HKMA unveils measures on sustainable banking and green finance

Hong Kong has long sought a role as a leading financial hub for green finance, and the HKMA has unveiled three measures to support this aspiration and sustainability per se

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The Hong Kong Monetary Authority (HKMA) on May 7 unveiled three sets of measures to support and promote Hong Kong’s green finance development.

The measures were announced during the HKMA green finance forum, where HKMA chief executive Norman Chan indicated in his opening remarks that HKMA would collaborate with the industry and other stakeholders to combat climate change risks and develop green finance.

This development comes (by design or coincidence) just as the Hong Kong government issued the mandate for its long-awaited green bond offering, with Credit Agricole and HSBC being appointed as joint global coordinators and structuring banks for the transaction. The proceeds will be used exclusively to finance or refinance green projects, as set out in the government’s green bond framework.

The HKMA measures include green and sustainable banking, the first phase includes developing a common framework to assess the “greenness baseline” of individual banks. The HKMA will collaborate with relevant international bodies to provide technical support to banks in Hong Kong to better understand the green principles and methodology in undertaking the baseline assessment.

The second phase involves engaging the industry and other relevant stakeholders in a consultation on the supervisory expectation or requirement on green and sustainable banking going forward. The key objective of this phase, Chan points out, is to set tangible deliverables for Hong Kong’s banking industry to become greener and more sustainable.

Once the deliverables have been set, the next phase is about implementation, monitoring and evaluation. The success of this phase, according to Chan, depends crucially on appropriate measurement of the “greenness” of the banks and the timely disclosure of progress or the lack of it. “With the support of the banking industry I expect phase one could be completed within around 12 months’ time from now,” he adds.

The second measure is about responsible investment. As the manager of the Exchange Fund, whose main role is to back the Hong Kong dollar, the HKMA will adopt a principle that priority can be given to green and ESG investments if the long-term return is comparable to other investments on a risk-adjusted basis.

To support responsible investment, the HKMA has already incorporated ESG factors in HKMA’s credit risk analysis of bond investment. It requires external managers of the Hong Kong equity portfolios to comply with the principles of responsible ownership promulgated by the Securities and Futures Commission in 2016. It has already invested two tranches of US$1 billion each in the Managed Co-lending Portfolio Programme (MCPP) run by the International Finance Corporation (IFC), with a substantial part of the MCPP targeting sustainable investments across emerging markets.

HKMA will further grow the Exchange Fund’s green bond portfolio through direct investment in green projects or investment in green bond funds. The body will also participate in ESG-themed public equities investments through external managers in passive or active mandates that target ESG benchmark indexes.

HKMA will likewise accord green accreditation as a predominant factor in investment in its real estate portfolio and it will consider an appropriate framework for disclosing information on the Exchange Fund’s green and ESG investing efforts without arousing market sensitivity in the process.

The third measure involves the establishment of a Centre for Green Finance (CGF) under the HKMA Infrastructure Financing Facilitation Office. It will serve as a platform for technical support and experience sharing for the green development of the Hong Kong banking and finance industry.

Meanwhile, the CGF, together with the IFC, will co-organize the next Climate Business Forum in Hong Kong in 2020. The forum is IFC’s flagship event to discuss trends and business opportunities relating to climate change and sustainability.

The HKMA introduction of key measures on sustainable banking and green finance comes after Hong Kong became the first Asian signatory to the Green Bond Pledge, demonstrating its commitment to incorporate low carbon, resilient and sustainable solutions into the planning and deployment of infrastructure projects, aiming to reinforce the goals of the Paris Agreement.

Hong Kong is committed to fostering a robust green bond market and establish the territory as a leading hub for green finance in the region. To demonstrate such a commitment, the government announced in 2018 a HK$100 billion (US$12.8 billion) sovereign green bond programme to encourage more issuers to arrange financing for their green projects through capital markets in Hong Kong and grow the local green investor base.

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Date

8 May 2019

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