Korean banks emerge as ESG partners for small businesses: an interview with Ji Byung-Heun

The growing importance of ESGs in the business sector has given greater responsibility to banks to serve as a first-line advisor to corporations in helping them self-assess their ESG levels, identify gaps, and prepare for formal certification. In this interview, Hana Bank's ESG Consulting Manager Ji Byung-Heun presented how the bank facilitates ESG compliance among businesses, as well as the banking industry's increasingly important role in driving the climate agenda forward by channeling capital toward green industries.

In terms of investments by high-net-worth individuals in Korea, do you think carbon reduction or eco-friendly investments are becoming increasingly important, or do you believe they already hold a significant level of importance?

Regarding your question about whether the proportion of eco-friendly investments is high or low, it’s a bit difficult for me to answer since it’s slightly outside the scope of my work. However, I can speak from the perspective of the financial sector in Korea, where we have the four major financial holding companies: Kookmin Bank, Shinhan Bank, Hana Bank, and Woori Bank. About two to three years ago, ESG themes began to establish themselves as a major trend within the banks’ consulting teams, alongside traditional accounting, finance, and tax services. So, all four major financial holding companies began strengthening their ESG consulting capabilities starting two years ago.

So, why has ESG been strengthened so much? As you probably know, South Korea has many export-oriented companies—especially large conglomerates like SK, Samsung, and Hyundai—that rely heavily on overseas exports. However, these companies don’t export on their own; there are many small and medium-sized enterprises (SMEs) that supply them with materials and parts.

We call this the “value chain.” For companies within that value chain, if Hyundai Motor wants to export to Europe, they must appropriately reduce carbon emissions to meet European export standards. This means they must obtain certification or maintain a certain rating in order to supply parts to Hyundai Motor. Only then can Hyundai Motor use those parts to manufacture the final product and export it to Europe. However, for the SMEs at the very bottom of Hyundai Motor’s value chain—the first, , second-tier, and third-tier vendors—the small and medium-sized enterprises—lack the funds and don’t have many highly skilled personnel, so it’s difficult for them to respond to these ESG requirements.

So, they need to commission consulting teams at banks to help them prepare for these ESG-related certifications—essentially, to determine whether they meet the standards or not. Since it’s difficult for them to handle this on their own, we provide initial assistance through the bank. That’s the nature of the work we do.

There are now many firms that specialize exclusively in ESG consulting, and they’ve become quite active. How does the consulting provided by banks differ from that of these ESG consulting firms?

It’s essentially the same work, but simply receiving consulting doesn’t solve the problem on its own. Also, consulting firms earn money on a time-charge basis. However, for a company that knows nothing about the subject, spending a large sum of money on consulting can be a bit of a burden. If they start consulting from scratch—for example, trying to figure out exactly what they need to prepare—it can take a very long time, and there’s a risk they won’t get the results they want. That’s why we provide initial guidelines to consultants who offer this type of consulting through banks like ours.

So, we first conduct an initial assessment of the company and work with them to identify exactly where the pain points and areas of concern lie. Then, we optimize those defined areas and, for those specific needs, recommend that they spend money on external consulting services. Essentially, we handle the groundwork upfront to ensure they can receive the necessary consulting at the most optimal cost.

Do issues like the energy transition and the climate crisis frequently come up when consulting with clients? Have you noticed any changes recently? 

When consulting with clients, the tangible impact of the climate crisis is now a major topic at the financial industry level—ESG has been a key focus for the past two or three years. The reason it’s become such a hot topic is, of course, the implementation of the Supply Chain Due Diligence Act in Europe. To export to Europe, companies in the value chains of major exporters like Hyundai Motor, Hanwha, and SK must now comply with these regulations. However, if they fail to obtain proper , they risk losing their business entirely—meaning they won’t generate any revenue. Consequently, for these companies, this has become a matter of survival.

