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Chapter 7. Financial Institution ESG Integration — NGFS, UNEP FI, NPS

Scope of this chapter. Financial institutions are simultaneously the largest consumers of ESG standards and the largest pressure source on issuers. This chapter defines the integration mechanics through the global financial supervisory network NGFS¹, the UN Environment Programme Finance Initiative UNEP_FI², the UN Principles for Responsible Investment PRI³, the Glasgow Financial Alliance for Net Zero GFANZ⁴, the six sectoral Net-Zero alliances (NETZERO_BANKING_ALLIANCE, NZAOA, NZAM, NZIA, NZICI, NZFSPA), the Bank for International Settlements BIS⁵ and the Financial Stability Board FSB⁶. Korean cases include the National Pension Service NPS and Korea Investment Corporation KIC. The WIA-FIN-024 simulator panel 7 (Financial Institution Integration)⁷ is the validation tool for the procedures defined here.

7.1 Global ESG Finance Initiatives — NGFS, UNEP FI, UN PRI, GFANZ

7.1.1 NGFS — Network for Greening the Financial System

Founding and governance. NGFS was founded on 12 December 2017 in Paris by 8 central banks and supervisory authorities during the One Planet Summit. As of June 2024 it has 138 member institutions across 6 continents (central banks and supervisors) and 21 observers (IMF, BIS, OECD, World Bank, etc.).¹ The Bank of Korea joined in November 2019 and the Financial Supervisory Service in April 2021. The secretariat is hosted by Banque de France, chaired by Sabine Mauderer (Deutsche Bundesbank), operating five Workstreams (WS).

NGFS climate scenarios. NGFS published its first set of scenarios in June 2020 and updates them annually to standardise climate scenario analysis for financial institutions. The Phase V scenarios released in November 2024 comprise six pathways: (1) Net Zero 2050 (orderly 1.5°C, carbon price USD 130/t by 2030); (2) Below 2°C (orderly 1.7°C); (3) Delayed Transition (policy delay until 2030, then abrupt action); (4) Nationally Determined Contributions (NDCs only, 2.6°C); (5) Current Policies (no further action, 3°C+); (6) Fragmented World (fragmented national policies). Each scenario is generated by the IIASA MESSAGEix-GLOBIOM, REMIND-MAgPIE and GCAM integrated assessment models (IAM), yielding GDP, unemployment, inflation, interest rate, carbon price and physical-risk indicators freely distributed via the NGFS Data Portal.

Supervisory integration. NGFS has published 30+ guidance reports, including "Climate Scenarios for central banks and supervisors" (2020–2024, annual), "Guide on climate-related disclosure for central banks" (2021), "Capturing risk differentials from climate-related risks" (2022) and "Conceptual Framework on Nature-related Financial Risks" (2024). Member central banks apply NGFS scenarios directly to their domestic stress tests — Bank of England 2021 CBES, ECB 2022 Climate Stress Test, Bank of Japan 2022 and Bank of Korea 2024.

7.1.2 UNEP FI — UN Environment Programme Finance Initiative

UNEP FI is the formal partnership between the UN Environment Programme and the financial industry, launched in 1992 directly after the Rio Earth Summit. As of June 2024 it has 450+ banks, insurers and asset managers as members, and operates two principles secretariats:²

• Principles for Responsible Banking (PRB) — launched September 2019, six principles (Alignment; Impact & Target Setting; Clients & Customers; Stakeholders; Governance & Culture; Transparency & Accountability). As of November 2024, 343 banks from 76 countries have signed, covering more than half of global banking assets. Signatories must publish an impact analysis within 18 months and set at least 2 SMART targets within 4 years. Korean signatories include KB, Shinhan, Woori, Hana, IBK, NongHyup, KDB, Eximbank, BNK, DGB and JB.
• Principles for Sustainable Insurance (PSI) — launched June 2012 at Rio+20, four principles (ESG integration; client/supplier cooperation; government/regulator/stakeholder cooperation; assessment/reporting). 200+ insurers signed as of June 2024, including Samsung Fire & Marine, DB Insurance and Hyundai Marine & Fire from Korea.
• Net-Zero Insurance Alliance (NZIA) — launched July 2021 (8 global insurers). Following antitrust enquiries from 22 US state attorneys general in May 2023, several members departed; it was restructured in April 2024 as the "Forum for Insurance Transition to Net Zero (FIT)", still hosted by UNEP FI.

