[Bank of Korea Financial Stability Report] Climate Change Transition Risk... 7.4% GDP Loss by 2050

Climate Change Transition Risks Expected to Increase Sharply After 2040
BOK: "Develop Greenhouse Gas Reduction Technologies, Reduce Dependence on High-Carbon Industries"

[Asia Economy Reporter Jang Sehee] The Bank of Korea forecasted that the loss in domestic gross domestic product (GDP) due to climate change transition risks by 2050 will reach -7.4%. However, this projection assumes a greenhouse gas reduction pathway scenario aimed at limiting the global average temperature increase to below 1.5℃ compared to pre-industrial levels.

According to the "2021 First Half Financial Stability Report" released by the Bank of Korea on the 22nd, if the global average temperature increase is contained within 1.5 to 2.0℃ compared to pre-industrial levels by 2050, the GDP loss due to climate change transition risks is predicted to be -2.7%.

The Bank of Korea also predicted that the decline in the real economy and the domestic banks' Basel International Settlement (BIS) ratio due to climate change transition risks will be in the range of 2.6 to 5.8 percentage points. The average annual decline from 2020 to 2050 was estimated to be between 0.09 and 0.19 percentage points.

However, these results assume that the input-output structure among industries within the economy remains the same as the base year.

The Bank of Korea analyzed that if new greenhouse gas reduction technologies develop rapidly and the share of high-carbon industries decreases, the transition risks could be significantly mitigated.

The Bank of Korea stated, "It is necessary to strengthen efforts to develop greenhouse gas reduction technologies and reduce dependence on high-carbon industries."

Additionally, the Bank of Korea urged, "To prevent the deterioration of the banking system's stability, banks must establish risk management systems that consider climate change." It emphasized the need to proactively respond to climate change transition risks through the activation of ESG (Environmental, Social, and Governance) investments.

Meanwhile, on the 11th, Bank of Korea Governor Lee Ju-yeol also stated in his anniversary speech, "Climate change is being recognized as a new form of financial risk factor, and the transition to a low-carbon economy is expected to have a significant impact on the real economy," adding, "Research on response strategies must be intensified."