Development of Green Finance and its Implication on Korean Financial Market
2011/03/16 Leave a comment
What is Green Finance?
Since the global financial crisis and economic recession, green growth has been drawing global attention as one of the new economic growth engines, which can achieve both environmental protection and economic development. In this respect, green finance is the core instrument to support green growth.
In general, green finance is future-oriented, which pursues economic growth, environment protection, and financial industry’s development. Particularly, the green finance is one of “targeted financing” since it is focused on green economic activities such as export financing, financing for small and midsize firms, and financing for the IT venture industry
Above all, the green finance can be divided into two parts: (1) the finance to supporting green growth and (2) the finance to prevent environmental costs. More specifically, the former includes indirect financing such as green loan and direct financing markets such as green index development and launching green fund, in the capital market. Particularly, given that the capital market has the high-risk and high-yield such as hedge fund and environmental fund, securing funds is relatively more facilitated. The latter is tantamount to cutting off the financing of environmental disruption activities and the role of commercial lender, who creates self-imposed screening and evaluation and implements it. In this context, in the 1990s, CERCLA (Comprehensive Environmental Response, Compensation, and Liability Act) of the U.S., the ETS (Emission Trading System), and the CER (Certificated Emission Reduction) lie in the latter.
Current Status of Korean Green Finance and the Suggestion of Direction of its Development
Currently, according to the Basic Law on the Low-Carbon Green Growth, the Korean government prepared the legislation of the financial support concerning the promotion of the low-carbon green growth and its revitalization. In particular, through Article 28, the government has pursued the policies for raising revenue and financing to support green economy and green industry, the development of the new financial product supporting low-carbon and green growth and the revitalization of private investment, the consolidation of the public disclosure system on green management information and the enlargement of financial support for green companies, and the encouragement of operating the system by which the CER can be traded.
Furthermore, recently, there have been implemented the affirmative efforts of both public and private sectors in Korea. In June, 2010, the FSC (Financial Services Commission) announced the plan in terms of the green finance to build up the database not merely featuring how companies work for the initiative of the eco-friendly atmosphere, but making firms proactively announce environment-related information. Moreover, the KDB (Korea Development Bank) and the Korea Eximbank have planned to invest approximately 1 trillion won and 840 billion won in green finance industry this year, respectively. In addition, as Korean major banks, Woori, Hana, Kookmin, and Korea Exchange Bank have introduced various financial products and set up derivative funds to bring up green industries.
However, overall, even though including the enactment of the related act and adoption of green growth as the core policy, the diverse efforts of the Korean government when it comes to the support of the green finance have been consistent as previously stated, due to the limitation of the green financial support system with banks at the center, the lack of attracting structure to banks, the related policy and institutional setback, insufficient human resources, and underdeveloped related products, domestically, the green finance still remains at the early stage.
In this respect, in order to find out the right direction of development of green finance, the five factors should be considered as follows. (1) The establishment of the specific concept on the green finance and its social awareness-raising are required. (2) In building the infrastructure of green finance, the strategy for the advancement and road map of the government and financial institution ought to be established. (3) The role of the financial institutions for green finance ought to be strengthened. (4) Nurturing green investors and its related professionals is required. (5) In order to address the regulation of global greenhouse gases, based upon the market mechanism, the development support of the carbon market as the most cost efficient alternative to cut back on greenhouse gases is essential.
Kim, Do Hyun