BOK Adds Green Bonds to Eligible Collateral Securities for Loans... Expanding Market with Only 0.5% Share

Presentation on 'Climate Change and Bank of Korea's Response Direction' on the 28th
Activation of Green Bond Issuance and Distribution
Need to Prepare for Transition to a Low-Carbon Economy

[Asia Economy Reporter Jang Sehee] The Bank of Korea is considering adding green bonds to the list of eligible collateral securities for loans. As the demand base for bonds expands, issuance conditions are also expected to improve.

On the 28th, the Bank of Korea announced this in its report titled "Climate Change and the Bank of Korea's Response Directions." As of last month, green bonds amounted to 13.9 trillion won, accounting for only 0.5% of the entire bond market (2,433.9 trillion won). The goal is to activate the issuance and circulation of bonds so that funds flow into efforts to reduce carbon emissions.

Im Hoseong, head of the Financial Stability Research Team at the Bank of Korea's Financial Stability Bureau, stated, "It will have the effect of providing incentives to companies," and added, "The issuance and circulation of green bonds are expected to be activated."

The Bank of Korea also plans to expand support for green growth companies through financial intermediation support loans. However, since the definition of green growth companies is ambiguous, it intends to establish precise detailed criteria in the future. According to the current Environmental Technology and Environmental Industry Support Act, green companies refer to companies and business sites that significantly contribute to environmental improvement through substantial reduction of pollutants, saving resources and energy, improving the environmental aspects of products, and establishing green management systems.

Furthermore, the Bank of Korea is considering adding green bonds to the list of securities eligible as collateral for repurchase agreements (RP) and securities lending. The Bank stated, "By increasing the utilization of these bonds, we expect the issuance to become smoother."

Need to Prepare for Transition to a Low-Carbon Economy... Negative Impact on Both GDP and Inflation

The Bank of Korea also expressed concerns that if the transition to a low-carbon economy does not proceed smoothly, it could negatively affect the real economy and financial system. If the global average temperature increase is limited to within 2℃, the gross domestic product (GDP) growth rate is projected to decline by 0.08 to 0.09 percentage points annually. If limited to within 1.5℃, the GDP growth rate is also expected to decrease by 0.08 to 0.09 percentage points annually.

Moreover, it predicted that if not supplemented by effective eco-friendly technologies and policies, there is a possibility of inflation caused by increased production costs for companies. When limiting the global average temperature rise to within 2℃, the consumer price inflation rate is expected to increase by 0.02 percentage points annually, and if limited to within 1.5℃, the consumer price inflation rate is projected to rise by 0.09 percentage points annually.

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