"Abnormal Climate → Proactive Financial Risk Response"…Green Finance TF Kickoff

[Asia Economy Reporter Kim Hyo-jin] The government’s 'Green Finance Task Force (TF)' has been launched to proactively respond to financial risks caused by abnormal climate conditions such as heatwaves and heavy rainfall.

On the 13th, the Financial Services Commission held a kickoff meeting for the Green Finance Promotion TF at the Seoul Government Complex in Gwanghwamun, Seoul, attended by related ministries, financial sector representatives, the United Nations Environment Programme Finance Initiative (UNEP FI), and Green Climate Fund (GCF) officials. The TF plans to systematically promote green finance policies to proactively address climate and environmental changes. Accordingly, it was decided to promptly establish a monitoring system to identify, manage, and supervise financial risks related to climate change.

The financial sector is exposed to various risks due to climate change. For example, the incidence of respiratory diseases may increase due to fine dust, or the soundness of the insurance sector may deteriorate due to frequent car flood damage caused by heavy rainfall and landslides. A recent example is the surge in vehicle flood damage caused by heavy rainfall. According to the Financial Services Commission, as of the morning of the 12th of this month, a total of 7,036 vehicles with flood damage have been reported to the four major non-life insurance companies this year, with estimated damages of approximately 70.7 billion KRW. In comparison, there were only 275 cases reported in 2018 and 443 cases last year.

There are also issues such as increased agricultural damage due to heatwaves caused by global warming and rising carbon emission permit prices due to efforts to reduce greenhouse gases. The price of carbon emission permits has surged from 11,184 KRW per ton in 2015 to 17,738 KRW in 2016, 21,143 KRW in 2017, 23,200 KRW in 2018, and 40,450 KRW last year. This trend could lead to financial difficulties for companies in mining, petroleum refining, and chemical industries, which in turn could deteriorate the soundness of banks that have lent to these companies.

The TF plans to promote investment activation in the 'green industry' by inducing capital inflow through the government’s 'Green New Deal' projects. To this end, expanding green investments by policy financial institutions and reforming the investment incentive system for green industries have been set as short-term and mid-to-long-term tasks, respectively.

At the meeting, Son Byung-doo, Vice Chairman of the Financial Services Commission, pointed out, "It is now necessary to consider new types of risks where financial companies may lose business opportunities if they fail to fulfill their social responsibility investment obligations related to ESG (environmental, social, and governance) factors in asset management."

Vice Chairman Son also referred to the 'Green Swan' concept raised by the Bank for International Settlements (BIS), stating, "The financial sector must actively respond to climate change by identifying, managing, and supervising climate change risks and expanding green investments to serve as a stepping stone for sustainable growth." The Green Swan is a term derived from the 'Black Swan,' which refers to unpredictable events that cause massive crises, and generally denotes economic and financial crises caused by climate change.

This content was produced with the assistance of AI translation services.