2024 RT Amination Banner.gif

China Daily

News> Hong Kong> Content
Published: 14:55, October 06, 2022 | Updated: 15:53, October 06, 2022
Toward a greener economy
By Zhang Tianyuan in Hong Kong
Published:14:55, October 06, 2022 Updated:15:53, October 06, 2022 By Zhang Tianyuan in Hong Kong

Amid a booming demand for sustainable finance investment, the Hong Kong Special Administrative Region is likely to adopt more-sophisticated guidelines in environmental, social and governance (ESG) reporting to align itself with global standards as it strives to become an international green finance center.

The Securities and Futures Commission — Hong Kong’s securities and futures watchdog — updated its 2018 green finance strategic framework, and published in August an “Agenda for Green and Sustainable Finance” with a road map on further supporting the city’s transition to a greener economy.

The commission said it will strengthen its work on the quality and transparency of companies’ disclosure on climate-related risks based on global green baselines, monitor the implementation of existing regulations relating to ESG funds, and identify an appropriate regulatory framework for carbon markets.

Qu Kang, managing director of sustainability strategy at Bank of China (Hong Kong), said the SFC’s agenda will help enhance the infrastructure for green finance development in the special administrative region, and is vital for boosting the city’s competitiveness and accelerating its progress to become an international green finance hub. 

“Without a consistent regulatory framework for green finance, it would be costly for investors to conduct due diligence on companies’ green and sustainable activities; and without a set of internationally recognized standards and metrics, it would be extremely difficult for investors to tap into green finance opportunities in a foreign market because they cannot measure a company’s ESG performance,” Qu said.

David von Eiff, director of institutional relations at the CFA Institute — a global association of investment professionals — said Hong Kong will see “increased disclosure requirements to ensure global alignment, a push for uniform global reporting standards, standardization of taxonomies, and a greater focus on climate-related impacts to mitigate risks”.

The SFC enacted a new rule last year that requires fund managers to take climate-related risks into consideration in their investment and risk management processes, and make disclosures to meet investors’ demand for climate risk information, and to combat “greenwashing”, or falsely claiming to be environmentally responsible. All fund managers must comply with the regulation before Nov 20. 

Judy Li, Asia-Pacific financial services sustainability leader at Ernst & Young, said she believes the new regulation will strengthen investor confidence in ESG finance and enhance ESG products’ quality to meet investor demands.

The tightened measures and work outline are aimed at addressing issues of possible harmful environmental and social outcomes, and enabling investors to access high-quality information to whet their growing appetite for sustainable finance products.

Pat Woo, partner and head of ESG practice at KPMG in Hong Kong, noted that over the past few years, Hong Kong has seen a significant increase in green bond issuances by the SAR government, along with sustainable-linked loans offered by financial institutions.

More than $7 billion worth of green bonds had been “well-received” by the global investment community under the Government Green Bond Programme since its launch in 2018, the government said earlier this year. In addition, the amount of green and sustainable finance products offered in the city by the Chinese mainland, overseas and locally listed companies and banks, along with other entities last year, had exceeded $50 billion, four times that of a year earlier, according to the Hong Kong Monetary Authority.

Bridging the gap

Mainland enterprises have long turned to Hong Kong for fundraising, including loans linked to sustainable finance. With more than half of the companies listed on the Hong Kong Stock Exchange being mainland firms, SFC’s CEO Ashley Alder said in May that the adoption of the standards of the International Sustainability Standards Board — an ESG reporting standard-setting body — should be “proportional and practical” and properly synchronized with mainland standards and regulations.

Woo stressed that the mainland’s definition of “green” is different from the international sustainable finance taxonomy. Although there has been progress in international unification between the mainland and the European Union with the launch of the Common Ground Taxonomy by both sides, he said there is still “a lot of work to be done”. Von Eiff agreed, saying, “Hong Kong should play its role in bridging the mainland and international standards,” and that there is “significant potential for (taxonomy) harmonization because sustainability regulation is still nascent”. As Asia’s emerging economies account for more than 50 percent of greenhouse gas emissions globally, “they focus on transitioning their economies,” he said. “New rules (should) recognize the need to strike a balance between comparability and being inclusive of local needs and differing definitions of green and sustainable activities.”

The SFC of Hong Kong established the Green and Sustainable Finance Cross-Agency Steering Group in 2020, whose “desire to quickly develop and adopt the Common Ground Taxonomy would further improve (taxonomy) harmonization between the mainland and international markets”, Von Eiff added. Policymakers around the world can adopt the EU-China Common Ground Taxonomy, the first version of which was released last year, to start to develop their own sustainable taxonomy, according to an EU official file about the Common Ground Taxonomy. Tasos Zavitsanakis, head of sustainable finance, Greater China, at UBS’ APAC sustainable finance office, wants regulators to adopt a forward-looking perspective with respect to risks and opportunities when formulating policies on corporate disclosures, rather than backward-looking views, including their footprint on past emissions.

The SFC’s move to make a priority of addressing corporate disclosures and standardization during its regulations setting is appropriate, and it will strengthen the credibility required to attract international capital flows, he said.

Hong Kong, which aims to cut half of its carbon emissions by 2035 and achieve carbon neutrality by 2050, is also exploring carbon-credit exchange opportunities to link up with the mainland and international markets. The HKEX launched the Hong Kong International Carbon Market Council earlier this year to develop the appropriate market structure and regulatory models. 

Von Eiff said the SAR’s status as a regulatory leader in this area would draw foreign investment into the mainland as it would be seen as a risk mitigator, while providing mainland investors with access to more overseas opportunities.

Contact the writer at tianyuanzhang@chinadailyhk.com


Share this story

CHINA DAILY
HONG KONG NEWS
OPEN
Please click in the upper right corner to open it in your browser !