In additional element
Inexperienced and sustainable finance in Hong Kong
The World Financial Discussion board World Dangers Report 2020, revealed in January 2020, highlighted vital dangers that shall be seen the world over within the subsequent decade. 5 of the highest ten dangers recognized had been climate-related. As such, governments, central banks, and different monetary establishments are being known as to motion.
In keeping with the United Nations (UN), Asia-Pacific is among the areas that’s most susceptible to local weather change dangers. Globally, there have not too long ago been excessive climate occasions, equivalent to widespread forest fires and rising sea-levels, and Hong Kong noticed its hottest summer time on report.
Hong Kong Financial Authority (HKMA)
The HKMA has turn out to be more and more energetic on this space. In June 2020, it revealed a “White Paper on Inexperienced and Sustainable Banking” which outlined the HKMA’s preliminary pondering on supervisory expectations for the administration of local weather dangers by AIs. The White Paper outlines 9 guiding ideas to help AIs in growing a governance framework and technique for managing the related dangers and alternatives (together with, amongst others, growing an strategy to reveal climate-related data).
Following the White Paper, the HKMA produced a round sharing finest practices of chosen main AIs which AIs are inspired to think about in growing their very own shopper threat administration strategy.
Inexperienced and sustainable finance cross-agency steering group
In Might 2020, the Inexperienced and Sustainable Finance Cross-Company Steering Group (“Steering Group“) — which incorporates the HKMA, the Securities and Future Fee (SFC) and different native monetary regulators and authorities departments — was established.
In keeping with the HKMA’s press launch, the “Steering Group goals to co-ordinate the administration of local weather and environmental dangers to the monetary sector, speed up the expansion of inexperienced and sustainable finance in Hong Kong and assist the Authorities’s local weather methods.”
In December 2020, the Steering Group launched its inexperienced and sustainable finance technique for Hong Kong. This outlines various key focus areas “for strengthening Hong Kong’s monetary ecosystem to assist a greener and extra sustainable future in the long run” in addition to 5 near-term motion factors. Amongst different issues, the motion factors embody (i) making climate-related disclosures aligned with the Process Drive on Local weather-Associated Disclosures (TCFD) necessary throughout related sectors (together with banks, asset managers, insurance coverage corporations and pensions trustees) no later than 2025 and (ii) aiming to undertake the Frequent Floor Taxonomy anticipated to be developed by mid-2021 by the Worldwide Platform on Sustainable Finance (IPSF) Working Group on Taxonomies co-led by the European Union (EU) and China (Mainland).
The Worldwide Finance Company (IFC) and the HKMA
On 9 November 2020, the IFC and the HKMA signed a joint partnership to encourage inexperienced and sustainable banking consciousness amongst industrial banks in Asia. The HKMA is the primary accomplice to work on the Alliance for Inexperienced Business Banking initiative with the IFC, and goals to turn out to be the “hub for inexperienced finance amongst industrial banks in Asia.”
Over the following 5 years, the IFC and HKMA will work collectively to implement initiatives and campaigns and convey collectively monetary establishments, business, analysis establishments, and many others., to advertise the event of inexperienced finance and sustainable funding.
Hong Kong’s place in Asia relating to taxonomy
One concern that governments and establishments presently face whereas advising on climate-related dangers is that there isn’t a universally adopted international taxonomy figuring out these dangers. This leads to completely different ranges of motion taken by every jurisdiction. Presently, the 2 main taxonomies are these developed by the Mainland and by the EU, and so they have their variations.
The 2 taxonomies: Mainland and EU
The inexperienced and sustainable finance taxonomies within the Mainland pre-date these of the EU. In 2015, the Inexperienced Finance Committee of China Society of Finance and Banking produced a Inexperienced Bond Endorsed Undertaking Catalogue below the Individuals’s Financial institution of China. That is now sometimes called the “Chinese language Inexperienced Bond Taxonomy.” The central coverage is the Guiding Catalogue for the Inexperienced Trade, which was up to date in 2019, and can be known as “taxonomy”.
The Guiding Catalogue incorporates an inventory of eligible sectors and excessive precedence rankings. It has six classes of inexperienced industries. Not like the EU taxonomy, the Mainland Taxonomy doesn’t accumulate metrics or thresholds.
