South Korean regulators have published the results of their first climate-focused stress tests on banks and insurance companies. In a scenario where no action is taken to reduce emissions, the finance sector stands to lose ₩45.7 trillion (US$31.4 billion in climate-related losses by the start of next century, the regulators warned. The Financial Supervisory Service (FSS), Bank of Korea and Korea Meteorological Administration conducted joint analysis with 15 financial firms, conducting stress tests to figure out projected losses under four different scenarios: 1.5°C response, 2°C response, delayed action and no action. If South Korea achieves its zero-emission goals by 2050, financial firms’ total losses could be reduced to ₩26.9 trillion, they said. If no measures are taken to address climate risks, the total capital ratio of banks would fall by 3.8 percentage points, the regulators said. Meanwhile, the insurance sector’s K-ICS ratio would decrease by 2.9 percentage points by 2100. In response to the findings, the FSS plans to introduce transition finance guidance to encourage funding for companies that reduce their emissions.
