Tens of Trillions in Budget Depend on 'Decarbonization'... Financial Sector and Local Governments Favor 'Eco-Friendly' Choices for Treasury Selection

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[Asia Economy Reporter Kiho Sung] As ESG (Environmental, Social, and Governance) management emerges as a key topic across the financial sector, the trend of 'decoalization' is intensifying in the selection of local government treasury banks. This is interpreted as a declaration of local governments' intention to lead 'climate finance.' Considering that the competition for local government treasury banks is often decided by a narrow margin, it is expected that climate change issues will become a signal influencing the 'money war' among banks.

According to the financial sector on the 17th, Shinhan Bank recently signed a business agreement to participate in resource circulation policies aimed at transforming Incheon Metropolitan City into an 'Environmental Special City.' Earlier, in December last year, Incheon City, together with eight districts in the Incheon area, declared participation in the 'decoalization treasury' policy.

The reason Shinhan Bank joined Incheon City's climate policy is closely related to the selection of the local government treasury bank. Incheon City is preparing for the re-selection of its treasury bank next year, with Shinhan Bank, which has maintained the position since 2007, competing against challenger Hana Bank. Hana Bank has gained momentum by taking over one primary treasury bank in Seo-gu, a district in Incheon, three years ago. Especially with the planned relocation of Hana Financial Group's headquarters to the Incheon area in January 2024, fierce competition is expected. Being selected as the local government treasury bank means handling the cash management of the local government's taxes, government grants, various funds, and public officials' salary accounts. In the case of Incheon City, this involves managing a budget of 12 trillion KRW.

So far, the selection of local government treasury banks has been determined by the scale of contributions. When Seoul City's treasury bank was selected in 2018, Shinhan Bank was chosen as the primary treasury bank by promising contributions exceeding 300 billion KRW over four years. Seoul City operates an annual budget of 32 trillion KRW. Additionally, as local governments have started to consider decarbonization and renewable energy investments as important criteria in treasury bank selection, these factors have emerged as new variables deciding the outcome.

Currently, Chungcheongnam-do Province, Gwangju Metropolitan City, Ansan City, and Pocheon City have announced preferential policies for decarbonized financial institutions in treasury bank selection. They have decided to reflect decarbonization and renewable energy investment items in the evaluation criteria for selecting treasury bank operating financial institutions and are in the process of revising related ordinances. For example, Chungcheongnam-do allocates 1 point each out of 100 points for decarbonization and renewable energy items. Considering that the competition is often decided by less than 1 point, 2 points is a significant score that could change the treasury bank operator. In Seoul City, the city council is also promoting a plan to reflect decarbonization performance in the treasury bank selection process.

An official from the banking sector said, "The competition for local government treasury banks is mostly decided by a narrow margin," adding, "Since the competition involves budgets worth tens of trillions of won, the decarbonization trend in the banking sector will accelerate further."

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