Lee Hyo-jin covers the Bank of Korea, the banking industry and broader financial news. Her previous beats include foreign affairs, North Korea and general reporting on Korean society.
BOK's collateral policy criticized for favoring high-carbon assets
Bank of Korea headquarters in Seoul / Courtesy of Bank of Korea
By Lee Hyo-jin
A new study has accused the Bank of Korea (BOK)'s collateral system of favoring high-carbon assets over green bonds, arguing that the framework could effectively provide an "implicit subsidy" to fossil fuel and other carbon-intensive industries.
The study, released Monday by London-based nonprofit Positive Money and Seoul-based Institute for Green Transformation (IGT), found that 53 percent of corporate and public-institution bonds recognized as collateral by the BOK in 2025 came from fossil fuel and other high-emission sectors.
Green and sustainability bonds accounted for just about 2 percent.
The analysis covered 1,368 bonds using BOK data obtained through Rep. Jung Tae-ho of the ruling Democratic Party of Korea, according to the researchers.
The BOK accepts bonds and other assets as collateral when providing liquidity to financial institutions. It applies so-called "haircuts" to account for potential risks, meaning it discounts the value of an asset when determining how much it can be used as collateral.
The study found that green bonds had an average haircut of 8.7 percent in 2025, roughly twice the 4.3 percent average for all bonds. In other words, a 1 million won ($706) green bond would be valued at about 913,000 won as collateral, compared with 957,000 won for an average bond, based on the study's figures.
The researchers argued that the relatively higher haircut puts green bonds at a disadvantage, while assets subject to lower haircuts can provide financial institutions with greater borrowing capacity.
"The preferential treatment that high-carbon assets receive within the BOK's collateral framework acts as an implicit subsidy to these sectors, by increasing the demand for their assets and allowing high-carbon firms to access lower cost finance," said Joe Herbert, senior researcher at Positive Money and co-author of the report.
"Meanwhile, carbon emissions are driving climate destruction around the world. The blockade of the Strait of Hormuz has shown how urgently Korea needs to decarbonise, and shift to renewable energy. The BOK must support, not hinder those efforts," he said.
The study also found that green bonds accounted for just 0.41 percent of the BOK's total collateral pool, compared with about 1 percent of all listed bonds in Korea.
Bonds issued by Korea Electric Power Corp. and Korea Gas Corp. accounted for 18 percent of total collateral, the study found.
Positive Money and IGT called on the BOK to create a separate category for green bonds in its collateral framework and regularly disclose the carbon characteristics of its collateral pool.
"An important first step to begin countering this carbon bias is for the BOK to incorporate
green bonds as an explicit category in the collateral framework, as well as extending
green eligibility to repo-eligible securities," the report read.