Hong Kong targets EU-China interoperability with release of taxonomy draft  

The Hong Kong Monetary Authority (HKMA) has pledged to drive global convergence between green taxonomies issued by the EU and China with the release of its debut taxonomy, according to documents circulated on Tuesday.

Hong Kong’s taxonomy will be based on the so-called common ground taxonomy (CGT), which was developed by a multilateral EU working group to map areas of alignment between the EU and Chinese green taxonomies.

Hong Kong’s de facto central bank said that it “will be the first market to operationalise the CGT… [which] would also provide international issuers and investors with a tool for reporting and communicating sustainability impacts” across global markets.

“Hong Kong could strengthen its position as a hub and contribute positively to the growing need for interoperability among standards within the green finance space,” it said. “As part of China, the Hong Kong Special Administrative Region has the duty to make its contribution in order to achieve the goals of the Paris Agreement.”

But the HKMA noted the difficulty in matching the criteria outlined in the CGT due to a number of eligibility requirements which are only usable within respective EU and Chinese jurisdictions, and ensuring that the criteria “consider local circumstances” while maintaining scientific rigour.

The EU’s International Platform on Sustainable Finance, which initially developed the CGT, has been contacted for comment.

The draft taxonomy was developed externally by influential sustainable finance NGO the Climate Bonds Initiative (CBI). CBI staff, most notably CEO Sean Kidney, have sat on the working and advisory groups which proposed the conceptual framework for the EU taxonomy and continue to play an advisory role in its ongoing development.

The framework will solely address climate change mitigation, according to CBI, but will incorporate a Do No Significant Harm hurdle requirement in future updates to ensure that green-aligned activities are not at odds with other environmental objectives.

In its current guise, the taxonomy – which is now open for feedback by market stakeholders – includes proposed eligibility criteria for a handful of sectors including energy, land and water transportation, water and waste management, and construction.

The Hong Kong taxonomy does not include an exemption for gas-power energy, unlike the EU, and applies a fixed 100g Co2e/kWh limit to lifecycle emissions to all activities which would effectively render the energy source ineligible. Nuclear power is considered admissible under the taxonomy, similar to both of its parent frameworks.

CBI has indicated that it may continue building out the taxonomy by adding new sectors such as agriculture, industrial activities, technology development and R&D, and fleshing out a transition criteria in future updates. A set of recommendations based on market feedback will be delivered by the non-profit in Q3.

It is unclear whether CBI will take permanent ownership of developing the taxonomy or will make a formal hand-off once complete. Responsible Investor has approached CBI for comment.

Respondents will have until 30 June to comment on the draft taxonomy.