Green Finance vs. Transition Finance
Until now, "climate finance" has mostly meant green finance: funding activities that qualify under the K-Taxonomy, meaning businesses that are already green. Transition finance works differently. It funds the process of cutting emissions at companies that are carbon-intensive today, such as those in steel, chemicals, cement, casting, and surface treatment.
For small manufacturers, this difference matters. SMEs running high-carbon processes have rarely met green finance criteria, so they have been largely shut out of climate finance. They are the main audience for the new framework. Our earlier posts covered the K-Taxonomy (classifying activities), sustainability-linked loans (tying rates to targets), and PCAF (measuring financed emissions). Transition finance asks a different question: how credible is the company's own transition plan?
The KRW 790 Trillion Roadmap and Timeline
FSC Climate Finance Promotion Plan (Feb 25, 2026): KRW 790 trillion over 2026–2035, with at least 70% earmarked for SMEs and mid-sized firms and at least 50% for regions outside the capital areaTransition finance guidelines (February) → industry working-level task force → draft best-practice standard with clause-by-clause criteria → final version targeted for end of October. Pilot products from financial institutions will follow with government supportBy year-end, authorities will consider linking review criteria to the Ministry of Trade, Industry and Resources' sector-specific decarbonization roadmaps. Those roadmaps could become the de facto yardstick for lending decisionsThe five policy lenders plan to supply KRW 56.7 trillion in climate finance in 2026 and had already disbursed KRW 42 trillion (74.1% of target) by the end of July, alongside support for the launch of transition productsWhat Banks Are Likely to Examine
The standard is still in draft. Confirm the details against the final version due at the end of October. With that caveat, these are the issues under discussion:
Quantification: how baseline Scope 1 and 2 emissions were calculated, and the year-by-year reduction pathwayUse of proceeds tied to abatement: the emission cut delivered by each funded item, such as equipment replacement, fuel switching, or process electrificationAlignment: consistency with the sector roadmap, and the exclusion of assets that would lock in high emissionsRepayment capacity: experts have proposed factoring in future carbon prices, so rising allowance costs could show up in credit assessmentsFive Building Blocks to Prepare Now
Emissions baseline: three years of fuel and electricity data, plus an inventory of emission sources by facilityAbatement measures and capex plan: reductions, investment, and payback for each assetPhased targets and KPIs: annual intensity targets and indicators for tracking progressGovernance: a named transition lead and a regular reporting line to managementVerification and disclosure readiness: one dataset that also serves your customers' supply-chain data requestsHere is an illustrative case. A foundry emitting 5,000 tCO2e a year spends KRW 2 billion to replace its melting furnace with an electric induction furnace. The upgrade cuts emissions by 1,200 t a year (24%) and saves KRW 300 million a year in energy and allowance costs, for a simple payback of about 6.7 years. The basic way to meet lender review is to present abatement and financial impact side by side in one table.
Combining Loans with Grants and Policy Funds
Pair a transition loan with existing support, such as carbon-neutral equipment grants or interest-subsidy programs for green policy loans, to reduce your own contribution. If a grant covered half the capex in the example above, payback would fall to roughly 3.3 yearsA record of winning grants and delivering real reductions makes a transition plan more credible to lenders, so public support can help you raise private financeIn the early pilot phase, start by checking the offer and eligibility conditions with your main bankHow KITIM Can Help
KITIM turns your emissions baseline, a reduction pathway aligned with your sector roadmap, and your asset-level investment plan into a bank-ready transition plan. We also design funding structures that combine government decarbonization programs with transition finance. To start preparing before the standard is finalized at the end of October, please request a consultation through the KITIM contact page.