7.1.3 UN PRI — Principles for Responsible Investment

PRI was launched on 27 April 2006 by UN Secretary-General Kofi Annan at the New York Stock Exchange as the asset-owner and asset-manager standard for responsible investment. As of June 2024 it has 5,372 signatories (asset owners, asset managers, service providers) with combined assets under management of USD 121 trillion, covering more than half of the global asset-management industry.³

The six principles. (1) Integrate ESG issues into investment analysis and decision-making; (2) Be an active owner and incorporate ESG into ownership policies (ENGAGEMENT, VOTING); (3) Seek appropriate ESG disclosure from investee entities; (4) Promote acceptance of the Principles within the investment industry; (5) Work collaboratively to enhance effectiveness; (6) Report on activities and progress.

Reporting Framework 2024. PRI mandates annual reporting through six core modules (Organisational Overview; Investment & Stewardship Policy; Direct & Active Ownership; Indirect Investment; Listed Equity; Fixed Income) covering 90+ indicators with recommended Confidence-building Measures (external assurance). Signatories failing minimum requirements for two consecutive years are de-listed — five firms lost status in 2019 and six in 2020.

7.1.4 GFANZ — Glasgow Financial Alliance for Net Zero

GFANZ was launched on 21 April 2021 under co-chairs Michael Bloomberg and Mark Carney (former Bank of England Governor) as the umbrella organisation for six sector-specific Net-Zero alliances.⁴ It was officially unveiled at COP26 in Glasgow in November 2021 and as of November 2024 has 675 member institutions from 50 countries with combined AUM exceeding USD 130 trillion. The six alliances are:

7.2 Net-Zero Finance Alliances — NZBA, NZAOA, NZAM

7.2.1 NZBA — Net-Zero Banking Alliance

NZBA was launched on 21 April 2021 and is operated by UNEP FI. Member banks commit to setting a first intermediate target within 18 months, a second pre-2030 intermediate target within 36 months, and Net Zero across all operational and financed activity by 2050.⁸

Guidelines for Climate Target Setting v3 (2024). Version 3.0 was released in March 2024 and requires SBTI-aligned SCIENCE_BASED_TARGET targets — set under the Science Based Targets initiative (SBTi) — for the following seven priority sectors:

1. Power — CO₂eq per MWh, or absolute financing for fossil-fuel generation.
2. Oil & gas — Scope 1+2+3, absolute or intensity.
3. Coal — 1.5°C-aligned phase-out (OECD by 2030, world by 2040).
4. Heavy industry (steel, cement, aluminium) — CO₂eq intensity per tonne.
5. Transport — CO₂eq per km for aviation, shipping and road freight.
6. Agriculture — land-use emissions plus LULUCF.
7. Real estate — CO₂eq per m² for commercial and residential.

7.2.2 NZAOA — Net-Zero Asset Owner Alliance

NZAOA is jointly operated by UNEP FI and PRI since September 2019 and has 88 asset-owner members (pension funds, sovereign wealth funds, insurers) with combined AUM of USD 9.5 trillion. The "Target Setting Protocol v5" (2024) requires (1) 22–32% absolute emissions reductions on five-year cycles (2025 and 2030 base years); (2) sector-level intensity targets; and (3) corporate engagement and policy advocacy targets.

Korean members include the Korea Teachers' Credit Union (KTCU, joined 2022) and SK Telecom (joined 2024, Korea's first corporate pension NZAOA signatory). NPS participates as an observer. NZAOA plans to introduce mandatory ISSB S2 reporting for at least 50% of its membership by 2025.

