ESG 2023 Comparisons

Background and Overview

Hong Kong is one of the first capital markets in the world to require companies listed on the territory’s stock exchanges to deliver annual ESG reports, as required under the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the “Listing Rules”), whereas there has been specific and growing emphasis on green and sustainable finance since the Strategic Framework for Green Finance was published by the Hong Kong Securities and Futures Commission (SFC) in 2018. Key initiatives included:

• updating the Environmental, Social and Governance Reporting Guide (Appendix 27 to the Main Board Listing Rules; Appendix 20 to the Growth Enterprise Market (GEM) Listing Rules) (the “ESG Reporting Guide”) under the Listing Rules in 2019 with enhanced mandatory requirements, which applied with effect from July 2020;
• separately issuing requirements for green or ESG funds offered to the public in Hong Kong; and
• issuing requirements for the management and disclosure of climate-related risks in funds under discretionary management and overall operational responsibility of SFC-licensed fund managers.

On the other hand, the Hong Kong Monetary Authority (HKMA) ‒ as both the central bank and, at the same time, the regulator of banks or authorised institutions conducting banking business in Hong Kong ‒ has encouraged the use of green, sustainable or sustainability-linked debt instruments (through its own green bonds as well as the offer of incentives) and engaged in taxonomy development. 

Hong Kong plays a strategic role in driving capital and investments towards green or sustainable finance ‒ given that it has one of world’s largest stock exchanges based on market capitalisation and is also an international financial centre and asset management hub. In May 2020, Hong Kong established the Green and Sustainable Finance Cross-Agency Steering Group (the “Steering Group”) co-chaired by the SFC and the HKMA together with members including the Environment and Ecology Bureau (EEB), Financial Services and the Treasury Bureau (FSTB), Hong Kong Exchanges and Clearing Limited (HKEX), Insurance Authority (IA) and the Mandatory Provident Fund Schemes Authority (MPFA). The aims of the Steering Group are to co-ordinate the management of climate and environmental risks to the financial sector, accelerate the growth of green and sustainable finance in Hong Kong and support the government’s climate strategies.

In 2021, the Hong Kong government reiterated its pledge to achieve carbon neutrality by 2050. An updated Climate Action Plan 2050 sets out more proactive strategies and measures on reducing carbon emissions and pursuing more aggressive interim decarbonisation targets to reduce Hong Kong’s carbon emissions by 50% from the 2005 level by 2035. Climate Action Plan 2050 sets out Hong Kong’s vision of “zero-carbon emissions liveable city sustainable development”, with four major decarbonisation strategies and measures on net-zero electricity generation, energy saving and green buildings, green transport and waste reduction.

Among these climate-related measures and actions towards decarbonisation, in June 2022 the HKMA adopted a three-phased approach to promote green and sustainable banking, as part of a two-year plan to integrate climate risk into its banking supervisory processes. In August 2023, the HKMA issued a circular setting out high-level principles to guide banks in planning for net-zero transition. In addition, Hong Kong has taken steps towards mandatory climate-related disclosures by 2025 for relevant sectors aligned with the framework of the Task Force on Climate-Related Financial Disclosures (TCFD) and intends to adapt and adopt the climate-related financial disclosure standards of the International Sustainability Standards Board (ISSB) in Hong Kong’s regulatory framework. The introduction and use of the ISSB in Hong Kong will bring about a paradigm shift in corporate sustainability reporting and, together with Hong Kong’s continuing strong efforts (including the Steering Group’s latest priorities), are expected to further strengthen Hong Kong’s sustainable finance ecosystem. 

ESG Reporting by Listed Companies

Hong Kong listed companies are subject to disclosure requirements under the ESG Reporting Guide, which covers environmental and social factors. Also relevant is the Corporate Governance Code (Appendix 14 to the Main Board Listing Rules; Appendix 15 to the GEM Listing Rules) (the “CG Code”), which covers disclosure on corporate governance aspects of listed companies. The updated ESG Reporting Guide, which applied with effect from July 2020, sets out an enhanced ESG disclosure framework that is mandatory in relation to reporting on the board’s engagement and oversight on ESG matters and requires “comply or explain” disclosure in relation to four environmental and eight social aspects.

