City ‘should set bar high with green investment definitions’

Hong Kong should adopt more stringent criteria from those used by China and the European Union for defining green and climate mitigation projects to bolster its position as an international sustainable finance centre, according to a policy think tank.

The city can play a bigger role in channelling international funds into decarbonisation projects in China if it sets its bar higher to meet the requirements of a broader range of international investors, said Civic Exchange research analyst Bon Cheung.

“When Hong Kong aligns with the China and the European Union’s common ground taxonomy, where there are differences between the two standards, if we embrace the more stringent ones, it will enhance our credibility,” he told a briefing announcing the launch of a research report yesterday.

His comments come ahead of a market consultation expected to be launched by the Hong Kong Monetary Authority (HKMA) next month on developing a local “green taxonomy” framework for classifying economic activities considered environmentally friendly or sustainable.

Introduction of the taxonomy will increase transparency across financial markets and enable consistent green finance policymaking, the HKMA said in its sustainability report published in April.

It aims to reduce so-called greenwashing, the act of making unsubstantiated claims about the environmental benefits of a product or practice.

The planned Hong Kong framework would be in line with mainstream international ones, including China and the EU’s common ground taxonomy, the report said.

More than 20 green taxonomies have been established internationally to bridge the knowledge gap between green finance practitioners and project engineers, said Deng Manshu, deputy head of the China programme at the Climate Bond Initiative.

The growing number of taxonomies and the fact that they are revised over time as climate mitigation technology advances, make it challenging for investors to navigate cross-border investments, she said at a discussion hosted by the Civic Exchange yesterday.

To facilitate a like-for-like comparison of green standards between China and the EU which was aimed at enhancing cross-border green finance flows, comprehensive technical research by a joint task force was conducted in 2021.

Some 72 climate mitigation activities were identified as being recognised by both the EU’s sustainable finance taxonomy and China’s green bond project catalogue.

But within each activity, there are differences between the technical standards adopted by China and the EU.

This is where Hong Kong should pick the more stringent one to be adopted in its proposed taxonomy, Cheung said.

The city should also include industry-specific greenhouse gas emissions reduction pathways with clear targets and timelines, he added.

Hong Kong is not the only financial centre vying to create a bridge between international capital and decarbonisation projects in China.

In April, mainland China and Singapore agreed to establish a joint task force to strengthen collaboration on green finance.

“As Hong Kong aims to strengthen its position as a green and sustainable finance hub, there is a need and an opportunity to ensure that the tools adopted to facilitate sustainability reporting and disclosure are conducive to international transaction,” said the new report published by the Civic Exchange.

“To function as a super-connector, Hong Kong must adopt a framework that enables green capital flow between China and the offshore market.”