The Hong Kong Monetary Authority (HKMA) is considering making its green taxonomy framework mandatory for the banking sector to bolster the development of sustainable financing in the region.
According to South China Morning Post, the green taxonomy, which was issued last month, is designed to help banks and investors assess the sustainability of economic activities. Covering 12 economic activities across four sectors – energy, transport, construction, and water and waste management – the framework aims to offer a clear reference for determining what constitutes as green.
Kenneth Hui, executive director (external) of HKMA, highlighted the potential shift from voluntary adoption to mandatory compliance at the launch of the University of Hong Kong’s Jockey Club Enterprise Sustainability Global Research Institute. “We will look into whether to make it mandatory, at least for the banking sector, so that we have a solid investor base,” Hui said. “Right now it’s voluntary, so capital market and banking [participants] can choose to adopt it. We believe it provides a good reference point for investors as well as issuers to basically have a clear definition of what is green and what isn’t.”
HKMA is also working on extending the taxonomy’s coverage to include additional green activities beyond the initial four sectors, with hydrogen and hydropower being considered. Furthermore, there are plans to incorporate transition financing and provide industry-specific guidance to ensure comprehensive and practical implementation.
Ma Jun, chairman and president of the Hong Kong Green Finance Association, emphasized the importance of consolidating different sustainability taxonomies and disclosures to mitigate the risk of greenwashing and reduce transaction costs. “Hong Kong can play a key role as a testing ground for interoperable standards,” Ma said. “The inconsistency and incompatibility of various taxonomy and disclosure standards, principles and regulations could result in market fragmentation, increase transaction costs and even encourage greenwashing.”
As a part of its broader sustainability agenda, the Hong Kong Exchanges and Clearing (HKEX) recently concluded its consultation on enhancing climate-related disclosures under its ESG framework. The new requirements align with the climate standards set by the International Sustainability Standards Board (ISSB), which was established during the COP26 global climate summit in Glasgow in 2021 to consolidate various reporting standards. The ISSB released its final standards in June last year.
Michael Duignan, executive director of corporate finance at the Securities and Futures Commission, noted the challenges in applying ISSB standards to the Hong Kong market. “One of the biggest challenges for us was to introduce rules that straddle the [two jurisdictions] because China is in a different place in its development compared to Hong Kong,” Duignan said. “That meant we had to base the standards on ISSB, but introduce all the flexibility built into ISSB.”
As Hong Kong navigates these challenges, its efforts to establish a robust, interoperable green taxonomy could set a global precedent for sustainable financing frameworks.
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