s total proceeds (USD 750 million) was allocated by the third quarter of 2023, with all of the funds expected to be allocated by the end of 2023 (awaiting confirmation of fourth quarter data).
[Read the 2024 green bond annual report for more information on its impact here]
Figure 3. The green bond’s positive effect on water management from 2020 to 2023
Among the funds, USD 6.90 million was allocated to sustainable water and wastewater management. Efforts included work on a regional municipal water project, construction of a drainage reuse system for a cooling tower, and improvements on a water pollution treatment facility. As a result, the company expects to see an increase in its water reuse rate and a reduction in wastewater discharge.
Figure 4. DDR5 offers reduced power consumption compared to its predecessor
SK hynix allocated its largest portion of the green bond’s proceeds for improving energy efficiency as the company invested USD 681.16 million in realizing significant related advancements in the company’s products. These developments included its industry-leading server DRAM DDR5 achieving a 70% increase in server bandwidth compared to DDR4, while its power consumption decreased by 14.4% compared to the previous generation. The performance per watt of the company’s latest SSD product, PS1010 E3.S, also improved by 85% from the earlier generation PE8110 E1.S.
Figure 5. An ecological park near SK hynix’s Icheon main campus which uses recycled water
A further USD 750,000 was allocated to terrestrial and aquatic biodiversity conservation. These funds supported construction of a large public ecological park near SK hynix’s Icheon campus which stretches the area of nearly four American football fields. At the park, crystal-clear water comes from the campus’ wastewater treatment plant and flows into the Jukdang Stream in Icheon.
Figure 6. Reduction of NOx emissions in tons at the Icheon and Cheongju fabs
Another USD 6.96 million was allocated to pollution prevention and control. The proceeds funded monitoring systems for atmospheric management, infrastructure for nitrogen oxide reduction, and a temperature reduction system in both the company’s Icheon and Cheongju fabs. Consequently, from 2020 to 2023, emissions of nitrogen oxides (NOx) were reduced by around 530 tons in these two major fabs. In addition, air pollutant analysis systems and water quality measurement systems have been installed in the fabs to monitor for environmental problems, minimize environmental harm, and make restoration efforts.
Figure 7. Financial Management Head Hyungmo Yang highlights how the bond supports SK hynix’s environmental goals
“Our triple-tranche bond offers varied investment opportunities while also supporting our sustainability efforts,” said Hyungmo Yang, head of Financial Management. “In particular, the green bond funds environmental innovations such as increased product energy efficiency, improved wastewater management, and pollution reduction. Going forward, the bond’s proceeds will continue to help us meet our environmental goals.”
