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South Korea’s transition finance market is entering a critical phase. In February 2026, the government released transition finance guidelines designed to support the low-carbon transition of high-emitting industries such as steel, petrochemicals and cement. The guidelines aim to mobilise private capital for Green Transformation, or GX, by allowing two parallel routes: one based on South Korea’s green taxonomy, the K-Taxonomy, and another based on corporate transition strategies.

We assess whether this design can genuinely drive the decarbonisation of high-carbon industries by comparing South Korea’s approach with transition finance frameworks in the EU, Japan, the United Kingdom and ASEAN. The EU model prioritises credibility through predefined quantitative criteria and the Do No Significant Harm principle. Japan and the United Kingdom take a more flexible, company-level approach, but still require credible transition strategies, interim targets, implementation plans and disclosure practices. ASEAN combines activity-based and entity-level approaches through a tiered structure that distinguishes levels of alignment with science-based transition pathways.

South Korea presents its framework as a hybrid model, but its practical design relies heavily on flexibility. Across the four stages of eligibility, verification, disclosure and sanctions, relaxed standards accumulate. A company may qualify through a formal statement of transition intent, third-party verification remains optional, disclosure is largely limited to financial institutions, and non-compliance may lead only to reduced preferential treatment or reclassification as ordinary finance. This creates a structural gap in which weak transition plans may pass through the system without being properly tested, raising risks of greenwashing, carbon lock-in and formalistic implementation.

The guidelines also face deeper structural problems. Sectoral emissions reduction roadmaps are likely to be shaped by industrial policy considerations, as authority is concentrated in the ministry responsible for industry. The Nationally Determined Contribution used as a benchmark falls short of international science-based expectations, which means that transition finance may begin from an insufficient level of ambition. The boundary between green finance and transition finance also remains unclear, as the ‘transition’ category continues to sit within the K-Taxonomy, allowing fossil fuel-related activities such as LNG power generation to be recognised under green finance.

We propose three areas of reform. First, sectoral emissions reduction roadmaps should be led by the climate ministry or a GX strategy control tower, with Paris Agreement alignment placed above simple reference to South Korea’s NDC. Second, South Korea needs a separate transition taxonomy that clearly distinguishes transition finance from green finance, so that transition finance can function as a conditional tool for decarbonising high-carbon industries rather than weakening the credibility of green finance. Third, transition plans should be required to include alignment with a 1.5°C scenario, interim emissions reduction targets and phase-out schedules for fossil fuel facilities, alongside regular disclosure of implementation progress and mandatory third-party verification. Transition finance can serve as a bridge towards genuine industrial decarbonisation, but only if South Korea strengthens the integrity of the system rather than simply expanding its scope.

Author
Seon-Ah OH | Economic Transformation Team | sunxxah@igt.or.kr