Press Releases

Korean financial institutions' fossil fuel finance hits KRW 331.5 trillion,
putting 2050 carbon neutrality goals in jeopardy

Fossil fuel finance hits KRW 331.5 trillion, putting financial institutions' 2050 carbon neutrality goals in jeopardy

- Korea Sustainability Investing Forum's 2023 Fossil Fuel Finance White Paper: total equals half of Korea's 2024 government budget

- New investment keeps rising despite the sector's coal exit pledges, reaching KRW 40.9 trillion in 2022

- Fast-growing gas and oil finance sits in a policy blind spot, raising stranded asset risk

- Climate risk should be a mandatory factor in assessing the soundness of financial institutions' assets

1. Korean financial institutions had extended KRW 331.5 trillion (approx. USD 255 billion) in finance to fossil fuel companies as of the end of June 2023 — equivalent to half of the government's 2024 budget — casting serious doubt on their ability to meet their 2050 carbon neutrality targets, according to a new report.

In its 2023 Fossil Fuel Finance White Paper, published on the 27th, the Korea Sustainability Investing Forum (KoSIF), chaired by Youngho Kim, warned that financial institutions' business-as-usual support for fossil fuels threatens both their coal divestment pledges and their asset quality. The Forum called for an urgent policy shift, including making climate risk a mandatory consideration when assessing the soundness of financial institutions' assets.

2. According to data submitted by 130 public and private financial institutions and analyzed by the Korea Sustainability Investing Forum together with the office of Rep. Wonyoung Yang-Yi of the 21st National Assembly, total fossil fuel finance stood at KRW 331.5 trillion (approx. USD 255 billion) as of the first half of 2023, including KRW 138.1 trillion (approx. USD 106 billion) in insured exposure. By fuel, coal finance accounted for KRW 133.8 trillion (approx. USD 103 billion) and natural gas and oil finance for KRW 197.8 trillion (approx. USD 152 billion). Private finance accounted for KRW 211.2 trillion (approx. USD 162 billion) and public finance for KRW 120.3 trillion (approx. USD 93 billion), meaning private finance made up 63.7% of total fossil fuel finance. This reflects the large insured amounts arising from underwriting by private non-life insurance companies (KRW 134.0 trillion, approx. USD 103 billion) [see Graph 1]. New investment has also risen each year, from KRW 27.9 trillion (approx. USD 21.5 billion) in 2021 to KRW 40.9 trillion (approx. USD 31.5 billion) in 2022. The increase is largely attributed to stronger corporate demand for working capital and capital expenditure amid soaring energy prices and a weaker won. The report points to a bigger problem, however: business inertia, whereby financial institutions remain fixated on short-term returns and continue to commit large sums despite warnings about the declining future value of fossil fuels.

3. The growth in fossil fuel finance also puts financial institutions' 2050 carbon neutrality goals at risk. A forward-looking projection of coal finance exposure alone concluded that Korean financial institutions are on course to miss carbon neutrality by 2050. If they keep to their current maturity schedules, KRW 27.6 trillion (approx. USD 21 billion) of the KRW 62.9 trillion (approx. USD 48 billion) in coal corporate bonds and project finance (PF) outstanding as of the end of June 2023 will still be on their books in 2053 [see Graphs 2 and 3]. The main reason coal finance is not falling quickly is that financial institutions' coal divestment pledges apply only to new contracts, while committed amounts (outstanding balances) under existing contracts continue to be disbursed. Balances under existing contracts remain outstanding for the Samcheok Blue Power, Goseong Hi and Gangneung Anin coal-fired power plants, for example. This is at odds with the International Energy Agency (IEA) scenario of a global coal phase-out by 2040.

4. Fossil fuel finance risk is not confined to coal; once natural gas and oil finance are included, the prospect of Korean financial institutions achieving carbon neutrality by 2050 becomes still more remote. The analysis found that outstanding natural gas and oil finance accounts for 59.7% of current fossil fuel finance (KRW 197.8 trillion, approx. USD 152 billion), a larger share than coal finance. Gas-fired power plants, like coal plants, carry a considerable risk of becoming stranded assets, yet policy attention has not extended to them. "Financial institutions need to recognize that natural gas should play no more than a 'temporary role' in the shift to renewable energy," said Namyoung Park, Senior Researcher at the Korea Sustainability Investing Forum. "Government-level financial policy is needed to achieve carbon neutrality and an orderly transition."

5. "Financial institutions are providing the very power that extends the business life of fossil fuel companies," said Youngho Kim, chair of the Korea Sustainability Investing Forum. He added: "The time has come for strong institutional mechanisms that channel capital away from fossil fuels and into green assets — making consideration of climate risk mandatory in prudential assessments of financial institutions' asset quality, and having financial supervisors require provisioning in line with those assessments." Rep. Wonyoung Yang-Yi of the 21st National Assembly added: "The government and the National Assembly have an important role to play in enabling Korean financial institutions to engage more actively in climate action."

6. Since publishing its first Fossil Fuel Finance White Paper in 2022, the Korea Sustainability Investing Forum has now surveyed and analyzed fossil fuel finance across all Korean financial institutions for two consecutive years. The findings are intended to inform the government's fossil fuel phase-out policy and financial institutions' climate risk management. The Korea Sustainability Investing Forum is a non-profit organization established in 2007 to contribute to building a sustainable society through ESG. The 2023 Fossil Fuel Finance White Paper is available on the Korea Sustainability Investing Forum website.

1. ▲ The 2023 Fossil Fuel Finance White Paper, published by the Korea Sustainability Investing Forum (KoSIF) and the office of Rep. Wonyoung Yang-Yi of the 21st National Assembly

Finance ㅣ Myungeun Song, Senior Researcher, mileysong@kosif.org; Namyoung Park, Senior Researcher, nypark@kosif.org

Media ㅣ Dajeong Kim, Senior Researcher, kimdj@kosif.org