Hong Kong made headlines in February 2023 when it issued the world’s first tokenised government green bond, following the launch of the Core Climate international carbon marketplace by the Hong Kong Exchanges and Clearing Limited, which matches capital with climate-related products in Hong Kong, mainland China, Asia and beyond — both examples of the Special Administrative Region’s (SAR) increasingly crucial role as a global green finance centre.

The need is pressing. Mainland China aims to hit peak carbon before 2030 and carbon neutrality before 2060, and it’ll require $14 trillion (HK$109.2 trillion) to $17 trillion (HK$132.6 trillion) of investment to achieve that, according to a World Bank report. Much of that will come from international investors.

China’s 14th five-year plan comprises a blueprint for national development and includes bolstering Hong Kong’s role as an international finance centre for the country.

“Hong Kong has for years been a connecting point between mainland China and the rest of the world, and green finance is an additional layer that can enable it to perform that role better,” says Luying Gan, head of sustainable bonds, Debt Capital Markets, Asia-Pacific, HSBC.

Close to $24 billion (HK$190 billion) of green bonds, covering US dollar, euro, renminbi (RMB) and HK dollar tranches, had been issued under the Government Green Bond Programme (GGBP), as of December 31, 2023. Set up in 2018 to foster the development of green finance in the SAR, the initiative is fuelling the rise of a green debt ecosystem of issuers, investors, arrangers and third-party services, and provides a model for future issuance.

These issuances were made possible because of Hong Kong’s robust financial system, including its regulatory and legal framework, extensive infrastructure, and comprehensive planning.

The SAR government’s (HKSARG) commitment to expanding Hong Kong as a sustainable finance centre is part of a wider plan to green the economy, as outlined in its Climate Action Plan 2050, which aims to halve Hong Kong’s carbon emissions before 2035, compared to 2005.

The GGBP not only provides funding for the government’s green projects, but also consolidates Hong Kong’s position as a leading bond market in Asia and a green finance hub in the region.

The city’s innovative tokenised $102.6 million (HK$800 million) bond was issued under the GGBP in February 2023.

“Tokenisation doesn’t change the features or the risks of a security. We view it as a wrapper around a security,” says Christine Kung, head of international affairs and sustainable finance at Hong Kong’s Securities and Futures Commission (SFC), the securities and futures markets regulator.

The Industrial and Commercial Bank of China’s Hong Kong Branch issued its first Guangdong-Hong Kong-Macao Greater Bay Area (GBA) themed green bond in 2019, to fund low carbon and low emission transportation and renewable energy assets in the GBA, which comprises 11 cities in the Pearl River Delta and generated GDP of $1.94 trillion (HK$15.1 trillion) in 2022.

Also, the Shenzhen Municipal People’s Government (Shenzhen government) in 2021 issued offshore RMB municipal government bonds in Hong Kong, the first time that a mainland municipal government had issued bonds outside the mainland. In 2022, the People’s Government of Hainan Province (Hainan government) issued its first offshore RMB bonds in Hong Kong, and the Shenzhen government issued bonds in Hong Kong for the second time. Both the Shenzhen government and the Hainan government issued another round of offshore RMB bonds in Hong Kong in 2023. These issuances included green, blue, sustainability and social bonds, further testifying to Hong Kong’s strengths as a green finance platform.
 

“Investing in Chinese green debt brings huge climate benefits, more so than investing in other markets, as it directly helps replace coal and prevents the felling of trees to burn,” says Gan.

“When we started building our own green finance framework in Hong Kong, we primarily benchmarked our policies, guidance and regulation against international standards, paying particularly close attention to the work of the International Organization of Securities Commissions’ standards,” says Kung.

In August 2022, the SFC unveiled its Agenda for Green and Sustainable Finance, setting out three tasks: enhancing corporate climate disclosure, monitoring asset managers’ implementation of environmental, social and governance (ESG) measures, and creating a regulatory framework for carbon markets.

