Hong Kong’s HKMA eyes central bank green network as it plans to be 2nd central bank to join PRI

City state’s regulator announces coordinated push on ESG

The Hong Kong Monetary Authority (HKMA), the city-state’s de facto central bank, is in the final stages of signing up to the Principles for Responsible Investment (PRI), a spokesperson has confirmed — adding that it is also looking at joining the new high-level Network for Greening the Financial System (NGFS).

Dutch central bank De Nederlandsche Bank (DNB) was the first central bank to sign up to the PRI (as first reported by RI back in November), citing the importance of investing its €19bn reserves responsibly.

Signatories to the responsible investment network commit to a set of six principles with the objective of integrating ESG into the investment process and submit an assessed annual report on their progress.

The PRI has welcomed central banks into the fold, saying that responsible investment practices supports “market stability, management of government reserves and global collaboration”.

A HKMA spokesperson told RI that the regulator has also indicated its intention to join the Network for Greening the Financial System (NGFS), the relatively new 34-strong central bank network coordinating regulatory action on climate change.

Earlier this week, HKMA unveiled a raft of measures to support the development of sustainable banking and green finance in the Asian financial hub.

In its capacity as a regulator, HKMA will conduct a three-tiered review of the “greenness” of individual Hong Kong banks. First, industry associations, banks and international authorities will be surveyed to establish a “Greenness Baseline” appropriate for the local market. Subsequently, targets and metrics will be agreed with stakeholders which will then be the basis for performance evaluation.

According to a spokesperson, HKMA expects for example that banks will give due consideration to ESG considerations in the credit evaluation process.

As manager of Hong Kong’s $470bn Exchange Fund, the HKMA has said it will prioritise “Green and ESG investments”, citing a $2bn commitment to the Managed Co-lending Portfolio Programme (MCPP), an IFC fund investing in ESG infrastructure projects across emerging markets. However, it has stressed that allocations will only be made if returns are comparable to other possible investments.

HKMA has also instructed external managers to comply with the Principles of Responsible Ownership, a local stewardship code. In addition, it has pledged to grow its green bond portfolio, prioritise green accreditation in the selection of real estate investments and invest in ESG indices.Finally, HKMA is to establish the Centre for Green Finance (CGF) to leverage the experiences of international policy makers and HKMA partners. The first priority of the newly-convened group is co-organising the IFC’s flagship climate event, the Climate Business Forum, in Hong Kong next year.

A spokesperson told RI that “no duplication” is anticipated between CGF and the Green Finance Association (GFA), another recently formed green finance network in Hong Kong.
Instead both groups will work together, with the latter serving as the focal point for the private sector – to develop products and best practices for example – and the former representing the public sector.

HKMA is now the third Hong Kong financial regulator to have pushed for the development of responsible investment in the local market.

The HKMA’s move comes as the international monetary policy establishment is getting up to speed on climate risk.

Just last week the International Monetary Fund (IMF) said it was reviewing the role, and design of, fiscal policies for implementing climate mitigation strategies that countries under the Paris accord.

This activity leaves the US Federal Reserve increasingly isolated. This week saw the publication of a letter from Fed Chair Jerome Powell to senators seeking comment on what the US central bank has done to “identify and manage” climate risks in the US financial system.

Powell said that while climate change was a responsibility that Congress has entrusted to other agencies, the Fed “does use its authorities and tools to prepare financial institutions for severe weather events” and that it is an “active participant” in the Financial Stability Board, which had done “relevant work in this area”, though the Task Force on Climate-related Financial Disclosures, formed under the auspices of the FSB, is not specifically mentioned.

The reply was dubbed “garbage” by one of the senator Brian Schatz, a Democrat from Hawaii.

“The American agencies that oversee the financial system have decided to ignore climate change,” he said in a tweet.