Under the mandatory disclosure requirements, board directors are expected to provide a statement on the board’s oversight of ESG issues, its ESG management approach and strategy, and how the board reviews progress made against ESG-related goals and targets and how these relate to the issuer’s businesses. The ESG report must also disclose how the company addresses ESG materiality and describe any stakeholder engagement and the significant stakeholders identified, as well as the process and results of the issuer’s stakeholder engagement.

Listed companies are subject to “comply or explain” disclosures on each identified environmental and social aspect set out in the ESG Reporting Guide. They must also disclose KPIs to demonstrate how they have performed.

The environmental aspects are:

• emissions;
• use of resources;
• environment and natural resources; and
• climate change.

The social aspects are:

• employment;
• health and safety;
• development and training;
• labour standards;
• supply chain management;
• product responsibility;
• anti-corruption; and
• community investment.

In addition to the above-mentioned “comply or explain” matters, issuers are encouraged to identify and disclose additional ESG issues and KPIs that reflect the issuer’s significant environmental and social impacts or substantially influence the assessments and decisions of stakeholders. The issuer should engage with stakeholders on an ongoing basis to understand their views and better meet their expectations.

The CG Code, first introduced in 2005 and further updated over time, prescribes mandatory disclosure requirements for listed companies’ corporate governance reports. It also sets out the principles of good corporate governance, with two levels of recommendations ‒ namely, code provisions and recommended best practices. Code provisions are “comply or explain” requirements, whereas recommended best practices are for guidance and voluntary disclosure. Issuers are encouraged, but not required, to state whether they have complied with the recommended best practices and provide considered reasons for any deviation. Disclosure requirements under the CG Code include matters such as board composition, nomination and remuneration policy, the appointment of non-executive directors, board committees, and shareholders’ rights.

Pursuant to the most recent review of the CG Code and updated requirements published in December 2021 (the “CGC Update”), the linkage between corporate governance and ESG was emphasised, as was the responsibility of the board for effective governance and oversight of ESG matters. Key ESG-related changes include:

• listed companies are required to publish ESG reports on environmental and social matters in accordance with the ESG Reporting Guide at the same time as the publication of the annual reports;
• a new GC Code provision requiring disclosure of the issuer’s shareholders’ communication policy (or a summary thereof) by which shareholders communicate their views on matters affecting the issuer, steps taken to solicit and understand the views of shareholders and stakeholders, and a statement containing the issuer’s review of the implementation and effectiveness of the shareholders’ communication policy within the year;
• a new requirement for issuers to establish a whistle-blowing policy and a system for employees and those who deal with the issuer (eg, customers and suppliers) to raise concerns, in confidence and anonymity, about possible improprieties in any matter related to the issuer with the issuer’s audit committee (or any designated committee comprising the majority of the independent non-executive directors);
• board diversity is not considered to have been achieved in terms of single-gender boards, with all existing listed issuers required to comply following a three-year transition period and appoint at least one director of a different gender by no later than 31 December 2024 (and new listing applicants must not have single-gender boards);
• all listed companies are required to set and disclose numerical targets and timelines for achieving gender diversity both at board level and across the workforce (including senior management); and
• listed companies are required to adopt a diversity policy and to disclose this policy (or a summary thereof) in the corporate governance report, including any measurable objectives set for implementing the policy and progress on achieving those objectives.

Directors’ Duties and ESG

Following the CGC Update, the updated CG Code emphasises the responsibility of the board of directors of listed companies for effective governance and oversight of ESG matters. It further states that the entire board should focus on creating long-term sustainable growth for shareholders and delivering long-term values to all stakeholders, and that an effective corporate governance structure allows issuers to have a better understanding of ‒ as well as evaluate and manage ‒ risks and opportunities, including environmental and social risks and opportunities. A new CG Code provision provides that the board should establish the issuer’s purpose, values and strategy, as well as satisfy itself that these and the issuer’s culture are aligned.