7.2.3 NZAM — Net Zero Asset Managers Initiative

NZAM was launched in December 2020 and has 325 asset-manager members with AUM of USD 57 trillion. Members commit to (1) declaring the share of AUM aligned to Net Zero, (2) setting a pre-2030 intermediate target, and (3) annual public progress disclosure. Korean signatories include eight firms: Mirae Asset, Samsung Asset, NH-Amundi, KB Asset, Korea Investment Trust, Shinhan Asset, Hi Asset and Eastspring Korea.

JPMorgan AM and Pimco withdrew in February 2024; BlackRock and Vanguard announced withdrawal in January 2025. The departures of large US managers reflect strategic retreats under pressure from "anti-ESG legislation" in Republican-led US states (Texas, Florida, West Virginia, 2023–2024) and US Congressional antitrust scrutiny. All Korean signatories remain in the initiative.

7.3 BIS and FSB — Financial Stability and Climate-Risk Supervision

7.3.1 BIS — Bank for International Settlements

BIS, founded in 1930 and headquartered in Basel, is the 60-member-central-bank consensus body that sets the global capital standard for banks (Basel III). In April 2021 BIS published "Climate-related financial risks – measurement methodologies" through the Basel Committee on Banking Supervision (BCBS) and in June 2022 finalised "Principles for the effective management and supervision of climate-related financial risks" — 18 principles (12 for banks, 6 for supervisors).⁵

Pillar 3 climate disclosure (2025). In July 2024 BCBS published the consultation "Disclosure of climate-related financial risks", introducing disclosure requirements for global systemically important banks (G-SIBs) from 2026: (1) qualitative disclosure of climate governance, strategy and risk management; (2) quantitative disclosure of financed-emissions absolute and intensity metrics (Scope 3 Category 15); (3) sector-level exposure across the seven priority sectors; (4) scenario-analysis results. The Financial Supervisory Service of Korea is considering applying the same obligation to one G-SIB (likely KB Financial Group) from 2026.

7.3.2 FSB — Financial Stability Board

FSB was established in 2009 by G20 agreement as a consensus body of 24 member jurisdictions monitoring global financial stability. FSB created the Task Force on Climate-related Financial Disclosures (TCFD) in December 2015 and published the 11 TCFD recommendations in June 2017. In June 2024 FSB released the "Roadmap for Addressing Climate-Related Financial Risks" 2024 update, structured around four workstreams:⁶

1. Firm-level disclosures — TCFD handover to ISSB IFRS S1/S2 (with ISSB's launch in January 2024 TCFD completed its mandate; ISSB now monitors).
2. Data — joint work with IMF, OECD and NGFS to improve global climate-data availability and comparability.
3. Vulnerabilities analysis — systemic climate-risk assessment framework, reported to the G20 summit in November 2024.
4. Supervisory and regulatory tools — coordination with Basel, IAIS (insurance) and IOSCO (securities).

7.4 Responsible-Investment Strategies — Seven Standard Approaches

The Global Sustainable Investment Alliance (GSIA) publishes the biennial "Global Sustainable Investment Review", standardising classification into seven responsible-investment strategies. The 2022 report records USD 30.3 trillion in global responsible investment, approximately 36% of total AUM.

7.4.1 Negative / Exclusionary Screening

The oldest and most widely applied strategy. As of December 2024, Norway's Government Pension Fund Global (GPFG, USD 1.7T) excludes 200+ companies under its "Ethical Guidelines" — (1) fossil-fuel power generators (more than 30% of revenue), (2) tobacco manufacturers, (3) makers of nuclear weapons, cluster munitions and anti-personnel mines, and (4) firms with severe human-rights or environmental violations. Korea's NPS introduced its "Coal Power Investment Restriction Strategy" in May 2021, restricting new investment in firms generating more than 30% of revenue from coal mining or coal power.

