"Like Australia and the UK, We Too"…Financial Research Institute Proposes 'Green Bank' Idea

by Song Seungseop

Published 15 Jul.2024 17:06(KST)

Participants are taking a commemorative photo at the forum held on the 15th at the Korea Federation of Banks Building in Jung-gu, Seoul, hosted by the Carbon Neutral Green Growth Committee and the Korea Institute of Finance. Photo by the Office of the Prime Minister

Voices have emerged calling for the launch of a 'Green Bank' in Korea. The argument is to consolidate the roles of green finance scattered across various institutions to utilize capital more efficiently. There was also advice that collaboration with the private sector is essential due to the enormous funds required for carbon neutrality.

On the 15th, Lee Byung-yoon, Senior Research Fellow at the Korea Institute of Finance, delivered a keynote speech at a forum jointly hosted by the Carbon Neutral Green Growth Committee and the Korea Institute of Finance at the Federation of Banks Building in Jung-gu, Seoul. He mentioned the possibility of launching a Green Bank in Korea, saying, "I would like to share some ideas we can consider." A Green Bank refers to a public or quasi-public financial institution dedicated to financing climate change and clean energy sectors.

Lee explained, "Currently, there are 23 green banks in 17 states in the United States," adding, "There are also Green Banks in countries like Australia and the United Kingdom, and in Germany, existing policy financial institutions are leading the support for carbon-neutral green finance." He further explained, "Since these banks are established to provide financial support for green transition, they are granted independent authority and can mobilize private capital to generate their own profits."

He cited efficiency as the reason why a Green Bank is necessary. Since various institutions such as the Korea Development Bank, Korea Credit Guarantee Fund, and Korea Technology Finance Corporation simultaneously provide green finance, overlaps occur in carbon neutrality support tasks. Lee pointed out, "Because policy financial institutions individually pursue green finance projects, support may not be provided in essential areas, or all institutions may flock to sectors with high returns."

Various forms of Green Banks were proposed. These included creating a completely independent 'public bank' with clear objectives, transforming existing institutions into Green Banks, or strengthening the green finance roles of specific institutions.

Discussants attending the forum also offered diverse opinions on Green Banks. Kim Jung-in, Professor Emeritus of Economics at Chung-Ang University, said, "To establish a Green Bank, it must be independent and have authority over its budget to be truly successful," adding, "Only then can it mitigate private investment risks, enabling the spread of Green Banks like in the U.S."

There was also a proposal to create an institution dedicated to coordinating green finance. Hyun Seok, Professor of Environmental Finance at Yonsei University, introduced, "While establishing a new institution is possible, coordinating the work of existing institutions is also feasible," and added, "Establishing a center that coordinates green finance and conducts related research, like in Singapore, is one option."

However, everyone agreed that Korea’s energy transition investment is low compared to major countries and that collaboration with private finance is essential. As of 2021, Korea’s energy transition investment stands at about 0.7% of its Gross Domestic Product (GDP). The World Economic Forum (WEF) Energy Transition Index ranks Korea 31st, placing it in the lower tier among OECD countries.

Lee stated, "Achieving carbon neutrality requires an astronomical amount of funds," and added, "Policy finance and budgets alone cannot meet the demand, so incentives must be provided to attract private sector participation."