Bank of Korea reviews Korean climate benchmark indexes, finds lower carbon intensity but limited data and demand

The Bank of Korea published an issue note assessing whether Korean climate benchmark indexes modeled on the European Union's Paris-Aligned Benchmark and Climate Transition Benchmark could help expand green finance through the stock market. Using simulated K-PAB and K-CTB indexes based on KOSPI-listed companies, the study found that both indexes broadly tracked the parent index while materially reducing portfolio carbon intensity and increasing the weight of lower-carbon companies. In the simulation, weighted average carbon intensity in 2024 was 92.4 tons per KRW billion for K-PAB and 129.4 for K-CTB, compared with 217.0 for KOSPI. The study period also showed cumulative excess returns relative to KOSPI of 5.6 percentage points for K-PAB and 4.6 percentage points for K-CTB. Carbon intensity improved notably in manufacturing and the science and technology sector, while the study argues that EU-style benchmarks could improve the transparency and comparability of climate finance products and provide quantitative low-carbon investment standards for Korea's equity market. The note says broader use is currently constrained by limited domestic climate data, including incomplete emissions and fossil-fuel revenue data, and by weak demand for low-carbon investment from both institutional and retail investors. It identifies a domestic climate disclosure framework, more effective climate policy settings including realistic carbon pricing and policy-backed climate finance, stronger participation by long-term institutional investors, and a phased pilot approach tailored to Korea's industrial structure as key conditions for wider adoption.