1. Uncertainty regarding the direction of climate policies has recently increased across major economies. However, climate risks are likely to accumulate and intensify over time, while the need for carbon reduction to meet Nationally Determined Contribution (NDC) targets remains. Accordingly, substantial investment is still required to address climate change, together with the green finance needed to support such investment. Green bonds, a major green finance instrument, are widely used because they restrict the use of proceeds to green projects and require procedures such as external review and post-issuance reporting, thereby providing a high degree of transparency and credibility regarding the use of proceeds.
2. The domestic green bond market has expanded rapidly since 2021, following its inception in 2018. Issuance volume surged from KRW 3.0 trillion during 2018–2020 to KRW 40.6 trillion during 2021–2025, while the number of issuers increased from 12 to 220 over the same period. The issuer base has also diversified, shifting from a predominance of financial institutions to include non-financial corporations and public institutions. In addition, the declining carbon intensity of issuers suggests that green bonds are being used in connection with corporate carbon neutrality efforts. However, as of 2025, green bonds account for only 1.8% of total bond issuance, including both KRW- and foreign-currency-denominated bonds, remaining below the 4.0% average for major economies. Market breadth also remains relatively limited, as issuance is concentrated among a small number of highly rated institutions and the use of proceeds is concentrated in a few categories.
3. We examine the conditions for domestic green bond issuance by analyzing issuance motives, costs, and major constraints. Survey results indicate that issuers primarily cite non-financial factors—such as demonstrating their environmental commitment and broadening their ESG investor base—as the principal motives for issuance. Analysis suggests that financial incentives for domestic green bond issuance remain relatively limited. Compared with conventional bonds, green bonds entail incremental costs arising from external reviews, certification, and post-issuance reporting. However, as government interest subsidies offset part of these costs and a modest greenium* is also observed, total issuance costs for green bonds in Korea do not differ significantly from those of conventional bonds.
* A portmanteau of “green” and “premium,” referring to the phenomenon in which green bonds are issued or traded at lower yields than conventional bonds with otherwise comparable terms.
4. Given the limited cost-based incentives for issuance, the complexity of green bond issuance and post-issuance management procedures, together with a shortage of projects meeting green eligibility criteria, has emerged as a major impediment to market expansion. Issuers identified the increased administrative burden—specifically, the need for additional staff and time for issuance and post-issuance management—and the difficulty of securing projects aligned with the K-Taxonomy as primary constraints. In particular, review and reporting work can be duplicated when financial institutions issue green bonds to finance green loans, because the Korean Green Bond Guidelines and the Green Credit Management Guidelines apply separately.
5. Therefore, fostering the domestic green bond market requires expanding the pool of eligible green projects and diversifying the investor base, while concurrently mitigating the operational and financial burdens faced by issuers. First, without undermining the credibility of green bonds, issuance and reporting procedures should be streamlined, and the forms and reporting items under the Korean Green Bond Guidelines and the Green Credit Management Guidelines should be aligned to the greatest extent possible. Second, until the market matures, existing support mechanisms such as the government's interest subsidy program should be maintained and improved to reduce issuance cost burdens. Furthermore, institutional investor participation should be encouraged by enhancing transparency in the secondary market and developing green bond indices and related investment products.