[Seungseop Song's Financial Light] "Low-Interest Loans for Eco-Friendly Companies"... ESG Management in the Financial Sector

2006 UN 'Principles for Responsible Investment' Launches Global ESG Trend
Corporate Social Responsibility Demands Surge Amid Global Financial Crisis and Climate Change
Accelerating ESG Management by Cutting Coal Power Loans and Reducing Interest Rates for Eco-Friendly Companies

Finance is difficult. Confusing terms and complex backstories are intertwined. Sometimes, you need to learn dozens of concepts just to understand a single word. Yet, finance is important. To understand the philosophy of fund management and consistently follow the flow of money, a foundation of financial knowledge is essential. Accordingly, Asia Economy selects one financial term each week and explains it in very simple language. Even if you know nothing about finance, we light the 'fire' of financial understanding with 'light' stories that you can grasp immediately.

[Asia Economy Reporter Song Seung-seop] Do you have to earn a lot of money and have a high credit score to receive preferential interest rates? That was the case in the past, but not anymore. Companies that make efforts toward environmental friendliness receive loans at low interest rates from banks, and individual customers who use eco-friendly cars as collateral can also get low-interest loans. This is because the financial sector is actively engaging in ESG (Environment, Social, Governance).

ESG is an acronym for Environment, Social, and Governance, referring respectively to environmental, social, and governance aspects. It is a kind of philosophy that a company's actions should be environmentally friendly, socially responsible in management, and improve governance to benefit the community.

The concept similar to ESG was first introduced in the financial sector in 2000 in the UK. At that time, there was a strong voice that companies whose actions negatively affected consumers and society as a whole should refrain from such behavior, even if their growth was somewhat slow. Accordingly, the Pension Fund Act was amended to mandate companies to disclose ESG factors.

Hong Nam-ki, Deputy Prime Minister for Economic Affairs, attending the '2050 Carbon Neutrality Implementation Party-Government Council' held at the National Assembly on the 7th
Photo by Yoon Dong-joo

Then, in April 2006, former UN Secretary-General Kofi Annan and major global pension funds announced the 'Principles for Responsible Investment,' officially starting the history of ESG. Furthermore, during the global financial crisis, financial companies in particular practiced ethical management, increasing calls for more attention to society.

In South Korea, the government and financial authorities have introduced various policies to encourage financial companies to participate in ESG. The Financial Services Commission announced the 2021 Green Finance Promotion Plan last January, presenting 12 action tasks. Policy financial institutions are expected to significantly increase support for green sectors and establish dedicated organizations. Additionally, disclosures related to environmental information will be gradually expanded, and a pilot project for green bond issuance is planned.

Domestic Financial Companies Accelerate ESG Management Amid Global and Domestic Trends

As more consumers believe that companies should be socially responsible and authorities worldwide, including South Korea, show movements to activate ESG, domestic financial companies are accelerating ESG management.

Hana Financial Group announced on the 10th that it will apply 'carbon neutrality' to all group affiliates by 2050. Carbon neutrality means the goal of making the amount of carbon dioxide emissions causing global warming effectively zero. To this end, it will halt project financing (PF) and bond underwriting for domestic and overseas coal-fired power plant construction projects. It also plans to select businesses with environmental destruction or human rights violation issues and suppress financial support.

On the 9th, Shinhan Bank declared a coal phase-out finance policy to practice ESG management.
[Photo by Shinhan Bank]

Shinhan Bank also declared coal phase-out finance at the 'Climate Finance Support Declaration Ceremony' on the 9th. Shinhan Bank was the first domestic bank to join the Equator Principles last September. The Equator Principles are a voluntary agreement among financial companies not to provide loans if large development projects have potential environmental destruction or human rights violations. Recently, it launched the 'Shinhan ESG Excellent Win-Win Support Loan,' offering preferential interest rates to companies and partners that perform ESG management excellently.

KB Kookmin Bank issued 500 billion KRW in ESG bonds supporting eco-friendly and social projects. All proceeds will be used for climate change adaptation, renewable energy, and so forth. KB Financial Group also set a mid-to-long-term ESG management roadmap called 'KB Green Way 2030' and mentioned plans to expand the scale of 'ESG products, investments, and loans' from 20 trillion KRW to 50 trillion KRW.

This ESG boom is expected to continue at the upcoming shareholder meetings of financial companies. This is because the financial sector has been establishing ESG-related committees within their boards of directors one after another. Hana Financial established the Sustainability Management Committee, Woori Financial the ESG Management Committee, and Shinhan Financial Group renamed its Social Responsibility Management Committee to the ESG Strategy Committee.

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