 KCMI Senior Research Fellow |
Senior Research Fellow, Korea Capital Market Institute
After the global financial crisis, several developed countries including the United States and Britain have announced government policies for green growth. Korea also has emphasized the development of such policies. Green growth is an economic paradigm that simultaneously pursues growth and environmental improvement.
Basically, the policies pursue economic growth and job creation through R&D investments in clean energy and green technology. The policies also encourage the conservation and efficient use of energy and resources, which mitigates climate change and environmental degradation. More specifically, the development of green technology leads to the reduction of greenhouse gases (GHG) which leads to energy efficiency, clean energy production and the recycling of resources.
Green finance supports green growth by supplying capital to companies and the development of green technology. Conceptually, green finance refers to financial activities that enhance the financial industry, improve the environment and promote economic growth.
Green finance provides funding to green enterprises and technologies, creates green financial products, attracts investors, and also reviews the environmental risks during the decision-making stages of providing money.
Active green finance is necessary to develop the financial industry. Green industries based on green technology are promising growth sectors, and the government will promote green finance.
The Korean government is trying to enact a new law titled "Basic Act on Low Carbon Green Growth." Based on article 28 (Promotion of Green Finance) of the proposed law, the government will establish and secure funding to foster and support green growth and industries, develop new financial products to support low-carbon green growth, boost private investment to build green infrastructure, strengthen corporate disclosure of green management, expand financing for green management businesses and set up carbon markets to promote active trading.
The green financial industry in Korea is still in the early stages of development. However, domestic financial companies already realize the significance of green finance. Many financial institutions have already participated in international initiatives on green finance such as GRI Reporting, UNEP/FI, U.N. PRI, U.N. Global Compact and CDP.
Fund allocations for green finance have started, but there is a long way to go. For example, Korea Development Bank and Korea Eximbank announced plans to provide significant policy loans to green industries, but the actual lending thus far has been below the original expectations.
There are numerous plans, but the specific processing tools for providing money have not been fully established. Also, commercial banks like KB and Shinhan Bank have launched green financial products and allocated money for environmentally friendly companies. However, the criterion for "environment-friendly" is not yet clear.
The Samsung Economic Research Institute developed a national competitiveness index that measures the ability to reduce carbon emissions and to develop green industries. Korea's index is below the OECD average due to insufficient renewable energy, low energy efficiency, inconsistency and ineffectiveness of environmental policies, and the lack of innovative technologies.
To develop green finance in Korea, several challenging issues lie ahead of us. I want to propose several strategies for developing green finance in Korea.
Firstly, public consensus on the need for the development of green finance must be built up. Green finance must be recognized not as a matter of choice but a necessity.
Secondly, social infrastructure such as a regulatory, technical and human infrastructure must be set up. Concerning the regulatory infrastructure, it needs to reflect environmental concerns in the statutes for investment, lending, credit rating and accounting. Also, environmental information must be released and considered as a requirement for listing and disclosure. Additionally, certification of green technology, enterprises and industry must be introduced in order to guide investments and lending. The technical infrastructure such as "Green Enterprise Index," "Green (Carbon) Risk Index" or "Green Enterprising Rating Agency" will be necessary, and human resources must be trained and educated to be knowledgeable about green finance
Thirdly, more green financial products must be created with support from the government. Financial institutions can develop new products that integrate environmental factors into existing products and develop combined green financial products.
The government can help to launch a fund or provide tax benefits to green investors in the early stages. Although the government can play a key role in the beginning, it is important to note that the end goal should be a green finance system that operates on market principles.
Lastly, an emission trading system must be established. The system must promote active trading and foster specialized financial institutions and products. Additionally, a long-term plan to become Asia's green financial hub that links carbon exchanges in key Asian countries needs to be developed.
kjk@koreatimes.co.kr
Noh Hee-jin is a senior research fellow at the Korea Capital Market Institute (KCMI) and is currently heading the division of policies and regulations at the KCMI. Since 2006, he has also been in charge of the SRI Research Unit. He has participated in various projects such as designing the Capital Market Integration Act and adopting International Financial Reporting Standards. In 2007, he headed the Korean finance ministry's task force on hedge funds. Currently, he is in charge of the project developing green finance supported by the Korean government's Green Growth Committee. He received his Ph.D in Banking and Finance from the University of Georgia in 1990. Between 1978-1986 and 1991, he worked for the Korea Development Bank (KDB). Since then, he worked for seven years for KDB's securities companies in New York and Seoul. |
