Semiconductor producer SK Hynix announced today the completion of its inaugural sustainability-linked bond (SLB) offering – and the first in the semiconductor memory industry – raising $1 billion, with terms tied to the company’s performance towards its emissions reduction goals.

Despite recent slowdowns in both the sustainable bond market and the semiconductor industry, SK Hynix reported strong demand for the issuance, and doubled the offering size from its initial $500 million goal.

In a statement following the completion of the deal, SK Hynix said:

“The company is highly encouraged by the large-scale investment even during the downturn in the semiconductor industry. We see this as a result of global investors’ trust in the company’s commitment to climate action, along with the prospects of a turnaround in the semiconductor industry later this year.”

Sustainability-linked debt has been one of the fastest growing areas of sustainable finance, with attributes including interest payments tied to an issuer’s achievement of specific sustainability targets. Corporate interest in sustainability-linked loans has grown rapidly, as the financing provides flexibility to use proceeds for general corporate purposes, while with instruments such as green bonds, raised funds can only be allocated to specific categories of green projects.

Following an extended period of rapid growth, however, SLB issuance slowed sharply in late 2022, with Moody’s Investors Service citing factors such as growing market scrutiny on the credibility and robustness of issuers’ SLB targets, and the sector’s exposure to high-yield issuance.

SK Hynix’s issuance follows a €1 billion issuance earlier this week by Air France-KLM, which also saw strong demand, drawing an orderbook of €2.6 billion.

The terms of SK Hynix’s new bond ties the cost of debt to the company’s goal to reduce Scope 1 and 2 greenhouse gas emissions intensity by 57% by 2026, on a 2020 basis, with interest rates adjusting after 2026 based on the target’s achievement. The target was evaluated as “ambitious” and as having a “significant contribution” to corporate sustainability management when achieved in second-party opinions from Moody’s and DNV.

In addition to the SLB, SK Hynix also announced the issuance of a $750 million green bond, with proceeds expected to be allocated to projects including water quality management, energy efficiency improvement, pollution prevention and ecological restoration.

Woo-hyun Kim, Head of Finance at SK hynix said:

“The successful issuance of SLB is seen as a result of global investors’ recognition of the company’s commitment to climate action.”