Turning capital into climate action: an interview with Lee Eun-ha

Financial institutions are playing an increasingly important role in accelerating the transition to a low-carbon economy by directing capital toward sustainable industries. In this interview, Lee Eun-ha at the Shinhan Financial Group's SDGs Planning Team discussed the importance of climate-related financial disclosures, the need for sustainable finance strategies, and how financial institutions can support businesses in balancing economic growth with decarbonization.

First, could you briefly tell us about what you do?

Yes, I work in the ESG division at Shinhan Financial Group, a holding company that owns 14 subsidiaries, including Shinhan Bank, Shinhan Card, and Shinhan Investment Securities. To be precise, my department is called the SDGs Planning Team. While people in Korea often use the term “ESG,” our department’s name is specifically “Sustainable Development Goals,” so as the SDGs Planning Team, we’re responsible for the entire group’s ESG-related strategies, as well as new business initiatives and governance.

It sounds like you’re involved in a lot of environmental activities. Are there any particularly memorable examples of ESG projects you’ve worked on so far?

Speaking in terms of specific projects, Shinhan Financial Group is listed on the U.S. stock market. So, up until last year, mandatory climate-related disclosures were being implemented by the SEC (U.S. Securities and Exchange Commission). Originally, according to the plan, companies like ours were supposed to identify climate-related risks and opportunities and then disclose the resulting financial impacts—that is, how they affect Shinhan Financial Group’s financial performance. However, with the Trump administration taking office, the SEC’s climate disclosure requirements have now reached the point of being virtually scrapped. However, even before it reached this stage of being scrapped, it’s important to note that for a large company to make such disclosures, this isn’t something that can be put together in just three or four months.

Since companies must go through a preparation period of at least one year before finally filing with the SEC, the project related to mandatory SEC climate disclosures—which we’ve been working on continuously since early last year and the year before—was the most meaningful project we’ve undertaken. Although it was scrapped under the Trump administration, those in the industry believe that once the Trump administration ends and the Democrats return to power, this initiative will resume, and we view the current situation as merely a temporary pause . Next, this year, not only Shinhan Financial Group but also other institutions in Korea will begin mandatory KSB disclosures. As you may have seen in the news, under current standards, institutions with assets of 10 trillion won or more are required to prepare disclosures based on the 2020 fiscal year and submit mandatory climate-related disclosures in early 2028. We are currently working on projects related to these requirements as well.

Shinhan Financial Group has announced plans to significantly expand green finance. When conducting due diligence for green finance, what specific aspects do you focus on?

Ultimately, what financial institutions can do for the environment is to facilitate the flow of capital from the financial sector to industry—this is their fundamental role in the transition to a green economy. So, when companies in Korea’s manufacturing sector are in the process of transitioning from high-carbon to low-carbon operations—whether that means upgrading facilities or infrastructure—we provide financial support because they are currently emitting enormous amounts of carbon and need to make that transition to low-carbon operations. You may have heard of “KTX noise”; there’s a system called the “Green Taxonomy” (K-Green Taxonomy) that classifies activities based on 10 activities, it is deemed “green.” So, through an evaluation process—the “Activity Recognition, Exclusion, and Safeguard Criteria”—we determine whether it’s a truly green activity, and there are specific criteria for recognition.

They assess how much carbon is reduced through this activity, and then, using the “exclusion and protection criteria,” they determine whether it might have a negative impact on other industries. Only after all these criteria—including the activity recognition, exclusion, and protection standards—are met is the activity deemed “green,” and financial institutions then provide funding for it. So, when we talk about this funding, it’s broadly referred to as “green finance.” There are two main ways financial institutions can provide funds to companies: investment and loans. These investments and loans are evaluated based on the K-Taxonomy framework before they are disbursed.

As the green finance system expands in the future, corporate growth and profitability must also be taken into account. What criteria do you think should be used to reach this balance?

This is actually not easy, as it currently costs a lot for companies to transition to low-carbon operations. As I mentioned earlier, in the manufacturing sector—for example, companies like POSCO—the production processes require a gradual overhaul of infrastructure to transition to low-carbon operations. Ultimately, replacing that infrastructure incurs costs, and investing in these changes is how companies adapt to the low-carbon era. However, if a company decides not to make these changes right now because the cost of transitioning to low-carbon operations is too high, another issue that arises is this: for example, Europe has very strict ESG-related regulations. Therefore, for countries like Korea or China, where the carbon cost embedded in products is very low, when exporting to Europe, they’ll be charged a fee via a mechanism like a carbon tax to cover that gap—which means additional costs will be incurred.

