The Financial Services Commission, the Ministry of Environment, and the Financial Supervisory Service announced on December 12 the establishment of administrative guidelines on green finance for application on the green economic activities specified by K-taxonomy. In 2021, the Ministry of Environment established K-taxonomy to provide clear standards on eco-friendly and green economic activities, and in 2022, the Financial Services Commission and the environment ministry introduced the guidelines on green bonds to facilitate the application of K-taxonomy in the financial sector. In this regard, the administrative guidelines on green finance being introduced today provide specific criteria for determining the appropriateness of financing green economic activities for financial companies, thereby creating conditions to promote green financing.
In preparing for the administrative guidelines, financial authorities examined overseas cases, sought consultations from experts, collected opinions from taskforce meetings on climate finance, and conducted pilot tests.
The administrative guidelines contain specific criteria for determining green economic activities when financial companies provide green finance to businesses, and address issues regarding the prevention of greenwashing and internal control of financial companies. Key details of the administrative guidelines are as follows.
First, a clear definition on green finance has been established. Under the administrative guidelines, green finance refers to the financing of an economic activity that meets the standards specified by K-taxonomy with appropriate internal control procedures. This clarification will help to resolve uncertainties regarding greenwashing for financial companies and encourage them to more actively provide green finance.
Second, internal control standards have been established for financial companies regarding their handling of green finance related works, detailing who should be in charge of determining the appropriateness of the company’s green finance activities, and the procedure and grounds for these activities. In this regard, financial companies are able to appoint an internal supervisor overseeing green finance related works.
Third, financial companies will be allowed to determine the appropriateness of green economic activities on behalf of businesses, or green finance users. In principle, decisions regarding whether an economic activity fits the criteria of K-taxonomy should be made by businesses, the recipient of green finance from financial companies. However, there is currently a lack of clear understanding about K-taxonomy among businesses. Thus, allowing financial companies to determine the appropriateness of green activities on behalf of green finance users will help to alleviate burden on businesses. In addition, businesses will be able to use green finance certifications issued by financial companies to publicly announce and advertise their green activities.
Fourth, the exclusion criteria and the protection criteria for determining green economic activities under K-taxonomy can be substituted with a confirmation document from the green finance user. This will help to ease the burden of making determinations on qualification for both financial companies and green finance users to facilitate a seamless supply of green finance to the real economy.
Considering that green finance is still at an early stage in the financial industry, instead of mandating the adoption from the beginning, authorities will encourage financial companies to apply these administrative guidelines on a voluntary basis. To facilitate a seamless supply of green finance, authorities will regularly collect data on financial companies’ green finance activities and actively listen to their needs and suggestions. Meanwhile, the Ministry of Environment plans to put forward a revision to K-taxonomy within this year, taking into account the upgraded EU taxonomy for sustainable activities. Once the revision is finalized on K-taxonomy, changes will be immediately included in the administrative guidelines on green finance.