Securing the Future: Addressing Carbon Bias in the Bank of Korea’s Collateral Framework

Securing the Future, co-authored by the Institute for Green Transformation (Korea) and Positive Money (UK), sets out the important role of the collateral framework in the Bank of Korea’s response to the climate and ecological crisis. Analysing data on collateral pledged at the Bank of Korea, a significant weighting and bias towards high-carbon assets is revealed. Assets and firms that receive more favourable treatment within collateral frameworks are able to access lower cost financing.

Key findings

• More than half of the corporate and public institution bonds pledged as collateral at the BOK are from fossil fuel and high-emission segments of the economy, while green and sustainability bonds constitute under 2%. 

• ‘High-carbon banks' make up close to three-quarters of all financial institution bonds pledged as collateral at the BOK

• While the BOK claims its measures have made 70% of green bonds eligible as collateral, 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 BOK’s average haircut on green bonds is double the average across all bonds, meaning they are effectively treated as a non-preferred asset.

• High carbon collateral pledged at the BOK is dominated by public institution bonds, with KEPCO and KOGAS bonds constituting nearly 20% of all pledged collateral, despite the electricity–gas–water–waste sector generating under 3% of the Korean economy’s Gross Value Added (GVA) in 2024.

Policy implications

The report's analysis shows that the BOK’s supposedly ‘market neutral’ approach does not fulfil its stated objective, resulting in a set of rules that generates more favourable financing conditions for high-carbon activities, and less favourable conditions for green investment. The collateral framework in its current form therefore perpetuates growing climate and ecological risk, which is already disrupting price and financial stability around the world, as well as enacting devastating social consequences. It therefore falls within the BOK’s mandate to take action to amend the collateral framework to address this.

In order to counter carbon bias, address environmental risks to price and financial stability, and support Korea's green transition, the report therefore proposes a set of key policy actions the Bank should take:

1. Incentivise the growth of credible green bond markets

• Incorporate green bonds as an explicit category in the collateral framework, to send a signal to the financial sector and stimulate the green bond market

• Treat forthcoming Korean green government bonds as equal to standard government bonds, and ensure their eligibility across all collateral pools

• Support the development of science-based and strictly applied green bond standards

2. Incorporate environmental considerations within short-term debt instruments

• Pursue the issuance of green Monetary Stabilisation Bonds, due to their status as another key asset within the Bank’s collateral pool

3. Adjust collateral eligibility and haircuts based on an assessment of environmental risks and impacts

• Exclude assets associated with the most acute environmental risk from eligibility within the collateral framework

• Develop an ‘environmental factor’ that applies adjustments to haircuts on assets based on environmental risk and impact metrics

4. Improve disclosure

• Publish regular disclosures of environmental information on the Bank’s collateral pool, in line with leading international standards

The report expands on an earlier briefing titled A Bolder Environmental Strategy for the Bank of Korea, which highlighted the collateral framework as one of six recommended areas for the Bank of Korea to take action to align its policies with addressing climate and ecological crisis.

View and download the full report here.

(PDF, 36 pages)

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