As elaborated in Leadership Role and Accountability in ESG – Guide for Board and Directors, published in March 2020 for boards of directors of listed companies, a company’s board of directors should take leadership and accountability in:

• overseeing the assessment of the company’s environmental and social impacts;
• understanding the potential impact and related risks of ESG issues on the company’s operating model;
• aligning with what investors and regulators expect and require;
• enforcing a materiality assessment and reporting process to ensure actions are well followed through and implemented; and
• promoting a culture from the top down to ensure ESG considerations are part of the business decision-making process.

The board should consider whether it needs the help of a board committee. It could establish a new ESG committee (such as a dedicated sustainability committee) or expand the roles of an existing committee in order to integrate ESG issues into key governance processes ‒ for example, the audit and risks committee could be responsible for ensuring that data in the group’s sustainability reports are appropriate.

Adoption of ISSB Climate Standard

In April 2023, the Stock Exchange of Hong Kong (SEHK) published a consultation paper proposing to amend the ESG Reporting Guide with a view to introducing requirements aligned with the ISSB Climate-Related Disclosures Standard (the “ISSB Climate Standard”). Following the end of the consultation period, the final form of the new SEHK requirements is still to be issued – although they are intended to largely align with the ISSB Climate Standard (the official version of which was published on 26 June 2023). The enhanced climate-related disclosures are proposed to be introduced through a new Part D in the Listing Rules’ ESG Reporting Guide, which would be elevated to be the ESG Reporting Code (with Part D made mandatory). Mirroring the principles in the ISSB Climate Standard and the TCFD, the proposed requirements focus on four key areas – namely, governance, strategy, risk management, and metrics and target. The new requirements are expected to be adopted in 2024, while certain requirements will be under interim provisions for the first two reporting years from the proposed effective date of 1 January 2024. These include disclosures concerning the financial effects of climate-related risks and opportunities, Scope 3 emissions and certain cross-industry metrics.

The enhanced disclosures are likely to have a significant impact on the way in which issuers govern their business, as well as on corporate finance considerations. Issuers will be required to provide more detailed information on their climate-related risks and opportunities, including how they control and manage climate-related risks, as well as their impact on the issuers’ business operations and strategy, supply chain, upstream and downstream value chain, and available skills and resources. These requirements –combined with a clear expectation for setting climate-related targets and transition planning – should lead issuers to consider the resilience and long-term viability of assets and business models, as well as their ability to generate returns in a sustainable manner that mitigates or reduces climate-related risks, and therefore towards operating in a low-carbon economy.

The clear expectation for disclosure of transition plans in response to identified climate-related risks and opportunities – including changes to business models and strategies, any adaptation and mitigation efforts, and climate-related targets – will mark an important shift from corporate sustainability reporting on historical emissions data (removed from corporate strategy) towards forward-looking greenhouse gas emissions target-setting as part of corporate strategic planning. Issuers should describe or disclose how their target-setting relates to their transition plan and strategy, as well as how the transition changes or efforts intend to meet the greenhouse gas emission targets. Together with more robust transition planning in issuers’ corporate strategy and assessment of how climate-related risks and opportunities could impact the issuers’ business model, strategy, cash flows, finance and cost of capital under the enhanced requirements, this would lay the foundation for and could drive more use of sustainable financing instruments (such as green or sustainability-linked loans, green or sustainable trade or supply chain financing, or the issuance of green or sustainability-linked bonds) and, specifically, transition finance.

As it stands, the proposed requirements are scheduled to be effective from 1 January 2024, so issuers should already start considering and preparing to meet the proposed requirements. With expected disclosure requirements extending to Scope 3 emissions covering significant upstream and downstream activities along the value chain, organisations will also need to incorporate appropriate policies or processes in procurement, supply chain management and due diligence.