This is because, without compliance, they simply cannot export. So, while exporting companies naturally need to be prepared for these requirements, many small and medium-sized enterprises (SMEs) and mid-sized companies—which often lack sufficient funds and manpower—are not adequately prepared. So, when companies request assistance from professionals like us on-site, we provide consultations and offer extensive guidance to help them obtain the ESG ratings required for export procedures.

From a bank’s perspective, when evaluating a company, how do you assess carbon emissions or potential climate risks?

First, when companies apply for an ESG rating from us, there are various evaluation forms that currently score them to determine their ESG rating. We provide companies with initial questionnaires covering the environmental, social, and governance aspects. Then, they conduct a self-assessment. For example, based on a list of questions about how prepared the company is regarding environmental issues, they answer “yes” or “no.” Once they complete these checks and submit the questionnaire, we can assess the company’s ESG level based on their responses and our scoring system. Through this questionnaire, we identify any areas where the company may be lacking, and we provide guidance via chat on how best to address those gaps.

Depending on the results, we may provide personnel support to address these gaps, or offer assistance with documentation. Since we are not an accreditation body ourselves, we advise companies on how to secure a favorable rating from the relevant certification authorities. Once they receive a good ESG rating, they can access eco-friendly products—such as green loans from financial institutions— or other eco-friendly products. Companies with strong ESG ratings may have opportunities to secure loans at lower interest rates, or if they need to export to Europe—where they must meet certain minimum standards—those ratings can open up export channels. You can think of it as us helping companies in these ways. At the bank level, we offer the green loan products I mentioned earlier.

As I mentioned, there are eco-friendly products that require a certain ESG rating, and there are products where only companies meeting those criteria are eligible for loans. Additionally, for several years now, we’ve been collaborating with the Ministry of Trade, Industry and Energy (MOTIE). For example, if a company’s factory has equipment with very low energy efficiency and they replace that machinery with high-efficiency equipment, the government subsidizes a portion of the interest. Companies can borrow money from banks under these terms, and since the Ministry of Trade, Industry and Energy—that is, the government—subsidizes the interest, they can receive benefits when investing in the replacement of energy-inefficient machinery with high-efficiency equipment. 

These are policy-driven initiatives by the government, implemented through banks, to provide financial benefits for the necessary funds to replace machinery, allowing companies to transition toward becoming more eco-friendly. I think you can understand it this way: the banks have now launched these as financial products, and the companies using them are proceeding with that transition.

You mentioned that companies are striving to improve their ESG ratings. Based on your consulting experience in this process, what aspects of the environmental ESG sector do companies find most challenging, such as managing carbon emissions or improving energy efficiency?

Well, since we’re in the financial sector, we naturally lack expertise in machinery or equipment. However, our team—which includes environmental consultants working alongside me—provides basic support to small and medium-sized enterprises (SMEs) and mid-sized companies. The most fundamental assistance we offer is calculating carbon emissions, as SMEs often lack the systems to do this on their own. So, in our case at Hana Bank—in collaboration with Ewha Womans University—we commissioned their environmental engineering team.

We commissioned those teams to jointly develop systems that allow each SME to calculate the carbon emissions generated at their own facilities. Once we distribute these systems to our bank’s clients, they can use them to track the carbon emissions generated at their own facilities.

Looking ahead to the future, do you think the role of banks will evolve beyond simply being places that lend money in our daily lives to become more of a partner that helps companies with their ESG transitions?

After all, the role of finance is essentially to provide capital. So, now the government has recently been really pushing hard on initiatives like the RE100 program. Given that South Korea’s energy paradigm itself needs to shift toward eco-friendliness, if banks want to open up funding channels in that direction, they need to implement internal policies—for example, by actively providing loans for eco-friendly projects.

So, it’s not just about renewable energy, but also eco-friendly initiatives in general. Since the government has recently been strongly pushing for “productive finance” to support Korea’s high-tech industries, these policies—including eco-friendly initiatives—are naturally included as sub-themes within productive finance. Therefore, the banks are now in a position where they can allocate significant loans to these areas through internal policies. When funds flow in this direction, the financial sector naturally plays a role in creating a boom that can stimulate the industry itself.