Hong Kong’s financial companies will be forced to declare how their assets and investments have an affect on climate change under new requirements aimed at boosting government efforts to ensure the city becomes a major “green finance” hub.
The mandatory disclosure requirements will be introduced in 2025, regulators said, while banks will have to carry out stress tests next year as part of the city’s drive to capture a slice of a market that is expected to be worth US$350 billion this year.
A working group jointly led by the Hong Kong Monetary Authority and the Securities and Futures Commission on Thursday unveiled the measures, which also include a plan to establish an information platform in the near future for financial firms, governments and academics to share data and research on environmental impacts.
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The Green and Sustainable Finance Cross-Agency Steering Group was set up by seven regulators and government departments in May as part of a major push to promote Hong Kong as a green fundraising hub.
“The private sector undoubtedly has a vital role to play in directing capital to activities which lower carbon emissions over time, and our plan is directed at mobilising significant volumes of private investment,” said Ashley Alder, chief executive of the SFC at a media briefing on Thursday.
“Hong Kong’s plan will also have a major impact globally, as it has an extremely large footprint, and the international significance of Hong Kong’s HK$45.7 trillion (US$5.9 trillion) capital markets means that it will play a critical role in the overall effort to reach net-zero carbon goals.”
Hong Kong has been the world’s largest IPO market in seven of the last 11 years.
Some US$48 billion worth of green bonds was issued globally in the first five months of 2020, and as much as US$350 billion is projected for the whole year, according to the Climate Bonds Initiative, a London-based non-profit organisation. That would represent a 36 per cent increase over 2019 when a record US$257.5 billion was issued.
Alder said that from 2025, the HKMA, the SFC, and the insurance and pension watchdogs will require all banks, fund houses, insurers and pension companies to make disclosures in line with international standards about how their investments and assets will affect climate change.
As an example, banks will need to identify if they have a lot of mortgage loans for property located in low areas, which may be vulnerable to flooding in the event of typhoons. Fund houses will need to check if they invest in companies that could be hit hard by new government policies aimed at cutting down pollution.
Banks and large fund houses next year will need to conduct stress tests to make sure their business models and investments could cope with events related to climate change, Alder said.
All commercial banks in Hong Kong support the idea of stress testing for climate-related risks, said Eddie Yue Wai-man, chief executive of the HKMA.
“Banks welcome the stress tests as the way forward to enhance risk management measures related to climate change,” Yue said at the briefing. ”Overall, we believe disclosure will enhance companies’ policies in handling climate change, which will have a long term impact on the sector.”
The plan will also standardise the taxonomy being developed by the International Sustainable Finance Platform, setting the standard to determine if products qualify to be called “green” and have a real impact on climate change. The platform plans to publish the taxonomy in the middle of next year.
“HSBC looks forward to partnering with the industry to build a more sustainable future,” said Diana Cesar, chief executive of HSBC in Hong Kong, in a statement. “The bank will enhance support for customers in their transition to low carbon, providing dedicated financing support and advice for their unique transition journeys.“
The working group also includes the Insurance Authority, Mandatory Provident Fund Schemes Authority, Hong Kong Exchanges and Clearing, the Environment Bureau and the Financial Services and the Treasury Bureau.
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