7.4.2 Positive / Best-in-class Screening

A sector-neutral strategy that retains only the top 25–50% ESG performers per sector. MSCI ESG Leaders and FTSE4Good are the canonical indices, both retaining the top half of each sector's score distribution. The drawback is that "best-in-class" firms in absolute laggard sectors (e.g. oil & gas) are still admitted.

7.4.3 ESG Integration

The fastest-growing strategy at USD 25.2 trillion AUM, integrating ESG quantitatively into financial models (DCF, multiples, credit ratings). Examples: applying a carbon-price assumption to forecast operating profit (e.g. USD 130/t × Scope 1+2 emissions deducted from operating profit); adding a physical-risk premium to the discount rate for vulnerable assets (e.g. +50 bp for coastal real estate); applying a governance-score multiplier to the valuation multiple (top quartile +10%, bottom quartile −15%).

7.4.4 Corporate Engagement & Shareholder Action

ENGAGEMENT proceeds through four escalation stages: (1) quiet engagement (private dialogue); (2) collaborative engagement (e.g. Climate Action 100+ pattern); (3) public letter; (4) shareholder resolution. VOTING means exercising voting rights at annual and extraordinary general meetings. Average support rates for ESG resolutions among large US asset managers (2023): BlackRock 22%, Vanguard 12%, State Street 25%. European managers (UBS, BNP Paribas, Amundi) range from 60% to 80%, materially higher than US peers.

7.4.5 Divestment — Active Capital Withdrawal

DIVESTMENT is the active withdrawal of capital, with three patterns: (1) phased divestment (3–5 years); (2) immediate divestment; (3) conditional divestment (executed if corporate conduct does not improve). Since the Rockefeller Brothers Fund (USD 1.6B) announced full fossil-fuel divestment in 2014, 1,650+ institutions have made fossil-fuel divestment commitments by November 2024, with combined assets of USD 40+ trillion. In Korea the Korean Teachers' Pension Fund (KTPF) resolved in 2022 to halt new investment in domestic and foreign coal mining and coal power.

7.5 Stewardship Codes — UK, Japan, Korea

7.5.1 UK Stewardship Code 2020

Operated by the UK Financial Reporting Council (FRC), the UK Stewardship Code was the world's first, with its initial version released in 2010 and a full revision in January 2020. STEWARDSHIP_CODE 2020 comprises 12 principles (6 for asset owners and asset managers, plus 6 for service providers), reported on an "Apply & Explain" basis. As of June 2024 there are 257 signatories representing about USD 50 trillion in assets.

The 12 principles: (1) Purpose, strategy and culture; (2) Governance, resources and incentives; (3) Conflicts of interest; (4) Market-wide and systemic risks; (5) Review and assurance; (6) Client and beneficiary needs; (7) Stewardship and ESG integration; (8) Service-provider oversight; (9) Issuer ENGAGEMENT; (10) Collaborative engagement; (11) Exercise of rights (VOTING); (12) Reporting outcomes.

7.5.2 Japan Stewardship Code 2024

Japan's Financial Services Agency (FSA) introduced the Code in 2014 and has revised it three times (2017, 2020, 2024). The fourth revision (March 2024) added: (1) explicit integration of sustainability; (2) monitoring of governance metrics such as outside-director ratio and female directorship; (3) ESG-integration assessment reporting; (4) guidance on AI-assisted voting. As of June 2024 there are 332 signatories.

7.5.3 Korea Stewardship Code 2016 + 2024 revision

The Korea Corporate Governance Service (KCGS) introduced the "Principles on the Stewardship Responsibilities of Institutional Investors" in December 2016, with a first revision in October 2024. The seven principles cover policy formulation, conflict-of-interest management, monitoring, engagement intensification, active voting, activity reporting and capability building. As of November 2024 there are 220+ signatories — NPS, KIC, KTCU, MMAA, Korea Post, Samsung Life, Samsung Fire & Marine, Hanwha Life, Kyobo Life, plus most asset managers (Mirae Asset, Samsung Asset, KB Asset, NH-Amundi, Korea Investment Trust, Shinhan Asset, Hi Asset, Hana UBS, Eastspring).

