"Domestic Financial Companies Must Establish Separate Governance Mechanisms for Carbon Neutrality"

Korea Institute of Finance Carbon Neutrality Report
"Essential for Portfolio Adjustment Decision-Making"

There has been a suggestion that separate measures should be established within the governance structures of domestic financial holding companies and banks to achieve carbon neutrality.

Lee Byung-yoon, Senior Research Fellow at the Korea Institute of Finance, stated in the report titled "Current Status of Carbon Neutrality and the Role and Tasks of Finance" on the 10th, "For the entire system to move towards carbon neutrality, financial companies such as banks need to reduce assets related to high carbon-emission industries through portfolio adjustments and increase the proportion of green assets," adding, "For these adjustments to be effective, the internal organization and governance of banks must change accordingly."

However, Lee pointed out that the current governance of domestic financial companies is not suitable for implementing carbon neutrality. He said, "In the case of domestic financial groups, most operate by encompassing carbon neutrality-related governance measures within ESG (Environmental, Social, and Governance) rather than having separate governance mechanisms specifically for carbon neutrality," expressing concern that "carbon neutrality has not yet been integrated into decision-making systems, so it does not appear to have a meaningful impact on asset management or risk management." He emphasized, "In the future, governance changes are necessary so that the goal of carbon neutrality can have a practical impact on the asset portfolio adjustments of financial companies such as banks."

The necessity of policy finance to promote carbon neutrality was also mentioned. Since most related projects such as low carbon, new industry development, and energy transition involve high uncertainty, it was pointed out that leaving them to the private sector alone would not activate these initiatives. Lee said, "Efficient support must be provided without overlapping or gaps in assistance." He cited overseas policy finance efforts supporting carbon neutrality, such as the European Investment Bank (EIB)'s transition to a climate bank and the establishment of the UK Infrastructure Bank (UKIB).

Efforts to provide financial support to small and medium-sized enterprises (SMEs) were also emphasized. Lee stated, "Compared to large corporations, SMEs have lower ease and flexibility in changing production processes, applying low-carbon technologies, and transitioning industries in response to climate policy changes, and the related costs are high, making it likely that they will not adequately respond to carbon neutrality policies," urging for policy finance support.