The ESG successful management loan is Korea’s first sustainability-linked loan for SMEs, designed to support the implementation and expansion of sustainability practices. SMEs set measurable sustainability targets across environmental, social, and governance dimensions, which are assessed and certified by the Korea Chamber of Commerce and Industry. Loan interest rates are linked to ESG performance, incentivising continuous improvement. The programme also provides non-financial support, including ESG self-assessments, tailored consulting, and on-site guidance to help SMEs implement sustainable management practices.
Industrial Bank of Korea – ESG successful management loan
Abstract
The ESG successful management loan is the first sustainability-linked loan (SLL) product in Korea, developed to assist SMEs in implementing and expanding ESG management practices. This loan provides direct financial support through the Industrial Bank of Korea (IBK), with preferential interest rates depending on borrowers’ ESG performance. The product is designed to incentivise SMEs to set and achieve measurable ESG targets across environment, social, and governance areas, thereby broadening access to ESG-linked financing.
To apply for this loan programme, SMEs must set their own ESG targets and submit them to the Korea Chamber of Commerce and Industry (KCCI). The targets include Key Performance Indicators (KPIs), such as energy consumption, disposal of waste, or employment rate of persons with disabilities. KCCI issues an ESG management certificate based on how relevant and material the KPIs set by the SME are to its business, and the extent to which the sustainability performance targets are expected to contribute to improving the company’s sustainability.
The interest rates for SMEs vary depending on the ESG management grades certified by KCCI—IBK offers interest rate reduction of 1%p for “excellent”, 0.5%p for “good”, and 0.3%p for “fair”. If an SME that received a 1% interest rate reduction in the first year shows weaker ESG performance, the preferential interest rate will be reduced in the following year. Conversely, the interest rate reduction can increase in line with improved ESG performance.
The total budget allocated for this loan programme is KRW 1 trillion (approximately EUR 630 million). SMEs can apply for working capital loans up to KRW 1 billion (approximately EUR 630,000), which is limited considering the working capital turnover of each SME. However, SMEs with the rating of ‘’excellent’’ and ‘’good’’ can benefit from support that is provided without taking their working capital turnover into account. In addition to financial support, IBK provides non-financial services, including ESG self-assessment and tailored ESG consulting, to SMEs that have received the loan, guiding them in implementing sustainable management practices.
In February 2022, IBK and KCCI signed an MOU to launch the country’s first Sustainability-linked Loan (SLL)—named the ESG successful management loan—focused on supporting SMEs with a commitment to ESG management goals. This initiative represented the first time a financial product in Korea incorporated the government’s K-ESG Guidelines, where the interest rate reduction is directly tied to the borrower’s ESG performance.
The product aligns with broader regulatory efforts to integrate ESG into finance and business practices. It supports the government’s Green New Deal initiative, which encourages ESG integration across industries. The programme was initially launched in 2022 with a total budget of KRW 200 billion (approximately EUR 126 million), and its popularity and policy relevance led to a fivefold increase to KRW 1 trillion (approximately EUR 630 million) by 2024. This expansion underscores the government’s and IBK’s commitment to scaling ESG financing for SMEs nationwide.
Linking ESG targets to financial incentives to drive progress: Requiring SMEs to set their own ESG goals, supported by clear KPIs and verified through an ESG assessment by KCCI, ensures that financial support goes to SMEs who are actively engaged in sustainable practices. Tying loan conditions directly to ESG performance strengthens alignment between financing and the programme’s sustainability objectives.
An inclusive framework to encourage broad SME participation: By allowing SMEs at different stages of ESG maturity to set achievable targets and rewarding progress, the programme avoids penalising early-stage participants. This flexibility enables more SMEs to enter the ESG ecosystem, make incremental improvements, and benefit from both financial and non-financial support.
Clear limitations to reinforce programme intent: A lesson learned is the importance of maintaining clear boundaries around loan use. The exclusion of refinancing existing loans ensures that funds are used to generate new ESG-aligned economic activity rather than restructuring past debt. This reinforces the programme’s forward-looking investment goals.
Credible and trusted certification partner: The involvement of KCCI, Korea’s largest business organisation, is a key success factor in the IBK ESG successful management loan. As the primary certifying body, KCCI lends credibility, transparency, and trust to the programme. By assessing SME applicants against predefined ESG performance criteria, KCCI ensures that support is directed toward businesses genuinely committed to sustainable practices. The requirement for annual reassessments further encourages ongoing ESG improvements, fostering a culture of long-term sustainability.
Incentivising ESG verification and participation: The programme encourages SMEs to pursue ESG certification, even though many find it challenging to achieve high ratings. By recognising and rewarding implementation efforts, it has significantly increased SME access to and participation in the ESG ecosystem. In addition to financial incentives, participating SMEs benefit from complimentary ESG consulting and advisory services, helping them navigate regulations and build robust, long-term ESG strategies.
Comprehensive non-financial support ecosystem: Beyond certification, the programme is embedded within a broader national ESG support framework. Tools and services include:
ESG SME guide and educational initiatives tailored to SME needs
A self-assessment tool to evaluate ESG maturity
Free consulting from the IBK Consulting Centre to support green transition efforts
On-site assessments by expert consultants for companies facing compliance challenges
Detailed ESG performance ratings and tailored improvement roadmaps
These resources complement the financial support, making the programme a comprehensive platform for ESG advancement among SMEs.
Integrated business development support from IBK: In addition to providing loans, IBK leverages its broader business development services to support SMEs in implementing ESG principles. This dual approach enhances SMEs’ capacity to meet environmental, social and market expectations, strengthening their competitiveness and resilience.
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