Bank of Korea urged to stop “implicit subsidy” to fossil fuels

Monday 10th August 2026 - A new study finds that more than half of all bonds being used by financial firms as collateral at the Bank of Korea (BOK) are from the fossil fuel and high-emission segments of the economy, while green and sustainability bonds make up less than 2% of total collateral pledged. 

The paper, Securing the Future: Addressing Carbon Bias in the Bank of Korea’s Collateral Framework, is an analysis of data on the BOK’s collateral framework by Korean think tank the Institute for Green Transformation (IGT) and international think tank Positive Money. The collateral framework is the process by which the BOK decides which assets to accept as collateral from financial firms - and how they are valued - in order to safeguard the stability of the Korean financial system. 

Central banks frequently apply “haircuts” to collateral pledged to them, which reduce the value of that collateral to account for risk and protect public money from potential losses. This new study finds that the BOK’s average haircut on green bonds is double the average across all bonds, meaning they are effectively treated as a non-preferred asset. The report authors argue that because assets eligible for use as collateral, specifically those with lower haircuts applied, are associated with higher asset values and lower yields, preferential treatment of high-carbon assets means issuers of these can access lower cost finance. They describe this as an “implicit subsidy” to carbon-intensive industries like fossil fuels.  

Moreover, while the BOK claims its measures have made 70% of green bonds eligible as collateral, IGT and Positive Money find that the green share of total pledged collateral is 0.4%, markedly lower than the green share of all listed bonds in Korea. From 2021 to 2025, fossil fuel and high-emission bonds pledged as collateral increased six-fold, but green and sustainability bonds only increased three-fold, meaning their overall share has fallen. 

The report therefore recommends that the BOK incentivises the growth of credible green bond markets by incorporating green bonds as an explicit category in its collateral framework, treating incoming Korean green government bonds as equal to standard government bonds, supporting the development of green bond standards, and even issuing its own green Monetary Stabilisation Bonds. 

Positive Money and IGT also call on the BOK to exclude assets associated with severe environmental risk from eligibility as collateral against loans, and to develop an ‘environmental factor’ that adjusts haircuts on assets based on environmental risks and impacts. Since the data used in this study is not publicly-available, the authors furthermore urge the BOK to improve disclosure by regularly publishing environmental information on its collateral pool, in line with international standards.

This paper follows a briefing published by these organisations earlier this year, A Bolder Environmental Strategy for the Bank of Korea, in which integrating environmental considerations into its collateral framework was one of six core recommendations for the BOK.

Last year, Positive Money published a first-of-its-kind scorecard, ranking how well the central banks and financial regulators in ASEAN+3 countries integrate environmental considerations into their policies. Republic of Korea and Japan were singled out as the two countries significantly underperforming on climate action relative to their resources and capacity to enact meaningful policy change.

Joe Herbert, Senior Researcher at Positive Money and co-author of the report, said:

“The preferential treatment that high-carbon assets receive within the Bank of Korea’s  collateral framework acts as an implicit subsidy to these sectors, by increasing the demand for their assets and allowing high-carbon firms to access lower cost finance.

“Meanwhile, carbon emissions are driving climate destruction around the world. The blockade of the Strait of Hormuz has shown how urgently Korea needs to decarbonise, and shift to renewable energy. The BOK must support, not hinder those efforts.”

Giwon Choi, head of the Economic Transition Team at IGT, said: 

"The Bank of Korea's collateral system is an overlooked channel that strengthens the financial position of fossil fuels. Now that empirical data shows the framework structurally favours fossil fuels over green assets, it is time to open a discussion on reforming it." 

Notes to editors: 

• The full paper can be found in English here: https://positivemoney.org/uk-global/publications/securing-the-future-bank-of-korea

• The full paper can be found in Korean here: https://igt.or.kr/bbs/board.php?bo_table=m03_01&wr_id=72

• Our April 2026 briefing, A Bolder Environmental Strategy for the Bank of Korea, can be found here: https://www.datocms-assets.com/132494/1776763617-a-bolder-environmental-strategy-for-the-bank-of-korea.pdf 

• Positive Money’s East and Southeast Asia Green Central Banking Scorecard can be found here: https://positivemoney.org/uk-global/publications/east-southeast-asia-green-central-banking-scorecard/ 

• South Korea routes 70% of its crude oil imports through the Strait of Hormuz: https://www.csis.org/analysis/impact-iran-conflict-south-korea-numbers 

Contact:

For more information or to speak to a spokesperson, please contact Chloe Musto at press@positivemoney.org.uk 

About Positive Money:

Positive Money is an international research and campaign organisation working to redesign our economic system for social justice and a liveable planet. Set up in the aftermath of the financial crisis, Positive Money is a not-for-profit company funded by charitable trusts and foundations, as well as small donations from its network of supporters. Find out more: positivemoney.org 

About the Institute for Green Transformation (IGT): 

The Institute for Green Transformation is a private think tank based in Seoul researching policies for the transformation of the state, regions, economy, and lives in the era of climate crisis. Find out more: igt.or.kr  

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