7.6 NPS, KIC and Sovereign-Wealth Fund ESG Cases

7.6.1 National Pension Service (NPS) — Responsible Investment Coverage

NPS managed KRW 1,200 trillion as of December 2024 — the world's third-largest pension fund (after Norway GPFG and Japan GPIF). It adopted the Stewardship Code in July 2018, announced the "Responsible Investment Activation Plan" in November 2019, and published its first "National Pension Fund Responsible Investment Report" in December 2022. Responsible-investment coverage as of December 2024:

• Domestic equity — approximately KRW 137 trillion, 100% of domestic equity (ESG integration applied).
• Domestic fixed income — approximately KRW 100 trillion (ESG integration progressively expanding).
• Foreign equity — approximately KRW 280 trillion (ESG risk integration).
• Alternatives — mandatory ESG due diligence on all new private-equity, real-estate and infrastructure commitments.

Voting record. In 2023 NPS voted on 4,253 AGM agenda items, opposing 1,232 (28.97%) — the highest dissent rate among major global pension funds. Major opposition reasons: (1) insufficient independence of outside directors (498); (2) inadequate qualification of audit committee members (298); (3) inappropriate director remuneration (187); (4) acts undermining shareholder value (89).

7.6.2 Korea Investment Corporation (KIC) — ESG Integration Report 2024

KIC managed KRW 218 trillion (sovereign wealth fund) as of December 2024. It signed PRI in 2009, adopted the "ESG Integration Guidelines" in 2017, and released its inaugural "KIC ESG Integration Report 2024" in May 2024. ESG integration covers 100% of AUM, with a Net Zero commitment for 2030 (not 2050) and observer participation in NZAOA. Key activities:

• External-manager evaluation includes a 25-point ESG component out of 100 (from January 2024).
• 100% of foreign equity and foreign fixed income monitored against MSCI ESG scores.
• Mandatory ESG due diligence for all new private-equity and infrastructure commitments.
• International cooperation: regular "ESG Integration Forum" with GPIF (Japan), CalPERS (USA), CDPQ (Canada) and ABP (Netherlands).

7.6.3 Global Comparison — Norway GPFG, Japan GPIF

Norway GPFG. AUM USD 1.7 trillion, the world's largest sovereign wealth fund, managed by Norges Bank Investment Management (NBIM). As of December 2024 it holds 9,000+ equities, exercises voting rights on 99.9% of agenda items, and publishes annual "Stewardship" and "Risk and Return" reports. Its Ethics Council places 200+ companies on the exclusion list.

Japan GPIF. AUM JPY 200 trillion (USD 1.4 trillion), the world's largest public pension fund. In 2017 it introduced passive ESG investment across four ESG indices (MSCI Japan ESG Select Leaders, FTSE Blossom Japan, MSCI Japan Empowering Women, FTSE Blossom Japan Sector Relative). As of 2024 about 12% of AUM tracks ESG indices.

7.7 Korean Financial Institution ESG — Supervision and Market

7.7.1 Financial Supervisory Service — "Green Finance Handbook 2024"

The Financial Supervisory Service (FSS) published the "Green Finance Handbook 2024" in June 2024, declaring supervisory expectations across four areas: (1) Governance — recommended ESG/Climate Committee under the board, with executive remuneration linked to ESG/climate KPIs; (2) Strategy — 2050 Net Zero plus 2030 intermediate target plus SBTi alignment across the seven priority sectors; (3) Risk management — climate risk integrated into credit, market and operational risk, with quarterly climate-scenario reporting; (4) Disclosure — phased mandatory disclosure under ISSB IFRS S2 (G-SIBs 2026, large banks 2028, mid-size banks 2030).

