Hong Kong panel sets out road-map to be regional green investment hub

Recommendations from high-level Financial Services Development Council

Hong Kong’s Financial Services Development Council (FSDC), an advisory council set up by the Hong Kong government in 2013, has unveiled a series of recommendations to attract green finance investments; including strategic green bond issuance by the government.

It is the latest jurisdiction to attempt to position itself as a hub for green or sustainable finance. The City of London has the Green Finance Initiative – the City’s play to become a major world hub for environmental finance; Luxembourg has a burgeoning label for ESG funds to attract interest; and Ireland, France and China are among other countries working hard to establish frameworks for ESG finance.

Hong Kong is already developing infrastructure around sustainable finance. At the start of the year, the Hong Kong stock exchange required ESG disclosure from companies on a ‘comply or explain’ basis and in March, the Securities and Futures Commission (SFC) introduced a stewardship code for investors – the Principles of Responsible Ownership.

In a paper released this week, the FSDC welcomes these moves, but it says in general development of green finance in Hong Kong has been “piecemeal, uncoordinated and largely driven by market opportunity as opposed to direct policy or regulatory direction”.

It calls on the Hong Kong government to provide leadership to stimulate and encourage green investment, and makes a series of recommendations to this end.

This includes strategic green bond issuance.

The FSDC says while the Hong Kong government has made a clear objective to see the bond market grow, Hong Kong has so far been a “relatively insignificant partner in the green bond market”.It notes that despite being listed in Hong Kong, the Industrial and Commercial Bank of China listed its RMB-denominated green bond at the London Stock Exchange.
The FSDC is chaired by Laura Cha, who is an independent non-executive director at HSBC and deputy chair of its Hongkong and Shanghai Banking Corporation arm as well as a non-official member of Hong Kong’s policy-making Executive Council.

The FSDC recommends that the government issues benchmark green bonds that it says could be earmarked for a range of projects, including Building Environmental Assessment Method-compliant public housing and an extension of the Mass Transit Railway.

In addition to issuing its own bonds, it advises the Hong Kong government to influence development banks, such as the Asian Development Bank, to issue green bonds in Hong Kong; and provide tax incentives around green bonds.

The FSDC also says Hong Kong should establish a Green Finance Advisory Council to advise on policy and promotion of green investment, in a similar vein to China’s Green Finance Task Force.

Other recommendations include supporting growth of a green investor base by allowing pension funds and other asset owners to invest in Hong Kong-issued bonds; developing green fund labeling and green project accreditation; and encouraging central bank the Hong Kong Monetary Authority to study climate and environmental risks to investment portfolios. Link