The Hong Kong Monetary Authority (HKMA) has announced new measures to support and promote the city as a hub of green finance in the region

HKMA hosted a green finance forum this week at which chief executive Norman Chan that the authority would collaborate with financial institutions and other stakeholders to mitigate climate change risks and develop green finance.

The first phase of the measures includes developing a common framework to assess the “greenness baseline” of individual banks. The HKMA will collaborate with other international bodies to provide technical support to Hong Kong’s banks to better understand the green principles and methodology for undertaking the assessment.

The second phase involves a consultation period with the industry and other stakeholders in a consultation on the guidelines or regulations green and sustainable banking going forward. Chan said that the key objective of this phase would be to set tangible deliverables for Hong Kong’s banking industry to become greener and more sustainable.

Future benchmarks

Once the deliverables are established, the focus will move to implementation, monitoring and evaluation. Chan said that the success of this phase will depend on appropriate measurement of the “greenness” of the banks and their progress in improving their performance. “With the support of the banking industry I expect phase one could be completed within around 12 months’ time from now,” he added.

The second measure is about responsible investment. The HKMA is manager of the Exchange Fund, whose main role is to back the Hong Kong dollar, so will aim to give priority to green and environmental, social and governmental (ESG) investments where the long-term return compares well with other investments on a risk-adjusted basis.

To support responsible investment, the HKMA has already incorporated ESG factors in its credit risk analysis of bond investment. It requires external managers of Hong Kong equity portfolios to comply with the principles of responsible ownership set out by the Securities and Futures Commission (SFC) in 2016.

The authority has already invested two tranches of US$1 billion in the Managed Co-lending Portfolio Programme (MCPP) run by the International Finance Corporation (IFC), which targets sustainable investments across emerging markets.

HKMA will expand the Exchange Fund’s green bond portfolio through direct investment in green projects or investment in green bond funds.  It will also make green accreditation a major factor of investment in its real estate portfolio and will consider an appropriate framework for disclosing information on the Exchange Fund’s green and ESG investing efforts.

Green Bond Pledge

The third measure will see a Centre for Green Finance (CGF) set up under the HKMA Infrastructure Financing Facilitation Office. It will provide a platform for technical support and experience sharing for the green development of Hong Kong’s financial institutions.

The CGF and the IFC will jointly organise the next Climate Business Forum in Hong Kong in 2020, the IFC’s flagship event to discuss trends and business opportunities relating to climate change and sustainability.

The HKMA’s announcement comes after Hong Kong this week became Asia’s first signatory to the Green Bond Pledge, demonstrating its commitment to incorporate low carbon, resilient and sustainable solutions into the planning and deployment of infrastructure projects, aiming to reinforce the goals of the Paris Agreement.

Hong Kong aims to develop a robust green bond market and establish the territory as a leading hub for green finance in the region. Last year the government announced in 2018 a HK$100 billion (US$12.8 billion) sovereign green bond programme to encourage more issuers to arrange financing for their green projects through capital markets in Hong Kong and expand the local green investor base.

The Hong Kong government has also just issued the mandate for its long-awaited green bond offering, appointing Credit Agricole and HSBC as joint global coordinators and structuring banks for the transaction.