Hong Kong is well-positioned to become a leading hub for green finance in the region and economies along the Belt and Road, as Mainland China’s commitment to sustainability gathers pace.
There is little doubt that investor interest in green finance, and particularly green bonds, is growing. Last year, green bond issuance in Hong Kong hit US$11 billion – a 237% increase on the US$3 billion issuance in 2017. Mainland China is now the second-largest issuer of green bonds in the world, topping out at US$39 billion in 2018.
As Chairman and President of Hong Kong Green Finance Association (HKGFA) and Chairman of China Green Finance Committee (GFC), Dr Ma Jun has a unique understanding of the dynamic growth of green finance in Mainland China, Hong Kong and economies along the Belt and Road.
Ma Jun, Hong Kong Green Finance Association
Launched in September 2018, the HKGFA’s mission is to position Hong Kong as the “go-to” location for green investment. “We need to promote Hong Kong as a green finance centre, for raising green money locally, but also for projects in Mainland China and Belt and Road projects,” Ma said.
According to Ma, Hong Kong has strategic advantages over Mainland China and other emerging market economies.
Ma said: “Hong Kong has a developed financial system with very good regulators, high-quality professionals and an open capital account. Rules and standards are in place, so it already has a base for developing as a hub for the green finance segment of the market.”
Mainland companies are also encouraged to issue green bonds in Hong Kong as its liquid foreign exchange market sometimes gives Chinese issuers more favourable foreign currency terms, Ma said.
Strategic advantages
Ma sees proximity to Mainland China’s huge green economy as another strategic advantage. “The mainland needs to raise about Rmb4 trillion a year for green investments, and a lot of these projects will come to Hong Kong for fund raising. More than half of the green bonds issued in Hong Kong were in fact issued for mainland projects.”
One of those who successfully sought green funding last year was property developer New World Development, the first Hong Kong-listed corporate to join the green loan trend. The company will use its US$495 million loan for a major redevelopment in the North Point area of Hong Kong Island, as well as green developments in the mainland.
Belt and Road economies are another source of opportunity for Hong Kong’s green finance sector. “In the coming 20 years, my estimation is that Belt and Road countries will need to raise green finance three times more than China’s, so if Hong Kong can position itself as a centre for green financing, this will create a lot of business opportunities,” Ma said.
It is an opinion mirrored by the Organisation for Economic Co-operation and Development. It estimates demand for green infrastructure projects along the Belt and Road is likely to reach US$1.5 trillion per year between 2016 and 2030.
Going mainstream
Globally, environmental sustainability as a concept is now widely accepted by financial institutions and banks. At least 36 central banks and financial regulators have incorporated green finance roadmaps covering environment and climate risk into their practices, while sustainable financing (e.g. loans, bonds, insurance, ETFs) is now considered mainstream. “Relatively speaking, Hong Kong is a bit late when compared to Europe and UK, but it is still leading many parts of the market,” Ma said.
Policy support
Although Ma would like to see more regulators encouraging financial institutions to adopt sustainable management practices, he said Hong Kong’s government and financial sector is active on a number of fronts.
As part of this drive, the HKGFA is currently drafting a set of green banking principles to promote environmental, social and governance (ESG) integration within 130 banks in Hong Kong. It is also undertaking an ESG disclosure study to raise awareness and highlight the importance of green investments in a portfolio’s future performance among institutional investors.
“Here in Hong Kong, ESG adoption rates by institutional investors is low, but in the future, a greater percentage of fund managers will incorporate green products into their portfolios,” Ma said.
Government efforts to attract more corporate green bond issuance in Hong Kong, including subsidies via the Green Bond Grant Scheme, were launched in June 2018. Additionally, a government green bond programme with a borrowing ceiling of HK$100 billion was announced in the 2018-19 Budget.
Hong Kong’s Green Finance Certification Scheme is designed to promote local certification of green finance products and encourage lower funding costs. Last year, the Hong Kong Exchanges and Clearing Limited (HKEX) joined the United Nations Sustainable Stock Exchanges Initiative, strengthening its commitment to greener and more sustainable business.
With government support, Belt and Road opportunities, and its well-established financial services, Hong Kong is well on the way to becoming Asia’s green finance hub.
BEC: Hong Kong’s business community drives sustainable economic development
Hong Kong’s Business Environment Council is an independent non-profit organisation with a 27-year history of encouraging greener business. Today, the council is engaging with businesses regarding climate risks and their impact on investment decisions.
Promoting sustainability in Hong Kong for more than a quarter of a century, Business Environment Council (BEC) is an independent non-profit organisation driving Hong Kong business towards a more sustainable economy through green collaboration with diverse stakeholders. It also provides solutions and professional services focused on environmental sustainability.
In the past, local business has taken a cautious approach to sustainable innovation, adopting a wait-and-see strategy. But the pace of change in green finance, particularly in the green bond market, shows investors’ attitudes have changed. For example, in 2016, the real estate investment trust Link REIT issued the first green bond from Hong Kong for US$500 million. By 2018, the local green bond market had hit US$11 billion.
Advantage Hong Kong
According to Nadira Lamrad, Assistant Director, Sustainability and ESG Advisory at BEC, green finance will be advantageous to Hong Kong. Its financial services, expertise, infrastructure and increasing government and investor support have the potential to develop the city into a regional leader for green investment.
Nadira Lamrad, Business Environment Council
“Hong Kong has long been a bridge facilitating capital flows into and out of Mainland China and emerging markets in the Asia-Pacific region. The city can easily extend this role as a trusted market to green investment vehicles,” Lamrad said.
“The institutions and laws that are in place here protect investors to a certain extent and Hong Kong as a hub for Belt and Road investment provides the credibility and security that’s needed to encourage investment,” she said.
Supporting businesses
BEC promotes policies that drive environmental sustainability as well as topic-driven education for both its members and the community. “I like to think we are the voice of Hong Kong business when it comes to environmental sustainability because our membership really does represent a cross section of the business community.” Currently, its members are engaged in advisory groups focused on climate change, environmental, social and governance (ESG), waste, energy, and transport and logistics.
BEC is now working with the property and construction value chain to promote the importance of setting carbon reduction targets since it is the largest contributor to carbon emissions locally. BEC aims to encourage more businesses to develop long-term strategies and carbon reduction targets by offering different solutions from helping individual companies set environmental targets to education and discussion programs.
Challenging choices
Lamrad’s team focuses on sustainability and ESG strategy and disclosure for a variety of companies from different sectors. “We work with companies to understand their objective and get them where they want to be in, say, five years’ time, in incremental steps.” The team also helps companies meet investor questionnaire requirements and improve internal structures and overall performance for those seeking inclusion in specific indices.
Lamrad points out that companies make challenging choices when choosing a strategy to meet ESG requirements. “There are so many sustainability frameworks. Companies don’t have the resources to do everything, so you have to be as careful when it comes to resource allocation for sustainability and ESG, as you are with any other part of your business.”
