Report warns of looming $30 billion crisis as interest rate risks escalate: 'It is essential to revise … guidelines'

South Korean banks and other financial institutions could lose 45.7 trillion won ($31.8 billion) by 2100 if the country fails to address rising global temperatures properly, Korea JoongAng Daily reported.

What is climate finance risk?

Climate finance risk refers to the potential financial losses that banks and insurance companies face because of the impacts of the warming climate.

These risks include both physical damages caused by extreme weather and transition challenges as economies shift away from carbon-intensive industries.

Why is climate finance risk concerning?

Climate-related issues could undermine the financial health of banks and insurance companies in the long term.

The Bank of Korea's climate stress test, conducted with several government agencies and major financial firms, showed that taking climate action now would significantly reduce future losses.

If South Korea achieves its zero-pollution goals by 2050 or cuts carbon pollution in half by then, financial losses would be around 27 trillion won instead of 45.7 trillion won under a no-action scenario.

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"Climate-related issues are expected to become a key risk factor down the road, which could undermine the financial soundness and stability of banks and insurance companies. It is essential to revise risk management guidelines, strengthen measures against unexpected losses and promote green investment," the BOK said in the report, per Korea JoongAng Daily.

How climate finance helps the economy

Taking early action on climate instability doesn't just protect the environment. It protects financial systems, too. The report shows that delaying climate action until after 2030 would still result in losses of around 40 trillion won for major Korean lenders and insurance firms.

Financial Supervisory Service head Lee Bok-hyun has pledged to activate financing for low-carbon transitions and support smaller firms' efforts to reduce carbon pollution. These measures can help create a more stable financial future while supporting South Korea's commitment to reduce dirty gas pollution by 40% from 2018 levels by 2030.

The path forward

Climate action makes economic sense. Better risk management guidelines, stronger measures against unexpected losses, and increased green investment are important for South Korea's financial stability.