The enhanced climate disclosure requirements may also help to drive innovation in climate-related technologies and business models. Companies that are able to demonstrate their ability to manage climate risks and capitalise on climate-related opportunities may be more attractive to investors and customers, thereby creating incentives for companies to develop new products and services that are better suited to a low-carbon future. By requiring companies to provide more detailed and reliable information on their climate-related risks and opportunities, Hong Kong is promoting greater transparency and accountability in the corporate sector – something that could ultimately drive more sustainable business practices and investment decisions.

Green, Sustainable and Sustainability-Linked Debt Instruments

The Hong Kong government has been leading the way on green bonds and became the first Asian signatory to the Green Bond Pledge in May 2019, demonstrating its commitment to greening infrastructures with the aim of reinforcing the goals of the Paris Agreement. Separately, the HKMA launched the Grant Scheme in May 2021 to provide eligible green and sustainable bond issuers with a subsidy to cover expenses of bond issuance and external review services from HKMA-recognised external reviewers. The Grant Scheme is a continuation and consolidation of the earlier Pilot Bond Grant Scheme introduced in May 2018 and the Green Bond Grant Scheme announced in June 2018.

According to HKMA’s 2019 Green Bond Report, more than half (55%) of the green bond issuers in Hong Kong were first-time issuers, reflecting the strong appeal of Hong Kong to new issuers due to supportive government policies, strong expertise, robust green bond infrastructure and a broad investor base. A survey commissioned by the Hong Kong Institute for Monetary Research (HKIMR) and conducted from June to August 2020 – titled Developing Hong Kong into a Global Green Bond Hub (the “Green Bond Survey”) – found that the major considerations for the issuance of green bonds are brand development needs, issuance costs, and the size and availability of international investors. Participants in the Green Bond Survey rated the large number of international investors, availability of government subsidies and support, and low legal and marketing expenses as important advantages of the Hong Kong green bond market.

Meanwhile, existing investors cite investment returns as a main factor in investing in green bonds and more than 40% of existing investors who participated in the survey were motivated to make green bond investments in Hong Kong by socially responsible issuers and transparent ESG information disclosure. At the same time, potential and existing issuers have reported that one of the key challenges in the green bond market in Hong Kong is the verification and certification procedure, which involves financial and time costs, despite the availability of incentive schemes provided by the HKMA.

However, according to the HKMA’s report The Hong Kong Bond Market in 2022, at least 220 green and sustainable debt instruments totalling more than USD70 billion had benefited from the HKMA Grant Scheme by March 2023. In 2022, the Grant Scheme was also enhanced to make it easier for SMEs in various sectors to obtain green financing.

The assurance and certification process for green bonds is not regulated by regulators in Hong Kong. However, under the Grant Scheme administered by the HKMA, the endorsement of internationally recognised standards for green bond issuance and the incentive offered for external reviews reflect the regulatory attitude towards the importance of assurance and verification. The Hong Kong Quality Assurance Agency (HKQAA), supported by the government, has developed and launched the Green and Sustainable Finance Certification Scheme (GSFCS) to provide third-party conformity assessments and certification for green and sustainable finance issuers. Compared with its predecessor, the Green Finance Certification Scheme, the GSFCS emphasises the importance of impact assessment, stakeholder engagement and transparency and its scope further covers green and sustainable subjects such as sustainability-linked or green bonds and climate transition requirements. The Hong Kong government also launched the Grant Scheme to subsidise eligible green and sustainable bond issuers for the costs of external review by a recognised external reviewer. The HKQAA is one of the recognised external reviewers.

The HKQAA has developed the GSFCS with reference to a number of widely recognised national and international standards and principles on green and sustainable finance, including:

• the International Capital Market Association (ICMA)’s Green Bond Principles;
• ICMA’s Social Bond Principles;
• ICMA’s Sustainability Bond Guidelines;
• ICMA’s Sustainability-linked Bond Principles;
• ICMA’s Climate Transition Finance Handbook;
• Loan Market Association (LMA), Asia Pacific Loan Market Association (APLMA), Loan Syndications and Trading Association (LSTA) – Green Loan Principles;
• LMA, APLMA, LSTA – Sustainability-Linked Loan Principles;
• ISO/DIS 14030 Environmental Performance Evaluation – Green Debt Instruments (Parts 1–4);
• EU Technical Expert Group’s Recommendations for an EU Green Bond Standard; and
• Announcement No 20 (2017) of the People’s Bank of China and the China Securities Regulatory Commission – Guidelines for the Assessment and Certification of Green Bonds (Interim).

