Proposes a Qualifying Green Bond scheme

Incorporating international and Chinese standards and facilitating green finance development in Hong Kong

Our Hong Kong Foundation (OHKF) today launched a research report titled “Landscape Study for Strategic Development of Green Bond Market in Hong Kong” under the “Social Innovation” series. The report lays out studies of the global and Chinese green bond market conditions and outlines the importance of developing green bonds. Based on the studies, seven policy considerations are also proposed.

Different environmental problems are posing a threat to the earth. Green bonds serve to channel capital from both private and public sectors to finance green projects such as energy efficiency, renewables, low-carbon projects, in order to solve environmental issues as well as to help promote development of green finance.

Demand for green financing has been seen a rapid rise. To combat global warming, significant investment is needed from 2015 to 2030. The Global Commission on the Economy and Climate has estimated that around USD 90 trillion is required to limit the increase of global temperature well below 2°C above pre-industrial levels. In the face of significant green financing needs, China has strived to improve the national green finance system with different policies, including the establishment of pilot zones, which promote tailored green financing channels, in Guangdong, Zhejiang, Guizhou, Xinjiang and Jiangxi.

Being an international financial centre, Hong Kong is ready to unleash its potential capacity in developing green finance and embrace the opportunities brought by green finance. According to the 2017 Policy Address, to promote the development of green finance in Hong Kong, the Government will take the lead in arranging the issuance of a green bond in the next financial year. Nevertheless, more concrete developmental strategies are needed, along with collaboration among the Government, businesses and community. Hong Kong should leverage its competitive advantages in the green finance sector.

The report proposes seven considerations as follows:

1. The Government should establish a Qualifying Green Bond scheme which recognizes green bonds verified against the international standard, the Climate Bonds Standard, or the Chinese standard, the Green Bond Endorsed Project Catalogue. The Government should also recognize independent consultants as qualified parties of the scheme and bonds reviewed by these parties can then be included in the scheme.

2. The Government should provide subsidy on costs of external review and verification to issuers whose bonds have been successfully verified under the Qualifying Green Bond scheme.

3. The Government should issue green bonds which can finance projects such as construction of green buildings.

4. The Hong Kong Monetary Authority should align its investment decisions with the United Nations-supported Principles of Responsible Investment, as well as allocating part of its assets to sustainable investments including green bonds.

5. The Hong Kong Stock Exchange should proactively promote the listing of green bonds and participate in the United Nations’ Sustainable Stock Exchanges initiative as a Partner Exchange.

6. The Government should establish an inter-departmental committee which promotes the development of the green bond market and involves stakeholders from the private and academic sectors.

7. As a major offshore RMB hub and an international financial centre, Hong Kong should enhance its efforts in communication with the Chinese Central Government and international promotion. Southbound Trading under Bond Connect should also be launched sooner rather than later so as to provide mainland investors with global sustainable investment opportunities.

Mr. Stephen Wong, Deputy Executive Director and Head of Public Policy Institute of OHKF, said, “Green bonds serve to provide funding for green projects and combat environmental degradation, as well as bringing impetus to the development of the green economy. Hong Kong has world-class infrastructure in financial and professional services and the perfect conditions to develop green bonds. The Government should formulate timely and comprehensive policies to develop green bonds in Hong Kong and catch up with the international megatrend, fostering the sustainable development of the financial sector and the economy in Hong Kong.”

Government, research and academy get together to initiate discussion

In order to raise public awareness of green bonds, OHKF, together with the launch of the report, held a panel discussion on green bonds today. The panel, moderated by Mr. Stephen Wong, Deputy Executive Director and Head of Public Policy Institute of OHKF, included: Mr. James Lau, Secretary for Financial Services and the Treasury; Mrs. Laura Cha, Chairman of the Financial Services Development Council; Prof. Lawrence Lau, Ralph and Claire Landau Professor of Economics of The Chinese University of Hong Kong; and Prof. Kalok Chan, Dean of Business School of The Chinese University of Hong Kong.

Mr. James Lau said, “At the G20 Summit in Hangzhou last year, world leaders recognized the key role of green finance in addressing climate change and promoting sustainable development. In China, the investment opportunities in low-carbon infrastructure, green transportation and clean energy amount to RMB 2 trillion per year. With only an estimated 10-15% of the demand met by government finances, the introduction of ‘green’ capital would help bridge the financing gap. Hong Kong has unique advantages to develop green finance, including green bonds. Not only are we an international financial centre and the leading offshore RMB hub, we also have a robust legal and regulatory system, mature capital markets, sophisticated market infrastructure, as well as a concentration of financial institutions and talent, all of which are conducive to the development of green finance.”

Mrs. Laura Cha pointed out that the green finance talent pool resembles that of finance and Hong Kong definitely has a talent advantage, but at the end of the day, it is of utmost importance to arouse the interest of these talents in green finance.

“Landscape Study for Strategic Development of Green Bond Market in Hong Kong” is the second research report under the “Social Innovation” series of Public Policy Institute of OHKF.