"High-Emission Industries Must Accelerate Carbon Transition... Need to Activate Transition Finance"

Bank of Korea-Korean Finance Association Policy Symposium
"Green Finance Has Limits in High Carbon Emission Industries"
"Need to Add 'Transition' Sector in Climate Disclosure"

There has been a call to activate transition finance that provides funds to companies so that high carbon-emitting industries can shift to low carbon. Transition finance is not only considered to play a crucial role in achieving carbon neutrality but also to mitigate the US-centered anti-ESG movement and attract new investment demand.

On the 5th, Park Ji-won, a research fellow at the Korea Institute of Finance, made these remarks as a presenter in Session 2 at the policy symposium "Challenges of Household and Corporate Finance in Korea," jointly hosted by the Bank of Korea and the Korea Finance Association at the Conference Hall on the 2nd floor of the Bank of Korea Annex in Jung-gu, Seoul.

On that day, Research Fellow Park pointed out the limitations of existing green and climate finance. He said, "Existing green and climate finance only supports eco-friendly companies and projects," adding, "This poses limitations in promoting carbon neutrality in Korea, where high carbon-emitting companies or industries with difficulty in reducing carbon emissions constitute a large proportion."

In fact, in Korea, high-emission industries such as manufacturing, steel, and petrochemicals account for a significant share of the economy. As of 2022, the manufacturing sector accounted for 28% of Korea's gross domestic product (GDP), about twice the OECD average (14.7%). He stated that introducing transition finance to promote an orderly carbon transition in these industries would be very useful and predicted demand of 1,000 trillion won by 2030.

In major countries such as the European Union (EU), Japan, and Singapore, as the transition finance market expands, related systems are being prepared urgently. The EU proposed adding a "transition" sector in the 2022 taxonomy extension plan, Japan issued the world's first transition bonds worth 1.6 trillion yen in February this year, and Singapore is showing movements to adopt green-related classification systems.

However, due to the nature of transition finance, there are concerns about a high risk of greenwashing, and the need to establish an institutional foundation has been raised. Research Fellow Park suggested, "The transition sector of the Korean-style green classification system (K-Taxonomy) should be gradually expanded, and guidelines for activating climate transition bonds and transition loans should be prepared," adding, "It is necessary to add the transition sector to ESG and climate disclosures."

He continued, "To meet the demand for transition finance, it is also necessary to resolve preconditions such as financial procurement through the capital market, institutional arrangements to induce voluntary participation of financial institutions, and credible disclosure of companies' transition plans."

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