7.7.2 Bank of Korea — Climate Scenario Analysis 2024

The Bank of Korea released "Results of Climate Change Response Scenario Analysis" in July 2024, applying four NGFS Phase IV scenarios over 30 years (2024–2053) to 19 domestic banks: Net Zero 2050 — cumulative credit losses of KRW 64 trillion (1.8% of assets); Delayed Transition — KRW 78 trillion (2.2%); Current Policies — KRW 119 trillion (3.4%, largest losses); Hot House World — KRW 92 trillion (2.6%). The Bank of Korea added "Climate Risk Assessment" as a recurring agenda item in its September 2024 Monetary Policy Committee minutes for the first time, treating climate and transition risks as explicit variables in monetary-policy decisions.

7.7.3 Five Korean Financial Holding Companies — NZBA Membership and 2050 Net Zero Targets

7.7.4 Korean Asset Managers — Eight NZAM Signatories

The eight Korean NZAM signatories collectively manage approximately KRW 750 trillion, around 60% of the domestic asset-management industry. Mirae Asset Global Investments (joined December 2021; KRW 240T) runs 130+ ESG funds; Samsung Asset Management (joined December 2021; KRW 320T) operates 12 "KODEX ESG" ETFs; NH-Amundi Asset Management (joined April 2022; KRW 65T) shares ESG integration methodology with its French joint-venture partner Amundi.

7.7.5 Korean Policy Banks — Green-Bond Issuance

• Korea Housing Finance Corporation (HF) — first Green MBS of KRW 500 billion (June 2022) for high-efficiency homes; cumulative KRW 4 trillion by 2024.
• Korea Development Bank (KDB) — first global green bond of USD 300M (2017), the first by an Asian policy bank; cumulative USD 5.2B plus KRW 6T by 2024, conforming to ICMA Green Bond Principles.
• Export-Import Bank of Korea (KEXIM) — Asia's first global green bond of USD 500M in November 2013; cumulative USD 7.8B plus KRW 4T by 2024, financing renewable energy, electric vehicles and eco-friendly shipping.

7.7.6 Korea Federation of Banks — Sector Self-Regulation

The Korea Federation of Banks KFB is the trade association of 22 commercial and policy banks in Korea (founded 1928, headquartered in Myeongdong, Seoul). In November 2023 it published the "Banking Sector ESG Self-Regulation Guidance v2.0", consolidating NZBA, SBTi, ISSB IFRS S2 and FSS Green Finance Handbook requirements into a single set of bank-level operating procedures. KFB coordinates monthly inter-bank working groups on (1) financed-emissions methodology (PCAF), (2) coal phase-out scheduling, (3) climate-scenario analysis comparability and (4) supplier ESG due diligence.

Chapter Conclusion

This chapter has integrated the six global ESG finance initiatives (NGFS, UNEP FI, UN PRI, GFANZ, BIS, FSB), the six sectoral Net-Zero alliances (NZBA, NZAOA, NZAM, NZIA, NZICI, NZFSPA), the seven standard responsible-investment strategies (NEGATIVE_SCREENING, POSITIVE_SCREENING, ESG_INTEGRATION, THEMATIC, IMPACT, ENGAGEMENT, NORMS_BASED), and the Stewardship Code regimes of the UK, Japan and Korea. The Korean cases — NPS, KIC, the five financial holding companies, eight asset managers, and three policy banks — illustrate alignment with global standards while showing the domestic supervisory pathway (FSS, Bank of Korea, FSC) that adapts ISSB, NGFS and NZBA requirements to local market conditions. The procedures and simulator panel 7 defined here feed directly into Chapter 8 ("ESG Data Infrastructure and Future Roadmap"), where the financial-institution integration mechanics are extended into data infrastructure, AI, blockchain and a five-year forward roadmap.

弘益人間 (Hongik Ingan) — Benefit All Humanity