So, this ultimately becomes a cost that must be incurred one way or another. And the longer this process is delayed, the more likely it is that if we don’t transition to low-carbon practices during these production processes now, facilities like these will eventually become unusable. Since they’ll lose their competitiveness, it ultimately comes down to a matter of choice. But even if a company says, “I don’t want to spend too much—I’ll just keep costs this low,” continuing to do so will ultimately lead to a loss of competitiveness, making it difficult for that company to survive. They’ll end up having to spend the money one way or another, so it’s better to proactively transition to low-carbon operations now so that the company itself can build its competitiveness.

I think I agree with that point as well. However, while many people think that way, it seems that many companies and industries are still reluctant to make the shift to low-carbon because the costs are high. In your view, do you think green finance or banking institutions can contribute in some way to addressing this issue?

That’s right. So there are voices saying, “Why do we have to do this now when it’s not an urgent matter?” From the perspective of financial institutions, to actively support the low-carbon transition—which is the trend of our times—when a company takes out a loan from a bank, for example, the company pays the interest. However, when it comes to green or eco-friendly initiatives—like the green or transition finance we’re discussing now—banks offer lower interest rates to focus more on those areas. By offering lower rates, the bank effectively shares some of the cost burden with the companies and helps companies move forward together. That’s one aspect. Then, when we look at companies themselves—whether large corporations or small and medium-sized enterprises (SMEs)—large corporations generally have more financial leeway. So they’re quick to take the initiative and handle these matters efficiently.

They’re constantly formulating business strategies—figuring out what’s needed to export to Europe right away, or realizing they can’t keep emitting carbon and must reduce emissions. But SMEs actually face many limitations when it comes to responding nimbly to these changes. So, while there’s a lot of support at the national and government levels to help SMEs make the green transition, my impression is that SMEs are already struggling just to stay afloat. They operate on a day-to-day basis—earning just enough to cover daily labor costs and fixed expenses—so they simply don’t have the financial leeway. Even if the government says, “We’ll provide these benefits” or “We’ll offer this funding,” the reality is that it’s extremely difficult for SMEs to secure the necessary funds to make the green transition under the current structure. That’s why the government is now trying to take a more regulatory—or rather, mandatory—approach by introducing mandatory climate disclosure requirements in Korea.

Once mandatory climate disclosure is implemented, large corporations will have to account for their entire supply chain—meaning not just the companies that supply goods directly to them, but also the first-tier and second-tier vendors beneath them. The environmental impacts of all these first- and second-tier vendors will be aggregated, and the large corporations will be required to disclose this information.

So, once these indirect regulations become mandatory, the government will effectively be forcing large corporations to comply. In turn, these corporations will say, “If we’re going to disclose this information, you need to reduce your carbon emissions too,” and this requirement will trickle down to the first-tier vendors, and then from them to the second-tier vendors. Just like a food chain, these regulations will automatically apply within the supply chain structure. While it may be difficult for small and medium-sized enterprises (SMEs) to adapt to such climate-related mandatory disclosure is introduced, it might be difficult for them in the short term, but in the medium to long term, things will become more systematized, and we expect that SMEs will begin to feel the tangible benefits. Therefore, the current South Korean government is taking a very strong stance on this issue and is proceeding to announce disclosure regulations that are even stricter than the proposals put forward by the previous administration.

Given these challenging circumstances, in which sectors do you think green finance will be most needed going forward?

The most urgent need right now is actually in renewable energy—specifically, building wind farms or solar power plants. While that is certainly a difficult and challenging task, the biggest problem right now is the power grid. For example, even if we build wind farms or massive solar power plants in South Jeolla Province, the vast majority of the electricity consumers are in the Seoul metropolitan area. However, we can’t transmit that power all the way to the Seoul metropolitan area. And building that power grid itself takes a very long time.

This is because we have to dig underground, and in the case of private land, we have to provide compensation—these time-consuming processes take a very long time. So, even though there’s a lot of talk these days about AI data centers and the continued expansion of wind and solar power, even if we were to rush ahead and build them right now, they would ultimately be located in areas like South Gyeongsang Province and South Jeolla Province. However, since it takes an incredibly long time to build the power grid to transmit that electricity to the Seoul metropolitan area, the most urgent priority right now is actually the most urgent priority right now.