This briefing is for investors, climate-positive corporations, policymakers, the media, and other interested stakeholders. Leveraging the LobbyMap.org dynamic knowledge base, it is designed as a resource for interventions, engagement and reporting on the passage of Paris-aligned climate policy that is at risk of being weakened or undermined by oppositional corporate and industry influence.
This briefing deals specifically with the pending final draft of the Korean Sustainable Finance Taxonomy (K-taxonomy), which will be finalized in December 2021. The K-taxonomy is expected to have major implications for South Korea’s energy transition and the proliferation of renewable energy in the country’s future energy mix, as well as influencing other taxonomies being developed in the region. The Ministry of Environment has confirmed that all options are still being ‘considered’ for the K-taxonomy, opening a short but crucial window for positive voices around renewable energy to influence the ambition of the taxonomy.
Following South Korea’s announcement of a ‘Korea Green New Deal’ and 2050 Net Zero target in July 2020 and December 2020 respectively, the government is developing the country’s first sustainable finance taxonomy (‘K-Taxonomy’). Its development is jointly led by the Ministry of Environment, the Ministry of Trade Industry and Energy (MOTIE), and the Financial Services Commission. The taxonomy will serve as a reference point for the financial sector in shifting investments from carbon-heavy industries towards more sustainable and green industries.
Korea’s K-taxonomy is significantly influenced by the EU taxonomy, and both taxonomies have the same six environmental objectives for which technical screening criteria will be set. The EU's Sustainable Finance Taxonomy is the first science-based policy to define which economic activities can make a substantial contribution to achieving the bloc's net-zero by 2050 goal.
Investors have become increasingly concerned about taxonomies worldwide maintaining Paris-aligned criteria for defining sustainable industry. In April 2021, IIGCC wrote an open letter calling for the EU Commission to maintain the integrity of the EU taxonomy. InfluenceMap investigated corporate lobbying on the EU taxonomy through two reports, released in December 2020 and April 2021.
The EU is still the only region which will impose a sustainable finance taxonomy as a legislative regulation, and in contrast the K-taxonomy will be a non-binding legislative guideline. Nonetheless, it will be a critically important guideline for reorienting capital flows towards a more sustainable economy and mainstreaming sustainability issues into financial decision-making. Already, private financial institutions in Korea are developing green finance standards based on the K-taxonomy (see for example, Hana Financial Group).
The revised draft of the K-taxonomy showed two major changes that raise concern for the urgent phase-out of fossil fuels from Korea’s energy mix:
Inclusion of LNG in the revised draft of the K-taxonomy: The Ministry of Environment has communicated that the classification of LNG as a 'green industry' until at least 2030 is now being ‘considered’ for the final version of the K-taxonomy. In addition, until 2024, only GHG emissions from the combustion of LNG will be counted towards the power generation industry’s emissions rather than the whole Life Cycle of LNG from extraction to transportation to combustion. In 2020, a National Resources Defense Council (NRDC) report estimated that only 55-60% of LNG’s total life-cycle GHG emissions come from power plants, with the remainder of emissions coming from production, processing and transport
These changes to the K-Taxonomy draft directly contradict a Net Zero by 2050 scenario, with the IEA’s Net Zero by 2050 report predicting that the LNG trade will decrease by 60% between 2020 and 2050 following a brief peak, rendering obsolete all new investments in LNG and even many LNG projects already under construction. The lifecycle emissions of LNG are considerable and the IPCC estimates that methane from gas has a warming effect up to 80 or 90 times more powerful than carbon over a 20-year period, making gas worse for the climate than coal in the short term.
Inclusion of blue and grey hydrogen in the revised draft of the K-taxonomy: The previous draft of the K-taxonomy had specified that only green hydrogen be included in the list of green industries. The revised draft now states that any electricity generating activities using any type of hydrogen will be recognized as a green economic activity.
The first draft of the K-taxonomy was released for comment in June 2020, and has been through various stages of revision since then. In October 2021, the fourth draft of the K-taxonomy was released, for the first time including LNG power-generation in the green industry classification. The Ministry of Environment has confirmed that changes such as the inclusion of LNG are still being ‘considered’ rather than confirmed, opening up a crucial but short window for intervention to ensure that renewable energy is prioritized over fossil fuels in the final version of the K-taxonomy.
