[비즈한국] With the inauguration of the Lee Jae-myung administration, eco-friendly energy policies are expected to gain momentum. During his campaign, President Lee Jae-myung pledged to establish a ‘Ministry of Climate and Energy’ to drive the industrial transition to carbon neutrality and the expansion of eco-friendly energy. As the creation of a new ministry is expected to accelerate carbon neutrality initiatives, the financial sector is turning its attention to ‘transition finance’ to align with this green policy direction.
Transition finance refers to providing funding to carbon-intensive companies to support their low-carbon transition. By investing in transitional activities on the path toward carbon neutrality, it offers the advantage of reducing negative impacts on the real economy while providing a broad scope of support. For financial firms, it allows them to restructure their asset portfolios toward a low-carbon focus.
As interest in transition finance grows domestically, relevant discussions have emerged. Among domestic financial firms, Shinhan Financial Group and Woori Financial Group have been the most proactive. Shinhan Financial took the lead, establishing the industry’s first ‘Group Transition Finance Guidelines’ on May 25. Through these guidelines, Shinhan Financial defined the concept of transition finance and announced that it would systematically manage such finance by screening whether the intended use of loan and investment funds meets the established requirements. In the long term, the group has set a goal of transitioning its high-carbon industrial assets toward green finance.
Shinhan Financial Group Chairman Jin Ok-dong has also personally urged the industry to participate. At a meeting of the Korea Chamber of Commerce and Industry’s Financial Industry Committee on the 12th, Chairman Jin emphasized, “Korea has a high reliance on manufacturing and fossil fuels, which makes interest in decarbonization transition finance significant. Multiple financial firms must join in vitalizing transition finance. We need to move beyond simply supplying funds and exert efforts with a sense of mission.”
Woori Financial Group analyzed overseas markets as a reference point, noting that Japan’s economic and social environment is similar enough to Korea’s to be called a "future we have already visited." Following its analysis of Japanese transition finance trends and cases in February and June 2024, the Woori Finance Research Institute, a subsidiary of Woori Financial Group, also covered the topic in its book ‘The Great Transformation of the Japanese Economy,’ published on the 18th. It is reported that Woori Financial Group Chairman Yim Jong-yong also took a keen interest and supported the research.
Park Jung-hoon, President of the Woori Finance Research Institute, explained the status of Japan's transition finance at a book launch press conference held on the 18th. Because large-scale funding is required, Japan is driving transition finance primarily through its three major financial groups, known as ‘megabanks’ (MUFG, SMFG, and Mizuho). The Japanese government’s target for transition finance supply, set under its ‘GX (Green Transformation) Promotion Strategy,’ is 150 trillion yen (approximately 1,420 trillion won), with private financial institutions responsible for 130 trillion yen (approximately 1,230 trillion won). The three major megabanks have been actively supplying funds to support the government’s policy direction.
According to the research institute’s findings, Mizuho’s cumulative transition finance performance from 2021 to 2023 reached 1 trillion yen (approximately 94.6 billion won). Mizuho’s primary borrowers are carbon-intensive companies, such as power generation firms. By providing them with funds for high-efficiency LNG power generation facilities through transition finance, Mizuho has successfully altered its own portfolio. During the same period, SMFG and MUFG recorded transition finance supply performances of 700 billion yen (approximately 662.26 billion won) and 200 billion yen (approximately 189.22 billion won), respectively.
The potential to cultivate overseas markets is another reason financial firms are interested in transition finance. In Japan, which has been in a state of long-term low growth, the government and the megabanks have joined hands to strengthen their foothold in Southeast Asian financial markets. Since Southeast Asian industrial structures are centered on manufacturing and the power industry is a major source of greenhouse gas emissions, there are abundant opportunities for transition finance. As of the 2023 fiscal year, some Japanese megabanks have seen their overseas revenue share exceed 50%.
Given that the domestic financial market is saturated and financial firms are struggling to increase non-interest income, there is growing attention on whether transition finance could become a new revenue stream in Korea. The government’s stance also supports this. Financial authorities previously announced that they would establish ‘Transition Finance Guidelines’ this year in consultation with the Ministry of Environment.
At the ‘Bank of Korea-Financial Supervisory Service Joint Climate Finance Conference’ held on March 18, former Financial Supervisory Service Governor Lee Bok-hyun stated, “Climate stress test results show that active investment for carbon neutrality leads to higher long-term economic growth rates and lower losses for the financial sector compared to taking no action.” He added, “Companies striving to reduce carbon emissions must receive sufficient funding for their low-carbon transition. We will establish transition finance guidelines within this year and differentiate green loans (loans for environmental improvement or sustainable activities) from transition finance.” As the new government strengthens eco-friendly policies, it appears financial firms will need to keep pace.
A representative from the Woori Finance Research Institute remarked at the press conference, “As Korea is a country centered on carbon-intensive industries, just like Japan, we expect high real demand for transition finance in the future. We anticipate that government-level support will increase once financial authorities announce the transition finance guidelines. Domestic financial groups should also view transition finance as a means to discover new opportunities and support the low-carbon transition of companies.”