Seeds planted on fertile ground always tend to grow the best. As the sustainable finance evolution takes deeper root globally, Hong Kong has developed the infrastructure required to reap the benefits of innovative investment that can help protect the planet.
As a global financial centre, Hong Kong is a major platform for both international investors and businesses to raise funds through capital markets.
“Sustainability funding needs and sustainability investments will continue to grow,” says Ivy Wong, Asia-Pacific chair of capital markets practice at international law firm Baker McKenzie in Hong Kong. “With its well-developed stock markets that provide access to international markets and funding, Hong Kong is best equipped to capture such new markets and ongoing growth opportunities.”
Specific key performance indicators
Sustainability funding and investments now come in different forms, Wong says, covering more than just environmental, social and governance (ESG) initiatives. Professional investors, she adds, have specific sustainability investment portfolio and policy requirements.
The Covid-19 pandemic and climate change have made people more aware of ESG issues and investment options. One landmark for Hong Kong has been the first issuance of green bonds for retail investors in May 2022. These will be used to fund projects that can help the city transition to a low-carbon economy.
“Green bond proceeds raised under the Government Green Bond Programme (GGBP) will be used to finance government projects that provide environmental benefits and support the sustainable development of Hong Kong,” says Edmond Lau, deputy chief executive of the Hong Kong Monetary Authority (HKMA).
Government green bond issuances, he adds, could also provide a “demonstration effect” by setting the yield curve, encouraging best practices in line with global standards and promoting broader green product scope.
Important new benchmarks
Close to US$10bn equivalent of green bonds have been issued under the GGBP since 2019, covering US dollar, euro and renminbi and Hong Kong dollar tranches in multiple tenors ranging from three to 30 years.
“These issuances raised the awareness and provided important new benchmarks for potential issuers in Hong Kong and the region,” Lau says. “All green bonds were well received by the global investment community including green investors, affirming investors’ confidence in Hong Kong’s credit strengths and economic fundamentals and our commitment to tackling climate change.”
The issuances have helped Hong Kong’s green and sustainable finance market experience major growth. In 2021, green and sustainable debt issuance in Hong Kong increased by four times to US$56.6bn and included a diversified mix of products and issuers.
Last year also saw the first offshore green bond issuance in Hong Kong by a mainland municipal government: Shenzhen issued Rmb3.9bn (US$580mn) of green bonds in October 2021. That allows Hong Kong to play to its strength as the conduit for green financing investment and trade activities within the Guangdong-Hong Kong-Macao Greater Bay Area (GBA), says Wong.
More decarbonisation cooperation
Wong adds that she expects both the central and the Hong Kong Special Administrative Region governments to roll out more policies that support decarbonisation within the GBA, and to further encourage the private sector to take a more active role in green financing and green projects.
“As Hong Kong is ideally positioned … as an international hub for finance, logistics, trade and aviation for the GBA development,” she says, “sustainability plays an important role for companies that are seeking to grow and benefit from such opportunities in these industries in the GBA.”
Lau agrees, saying the Shenzhen issuance highlighted Hong Kong’s unique role in facilitating sustainable capital flows between China and the world. “It also provided a good demonstration effect, encouraging more mainland issuers to use the Hong Kong platform for raising financing to support China’s carbon neutrality goal, which is estimated to require investments of over Rmb100tn,” he says.
Lau adds that discussions over ESG have become “more intense” and new measures and actions have evolved around ESG in recent years, both in terms of regulatory landscape and investor sentiment. “I would say that it has been a continuous and gradual growth exercise that has been around for a much longer time,” he said, but now “there are more specific targets, stronger measures, more effective implementation plans and transparent disclosures”.
The HKMA has worked to raise banks’ awareness of climate-related financial risks and accelerate their efforts in supporting the transition to a low-carbon economy, Lau says. In December 2021, the HKMA issued supervisory requirements on climate risk management. Specific requirements and a clear timeline were set out in mandating climate-related disclosures before 2025.
Hong Kong Exchanges and Clearing Limited (HKEX), meanwhile, has been working to increase access to sustainable financial products by showcasing the ESG metrics of listed companies, bonds and ETFs on its Sustainable & Green Exchange (Stage) information portal. The momentum is picking up, with 50 green, social and sustainable bond listings added to HKEX markets from January to June 2022, raising HK$172bn (US$21.9bn), up from 42 listings and HK$123.4bn in the same period last year.
Growing stakeholder awareness
Hong Kong’s progress indicates sustainability is no longer a mere aspiration but a collective goal, says Wong. “Stakeholders on all fronts, including regulators, investors, customers and business partners, are becoming more aware of the relevant obligations and demanding information that can assure them that they are collaborating and dealing with good citizens,” she says.
Through the HKMA and other stakeholders, Hong Kong actively participates in international and regional sustainable finance and climate-focused groups to co-ordinate efforts on the international front. “This provides us with an opportunity to contribute to the central banking and regulatory community in addressing climate change,” says Lau.
While sustainable finance may still be in its nascent stage, Wong believes Hong Kong could become a leading green finance hub in the region. “Hong Kong has launched Bond Connect schemes to provide a platform for mainland investors to trade in the Hong Kong and overseas bond markets, and for Hong Kong and overseas investors to trade in the mainland bond market,” she says.
“This connects east and west, boosts Hong Kong's growth and credentials as a sustainable finance hub and further encourages international green financing and investments in Hong Kong,” Wong says. “It also creates a sustainable finance ecosystem for domestic and international investment portfolios to tap into green and decarbonisation opportunities.”
