Hong Kong: Green and sustainable finance

In additional element

Inexperienced and sustainable finance in Hong Kong

The World Economic Forum Global Risks Report 2020, printed in January 2020, highlighted important dangers that will probably be seen the world over within the subsequent decade. 5 of the highest ten dangers recognized had been climate-related. As such, governments, central banks, and different monetary establishments are being known as to motion.

In response to the United Nations (UN), Asia-Pacific is among the areas that’s most weak to climate change risks. Globally, there have not too long ago been excessive climate occasions, reminiscent of widespread forest fires and rising sea-levels, and Hong Kong noticed its hottest summer season on document.

Hong Kong Financial Authority (HKMA)

The HKMA has grow to be more and more lively on this space. In June 2020, it printed a “White Paper on Inexperienced and Sustainable Banking” which outlined the HKMA’s preliminary pondering on supervisory expectations for the administration of local weather dangers by AIs. The White Paper outlines 9 guiding rules to help AIs in growing a governance framework and technique for managing the related dangers and alternatives (together with, amongst others, growing an strategy to reveal climate-related data).

Following the White Paper, the HKMA produced a round sharing finest practices of chosen main AIs which AIs are inspired to think about in growing their very own consumer danger administration strategy.

Inexperienced and sustainable finance cross-agency steering group

In Might 2020, the Inexperienced and Sustainable Finance Cross-Company Steering Group (“Steering Group“) — which incorporates the HKMA, the Securities and Future Fee (SFC) and different native monetary regulators and authorities departments — was established.

In response to the HKMA’s press launch, the “Steering Group goals to co-ordinate the administration of local weather and environmental dangers to the monetary sector, speed up the expansion of inexperienced and sustainable finance in Hong Kong and help the Government’s climate strategies.”

In December 2020, the Steering Group launched its inexperienced and sustainable finance technique for Hong Kong.  This outlines a variety of key focus areas “for strengthening Hong Kong’s monetary ecosystem to help a greener and extra sustainable future in the long term” in addition to 5 near-term motion factors. Amongst different issues, the motion factors embody (i) making climate-related disclosures aligned with the Process Power on Local weather-Associated Disclosures (TCFD) necessary throughout related sectors (together with banks, asset managers, insurance coverage firms and pensions trustees) no later than 2025 and (ii) aiming to adopt the Common Ground Taxonomy expected to be developed by mid-2021 by the International Platform on Sustainable Finance (IPSF) Working Group on Taxonomies co-led by the European Union (EU) and China (Mainland). 

The Worldwide Finance Company (IFC) and the HKMA

On 9 November 2020, the IFC and the HKMA signed a joint partnership to encourage inexperienced and sustainable banking consciousness amongst industrial banks in Asia. The HKMA is the primary associate to work on the Alliance for Inexperienced Business Banking initiative with the IFC, and goals to grow to be the “hub for green finance among commercial banks in Asia.”

Over the subsequent 5 years, the IFC and HKMA will work collectively to implement initiatives and campaigns and convey collectively monetary establishments, business, analysis establishments, and so forth., to advertise the event of inexperienced finance and sustainable funding.

Hong Kong’s place in Asia relating to taxonomy

One problem that governments and establishments at the moment face whereas advising on climate-related dangers is that there isn’t a universally adopted world taxonomy figuring out these dangers. This leads to completely different ranges of motion taken by every jurisdiction. At present, the 2 main taxonomies are these developed by the Mainland and by the EU, and so they have their variations.

The 2 taxonomies: Mainland and EU

The inexperienced and sustainable finance taxonomies within the Mainland pre-date these of the EU. In 2015, the Inexperienced Finance Committee of China Society of Finance and Banking produced a Inexperienced Bond Endorsed Undertaking Catalogue beneath the Individuals’s Financial institution of China. That is now also known as the “Chinese language Inexperienced Bond Taxonomy.” The central coverage is the Guiding Catalogue for the Inexperienced Business, which was up to date in 2019, and can be known as “taxonomy”.

The Guiding Catalogue comprises a listing of eligible sectors and excessive precedence rankings. It has six classes of inexperienced industries. In contrast to the EU taxonomy, the Mainland Taxonomy doesn’t gather metrics or thresholds.

