Korea Exchange (KRX) has robustly maneuvered to the forefront of climate initiatives, steering the financial markets toward a sustainable and resilient future in the wake of escalating climate change challenges.
Critical Roles as a Key Market Operator
KRX believes that as a pivotal market operator, it should ardently play two significant roles in championing the transition towards a Net Zero economy, aligning with the ambitious objectives of the UN Sustainable Development Goals (SDGs).
Role I: Harnessing the Power of Market Mechanisms for Climate Objectives
Central to KRX’s approach is the deployment of fundamental market mechanisms and robust price discovery functions. The objective is a significant shift, channeling the pursuit of profitability amongst stakeholders toward the overarching ambition of achieving Net Zero emissions.
Role II: Setting Clear and Coherent Standards in Sustainable Finance
KRX stands resolute in its commitment to setting standards that acts as cornerstone in nurturing the relatively new realm of sustainable finance. KRX takes the lead in crafting uniform guidelines and procedures. This strategic standardization alleviates ambiguities, fostering an environment ripe for innovation, continuity, and cohesive progress within sustainable finance landscapes.
Pioneering Initiatives: Navigating the Path to Net Zero
With these roles in its mind, to further our commitment to Net Zero goals, KRX has curated and executed three initiatives encompassing the operation of credible compliance carbon market, championing carbon neutrality and enforcing sustainability reports disclosure for its listed firms.
Initiative I: Cultivating the Carbon Market, A Crucible of Effective Market Mechanisms
Prominent among its initiatives is the operation of a Compliance Carbon Market since 2015, which fosters the buying and selling of carbon credits. This initiative promotes a reduction in greenhouse gas emissions across industries propelled by dynamic market mechanisms.
In alignment with government policies, KRX has initiated a cascade of measures aimed at establishing and operating a phased-in national allocation plan. These measures include introducing a market maker program, expanding the proportion of auction-based allocations, and establishing market-stabilizing measures, among others.
Now in its third phase (2021-2025), the market actively encourages the inclusion of third-party participants, beyond the existing eligible entities, to enrich market liquidity and bolster the market’s price discovery process.
Since 2021, principal trades by securities firms have been introduced. Additionally, the implementation of customer trading will soon enable participation from asset managers and other financial institutions.
Active third-party participation is expected to stimulate the development of new carbon-related financial products such as Exchange Traded Funds (ETFs), Exchange Traded Notes (ETNs), and other derivatives. These offerings, in turn, will attract a diverse range of retail and institutional investors, thereby raising public awareness of climate change issues.
Initiatives II: Advocating for Carbon Neutrality
KRX has committed to achieving carbon neutrality, outlining actionable strategies to minimize its carbon footprint and advocating for environmental stewardship.
KRX calculated its carbon emissions for the year 2022. Utilizing these insights, a comprehensive and effective carbon reduction roadmap is set to be established, underpinned by continuous monitoring key carbon indicators. The strategy blueprint encompasses the adoption of renewable energy sources and implementing carbon offset projects.
Initiatives III: Catalyzing Industry Transformation through Transparency
KRX intends to revolutionize industry practice by developing a carbon-related financial disclosure framework in collaboration with the Korea Sustainability Standards Board. This will foster a culture of carbon-related financial disclosure among its listed companies.
KRX plans to mandate the submission of sustainability reports by its listed companies. This enforcement is aimed at enhancing transparency within the industry, thereby enabling investors to navigate informed decisions based on the companies' climatic impacts.
KRX has devised a phased approach in mandating sustainability report disclosure. Initially, in Phase I, companies are encouraged to voluntarily disclose their sustainability reports. However, in Phase II, KOSPI-listed firms, surpassing a specific market capitalization threshold, will be required to comply with mandatory disclosure of sustainability reports. Ultimately, in Phase III, this mandate will be universally applicable to all KOSPI companies, reinforcing a steadfast commitment to sustainability and transparency within the industry.
Embracing the Net Zero Horizon
As a vital member of the Net Zero community, KRX is devoted to a collaborative engagement in addressing the pressing challenges of climate change. Diligently performing its roles as a market operator, KRX is implementing its pioneering carbon initiatives. By doing so, KRX endeavors to drive transformative change and make substantive contribution to global sustainability efforts.
The views, thoughts and opinions contained in this Focus article belong solely to the author and do not necessarily reflect the WFE’s policy position on the issue, or the WFE’s views or opinions.