Green Wind Blowing in Secondary Finance... Aligning with ESG Management (Comprehensive)

[Asia Economy Reporter Song Seung-seop] Movements to practice ESG (Environmental, Social, and Governance) management are emerging in the secondary financial sector, including savings banks. Following the green finance policy of the government and financial authorities, as commercial banks have launched numerous ESG-related projects, the secondary financial sector is beginning to keep pace.

Reducing Paper, Halting Coal Investments... ESG Movements in Secondary Financial Sector

According to the financial sector on the 4th, Welcome Savings Bank plans to strengthen ESG management starting this year by expanding donations and social contribution activities while establishing a green office. Accordingly, Welcome Savings Bank intends to reorganize its system to enable paperless processes and approvals across all branches and internal group reporting procedures.

On the 5th of last month, Hanwha Savings Bank, along with five other financial affiliates within the Hanwha Group, declared 'coal divestment finance' and decided to halt domestic and international investments and loans related to coal power generation. Hanwha Savings Bank will no longer participate in project financing (PF) for building coal power plants nor purchase bonds issued by special purpose companies (SPCs) established for coal power plant construction. Instead, it plans to continuously increase investments in eco-friendly assets, including renewable energy.

Saemaeul Geumgo announced on the 26th of last month that it will promote 'MakeGreen Saemaeul Geumgo' with the goal of establishing a model for the 'Green New Deal' social contribution project. This includes supporting social enterprises engaged in environmental fields and expanding eco-friendly facility installations. Additionally, activities such as cultivating seed kits for donation, reducing disposable product use in offices, and campaigns encouraging the use of personal cups are being carried out.

There are also cases where direct benefits such as preferential interest rates are provided for financial products. Pepper Savings Bank has applied preferential interest rates since last year when applying for secured loans on green building certified properties with a high proportion of renewable energy use. Depending on the green building grade and the building's energy efficiency rating, a 0.3 to 1.0 percentage point discount is applied. For secured loans on electric and hydrogen vehicles, interest rates are reduced by 2 to 4 percentage points annually, and for hybrid and plug-in hybrid vehicles, reductions of 1 to 2 percentage points annually are offered.

ESG management is also yielding tangible results. According to Pepper Savings Bank, the new loan amount for eco-friendly vehicle secured loan products exceeded 10 billion KRW by the end of last month. The proportion of eco-friendly vehicles among auto secured loans handled in a year increased from 1.6% in 2018 to 5.8% by the end of last year.

Government and Financial Authorities’ Eco-Friendly Policies Behind Green Finance

The green finance initiatives in the secondary financial sector are analyzed to be influenced by the policies of the government and financial authorities. President Moon Jae-in included the 'Green New Deal' as part of Korea’s New Deal policy and declared the goal of achieving net-zero carbon emissions by 2050.

To support the government's 'Green New Deal,' financial authorities launched a Green Finance Promotion Task Force (TF) and established 12 tasks last month to practice carbon neutrality. Policy financial institutions will double their support for environmental projects over the next decade, and provisions exempting financial institutions from losses related to green finance support have been included. Plans to gradually expand disclosures related to environmental information are also underway.

A financial sector official explained, "Since the government and financial authorities have emphasized corporate efforts in the environmental field, there is an atmosphere in the secondary financial sector to proactively do what they can."

However, there are internal voices that the secondary financial sector’s movements are still insufficient compared to commercial banks. A savings bank official said, "Although there are many slogans about practicing ESG in the secondary financial sector, some places are only expanding existing social contribution projects," adding, "Compared to the primary financial sector, which issues ESG bonds worth hundreds or thousands of billions of KRW, there are many shortcomings in ESG management."

There are also opinions that active ESG management is difficult due to regulatory constraints. Another industry insider analyzed, "Unlike commercial banks, it is difficult for the secondary financial sector to actively invest in eco-friendly sectors and issue green bonds," adding, "Beyond the scale issue, ESG management is unlikely to spread quickly in the current situation where regulations are tightly restricted."

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