As defined by the International Finance Corp, blue finance is an emerging area in climate finance stirring up interest among investors, financial institutions, and issuers globally. It offers tremendous opportunities for access to clean water, protecting underwater environments, and investment in a sustainable water economy. Blue bonds and blue loans are financing instruments that raise and earmark funds for investments such as water and wastewater management, reducing ocean plastic pollution, marine ecosystem restoration, sustainable shipping, ecofriendly tourism, or offshore renewable energy.

This is a sector that has huge potential. To fulfill Sustainable Development Goal 14 – Life Below Water, the World Economic Forum estimates that $175 billion of blue finance is needed each year up to 2030. Between 2015 and 2019, only $10 billion was invested in total, showing that ocean health is massively underfunded. The World Wildlife Fund estimates that the blue economy is worth $24 trillion.

Blue finance is considered a spinoff from green finance, and I have written multiple articles on green finance for China Daily, focusing not only on what green finance is, but also on Hong Kong’s potential as a green finance hub.

The United Nations’ resident coordinator in China, Siddharth Chatterjee said at the Hong Kong Financial Forum 2023 that Hong Kong has a unique role to play as China’s offshore capital hub for green finance, as the country speeds up environmentally friendly projects to transition to a low carbon economy.

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Chatterjee said that, “while China is working to address its environmental and climate challenges, it remains the largest emitter of greenhouse gases (editor’s note: China’s per capita CO2 emission was 8.9 metric tons versus the United States’ 13.3 metric tons in 2023). China must build on the substantial progress it has made in green finance by expanding and accelerating projects with environmental benefits.”

Both China’s objectives are crucial for achieving green development. By way of comparison, the United States and the European Union aim to achieve carbon neutrality by 2050

“This is where Hong Kong has a unique role to play as China’s offshore capital hub, for both traditional finance, and green finance.”

Hong Kong’s intention to strengthen its position as a greentech and green finance hub is not new. As I mentioned in “Hong Kong rightfully becoming a green finance hub” (April 23, 2021, China Daily HK Edition), by embracing green finance even more, Hong Kong would fall into line with China’s goal of reaching its carbon emissions peak before 2030 and becoming carbon neutral before 2060, as listed in the 14th Five-Year Plan (2021-25) for National Economic and Social Development and the Long-Range Objectives Through the Year 2035.

Both China’s objectives are crucial for achieving green development. By way of comparison, the United States and the European Union aim to achieve carbon neutrality by 2050. If they meet their target, it will have taken the US around 45 years and the EU around 60 years to move from their carbon emissions peak to achieve neutrality, but China plans to do it in just 30 years, which is an extremely ambitious, albeit reachable, goal.

Therefore, Hong Kong tapping into green and sustainable finance is not only beneficial for the Hong Kong Special Administrative Region, but also consistent with China’s objective of paying enormous attention to sustainability and climate change.

Green bond markets have been increasing in size and value for more than a decade. Since the first green bond market opened in 2007, more than $1 trillion worth of green bonds have been issued globally as investors have identified a sustainable and profitable investment option. Oversubscription, where demand exceeds the number of green bonds available, has become the norm for green bond issuances.

These bond issuances reaffirmed Hong Kong’s unique and relevant role in facilitating green and sustainable capital flows between the Chinese mainland and the rest of the world via the SAR as well as its status as the premier fundraising platform in the region

Hong Kong is, thus far, quite advanced when it comes to embracing the opportunities offered by green finance and green bonds.

Now that we can see that Hong Kong has done much work on green finance, the question is: How strong is Hong Kong in blue finance and has the city the potential to become a blue finance hub in the future?

As reported by the Hong Kong Monetary Authority (HKMA), during the Hong Kong Green Week – Finance Stream held in March, panelists shared insights on this evolving area that aims to benefit both developed and developing countries by maintaining the world’s waterways and oceans. They discussed blue finance’s global market potential and the critical role of contributions from both public and private sectors. The HKMA noted that, even though it is a nascent area, blue bonds and blue loans are not new to Hong Kong. For instance, Hainan province issued blue bonds in Hong Kong in 2022 and 2023. Also, the Shenzhen Municipal People’s Government issued 5 billion yuan ($687.5 million) in offshore municipal government bonds in Hong Kong in November 2022, including 2.6 billion yuan in green and blue bonds.

These bond issuances reaffirmed Hong Kong’s unique and relevant role in facilitating green and sustainable capital flows between the Chinese mainland and the rest of the world via the SAR as well as its status as the premier fundraising platform in the region.

Does this mean that Hong Kong can be considered a blue finance hub? Not yet, but, given the huge steps made by Hong Kong in green finance and green fintech, to the point that the city has become a relevant green finance hub, it does not seem too bold to predict that Hong Kong has the potential to become a blue finance hub within the next few years.

This aligns with Beijing’s current goals and interests, since, during the current 14th Five-Year Plan (2021-25), the central government has focused on developing blue finance, introducing the 14th Five-Year Plan for Development of the Marine Economy, the 14th Five-Year Plan for Marine Ecological and Environmental Protection, and the Action Plan for the Comprehensive Management of Key Marine Areas. Those strategies provide policy support and directional guidance for the high-quality development of the blue economy during the acceleration of ocean-power construction.

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While Hong Kong will remain one of the most important financial centers in the world, it seems the perfect time for the city to promote its role as a greentech and green finance hub, and also as a blue finance hub. As Financial Secretary Paul Chan Mo-po said, there is huge demand for green financing in the region. I am sure the investment will pay off, given Hong Kong’s unique role within China and particularly in the Guangdong-Hong Kong-Macao Greater Bay Area. In the same way that there is a huge demand for green financing, there is a growing demand for blue financing too.

The author is a fintech adviser, researcher and former business analyst for a Hong Kong publicly listed company.

The views do not necessarily reflect those of China Daily.