The Stock Exchange of Hong Kong (HKEX) has proposed to introduce new climate-related disclosure rules aligned with the International Sustainability Standards Board’s (ISSB) standards framework that was published on June 26, 2023. The move will bring in a high-quality, comprehensive global baseline for sustainability disclosures focused on the needs of investors and the financial markets. The Listing Rule amendments are expected to be implemented from January 1, 2025.

“Hong Kong is the financial centre for China and gateway to international capital markets. So the purpose of Hong Kong as a sustainable finance centre for the country is partly about international alignment,” says Stephanie Choi, sustainable and impact investing strategist at UBS Global Wealth Management.

The SAR’s strengths as a green finance hub are built on the factors that make it a world-leading finance centre, including its geostrategic location as a gateway to mainland China and Asia; state-of-the-art infrastructure; excellent connectivity; common law system; deep and liquid capital markets; low, simple taxes; stable currency pegged to the US dollar; and open capital account. A key element of Hong Kong’s role as a gateway is its intensifying connectivity to mainland China.

Cross-market channels include Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect, which enable eligible mainland investors to trade shares in Hong Kong and vice versa. In March 2023, the exchanges in Shanghai, Shenzhen and Hong Kong further expanded the range of eligible securities covered by the initiative, including the addition of eligible stocks of foreign companies that are primarily listed in Hong Kong in the Southbound Stock Connect and more companies listed on the Shanghai and Shenzhen bourses in the Northbound Stock Connect.

The scheme sits alongside Bond Connect, another mutual access programme. It enables eligible Hong Kong and overseas investors to access the China Interbank Bond Market (CIBM), and from September 2021, institutional investors in the mainland to invest in the SAR’s bond market.

China is the world’s leading issuer of green bonds that comply with global standards, with $76.2 billion (HK$594.8 billion) issued in 2022 alone, according to Climate Bonds Initiative data.

Hong Kong’s voluntary carbon market, which provides Hong Kong dollar and RMB settlement for carbon credit trading, is intended to enhance the SAR’s position as an offshore renminbi trading hub and green finance centre.

In March 2022, Hong Kong Exchanges and Clearing Limited (HKEX) signed a Memorandum of Understanding (MoU) with Guangzhou-based China Emissions Exchange to explore cooperation on a carbon emission reduction programme in the GBA and new opportunities in carbon financing. In October 2023, HKEX signed a MoU with the China Emissions Exchange Shenzhen to cooperate in accelerating the carbon market ecosystem development in Hong Kong and across the Greater Bay Area.

Meanwhile, the HKSARG and the Green and Sustainable Finance Cross-Agency Steering Group, initiated by the SFC and the Hong Kong Monetary Authority in 2020, have implemented several initiatives to build capacity and develop policy.

These include the Pilot Green and Sustainable Finance Capacity Building Support Scheme, launched in late 2022. It supports talent development by providing subsidies to current and prospective market practitioners, and related professionals to train and acquire relevant professional qualifications.

Running for a period of three years, the $25.6 million (HK$200 million) scheme covers courses provided by local universities, professional institutions and international training providers.

Also under the steering group, a cross-sectoral Centre for Green and Sustainable Finance was established to provide a repository for resources, data and analytics, and to develop capacity-expansion programmes.

Two notable components are the Green and Sustainable Finance (GSF) Knowledge Hub, which facilitates access to information about international and local courses and qualifications, and the Sustainable Finance Internship Platform, an information platform for university students looking to gain GSF-related work experience.

Initiatives to boost expertise in the market also include HKEX’s ESG Academy, a centralised education platform that guides issuers and the wider business community along their sustainability journeys. It houses all HKEX’s ESG training and guidance materials, including content on its latest ESG requirements, and training is delivered via e-training courses, while a webinar series brings industry participants together to deepen the community’s knowledge of ESG issues.

As announced in the 2023-24 Budget, the Financial Secretary set up a Green Technology and Finance Development Committee in June 2023, with members comprising leaders from finance, technology, academic, professional services sectors, etc., as well as representatives from the HKSAR Government, financial regulators and public organisations to assist in the formulation of an action agenda to promote the development of Hong Kong as an international green technology and finance centre.

These initiatives will undoubtedly accelerate Hong Kong’s pioneering role as a green finance hub regionally and globally.