As Asia races to mobilize trillions of dollars in green capital, the region’s financial hubs face a growing challenge: keeping sustainability claims honest. Greenwashing — exaggerating or falsifying environmental credentials — now risks undermining investor trust in the very markets driving the net-zero transition.
Hong Kong and Singapore, Asia’s leading financial centers, have both taken decisive steps recently to tackle the problem. On Oct 8, Hong Kong closed the public consultation on its Phase 2A Green Taxonomy, a classification framework defining what counts as environmentally sustainable finance. Two days earlier, Singapore’s Competition and Consumer Commission (CCCS) released its new Guide on Environmental Marketing Claims, setting strict principles to curb misleading “green” promotions.
Together, these moves signal a new era of accountability in Asian sustainable finance. Yet they also raise a vital question: Is a taxonomy enough to stop greenwashing — or must governments go further to strengthen green finance governance?
Hong Kong has been building a comprehensive green-finance framework to position itself as a bridge between East and West in sustainable investment. A core pillar of that effort is the Hong Kong Taxonomy for Sustainable Finance, developed by the Hong Kong Monetary Authority (HKMA) and partner regulators.
Phase 1, launched in 2024, covered four sectors — energy, transport, construction and waste management. The newly consulted Phase 2A prototype expands to six sectors by adding manufacturing and information and communications technology, and increases defined economic activities from 12 to 25. It also introduces a category for “transition” activities — such as low-carbon steelmaking or shipping — and adds a new environmental objective on climate-change adaptation. These additions make Hong Kong’s taxonomy among the first globally to integrate resilience alongside emissions reduction.
The HKMA describes the taxonomy as “an important market-enabling tool”, designed to provide clear, transparent definitions of what qualifies as sustainable activity and to reduce the risk of greenwashing. By giving investors and issuers a consistent rulebook, it seeks to ensure that claims of “green” investment are backed by verifiable evidence rather than marketing spin.
Going forward, Hong Kong could complement its taxonomy with clearer advertising and disclosure rules, ensuring that every “green” label used in finance or business is grounded in fact. If the city pairs its technical precision with Singapore-style governance and enforcement, it will not only curb greenwashing but also cement its position as Asia’s trusted hub for credible sustainable finance
At this stage, the taxonomy is voluntary, though the HKMA has said it may incorporate the framework into supervisory policies in the future. Even so, it sets a powerful market benchmark: In 2024, Hong Kong recorded about $43 billion in green and sustainable bond issuance. A widely accepted taxonomy will help channel more capital to genuinely sustainable projects while discouraging dubious ones.
Across the region, similar initiatives are unfolding. The ASEAN Taxonomy for Sustainable Finance guides members such as Malaysia and Indonesia, while the China–EU Common Ground Taxonomy aligns the Chinese mainland and European standards. Hong Kong’s framework could serve as a practical bridge linking these systems and reinforcing Asia’s green-finance credibility.
If defining “green” is so important, why can’t taxonomies alone solve the problem? Because classification is only part of the answer. Even the best frameworks can be incomplete, complex, or — in some cases — politically compromised.
The European Union offers a cautionary example. Its pioneering taxonomy was designed to eliminate greenwashing by setting strict, science-based thresholds for sustainable activities. Yet controversy erupted when the EU added natural gas and nuclear energy as “transitional” activities in 2022, a move that critics said diluted credibility. In September, the EU General Court upheld the European Commission’s decision to include them, sparking renewed debate over whether politics had weakened the taxonomy’s scientific integrity.
Another limitation is enforcement. A taxonomy defines what is green but not who ensures companies follow the rules. Unless compliance is mandatory and independently verified, some actors may still exaggerate their alignment. Small firms may also lack the resources to meet detailed technical criteria or to gather data across complex supply chains. And if a taxonomy fails to keep pace with evolving science, it can become outdated — inadvertently blessing activities that no longer meet global climate goals.
In short, taxonomies are necessary but not sufficient. They are essential for clarity, but alone they cannot guarantee honesty. The EU learned this early and therefore paired its taxonomy with the Sustainable Finance Disclosure Regulation — requiring fund managers to reveal how “green” their products really are — and the Corporate Sustainability Reporting Directive, mandating standardized ESG reporting for large companies. Europe is now drafting a Green Claims Directive to govern environmental marketing more broadly. The lesson is clear: Classification must be reinforced by transparency and enforcement.
Global experience points to six pillars for effective green-finance governance: 1) Clear standards and definitions — A robust taxonomy reduces ambiguity. Hong Kong’s Phase 2A and the EU and ASEAN taxonomies exemplify this science-based approach; 2) Transparency and disclosure — Mandatory climate and sustainability reporting, such as Hong Kong’s upcoming Internationally Sustainability Standards Board/Task Force on Climate-related Financial Disclosures-aligned requirements, allows investors to verify claims against real data; 3) Truth-in-labeling for financial products — Regulators should set minimum thresholds for using “green” or “environmental, social and governance” labels, as the Monetary Authority of Singapore and the EU have done; 4) Marketing guidance and enforcement — Publish clear rules for environmental claims and empower agencies to penalize breaches; 5) Third-party verification — Require independent reviewers or auditors for key sustainability statements, from green bonds to corporate reports; and 6) Continuous improvement — Keep frameworks adaptive and inclusive, engaging industry and civil society to close loopholes as they appear.
A well-designed system weaves these layers together. A company must meet the taxonomy’s criteria, disclose performance data, market its products truthfully, and withstand external verification — with regulators ready to act if it fails any step. This “many-locks” model is far more resilient than relying on one gatekeeper alone.
The common thread in both Hong Kong and Singapore’s initiatives is trust. Without trust, sustainable finance cannot function. Investors will hesitate, consumers will disengage, and the credibility of entire markets will erode.
Hong Kong’s taxonomy lays a strong foundation by defining the “what” of sustainability. Singapore’s regulations add the “how” — ensuring those green claims stand up to scrutiny. Together they represent a maturing of Asia’s green-finance ecosystem: from voluntary good intentions to enforceable, transparent standards.
Going forward, Hong Kong could complement its taxonomy with clearer advertising and disclosure rules, ensuring that every “green” label used in finance or business is grounded in fact. If the city pairs its technical precision with Singapore-style governance and enforcement, it will not only curb greenwashing but also cement its position as Asia’s trusted hub for credible sustainable finance.
The author is director of research at the Institute of Innovative and High-Quality Development (Hong Kong).
The views do not necessarily reflect those of China Daily.