The EU’s Taxonomy Regulation (EU Regulation), which entered into power on 12 July 2020, units out the regulatory framework mandatory to determine a classification system for sustainable exercise. The EU Regulation doesn’t itself set out particulars relating to how the taxonomy will probably be utilized in observe. As an alternative, the sensible utility of this formidable classification system has been left to a sequence of what are known as “technical screening standards” (TSC). Utility of those granular screening standards will in the end decide whether or not an exercise considerably contributes to an environmental goal.

Harmonization

In 2018, the European Funding Financial institution and the Inexperienced Finance Committee of China Society for Finance and Banking printed a white paper outlining Section II of their work in the direction of harmonizing Inexperienced Finance Language. This was earlier than the EU Taxonomy was printed in 2020.

Extra not too long ago, in a keynote speech through the Responsible Investor Summer 2020 Digital Festival, Dr. Ma Jun, Chairman of the China Inexperienced Finance Committee, indicated {that a} process power will doubtless be launched to look into the harmonization of the requirements of the completely different jurisdictions.

China is dedicated to working with different worldwide our bodies to advertise inexperienced and sustainable finance. In October 2020, 5 governmental departments, together with the Ministry of Ecology and Setting, and the Individuals’s Financial institution of China, issued Guiding Opinions on Promoting Investment and Financing to Address Climate Change . This can be a coverage space that’s regularly being reviewed and amended.

Because the EU Taxonomy is a current improvement, it’s not but absolutely applied. Additional, though it would have an extraterritorial impact within the sense that non-EU corporations might want to think about it the place they’ve EU institutional traders or the place they market merchandise reminiscent of fund items into the EU, there may be the difficulty that the EU’s taxonomy is not going to usually apply to jurisdictions outdoors of the EU. As such, harmonization of the Mainland and EU taxonomies continues to be a piece in progress. As famous above, the IPSF Working Group on Taxonomies is engaged on a Frequent Floor Taxonomy.

Regional co-operation with Guangdong-Hong Kong-Macau Larger Bay Space

In September 2020, the Hong Kong Inexperienced Finance Affiliation (HKGFA) introduced the institution of the Guangdong-Hong Kong-Macau Larger Bay Space Inexperienced Finance Alliance (GBA-GFA) between Hong Kong, Macau and the Mainland. This alliance is answerable for selling inexperienced finance requirements and certification throughout the Larger Bay Space. It consists of the Hong Kong Green Finance Association, the Green Finance Committee of Guangdong Society for Finance and Banking, the Green Finance Committee of Financial Society of Shenzhen Special Economic Zone, and the Macau Association of Banks.

The three phases of the HKMA’s Strategy to Promote Inexperienced and Sustainable Banking – the place we at the moment are

All through 2020, the HKMA has been working with AIs to advertise inexperienced and sustainable banking and adopted a three-phase plan:

• section I – improvement of a typical evaluation framework for AIs
• section II – improvement of supervisory expectations for AIs
• section III – after setting of targets, implementation, monitoring and analysis of AIs’ progress

The timeline of the three phases and different HKMA initiatives is as follows:

• July 2019
  • The HKMA created a Working Group on Inexperienced and Sustainable Banking, made up of 22 AIs. The goal was to create the widespread evaluation framework. (Section I)
• Might 2020
  • Frequent evaluation framework finalized and first spherical of assessments launched with 47 AIs (together with locally-incorporated AIs and international financial institution branches in Hong Kong) (Section I)
  • Institution of Steering Group with the SFC and different members
• June – July 2020
  • White Paper on Inexperienced and Sustainable Finance and Round highlighting finest practices printed (Section II)
• August 2020 – current and past:
  • First outcomes from the self-assessment obtained (Section I)
  • HKMA working with particular person AIs to make clear their submissions and search additional data (which, in flip, will help the HKMA in growing supervisory necessities) (Phases I and II)
  • Continued collaboration with worldwide fora, such because the Community of Central Banks and Supervisors for Greening the Monetary System (NGFS) and the Basel high-level Process Power on Local weather-related Monetary Dangers

As we advance in 2021, the HKMA plans to proceed working with AIs and the business to develop the supervisory necessities for AIs. A few of the subsequent steps for the HKMA have been recognized as:

• 2021 HKMA business session on supervisory necessities for AIs
• inviting AIs to take part in a pilot local weather stress testing train
• consultancy research into obstacles that Hong Kong banks face when growing inexperienced and sustainable banking