[Underdeveloped country in climate finance ②] National pension, green money ‘blind investment’… The biggest obstacle to normalizing the emissions market

Fossil fuel investment amount and reduction target data continues to be undisclosed

Carbon price signaling function paralyzed… Even private investors can’t figure it out.

‘Conversion of 30% of emission credits to paid, introduction of Korean-style market stabilization reserve (K-MSR), expansion of benchmark by 75%’

These are the ‘surgical tools’ in the 4th reform plan proposed by the government. However, it is pointed out that no matter how sophisticated the system is, it is useless if the 420 trillion won in policy finance and 1,300 trillion won in public funds do not move based on the same data.

The Bank of Korea's stress test warned that the bank's losses could amount to up to 28.7 trillion won if it does not respond to climate change. To prevent these enormous losses, a systematic response from the financial sector is essential. However, one common point is reached in data transparency, which should be the starting point of the response. It is the ‘absence of numbers’. It is pointed out that the national pension system, which manages 1,000 trillion won, is actually like sailing without one's own compass.

The National Pension Service declared a coal phase-out in 2018, but the balance of fossil fuel investments, financial emissions, and reduction goals are still shrouded in mystery. In fact, the National Pension Service conducted a research service to set standards for coal phase-out, but has not even disclosed the results.

A research director at a domestic ESG evaluation agency pointed out, “If the National Pension Service is quiet, other pension funds and insurance companies will also postpone investments, and eventually the carbon price signal in the capital market will turn off.” The silence of the country's largest institutional investor leads to paralysis of the entire market.

The situation overseas is very different. Norway's sovereign wealth fund announced that it would disclose all emissions from its portfolio in real time and reduce intensity by 55% by 2030. Dutch pension fund ABP presented a roadmap to sell all companies with coal and tar sands sales exceeding 5% by 2025. Even Japan's GPIF releases ESG investment-related reports every year and announced that it will expand 'Scope 3 coverage' (covering indirect sources such as supply chains of a company's total greenhouse gas emissions) to 100% by 2027.

It is not impossible even in Korea. Korea Investment Corporation (KIC) is transparently disclosing its green bond holdings of $4.1 billion. The transparency gap is revealed as a cold reality. When looking at whether to disclose the balance of fossil fuel investments, the National Pension Service is still silent, while all major overseas pension funds are disclosing detailed information.

Choi Hwan-seok, an expert member of the National Assembly's Political Affairs Committee, said, "When the next government takes office, the specific scope and timing of fossil fuel investment and financial emissions disclosure by public funds such as the National Pension Service will need to be discussed with the financial authorities. This is an issue that requires consultation with the relevant standing committees, the Retaliation Committee and the Strategy and Finance Committee." Park Hee-jeong, head of Daeryun Law Firm's Legislative Strategy Division, said, “A lot of changes could come depending on what the Political Affairs Committee, Climate Crisis Special Committee, and Foreign Exchange Committee have in the second half of this year and the first half of next year.”

If you hide the numbers, the market will price that uncertainty high. ESG funds have no choice but to set a high risk premium because they cannot obtain emissions data from large companies invested by the National Pension Service. The aftermath comes back to the deterioration of capital ratios in the financial sector.

The large-scale financial losses warned by the Bank of Korea ultimately result from a lack of data transparency. International credit rating agencies are also warning, “If carbon regulations are strengthened after 2027, discounts will be applied to assets that do not disclose data.”

To speed up the transition, the national pension must be opened first. As the cases of Norway and the Netherlands show, once disclosure begins, companies and asset management companies rush to improve emissions.

The government is also providing policy support. The Ministry of Environment and the Exchange drew up a plan to drastically reduce the total amount during the 4th plan period, increase paid allocation, and prevent a sharp decline in prices with market stabilization reserves. However, even the huge policy finance worth 420 trillion won can become proper green capital only when the window called data is opened.

Even if emissions prices become realistic and the market stabilization device operates, it is data that ultimately moves money. Only when the National Pension Service transparently discloses fossil fuel investments and financial emissions, and when the public and private sectors are able to judge risks and opportunities by looking at the same information, can the Korean capital market find a solution to becoming a ‘post-climate finance underdeveloped country.’

Reporter Kim Soo-hwan (ksh@viva100.com)

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[Underdeveloped countries in climate finance②] National Pension Service, green money ‘blink investment’… The biggest obstacle to normalizing the emissions market (link)