HKQAA certification can be issued at stages of pre-issuance and post-issuance and the certified green and sustainable finance instruments are displayed on the HKQAA’s website on green finance.

Green or ESG Funds

The SFC first published guidance on enhanced disclosures for SFC-authorised green or ESG funds in April 2019 in a circular entitled “Circular to management companies of SFC-authorised unit trusts and mutual funds – Green or ESG funds” – although this has now been superseded with effect from 1 January 2022 by a revised circular issued in June 2021 (the “2021 Circular”). Pursuant to the 2021 Circular, SFC-authorised unit trusts and mutual funds that incorporate ESG factors as their key investment focus and reflect such in their investment objective and/or strategy (“ESG fund(s)”) are required to disclose the following in their offering documents, among other things:

• the ESG focus – a description of the ESG fund’s ESG focus, including the ESG criteria used to measure the attainment of the ESG focus;
• the ESG investment strategy – a description of the ESG fund’s ESG strategy, including the binding elements and significance of the strategy in the investment process and how such strategy is implemented in the investment process on a continuous basis, as well as a summary of the process of considering ESG criteria and whether any exclusion policy is adopted by the ESG fund (and types of exclusion);
• asset allocation – the expected or minimum proportion of securities or other investments of the ESG fund (in terms of net asset value) that are commensurate with the ESG focus;
• reference benchmark (if applicable) – along with the relevance of a designated benchmark to the fund;
• indication of additional information sources where investors can find out about the ESG fund (eg, website); and
• applicable risks associated with the ESG fund’s ESG focus and associated investments strategies (eg, limitation of methodology and data, lack of standardised taxonomy, subjective judgment in investment selection, reliance on third-party sources, and concentration in investments with the particular ESG focus).

In particular, the 2021 Circular provides additional guidance requiring disclosure of:

• how the ESG fund’s ESG focus is measured and monitored (as well as the related internal or external control mechanisms);
• the methodologies to measure the ESG focus and the due diligence in respect of the underlying assets’ ESG-related attributes;
• a description of any engagement policies; and
• a description of the sources and processing of ESG data (or, alternatively, any assumptions made where relevant data is not available).

The 2021 Circular further states that an ESG fund should conduct periodic assessments of how the fund has attained its ESG focus and should disclose relevant information about such assessment to its investors.

The 2021 Circular states that ESG factors may include those that are aligned with one or more of the ESG criteria or principles recognised globally or nationally, such as:

• the United Nations Global Compact Principles;
• the United Nations Sustainable Development Goals;
• the Common Principles for Climate Mitigation Finance Tracking;
• the ICMA’s Green Bond Principles;
• the Climate Bonds Initiative’s Climate Bonds Taxonomy; or
• any other ESG or sustainability criteria, principles or taxonomies.

The ESG fund’s manager should regularly monitor and evaluate the underlying investments, with proper procedures in place, to make sure it continues to meet the stated ESG focus and requirements set out in the 2021 Circular. For new applications to authorise ESG funds submitted on or after 1 January 2022, the manager is required to provide the SFC with either a self-confirmation of compliance or a confirmation of compliance supported by independent third-party certification or a fund label. As part of the certification or labelling process, the SFC expects the independent third party or fund labelling agency to review – at a minimum – the ESG fund’s primary investments that reflect its particular ESG focus, along with the investment selection and ongoing monitoring processes.

