As the Paris Agreement on Climate Change (Paris Agreement) was implemented from this year, the climate environment sector among the environment, society and governance (ESG) is drawing attention. The Paris Agreement is to reduce greenhouse gas emissions and limit the increase in global average temperature to less than 2 degrees Celsius compared to the industrial revolution. Governments around the world are eager to discuss eco friendly policies, such as the imposition of a carbon tax. The Korean government also declared ‘carbon neutrality by 2050’ in October of last year, and preparations for the establishment of the K taxonomy (Korean classification system related to eco-friendly green projects) are in full swing.
However, if carbon emission regulations are introduced, it is highly likely that a contraction of the high-carbon industry, a decline in asset values, and a credit crisis will inevitably follow. If a financial company that lends and invests to companies does not consider carbon neutrality (net carbon emission 0), they will bear the risk of insolvency. This is why financial companies are tightening the reins in revitalizing green finance. In Korea, KB Financial Group, which has a leading financial position, is taking the lead in carbon neutrality. We looked at KB Financial Group's carbon-neutral business.
Coal-free declaration takes the lead, carbon neutrality
When it comes to carbon neutrality, it is easy to think of traditional manufacturing companies such as steel and petrochemicals. Since financial companies do not directly emit much carbon, they were relatively free from climate change issues in the early days. However, over time, the role of the financial industry in climate and environmental risks has begun to be emphasized. A company's value is simply the sum of its future cash flows. The role of financial companies is to lend or invest money in view of these future trends, but the perception that other efforts are limited as long as financial companies do not block the flow of funds to high carbon companies has begun to spread.
Moreover, countries around the world are starting to tighten environmental regulations to meet their carbon emission reduction targets. In particular, the European Union (EU) has announced plans to introduce the world's first carbon border tax. If the carbon tax rises sharply, the price of coal, natural gas, gasoline, and electricity will rise sharply, affecting the real economy and financial companies, and a vicious cycle may occur in which financial companies again hit the real economy. The Basel Banking Supervision Board (BCBS), the International Organization of Securities and Exchange Commissions (IOSCO), and the International Association of Insurance Supervisors (IAIS), which manage banks, securities and insurance companies around the world, have established international standards for applying climate risk to financial supervision. This is why we are making it. Foreign financial companies such as ING and Morgan Stanley have already applied the guidelines of international organizations and announced the carbon emission reduction performance of their loan portfolios for high-emission industries.
KB Financial Group, which ranks first in the Korean financial industry, is also in the process of improving its constitution to take the lead in carbon zero. The group's ESG business, including carbon neutrality, will be managed by Vice Chairman Yang Jong-hee and managing director Jin-young Kim in charge of working level management. In March of this year, the ESG Committee was established, the highest decision making body for ESG management within the board of directors.
First of all, KB Financial Group was the first among Korean financial groups to declare ‘coal-free finance’ in September last year, in which all affiliates participate, paving the way for green finance. In November and December of the same year, Shinhan Financial Group and Woori Financial Group also announced their coal freezing policy, respectively, and in February and March of this year, NH Financial Group and Hana Financial Group participated, respectively.
Recently, it announced a carbon-neutral mid/long term promotion strategy ‘KB Net Zero S.T.A.R.’. Net Zero Star is an ESG strategy that contributes to the transition to a ‘low-carbon economy’ and restores the environment through active implementation of the Paris Climate Agreement. Net zero refers to the state in which the net greenhouse gas emission is 'zero (0)' by adding the amount of greenhouse gas emission and reduction. KB Financial Group aims to achieve zero carbon emissions by 2040 and zero carbon emissions by 2050. Asset portfolio carbon emissions refer to the carbon emissions of companies loaned and invested by group companies.
Financial companies' declaration of carbon neutrality has a special weight compared to other industries. This is because, unlike manufacturers who simply have to manage their own carbon emissions, they also have to pay attention to carbon emission reductions for loan or deposit customers.
For this reason, it is very important whether the declarations related to carbon neutrality contain concrete implementation plans. KB Financial Group applied the Carbon Accounting and Finance Association (PCAF) and Scientific Based Reduction Target Initiative (SBTi) methodologies, which present global standards for measuring carbon emissions. Through this, the company disclosed the carbon emissions of the companies that it borrowed and invested for for the first time in the industry. The calculated asset portfolio emissions are approximately 26.76 million tonnes (tCO2eq). It means that we will strictly follow the target related to carbon reduction through transparent disclosure. Globally, 36 financial companies, including ABN Amro and APG, have disclosed their asset portfolio emissions.
Start to internalize eco-friendly corporate culture
KB Financial Group is striving to internalize an eco friendly corporate culture to reduce the group's internal carbon emissions. First of all, the environmental management system (ISO-14001 certification) is applied to a total of six large buildings, including the group headquarters, and the current status of environmental data such as carbon emission and waste generation is being grasped. This is to reduce carbon emissions from business activities and to use energy efficiently.
In order to reduce energy consumption, all affiliates have replaced the light emitting diodes (LEDs) at the head office and branch offices, installed rotating wind visors for air conditioners and air conditioners, and are carrying out activities such as turning off the lights at lunchtime and at night and then selectively lighting them.
The use of renewable energy is also expanding. The Gimpo Integrated IT Center is producing its own electricity by introducing solar power generation and fuel cell facilities with the goal of building a ‘green data center’, and also introduced an energy saving air conditioning system using outside air. KB Insurance's Hapjeong office building, Sacheon Training Center, and KB Kookmin Bank's integrated office building also have their own power generation system using renewable energy.
A company official said, "KB Kookmin Bank is pushing to reduce carbon emissions by introducing 10 electric vehicles in 2020 as a pilot test in 2019," said a company official.
Eco friendly campaigns such as limiting the use of plastic and reducing copy paper are also being implemented. By checking the amount of copy paper used by each department every month, awards are given to the department with excellent paper reduction. KB Kookmin Bank's Green Monday program is also part of the eco-friendly campaign. KB Kookmin Bank organizes the cafeteria menu every Monday with a low-carbon diet. A company official said, "A low-carbon diet is a diet that provides plant-based foods such as vegetables and fruits, and can reduce greenhouse gas emissions by up to 80% compared to an animal-based diet."
KB Financial Group also prepared a plan to expand ESG products, investment and loans to 50 trillion won by 2030, and to supply 25 trillion won of it to eco-friendly fields such as renewable energy.
Im Dae woong, Korea Representative of the UN Environment Program Financial Initiative (ENEP FI), said, “The Korean financial authorities and the financial sector are aware of net zero and are moving to manage credit risk.”
“Morgan Stanley invests 1,000 trillion won in eco friendly products. However, Korea’s leading groups, KB Financial Group and Shinhan Financial Group, have only 25 to 30 trillion won in investment. We have to increase it,” he said.
