Attracting Private Capital to Green Growth

Since President Lee Myung-bak declared ‘Low Carbon Green Growth’ as the country’s new vision, Korea has been trying to be a fast mover under a comprehensive plan to transform the nation into an economy powered by green technologies. To achieve the goal of being an initiative country, the Financial Services Commission (FSC) and relevant agencies have prepared financing plans, which is called the green financing, to promote green industries. Though many efforts to propel, some business participants complain that the current governmental support is not enough to induce private investment. Moreover, the recent economic slowdown and Euro crisis make the situation worse. Under these circumstances, the FSC and relevant agencies examined the green financing policies and announced additional measures on May 2.

The overall result of the current policies provide systematic frame for green financing. Firstly, green business firms get advantages to receive both public and private loans. The amount of policy loans to green business firms has been increased to 8 trillion won in 2011. The amount of guaranteed private loans by Korea Credit Guarantee Fund and Korea Technology Finance Corporation (KIBO) also has been increased 7.8 trillion won per performance in 2011. In addition to this, those companies are also benefited by direct financing from stock and share markets. The green funds, which invest to green technologies, accumulated about 5 trillion won in 2011. To induce private capital through a bond market, Primary CBO has been issued. A KOSDAQ entry barrier for green business firms was alleviated. Also, The Green Industry Index was created, and the Green ETF was listed. Lastly, infrastructures such as the Green Certification System and the Green Finance Portal have been strengthening to create a demand for green financing.

Despite of all of these achievements, highly dependent of policy loans and low inflow of private capital still need to be improved. Because of long payback period and uncertainty, it is difficult for private capital to invest to green industries. Policies which can guarantee the long term functionality and future benefits of green technologies need to be implemented to attract private capital.

In order to compensate for the insufficiency in current green financing policies and support the green growth, the FSC and relevant agencies announced a strategy to promote an influx of capital and to support financing and funding.

First of all, forming a market of green industries will be supported. The biggest change is the expanding factoring finance, which is not only for LED industry but also for other green industries. If the companies cannot use factoring system, debt ratio which makes it difficult to collect invested money may seriously rise. Therefore, the Korea Finance Corporation (KoFC) will adjust the maximum limit of the factoring financing from 35billion won to 70billion won in 2012. Besides, solar energy businesses and energy service companies can get factoring benefits.

Secondly, development circumstances of green business companies will be improved. The FSC will give incentives to financial companies which have high loan performances with certified green technologies. This will make easier for green business firms to be invested by private capital. Furthermore, small and medium enterprises (SMEs) which have potentials to develop green technologies will be supported in every step of R&D stages. Along with these, KONEX, new market for SMEs, will be one of their sources for financing.

Third, supporting exports of green related products will be enhanced. FSC will encourage creating insurance products which defend the risk of long payback period, which can be helpful for solar energy industries. The insurance is critical for the green business because many SMEs are losing their opportunities to show even prototype to buyers due to lack of money. This kind of insurances will promote Korean companies to enter into expanding global new renewable energy market.

Lastly, green financing will be highly highlighted. KIBO and KoFC will establish new organization which is exclusively responsible for the green financing. Policy loans for green finance will be increased up to 21.4 trillion won in 2012. Green fund which is investing to green companies’ stocks and shares will grow as well.

It was meaningful to examine how green growth policies have been effective as less than one year of tenure of the president is left. With all the efforts to promote the green growth, it is ready for Korea’s green industries to enter the stage of growth.

Chaehack Suh(chaehack.suh@gmail.com)

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One Response to Attracting Private Capital to Green Growth

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