Press Releases

KoSIF Calls for Common Standards and Supervisory Oversight of

Financial Institutions’ Transition Plans

- Transition finance must go beyond individual transactions and be integrated with institution-wide targets, capital allocation and performance indicators

- Only one-third of 112 Korean financial institutions have set net-zero targets and measured financed emissions, highlighting the limits of voluntary disclosure

Transition finance must be underpinned by institution-wide transition plans and financial supervisory oversight to drive the real economy toward net zero goal, rather than merely providing temporary support to high-carbon industries. This requires more than classifying individual loans and investments as transition finance: financial institutions must bring their net-zero targets, capital allocation plans, corporate engagement and performance monitoring together within a coherent plan.

Cover of the issue brief “The Next Step for Transition Finance: Transition Plans and Supervisory Frameworks
for Financial Institutions”

The Korea Sustainability Investing Forum (KoSIF) has published an issue brief, The Next Step for Transition Finance: Transition Plans and Supervisory Frameworks for Financial Institutions, setting out these recommendations. The brief positions transition finance as a tool for achieving net-zero targets across financial institutions’ portfolios and the real economy, and calls for individual transition finance transactions to be managed within institution-wide transition plans.

ㅣFrom Individual Transactions to Portfolio-Wide Transition

Transition finance is directed at companies that currently generate high greenhouse gas emissions but aim to reduce them by transforming their processes, fuels and equipment. In Korea, where carbon-intensive manufacturing accounts for a substantial share of the economy, green finance—which supports activities that are already green or low-carbon—cannot on its own fund the transformation of industry. This is why transition finance is increasingly being discussed in Korea as an essential complement.

In February, the Korean government released its transition finance guidelines and announced plans to provide a total of KRW 790 trillion in climate finance, including transition finance, by 2035. Benchmarking two approaches—the EU’s taxonomy and Japan’s sector-specific decarbonization roadmaps—the guidelines set out two pathways: one based on the Korean Green Taxonomy and the other on transition strategies.

However, labelling selected loans and investments as transition finance does not in itself change a financial institution’s portfolio, nor does it show whether the portfolio as a whole is moving along a net-zero pathway. The volume of transition finance may grow, yet total financed emissions can remain unchanged or even increase if the institution maintains or expands its financing of other high-carbon assets.

Drawing on the Financial Institutions Net-Zero Standard (FINZ), published by the Science Based Targets initiative (SBTi) in 2025, KoSIF recommends managing transition finance within an institution-wide net-zero plan. Under the FINZ framework, such a plan links financed emissions and reduction targets with capital allocation, engagement with portfolio companies, and performance tracking and accountability.

The brief finds that, as the government has not yet announced sector-specific decarbonization roadmaps, the criteria and decision making process  for assessing transition strategies are left to individual financial institutions. In addition, third-party verification is not mandatory, and institutions are not required to disclose the basis for classifying financing as transition finance or how financed companies are progressing along their decarbonization pathways. The current transition finance guideline framework therefore relies largely on institutions’ own judgment, limiting external scrutiny and leaving room for transition washing.

ㅣBeyond Voluntary Disclosure: Common Standards for Transition Plans and Supervisory Oversight

Setting net-zero targets and measuring financed emissions are the starting points for developing portfolio transition plans. Yet the 2024 Fossil Fuel Finance White Paper, published jointly by KoSIF and the office of National Assembly member Kim Hyun-jung, found that only 38 of the 112 financial institutions surveyed had set net-zero targets, while 39 had measured financed emissions—roughly one in three in both cases. Among the 29 public financial institutions surveyed, only three had announced net-zero targets.

By contrast, jurisdictions including the EU and Singapore have built financial institutions’ transition planning into their supervisory frameworks, requiring institutions not only to set GHG reduction targets but also to develop and implement transition plans, though their approaches differ. The EU requires financial institutions to prepare transition plans with quantitative interim targets under legally binding requirements, and financial authorities assess whether these plans are credible. Singapore focuses much more on the internal processes behind transition planning, such as governance, client engagement and scenario analysis, using a guideline-based approach.

“While institutions’ individual characteristics and autonomy need to be recognized, a common minimum framework covering targets, interim pathways, implementation measures, performance indicators and accountability is needed if transition plans are to deliver real changes in portfolios,” said Lauren Kang, Researcher at KoSIF. “Financial authorities, including the Financial Services Commission, should establish this framework and support institutions in developing their net-zero transition plans by providing data, methodologies and advisory services.”

KoSIF also suggests that the Financial Supervisory Service review not only whether each institution has a concrete transition plan but also its credibility, so that financial flows toward a low-carbon transition can be tracked across Korea’s financial sector. Supervisory review should assess whether net-zero targets are reflected in business strategy and lending and investment decisions, and whether portfolios are changing as planned. Where gaps emerge between plans and actual implementation, institutions should be required to analyze the causes and submit corrective action plans.

“Without clear standards and management frameworks, transition finance risks becoming ‘transition washing’ that merely prolongs the life of high-carbon industries,” said Chun-seung (Karl) Yang, Executive Director of KoSIF. “Comprehensive transition plans are essential to move beyond tracking the volume of individual transactions and to systematically assess and manage whether institution-wide capital flows and portfolios are being reallocated in line with credible net-zero pathways.”

The full issue brief, The Next Step for Transition Finance: Transition Plans and Supervisory Frameworks for Financial Institutions, is available on the KoSIF website.

Contact Lauren Kang, Researcher yoonseokang@kosif.org