Insights

The NPS Must Set a 1.5°C-Aligned Net-Zero Target
and Take Climate Action

ㅣJong-oh Lee, CIO of KoSIFㅣ

Limiting the rise in global average temperature to 1.5°C and achieving net-zero emissions by 2050 are matters of survival for humanity.

To prevent the mass extinction of humans and other species, global carbon dioxide emissions must be reduced by approximately 45% from 2010 levels by 2030, with net-zero emissions achieved by 2050.

Because greenhouse gases accumulate in the atmosphere and produce long-lasting effects, humanity will not be able to avoid a dystopian future unless substantial progress is made by 2030 through the greatest possible reduction in emissions.

For this reason, the international community, guided by climate science, is urging all actors to take the strongest possible climate action by 2030.

Countries, companies, investors and other organizations are being called upon to establish ambitious net-zero targets and implement concrete strategies and action plans to achieve them.

Financial institutions are among the most active organizations in responding to climate change. This reflects their growing recognition that the climate crisis represents one of the most serious threats to financial stability.

International organizations responsible for financial stability, including the International Monetary Fund, the Bank for International Settlements and the Financial Stability Board, have warned that climate change could trigger a severe financial crisis—often described as a “green swan.”

A green swan refers to a financial crisis caused by the destructive effects of climate change on the broader economy through multiple and interconnected channels.

The establishment by the G20 of the Task Force on Climate-related Financial Disclosures, or TCFD, and the creation of the Network for Greening the Financial System, or NGFS, by central banks and financial supervisors are among the international measures intended to prevent such a crisis.

Physical risks arising from climate change, including natural disasters, and transition risks associated with the shift toward a decarbonized economy can reduce the value of assets held by fossil fuel companies and other high-emitting businesses.

Transition risks include changes in climate-related laws, regulations and policies, technological development, shifts in customer and consumer behavior, market changes and reputational damage.

Coal- and oil-related assets, particularly fossil fuel power plants, face a high risk of becoming stranded assets.

This understanding is now widely shared among global financial institutions, and climate action aimed at minimizing these risks has become standard practice.

Such action is not only morally justified. It is also intended to reduce climate-related financial risks while identifying new investment opportunities, including renewable energy, in the transition to a net-zero economy.

This is why financial institutions have become almost as active as environmental organizations in responding to climate change.

Because the climate crisis is fundamentally a long-term issue, long-term investors such as pension funds have been particularly proactive.

     The NPS Is Failing on Climate Action

How, then, should we assess the climate action of Korea’s largest public pension fund, the National Pension Service?

The answer is clear: it deserves a failing grade.

As of the end of April this year, the NPS managed approximately KRW 920 trillion in assets, making it Korea’s largest pension fund and either the third- or fourth-largest pension fund in the world.

It is also a universal owner, holding shares across virtually every domestic industry and exercising enormous influence over Korea’s capital market.

Considering the size of the fund and its international standing, the NPS’s climate action is frankly embarrassing.

To put it more sharply, one may reasonably question whether the NPS has any meaningful awareness of, or interest in, the 1.5°C goal and net zero.

To the best of my knowledge, the NPS’s climate action has been largely limited to announcing a coal exit policy and designating climate change as a proposed priority management issue in the environmental field.

Even these measures have yet to be implemented.

The NPS announced its coal exit policy ahead of the P4G Seoul Summit in May last year. However, more than one year and two months later, it had still not finalized the relevant criteria.

Judging from the research findings presented at the public hearing and the direction of subsequent discussions, there are even concerns that the NPS has lost sight of the fundamental purpose of its coal exit policy.

The designation of climate change as an environmental priority management issue has also stalled. It has not yet been approved by the National Pension Fund Management Committee, the fund’s highest decision-making body.

There is also a strong possibility that engagement targets will be limited simply to high-emitting companies, without taking a more comprehensive view of climate-related risks.

     Indifference to the TCFD, CDP and Other Climate Initiatives

Nor has the NPS actively participated in the major international climate initiatives used by global investors.

The TCFD provides a framework for organizations to analyze the financial impacts of different climate scenarios and disclose their governance, strategy, risk management, metrics and targets for addressing climate-related risks and opportunities.

As of July 27, more than 3,400 organizations across 95 countries supported the TCFD. Approximately 1,500 were financial institutions, including 113 pension funds.

Major pension funds frequently used as benchmarks by the NPS—including Japan’s Government Pension Investment Fund, CalPERS in the United States, the Canada Pension Plan Investment Board, the Netherlands’ ABP and PGGM, Sweden’s AP funds, Denmark’s AP Pension and Norway’s Norges Bank Investment Management—became TCFD supporters between 2017 and 2019.

