Press Releases

NPS financed emissions calculated and disclosed for the first time in Korea:
27.1 million tonnes from part of its domestic equity holdings in 2021

NPS financed emissions calculated and disclosed for the first time in Korea

27.1 million tonnes of financed emissions from part of the NPS's domestic equity holdings in 2021

- Measure financed emissions, set a 2040 net zero target, act to deliver it -

Korea Sustainability Investing Forum calls on the NPS to "reach net zero by 2040"

Commissioned by the Korea Sustainability Investing Forum, analysis by Who's Good

The financed emissions of the National Pension Service's (NPS) domestic equity holdings exceed 27.1 million tonnes; a new analysis has found. Although it covers only part of the portfolio, this is the first time any figure for the NPS's financed emissions has been made public.

The Korea Sustainability Investing Forum and Who's Good, an AI-based ESG rating agency, calculated the NPS's financed emissions for the 312 companies that disclose greenhouse gas emissions among the 1,168 domestic common stocks in the NPS portfolio, and found they totaled 27,103,018 tCO2e as of the end of 2021. This slice of the domestic equity portfolio alone accounts for financed emissions equivalent to 3.98% of Korea's national greenhouse gas emissions of 679.6 million tonnes in 2021. Financed emissions stood at more than 37.4 million tonnes in 2019 and 33.7 million tonnes in 2020.

Financed emissions are the indirect greenhouse gas emissions associated with a financial institution's investments, loans, insurance and other financial assets. For example, financed emissions rise when a financial institution invests heavily in carbon-intensive companies.

By sector, materials and energy accounted for the bulk of financed emissions at 42% each, followed by hardware and semiconductors at 8% and transportation at 3%. At the company level, Korea Electric Power Corporation (KEPCO), in which the NPS holds a 5.9% stake, accounted for the largest share, at 10.35 million tonnes. It was followed by POSCO Holdings (9.3% stake) at 7.26 million tonnes and Samsung Electronics (8.5% stake) at 1.23 million tonnes, with S-Oil, LG Chem, Korean Air, Lotte Chemical, Ssangyong C&E, SK hynix and Korea Zinc also in the top 10.

Under the 1.5°C scenario of the Science Based Targets initiative (SBTi), the NPS would need to cut its 2019 base-year emissions (37.46 million tonnes) by 67.2% by 2035.

Presenting at the , which KoSIF co-hosted with Rep. Jeoung-ae Han in Small Conference Room 2 of the National Assembly Members' Office Building on 18 April, Taehan Kim, COO of the Korea Sustainability Investing Forum, proposed three measures: (1) calculating and managing financed emissions in line with the methodology of the Partnership for Carbon Accounting Financials (PCAF); (2) setting a 2040 net zero target and an interim 2030 target in line with SBTi, together with a detailed transition pathway; and (3) taking active climate action across investment, engagement, policy advocacy and disclosure to deliver those targets.

According to the Fifth NPS Actuarial Projection, the fund will peak in 2040 and be fully depleted by 2055. Under the fund's current structure, in other words, a 2050 net zero target would be met by default — because the fund would have run out — even if the NPS took no climate action whatsoever.

For this reason, the Korea Sustainability Investing Forum argues that the NPS should set its net zero target for 2040. It also urged the NPS to launch net zero research without delay, complete it by the end of the year and, on that basis, announce a net zero commitment and roadmap in 2024.

Co-host Rep. Jeoung-ae Han called for immediate action by the NPS: "Net zero at the NPS is not just about the NPS. As we move from a high-carbon to a decarbonized society, it strengthens the climate response and competitiveness of the companies the NPS invests in and lifts their corporate value, which in turn delivers stable long-term returns for the NPS."

Youngho Kim, Chair of the Korea Sustainability Investing Forum, underscored its significance: "Climate change is a long-running issue that materially affects the returns of the NPS fund, and it matches the investment horizon of the NPS as a long-term investor. In that sense, net zero at the NPS is both a fiduciary duty and, prospectively, a historic turning point in transforming the capital market toward a decarbonized, sustainable economy."

Deokchan Yoon, CEO of Who's Good, said he expects the exercise to have wider effects: "For global financial institutions, including the world's major pension funds, setting and delivering net zero targets on the basis of financed emissions calculations has become the standard of climate action. This calculation of the NPS's financed emissions could spread the concept of financed emissions — currently measured by only a handful of major financial institutions — across the financial sector as a whole and drive progress toward net zero."

The figures cover only the portion of the NPS's domestic equity holdings for which emissions data are disclosed. Even so, they come close to 4% of national greenhouse gas emissions, suggesting that financed emissions across all asset classes could be far larger than expected.

On this point, Jongoh Lee, CIO of the Korea Sustainability Investing Forum, said: "Going forward, we plan to gather as much data as possible across all of the NPS's asset classes — domestic and overseas equities, bonds and alternative investments — in order to calculate and disclose its financed emissions. On that basis, we will hold the NPS accountable on climate and carry out active engagement so that it declares, sets and delivers net zero targets without delay."

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Analysis Overview

• Commissioned by: Korea Sustainability Investing Forum (KoSIF)
• Analysis conducted by: Who’s Good Korea (ESG data provider to global asset managers)
• Scope of analysis: 312 companies disclosing GHG emissions among 1,168 Korean common stocks held in the National Pension Service (NPS) portfolio
• GHG emissions covered: Scope 1 + 2
• Methodology: PCAF The Global GHG Accounting & Reporting Standard
• Limitations
  • Analysis limited to Korean common stocks
  • Subsidiary emissions are excluded for investee companies other than KEPCO

[Figure] Top 10 by attributed carbon emissions (as of 2021)

Contact: Mina Kim, Researcher (mina0219@kosif.org); Namyoung Park, Senior Researcher (nypark@kosif.org)