How Hong Kong, mainland firms can tap transitional green finance - South China Morning Post
Climate change: sustainability-linked funding can help hard-to-abate sectors access transitional green finance, Hong Kong forums hear | South China Morning Post
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Climate change: sustainability-linked funding can help hard-to-abate sectors access transitional green finance, Hong Kong forums hear
- Companies, particularly those in hard-to-abate sectors, should consider sustainability-linked bonds, International Capital Market Association’s Ricco Zhang tells Chamber of Hong Kong Listed Companies’ ESG and green finance forum
- Even before regulators draw up guidances and taxonomies, companies should start thinking of their plans for transitioning to greener businesses, SFC’s Julia Leung tells annual forum of the Hong Kong Green Finance Association
green finance forums in Hong Kong on Wednesday.
green bonds and loans, whose proceeds can only finance environmentally friendly projects, such as renewable energy.
To transition their business, sustainability-linked bonds is something they should consider.”
Zhang was speaking at a transition finance panel at the Chamber of Hong Kong Listed Companies’ ESG and green finance forum on Wednesday.
Hard-to-abate sectors – such as fossil fuel electricity generation, cement, metals and chemicals production – are industries where major greenhouse gas emissions reduction is technically challenging or prohibitively costly with currently available technology. Such sectors are among the biggest greenhouse gas emitters.
For such companies, financial regulators in some jurisdictions in Asia are close to rolling out so-called taxonomies, or green and transition activity classifications, for climate transition financing.
In May, the Hong Kong Monetary Authority published a discussion paper on a proposed green taxonomy framework for green finance in the city.
“Many key sectors of the economy … have very limited low-carbon options and it is not feasible for them to transform overnight,” it said. “Nevertheless, they must be decarbonised in line with the Paris Agreement targets and, therefore, taxonomy could play an important role in promoting pathways to achieving a low-carbon future for hard-to-abate sectors.”
The framework will set metrics for 12 activities in the energy, transport, buildings, waste and water sectors, including quantitative thresholds and screening criteria that meet global climate ambitions.
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The Monetary Authority of Singapore also launched its final public consultation on a green and transition taxonomy for Singapore-based financial institutions earlier this year.
“To accelerate transition financing, we need to have a sectoral decarbonisation pathway for each carbon-intensive sector, which can serve as the benchmark for the funding receivers to meet or beat to keep being financed,” Tracy Wong Harris, executive vice-president of the Hong Kong Green Finance Association, told the Post.
Hong Kong, which arranged US$27.8 billion in green and sustainable bonds last year, accounting for 35 per cent of the total in Asia, can find such success in transition finance as well, given its role as the international financial centre of China, the world’s largest greenhouse gas emitter, she said.
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“When China releases its transition finance taxonomy there might be room for Hong Kong to expand its green finance taxonomy to also include transition activities,” Harris said.
However, implementing transition finance is not straightforward, as Frank Heung, Hang Seng Bank’s head of structured finance, commercial real estate and corporate advisory, told the chamber’s forum.
“For some of our manufacturing clients seeking transition financing, it has been challenging to construct key performance indicators and science-based climate transition targets, because they don’t have historical data,” he said. “Business disruption due to the Covid-19 pandemic has also made due-diligence work challenging.”
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Companies must, however, do their part by drawing up their climate transition planning early and articulating it to their financiers and stakeholders, Julia Leung, CEO of the Securities and Futures Commission, told a panel at the annual forum of the Hong Kong Green Finance Association.
“When guidance [and taxonomies] are provided by regulators … it would help, but even before that, [companies] must start thinking about their strategies and plans for transition, and disclose these,” she said.
“Companies need to … disclose where they are at, and make progress to be accessible to international capital [providers], which are now focusing on transition finance.”
Additional reporting by Martin Choi
Related Knowledge Center: Climate economics
Climate change is now a driver of the world’s economy. The impact is profound:
- Catastrophic weather events — hurricanes, floods, droughts, high temperatures — are more frequent and more extreme. The cost can be measured in both the initial damage caused and the longer-term impact on the economy.
- Vulnerable communities are increasing climate-related investments, hardening infrastructure and taking other protective measures.
- Investment in carbon capture and storage technologies is increasingly rapidly.
- Governments are making investments and crafting regulations to reduce emissions of carbon dioxide and other greenhouse gases.
On top of all of this is the cost of uncertainty. As the Fourth National Climate Assessment, released in 2018 by the U.S. Global Change Research Program, says, “The assumption that current and future climate conditions will resemble the recent past is no longer valid.”