The NPS is not among them.

The TCFD was developed in part on the basis of the achievements of CDP, formerly known as the Carbon Disclosure Project, a global investor-led environmental disclosure initiative covering climate change, water security and forests.

CDP, which began in 2003, currently has 672 participating financial institutions. With the exception of Japan’s GPIF, all of the major pension funds mentioned above are CDP signatories.

These signatories request that their portfolio companies disclose environmental information through the CDP platform.

The NPS is again absent from the list.

Nor is the NPS a member of the Partnership for Carbon Accounting Financials, or PCAF, which currently has 293 participating financial institutions, or the Science Based Targets initiative, known as SBTi.

PCAF is a financial industry-led initiative that provides a standard for measuring and disclosing greenhouse gas emissions associated with loans and investments.

SBTi provides companies and financial institutions with a framework for setting net-zero targets in line with climate science.

Both PCAF and SBTi offer important methodologies for achieving portfolio-level net zero.

The NPS has joined the Asia Investor Group on Climate Change, or AIGCC. However, it would not be an exaggeration to describe the NPS as a member in name only.

It does not participate in Climate Action 100+, one of AIGCC’s core initiatives.

This is because the NPS has shown little interest in engaging collaboratively with other investors to encourage major greenhouse gas emitters to reduce their emissions.

     The NPS Is Also Indifferent to Portfolio Financed Emissions

Financial institutions generate emissions not only through their own operations—Scope 1 direct emissions and Scope 2 indirect emissions—but also through their investments, lending, insurance and other financial activities.

These Scope 3 emissions are known as financed emissions.

For financial institutions, financed emissions are typically far greater than their operational emissions. Achieving net zero in the financial sector therefore depends primarily on reducing emissions across the asset portfolio.

A financial institution that claims carbon neutrality for its own operations while failing to reduce its portfolio financed emissions could reasonably be accused of greenwashing.

The Net-Zero Asset Owner Alliance, launched in 2020, committed to transitioning investment portfolios onto pathways aligned with the 1.5°C scenario and achieving net-zero emissions by 2050.

At its launch, 35 institutions participated, including pension funds such as CalPERS and insurers and reinsurers such as AXA, Allianz and Swiss Re.

Together, they committed more than USD 5.1 trillion in assets under management to portfolio decarbonization by 2050.

Under the alliance’s Inaugural 2025 Target-Setting Protocol, members committed to reducing portfolio emissions by as much as 29% over the following five years.

Korean financial institutions have also announced and begun implementing long-term and interim net-zero targets covering both their internal operations and their financing portfolios.

KB Financial Group and Shinhan Financial Group are representative examples.

Public financial institutions, which should be leading climate action, cannot be allowed to fall far behind their private-sector counterparts.

I have never heard the NPS express serious interest in reducing financed emissions across its portfolio.

Its indifference to climate change may be so extensive that it has not even considered the issue.

Alternatively, the NPS may have concluded that portfolio net zero is unnecessary because of the projected depletion of the pension fund.

According to the fourth actuarial projection for the National Pension Fund, the fund was expected to reach a peak of KRW 1,778 trillion in 2041, begin recording annual deficits in 2042 and be depleted by 2057.

If the NPS is neglecting portfolio net zero on this basis, it represents an extreme form of irresponsibility.

The historical financed emissions generated over decades of managing hundreds of trillions of won may already be enormous.

Who, then, will take responsibility for the financed emissions generated until the projected depletion of the fund in 2057—a date that may be brought forward under the fifth actuarial projection?

     The NPS Must Set a Net-Zero Target

I therefore propose and call for the following actions.

1. Establish and disclose a 1.5°C-aligned net-zero target

The NPS should set and publicly disclose a net-zero target aligned with the 1.5°C pathway, covering both its internal operations and financed emissions across its asset portfolio.

It should establish 2030 as its interim target year and set its final target no later than 2040.

A coal phase-out roadmap, followed by a broader fossil fuel phase-out roadmap, should be developed within this framework.

Responding to climate change is directly connected to the NPS’s ability to secure stable, long-term returns.

2. Begin immediate research on portfolio net zero

The NPS should immediately commission research on setting a 1.5°C-aligned net-zero target, with particular emphasis on portfolio-level financed emissions.

3. Maximize climate action by 2030

The NPS should undertake the strongest possible climate action by 2030, the decisive decade for implementation.

It should publicly support the TCFD and actively request climate-related disclosure from portfolio companies through CDP.

It should also promptly approve climate change as an environmental priority management issue and incorporate it into its Guidelines on Fiduciary Responsibility Activities.

Furthermore, the NPS should engage actively with high-emitting companies and deliver measurable results through participation in Climate Action 100+.