When making decisions about backing companies or allocating capital, investors and businesses are increasingly looking at climate risk as a key factor. "Climate risk" can mean a number of things but is best boiled down to two: physical risk, i.e. the risk to operations and installations from sea level rise, extreme heat, and other specific climate impacts, and transition risk, i.e. the risk of not paying attention to climate regulations, technology advances, price shifts, and the other things that come along with the transition to a low-carbon economy.

These used to be niche considerations, confined to sustainability directors or socially-responsible investment firms. Back when I worked with Mike Bloomberg, Hank Paulson, and Tom Steyer to launch the Risky Business Project, few serious mainstream investors had thought much about the real material impact of climate change to specific regions and sectors of the economy.

Since we published our first report quantifying these risks to the U.S. economy in 2014, the picture has changed. Investors, insurers, and corporations have begun to proactively address climate risks in their portfolios and capital investments. Most recently, the G20 Task Force on Climate-Related Financial Disclosures acknowledged that "climate-related risks and the expected transition to a lower-carbon economy affect most economic sectors and industries," and must be considered in any rational investment decisions.

How does all this relate to South Korea? Simply stated: if South Korea were an investment, it would look extremely risky from a climate perspective. But it would also present some exciting opportunities to change direction and take a leadership role in the carbon-constrained economy of the future.

The physical climate risks are clear: most of South Korea’s population lives on or near the coast, with approximately half the entire population in or near Seoul. Korea is considered one of the top 20 countries in the world most at risk of sea level rise due to either inundation or flooding from storm surges. As we found in our 2014 Risky Business report, flooding has serious economic implications, especially for coastal real property but also for infrastructure like roads, water and sewage treatment facilities, and the electricity grid.

These systems are also at risk from extreme heat effects, which can decrease the supply of electricity (by requiring more cooling of power plants, and because transmission is less effective in hot weather) while increasing demand for air conditioning. All of these impacts lead to high costs for consumers, businesses, and the government.

South Korea has an incredible opportunity to become a leader on low-carbon technology for its own use, and for export across the world.

South Korea is at risk from another direction as well: the country relies on energy imports of fossil fuels for more than 98 percent of its energy consumption. That’s a staggering amount and puts the country at risk from two quarters: first, it is a national security concern for a country already surrounded by threats. Second, it is a climate transition risk, as the world begins to wean itself off fossil fuels through policies that price carbon, which will lead to reductions in fossil fuel drilling and trade, and ultimately higher prices to the buyers. Any rational, clear-eyed investor looking at this picture from a climate risk perspective would be wary, and for good reason.

But there’s another, brighter side to the picture: South Korea has an incredible opportunity to become a leader on low-carbon technology for its own use, and for export across the world.

The county is already a clear technology leader, having blazed a path in electronics in particular. It also has some of the core elements necessary for innovation: an advanced manufacturing infrastructure; high rates of internet usage; considerable government support of R&D; and a well-trained, highly-skilled workforce. Put simply, South Korea is poised to take a front-runner role in the research, development, and deployment of the renewable energy, efficiency, battery, and smart grid technologies that will underpin the next phase of global economic development.

There is huge opportunity in the low-carbon energy economy. A more recent Risky Business Project report, released in 2016, pointed to the investments in technology that will be necessary for the U.S.—or any country—to achieve "deep decarbonization." There are three main elements of decarbonization: moving from fossil fuels to electricity wherever possible, including in the transportation sector; using renewable energy wherever possible to generate that electricity; and using less energy overall. All three pillars require forward-thinking investment, especially at moments of "capital stock turnover," when assets from power plants to cars to buildings need to be replaced. At these moments, governments and businesses can choose to stay on the same path, or can invest in new low-carbon technologies like wind and solar farms, electric vehicles, and zero-net-energy buildings that use innovative carbon-capturing materials and smart appliances.

South Korea has much to gain by taking on a leadership role on building a low-carbon future—and even more to lose by standing by and watching.

All across the world, governments are starting to make these kinds of investments. South Korea’s massive neighbor, China, aims to spend $360 billion on renewable energy by 2020; the People’s Bank of China estimates the overall need for green finance to meet its low-carbon development needs at $600 billion annually. China also plans to put a carbon price in place at a national level this year, joining the European Union, Canada, and U.S. states like California.

These policies will create dynamic new markets for innovative low-carbon technologies—the kind of technology South Korea could pilot domestically, and export internationally.

In taking this kind of leadership step, South Korea could look to the United States, especially the private sector, for partnership. U.S. companies currently hold the majority of global patents on clean energy technology, and U.S. financial firms are beginning to get the message that low-risk, low-carbon strategies are a good bet for long-term investment. There’s real opportunity here for public-private partnerships, with U.S. firms piloting near-commercial technologies in South Korea; or investing in South Korean to bring new ideas to market, or existing ideas to scale. 

The time is now to build the low-carbon future. South Korea has much to gain by taking on a leadership role—and even more to lose by standing by and watching.
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Kate Gordon is a senior advisor at the Paulson Institute, a nonresident Fellow at the Center on Global Energy Policy at Columbia University, and a regular contributor to the Wall Street Journal as one of the paper’s "Energy Experts."

The views and opinions expressed here are those of the author and do not necessarily reflect the official policy or position of the Pacific Council.