The SFC recognises that Undertakings for the Collective Investment in Transferable Securities (UCITS) funds from certain jurisdictions are already subject to the EU regulation on sustainability-related disclosures in the financial services sectors – namely, the Sustainable Finance Disclosure Regulation (SFDR). However, whether UCITS ESG funds that meet the disclosure and reporting requirements for Article 8 or Article 9 funds under the SFDR are considered ESG funds in Hong Kong will depend on whether such funds incorporate ESG factors into the key investment focus (as expected under the 2021 Circular). Subject to that, such UCITS Article 8 or Article 9 funds will be deemed to have generally complied in substance with the disclosure requirements set out in the 2021 Circular. However, where appropriate, the SFC may request enhanced disclosure in respect of the fund’s specific strategies and risks. The SFC may also impose or vary the requirements in respect of UCITS ESG funds as it deems fit at any time. Such application is subject to review from time to time.

Climate Risks and the TCFD

With reference to the TCFD, Hong Kong fund managers licensed by the SFC are expected to establish a governance framework to consider the materiality and relevance of climate-related risks to funds under their management. Where relevant and material, they must take climate-related risks into consideration in their investment and risk management processes and make relevant disclosures, including entity-level or product-level disclosures where the fund manager is responsible for the overall operation of the fund in question.

With effect from August 2022 for “large fund managers” (ie, those managing funds of at least HKD8 billion for any three months in the previous reporting year) or from November 2022 for other managers, new requirements apply under the SFC Fund Manager Code of Conduct (FMCC) for the management and disclosure of climate-related risks. The requirements cover four key elements – namely, governance, investment management, risk management and disclosure. The SFC also issued a circular to licensed corporations on management and disclosure of climate-related risks by fund managers in August 2021 (the “Climate-Related Risks Circular”), which sets out the expected standards for complying with the new FMCC requirements, including enhanced standards for large fund managers and baseline requirements for all fund managers managing collective investment schemes.

Under the HKMA Supervisory Policy Manual, banks in Hong Kong are required to develop an appropriate approach to disclosing climate-related information in order to enhance transparency. As a minimum, authorised institutions (AIs) must make climate-related disclosures aligned with the TCFD recommendations concerning governance, strategy, risk management, and metrics and targets. The HKMA expects AIs to take action to prepare climate-related disclosures in accordance with TCFD recommendations as soon as practicable; first disclosures must be no later than mid-2023 and then at least on an annual basis. The HKMA will initially take a pragmatic approach in monitoring disclosures, with a view to aligning disclosures no later than 2025, while acknowledging that AIs may adopt a “comply or explain” approach to explain difficulties in climate-related disclosures and may also adopt plans for future enhancements, keeping abreast of global developments in order to plan ahead to progressively enhance disclosure.

As regards insurance companies, the Investment Association (IA) has yet to introduce guidelines or regulations that specifically cover ESG disclosures or require insurance firms to disclose their policies on the consideration or management of ESG risks in their asset allocation process. However, as a member of the Steering Group, the IA has advised the insurance industry to note the green and sustainable finance data source repository launched by the Steering Group’s Centre for Green and Sustainable Finance on the potential use of climate-related risks, climate scenarios, other climate-related targets and data sets from these data sources for managing climate-related risks and facilitating companies setting climate-related goals and strategies.

Separately, the MPFA has issued a set of “Principles for Adopting Sustainable Investing in the Investment and Risk Management Processes of MPF Funds” – containing requirements for governance, strategy, risk management and disclosure – as a framework for MPF trustees to integrate ESG factors into the investment and risk management processes of MPF funds from a financial risk management perspective and to make relevant disclosures to MPF scheme members.

Hong Kong Taxonomy

Among the plans to advance Hong Kong’s green and sustainable finance development is the adoption of a green classification framework to facilitate navigation of the EU–China Common Ground Taxonomy led by the International Platform for Sustainable Finance (IPSF). In May 2023, the HKMA released a discussion paper – entitled Prototype of a Green Classification Framework for Hong Kong – to seek feedback from the market and stakeholders.

This prototype is issued with the intent to operationalise the use and adoption of the EU–China Common Ground Taxonomy. The discussion paper outlines the structure and core elements of the proposed prototype framework, which has been developed with the support of the Climate Bonds Initiative. Importantly, its aims are based on the following core principles:

• alignment with the Paris Agreement;
• protection from greenwashing;
• interoperability with other taxonomies;
• science-based criteria and thresholds; and
• minimum social safeguards (MSS) and an ethos of “Do No Significant Harm” (DNHS) to other sustainability issues.