The EU’s Taxonomy Regulation (EU Regulation), which entered into pressure on 12 July 2020, units out the regulatory framework crucial to determine a classification system for sustainable exercise. The EU Regulation doesn’t itself set out particulars relating to how the taxonomy shall be utilized in apply. As an alternative, the sensible software of this bold classification system has been left to a sequence of what are known as “technical screening standards” (TSC). Utility of those granular screening standards will in the end decide whether or not an exercise considerably contributes to an environmental goal.
In 2018, the European Funding Financial institution and the Inexperienced Finance Committee of China Society for Finance and Banking revealed a white paper outlining Part II of their work in direction of harmonizing Inexperienced Finance Language. This was earlier than the EU Taxonomy was revealed in 2020.
Extra not too long ago, in a keynote speech throughout the Accountable Investor Summer time 2020 Digital Pageant, Dr. Ma Jun, Chairman of the China Inexperienced Finance Committee, indicated activity pressure will seemingly be launched to look into the harmonization of the requirements of the completely different jurisdictions.
China is dedicated to working with different worldwide our bodies to advertise inexperienced and sustainable finance. In October 2020, 5 governmental departments, together with the Ministry of Ecology and Surroundings, and the Individuals’s Financial institution of China, issued Guiding Opinions on Selling Funding and Financing to Deal with Local weather Change . This can be a coverage space that’s regularly being reviewed and amended.
Because the EU Taxonomy is a current improvement, it isn’t but totally carried out. Additional, though it should have an extraterritorial impact within the sense that non-EU companies might want to take into account it the place they’ve EU institutional buyers or the place they market merchandise equivalent to fund items into the EU, there may be the difficulty that the EU’s taxonomy is not going to typically apply to jurisdictions outdoors of the EU. As such, harmonization of the Mainland and EU taxonomies continues to be a piece in progress. As famous above, the IPSF Working Group on Taxonomies is engaged on a Frequent Floor Taxonomy.
Regional co-operation with Guangdong-Hong Kong-Macau Better Bay Space
In September 2020, the Hong Kong Inexperienced Finance Affiliation (HKGFA) introduced the institution of the Guangdong-Hong Kong-Macau Better Bay Space Inexperienced Finance Alliance (GBA-GFA) between Hong Kong, Macau and the Mainland. This alliance is liable for selling inexperienced finance requirements and certification throughout the Better Bay Space. It consists of the Hong Kong Inexperienced Finance Affiliation, the Inexperienced Finance Committee of Guangdong Society for Finance and Banking, the Inexperienced Finance Committee of Monetary Society of Shenzhen Particular Financial Zone, and the Macau Affiliation of Banks.
The three phases of the HKMA’s Method to Promote Inexperienced and Sustainable Banking – the place we are actually
All through 2020, the HKMA has been working with AIs to advertise inexperienced and sustainable banking and adopted a three-phase plan:
- section I – improvement of a standard evaluation framework for AIs
- section II – improvement of supervisory expectations for AIs
- section III – after setting of targets, implementation, monitoring and analysis of AIs’ progress
The timeline of the three phases and different HKMA initiatives is as follows:
- July 2019
- The HKMA created a Working Group on Inexperienced and Sustainable Banking, made up of 22 AIs. The goal was to create the frequent evaluation framework. (Part I)
- Might 2020
- Frequent evaluation framework finalized and first spherical of assessments launched with 47 AIs (together with locally-incorporated AIs and overseas financial institution branches in Hong Kong) (Part I)
- Institution of Steering Group with the SFC and different members
- June – July 2020
- White Paper on Inexperienced and Sustainable Finance and Round highlighting finest practices revealed (Part II)
- August 2020 – current and past:
- First outcomes from the self-assessment acquired (Part I)
- HKMA working with particular person AIs to make clear their submissions and search additional data (which, in flip, will help the HKMA in growing supervisory necessities) (Phases I and II)
- Continued collaboration with worldwide fora, such because the Community of Central Banks and Supervisors for Greening the Monetary System (NGFS) and the Basel high-level Process Drive on Local weather-related Monetary Dangers
As we advance in 2021, the HKMA plans to proceed working with AIs and the business to develop the supervisory necessities for AIs. Among the subsequent steps for the HKMA have been recognized as:
- 2021 HKMA business session on supervisory necessities for AIs
- inviting AIs to take part in a pilot local weather stress testing train
- consultancy research into obstacles that Hong Kong banks face when growing inexperienced and sustainable banking