Tripod for Scaling-up Climate Finance.NDC.NFV.ESG.(Ick Jin).pdf

Role of National Financing Vehicle in Mobilizing Climate Finance & a Look at GCF’s Private Sector Approach

1. Role of National Financing Vehicle in Mobilizing Climate Finance & a Look at GCF’s Private Sector Approach
Tripod for Scaling-up Climate Finance: NDC, NFV, and ESG
2022. 10. 25
Ick Jin, PhD/CFA/CIPMDirector General of Economic Analysis DepartmentNational Assembly Budget Office

2. •40% reduction target•Gap from target path12030 NDC•Potentials•Prerequisites3ESG Investing•Climate Response Fund•Spending & Revenue2National Financing Vehicle
Tripod for Climate Finance
2

3. 2030 NDC Reduction Target … Linear Path
•Korean government’sgoal to reduce GHG emissions …40% reduction, compared to 2018 peak727.6 -436.6 = 291 (MtCO2e)•Linear reduction path …Down 4.1% annually over 12 years (2019-2030)
3
Source: Korea Government, NABO

4. Gap from the Target Path
•GHGemissions in …2021 (provisional) : up 3.5% YoY2022 (forecast) : up 0.4% YoY2023 (forecast) : down 1.8% YoY
Upward factorsDownward factorsIncrease in economic activityDecrease in industrial productionEnergy-intensive productionIncrease in energy efficiencyDelayed supply of renewable energyExpansion of low-carbon technologiesClimate anomaliesStable climate
4
Source: NABOSource: NABO

5. Purpose of Establishing Climate Response Fund
Framework Act on Carbon Neutrality and Green Growth for Coping with Climate Crisis
(Chapter 10: Establishment and Operation of Climate Response Fund)Article 70 (Purposes of Fund)The Fund shall be used for any of the following purposes:1. Creation and operation of the Government's foundation for reducing greenhouse gases; “GHG Reduction”2. Support for conversion …for the transition to a carbon neutral societyand promotion of green growth; “Low-carbon Ecosystems”3. Support for conversionand creation of jobs…suffering, in the course of coping with climate crisis; “Fair transition”4. Research and development, … of green technology for coping with climate crisis; “Institutional Foundation”…7. International cooperationfor coping with climate crisis; “Implementation of International Mitigation”…
5

6. •Fund Management Plan (Spending plan)
Total spending and Composition among purposes
Reduction > Ecosystems > Institutional foundation …
•International mitigation projects
Framework Act (Article 35)
The Paris agreement (Article 6.2: Cooperative approach)
Bilateral agreement with counterpart countries
Spending of Climate Response Fund
6
Source: NABO

7. Revenue of Climate Response Fund
•Framework Act on Carbon Neutrality (Article 69②: Financial resources)
1. Government contributions
2. Contributions and donations from non-governmental persons
…
9. Other revenues prescribed by Presidential Decree
•Fund Management Plan (Revenue plan)
7
Source: NABO

8. Climate FinanceSafety-net …
PublicSafety-net
Systematic RiskCatastrophicRiskIndividualRisk
PrivateSafety-netScreeningMonitoring ClimateProjectClimateProject
Development
Risk Management
Funding
NFV
(Government)
PPP
&ESG Investing
Guarantors
VC, PEF
CB, IB
•Safety-net for ecosystem
Managing systematic risk
Last resort … NFV
•PPP for ITMO
Risk sharing scheme
Comprehensive instruments
8
Source: NABO

9. 9
Potentials … ESG Investing and Empirical Evidence
•Institutional investors continue to expand ESG investment and achieve certain results. Kim, Son, and Jin. ”The Effects of Shareholding of the National Pension Fund on Environmental, Social, Governance, and Financial Performance: Evidence from the Korean Manufacturing Industry.” Sustainability. 2022, 14(18), 11788.•Institutional investors are interested in systematic risk and climate risk belongs to such risk. Jin, I. Is ESG a systematic risk factor for US equity mutual funds? J. Sustain. Financ. Investig. 2018, 8, 72–93.•Institutional investors can strategically utilize negative screening for ESG investing. Jin. “ESG-screening and factor-risk-adjusted performance: The concentration level.” J. Sustain. Financ. Investig. 2020, 1–21.•Institutional investors would prefer the cost-effective vehicle of ESG investing. Jin. “Systematic ESG risk and passive ESG investing.” J. Portf. Manag. 2022, 48, 71–86.•Institutional investors can manage systematic ESG risk based on the modern portfolio theory. Jin. “Systematic ESG risk and decision criteria for optimal portfolio selection.” J. Portf. Manag. Novel Risks 2022, 1–20.

10. [Objective]: Lowering entry barriers …incentive compatible scheme for ESG investment [Fundamental principle]: Risk sharing … credit creation, screening, monitoring, etc.
[E&S Perspective]: Externality … measurement, reporting, and verification
[G perspective]: Agent-principal problem … mitigating asymmetric and hidden information
Prerequisites for inflows from ESG investing to climate finance
10

11. Tripod for Scaling-up Climate Finance : NDC + NFV + ESG
We cannot solve our problems with the same thinking we used when we created them.
11Thank you for listening!