To be expanded over time, the prototype initially covers the energy, transport, buildings, water and water sectors, with twelve selected prototype activities for contributing to the environmental objective of climate change mitigation. Suggested activity cards for each activity outline the related sector overview, metrics, criteria and thresholds, questions, and outstanding issues that are proposed for assessing taxonomy alignment. Besides covering more sectors, the prototype also aims to:

• consider transition activities and new environmental objectives such as climate adaptation, biodiversity conservation, and promotion of circular economy;
• assess appropriate DNSH methods and MSS; and
• enhance usability by connecting to the real economy and financial markets.

Carbon Market

Hong Kong is also assessing the development of a regional carbon trading centre, with the Carbon Market Work Stream of the Steering Group chaired by the SFC and the HKEX considering the appropriate market and regulatory models. On 28 October 2022, the HKEX launched an international carbon marketplace, Core Climate, which aims to provide effective and transparent trading of voluntary carbon credits and instruments across Asia and beyond. It is worth considering Hong Kong’s expected role as China continues its strong efforts in green finance (eg, the Guangdong-Hong Kong-Macau Greater Bay Area Green Finance Alliance), including initiatives to develop an integrated carbon market.

The Carbon Market Work Stream co-chaired by the SFC and the SEHK was established to assess the feasibility of developing Hong Kong as a regional carbon trading centre to strengthen collaboration in the area. It will actively explore opportunities presented by both the cap-and-trade carbon market and the voluntary carbon market in China and overseas. The launch of Core Climate by HKEX to develop Hong Kong into a global high-quality voluntary carbon market is another key milestone in Hong Kong’s efforts towards decarbonisation and transition pathways, regionally and globally.

Technology

While the Hong Kong government will continue to promote green and sustainable finance in order to further position and consolidate Hong Kong’s role as a green and sustainable finance centre in Asia and globally, it also has ambitions to develop Hong Kong as a green technology hub. In August 2023 the Hong Kong government made an offering of HKD800 million in tokenised green bonds, thereby becoming the first government in the world to issue a tokenised green bond.

In another exciting development for the investment industry and for Hong Kong’s further development as a sustainable finance hub and technology hub, the Hong Kong government has established the Hong Kong Investment Corporation Limited (HKIC) after expressing this intention in the 2022 Policy Address of the Hong Kong Chief Executive. The HKIC has been established to manage the investment activities of the Hong Kong Growth Portfolio, the Greater Bay Area Investment Fund and the Strategic Tech Fund, as well as a newly established Co-Investment Fund aimed at attracting enterprises to Hong Kong and helping them to develop their business in Hong Kong. The market can anticipate the HKIC’s investment strategies and mandate to support Hong Kong’s goals in sustainable finance, as well as enhance the broader development of Hong Kong’s economy and strategic sectors.

The most recently announced key priorities of the Steering Group include a stated intention to boost Hong Kong’s vibrancy and competitiveness through capacity-building, data enhancement and technology innovation in the finance ecosystem to support net-zero transition across the economy. This sits alongside the other priorities of establishing world-class regulation through alignment with global standards (in particular, the ISSB disclosure standards) and further supporting financing institutions and corporates in transition planning and reporting through cultivating dynamic, trusted markets with diverse products in order to mobilise capital at scale to support the net-zero transition. Besides technology innovation to support sustainability planning and reporting (eg, developing data portals to increase availability and accessibility of climate-related data), the Steering Group will explore opportunities for PPPs to promote the development of technology-driven solutions and will engage with relevant stakeholders to develop a Hong Kong green fintech map.

With the global trend towards sustainability in the interconnected nature of cross-border trade and investments, international efforts to address climate change – as well as other global standards, policy and regulatory changes, including (but not limited to) international taxonomies development, the EU mandatory supply chain human rights due diligence laws, the SFDR and the EU Corporate Sustainability Reporting Directive – will further drive corporate ESG performance and due diligence in the market. 

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