The Ministry of Environment has openly acknowledged the strong voice of industry in the redrafting of the K-taxonomy. A Ministry official was quoted in Joongang Ilbo as stating that "in the process of gathering industry opinion, there were many voices saying that LNG power generation is necessary, so we reflected this the new version”. He added that "there are parts of civil society pointing out that we have regressed since the first draft, but the government has no choice but to comprehensively consider various positions."
InfluenceMap analysis shows that the Korean power sector has been the most active in conducting sustained public messaging and direct engagement with policymakers to weaken provisions in the K-taxonomy.
▪ The Korean Electric Power Company (KEPCO) strongly supports the inclusion of LNG in the K-taxonomy. In a blog post published in December 2021, the company stated excluding LNG from the green industry list would make the ‘instability of electricity supply’ an ‘inevitable’ situation. It advocated for the role of LNG as a ‘bridge’ to renewable energy generation. In this post, KEPCO also announced its plans to engage the Ministry of Trade, Industry and Energy and Ministry of Environment to relax rules around emissions allowances from LNG.
▪ KEPCO also advocated for the production of hydrogen from LNG (‘grey hydrogen’), arguing that the ‘intermittent’ supply of renewable energy makes this a more viable option than green hydrogen.
▪ The Independent Power Producers Association (IPPA) has also supported the inclusion of LNG in the K-taxonomy ‘as a bridge fuel’, and criticized the government for making the emissions standards for LNG too harsh and ‘unrealistic’. Vice Chairmen of both POSCO Energy (wholly owned subsidiary of POSCO) and SK E&S both sit on the Board of IPPA.
▪ At present there are few public supportive corporate voices for an ambitious K Taxonomy.
It is clear that negative engagement from certain part of the corporate sector in South Korea is impacting crucial classifications in the K-taxonomy, that will have far-reaching impacts on the country’s energy mix and in particular the level of investment in renewable energy.
A positive voice from investors and corporates who support the highest level of science-based, Paris-aligned ambition for the K-Taxonomy is needed to counter the strong opposition to the most ambitious elements of the K-Taxonomy. Public support for Paris-aligned sustainable finance has been critical in other regions. For example, in April 2021, the IIGCC wrote an open letter to the EU Commission, encouraging policymakers to maintain the integrity and ambition of the EU taxonomy.
InfluenceMap has identified several leverage points that investors and other stakeholders may deploy to intervene in increasing positive engagement, while also identifying negative actors and pressuring them to cease negative influencing. For investors, these leverage points strongly align with steps set out in the 2021 Investor Climate Action Plans's Expectations Ladder, developed and agreed by global investor-convener groups AIGCC, CERES, IGCC, IIGCC, UN PRI, along with the UNEP and CDP.
▪ The South Korean government's Financial Services Commission claims that the ‘K-taxonomy will help prevent unchecked practices of greenwashing’. The K-taxonomy is one of the first sustainable finance taxonomies to be finalized in its region and will likely be a trendsetter for other countries, thus affecting the level of investment in renewable energy in the wider region, and not just Korea. The Ministry of Environment has already backtracked slightly following civil society opposition, to say that the inclusion of LNG in the green industry list is still being ‘considered’ rather than confirmed. This is a crucial window for a strong positive counter-voice from investors and corporates to encourage policymakers to prioritize Paris-aligned clean and renewable energy targets in the K-taxonomy.
▪ Two out of three CA100+ Korea target companies – KEPCO and POSCO - have all been either directly or indirectly involved in advocating for the inclusion of LNG in the K-taxonomy, despite POSCO's net-zero target and both companies’ high-level support for transitioning the energy mix away from fossil fuels.
▪ SK E&S is part of the SK Group, whose Chairman Chey Tae-won has supported the energy transition. SK E&S’ indirect engagement through IPPA in supporting the inclusion of LNG in the K-taxonomy shows a misalignment with the overall messaging of the SK Group.
InfluenceMap would be happy to engage with interested investors and other parties around this content - please contact yuna.chang@influencemap.org