Heat waves, droughts, floods and other extreme weather events are increasingly common, adding urgency to the need for the global finance sector to ramp up its focus on green finance. Hong Kong, already a recognised financial centre, is doing exactly that by putting much of its effort into developing a world-class infrastructure for green finance.
‘The finance sector is the key enabler to drive capital flows into green and sustainability efforts’
Green finance covers a vast swath of funding. It refers to loans or investments from financial institutions that support green activities and businesses, as well as any shifts towards more environmentally friendly activities.
‘The finance sector is the key enabler to drive capital flows into green and sustainability efforts,’ says Cindy Ngan, climate and sustainability partner at PwC mainland China and Hong Kong. ‘It should be integrated into the core business strategy to amplify the impacts and outcomes that an organisation intends to deliver.’
‘We also see the private sector stepping up to help with the climate funds,’ says Chong Chan Yau, CEO of Hong Kong non-governmental organisation Carbon Care InnoLab, which focuses on climate change education and innovation. ‘Some fund managers have formed an organisation called Glasgow Financial Alliance for Net Zero, which claims to have US$130 trillion in assets committed to green transformation.’
Products
Ngan says that although green financial products such as lending, investments and deposits are traditional in form, they typically have green and sustainable elements embedded. ‘For example, the underlying assets or activities being financed are considered green under a certain taxonomy or framework, or there are sustainability-related KPIs such as greenhouse gas emission reductions, energy efficiency and social impact among others.’
One example of a finance-focused institution pushing forward on green finance is HSBC. The global bank has not only adopted green financial practices but is also expanding its range of green finance products. An HSBC spokesperson says: ‘We launched a US$5bn Greater Bay Area Sustainability Fund in 2022. And we developed a green finance solution for taxi operators looking to take up hybrid vehicles in Hong Kong, thus reducing their carbon emissions.’
As the market grows, carbon credits and other new asset types are emerging
HSBC has also introduced a Green Rehabilitation Bus pilot scheme to help Hong Kong NGOs switch to electric vehicles. The bank has committed to providing between US$750bn and US$1 trillion in sustainable finance and investment to support customer transitions and sustainability.
Ngan says there are retail products encouraging a sustainable lifestyle for customers, including green credit cards and spending rewards on green and sustainable products and services. As the market grows, carbon credits and other new asset types are emerging.
Top-down
China has encouraged the development of green finance and seen growth in the area. In the first half of 2022, China led green bond issuance by volume, according to the Climate Bonds Initiative. Beijing has rolled out policies to promote green and sustainable finance, as have multiple Chinese regulators.
Ngan cites the 1+N policy framework, which provides peak-carbon guidance and carbon neutrality roadmaps for key sectors, while the China Banking and Insurance Regulatory Commission’s guidelines for green finance requires banks and insurers to promote green finance at a strategic level.
Hong Kong has been working hard to become the green finance centre for China and global companies, rolling out multiple incentives for businesses in the process.
Ngan thinks the Special Administrative Region has many advantages for reaching that goal. Geographic proximity to the Chinese mainland – the world’s largest carbon market and the world’s leading issuer of green bonds – would make Hong Kong a favoured gateway, she says.
In his policy address last October, Hong Kong chief executive John Lee said his government’s aim is to promote Hong Kong as the preferred financing platform for mainland and overseas organisations and green enterprises, build an international carbon market, and support the Hong Kong Stock Exchange (HKEX) in promoting greater cooperation with Guangzhou financial institutions in developing a carbon market. Hong Kong is also encouraging corporates and financial institutions to finance green initiatives by subsidising issuances and verification costs under its green and sustainable grant scheme.
The Hong Kong Monetary Authority (HKMA) has set up a green and sustainable finance cross-agency steering group. Meanwhile the Securities and Futures Commission (SFC) has established a green and sustainable finance centre and has been working to build capacity and enhance talent and data resources to support the financial industry.
‘As an international financial centre, Hong Kong offers world-class financial infrastructure, a sound legal and regulatory system, a low and simple tax regime, free capital flows, and a pool of talent to support the growth of a green and sustainable finance market,’ Ngan says.
Green finance-related verification and anti-greenwashing will be key for Hong Kong regulators
Governance
Regulators have also published rules and guidelines. ‘They require the integration of ESG [environmental, social and governance] and climate considerations in financial institutions’ enterprise risk management frameworks,’ explains Ngan.
For example, the HKMA has issued a supervisory policy on climate risk management that encourages banks to assess green and sustainable finance opportunities at a strategic level. And the SFC has released a paper on the management of climate-related risks by fund managers and mandatory disclosures.
In the future, Ngan says, anti-greenwashing, and green and sustainable finance-related verification and ESG disclosure assurances will be among the key areas of focus for Hong Kong regulators. Meanwhile, the HKEX and SFC are also evaluating the potential implementation of International Sustainability Standards Board standards for Hong Kong-listed companies.
More information
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