Blog
Decarbonisation and financial opportunities
Climate change is a global challenge which can only be addressed by international collaboration. Although geopolitical tensions have heightened in recent years, reduction in carbon emission remains a common commitment among different countries around the world. To realise this commitment, substantive reforms are needed globally on the energy supply structure, infrastructure and industry chain model. It also requires enormous investment in the development of energy and green technology. That's why some have described it as the most important economic transformation since the industrial revolution, which also generates huge economic opportunities.
In the Leaders Summit on Climate last Month, President Xi Jinping reiterated our Country's commitment to reducing coal consumption between 2026 to 2030, striving to peak carbon emissions before 2030 and achieving carbon neutrality before 2060. To support that transition, some analyses estimated that more than RMB 100 trillion is required on green investment. In fact, the global capital demand for decarbonisation keeps mounting, and global green bond issuance hit a record high of US$ 290 billion last year.
Hong Kong is also striving to reduce carbon emission in order to realise our commitment of achieving carbon neutrality before 2050. As an international financial centre, Hong Kong could play a vital role in directing market capital to support public and private organisations to invest in green and low carbon emission activities, contributing to the progress towards global carbon neutrality. In my past Budgets, I have dedicated efforts to promote the development of green and sustainable finance in Hong Kong, with a view to building Hong Kong as a regional green finance hub in the Greater Bay Area. Through supporting the financing and certification of China's and Greater Bay Area's green projects, on one hand we could facilitate our Country in achieving its strategic aim of transformation towards green economy, while on the other, help promote diversified development of Hong Kong's financial industry to keep abreast with the international trend.
According to a report issued last week by Climate Bonds Initiative, an international NGO, the total value of green bonds issued in Hong Kong between 2015 to end 2020 amounted to over US$ 38 billion, while in 2020 alone the value of green bonds and loans arranged and issued in Hong Kong totaled about US$ 12 billion. The issuers of these green bonds came from different countries and regions, with Mainland issuers being the key driver, making up 60% of the overall issuance volume last year. The range of products has also diversified. Apart from mainstream products like green bonds and loans, other instruments like sustainability-linked bonds and loans as well as transition bonds are also becoming more popular.
The new Green and Sustainable Finance Grant Scheme proposed in my Budget this year was formally launched last week, and has been well received by the industry. The Scheme covers a comprehensive range of relevant products, including green and sustainable bonds and loans, and provides subsidy for expenses on bond issuance and external review services. We believe that the Scheme will help attract more bond issuers and borrowers to use Hong Kong's fundraising platform and professional services, boosting more green finance activities in Hong Kong. At the same time, it also encourages more financial and professional service providers and external reviewers to use Hong Kong as a regional hub.
In the Budget this year, we also expanded the scale of the Government Green Bond Programme by doubling the borrowing ceiling to HK$200 billion to allow for further issuance of green bonds totalling HK$175.5 billion within the next five years, having regard to the market situation. This will also allow more room for piloting the issuance of green bonds that involve more types of currencies, project types and issuance channels, thereby further enriching the green finance ecosystem in Hong Kong. As green finance is garnering attention in society, we also plan to issue retail green bonds so that the general public can participate in green finance directly.
Green bond proceeds raised under the Programme will be credited to the Capital Works Reserve Fund as stable funding resources for public works projects that provide environmental benefits and support Hong Kong's sustainable development. It could also ensure the implementation of such works projects will not be delayed by other fiscal considerations, facilitating Hong Kong to achieve the target of carbon neutrality as planned.
To deepen and accelerate the development of Hong Kong's green finance market, it is necessary to strengthen the cross-sectoral coordination and cooperation in the financial industry and formulate effective strategy, with a view to establishing an ecosystem that is conducive to the development of green and sustainable finance. The "Green and Sustainable Finance Cross-Agency Steering Group" was therefore set up by several regulatory bodies and Government departments last year, which have formulated six key focus areas and five near-term action points covering the following key aspects:
Risk management: Continue to promote the development of international regulatory requirements and standards to ensure financial institutions manage climate risks properly and embed climate considerations into their decision making and business operations; and assess the climate risk resilience of financial institutions under different climate scenarios, such as through the pilot exercise on climate risk stress testing.
Disclosure: Implement mandatory climate-related disclosures in line with recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) across relevant sectors no later than 2025, making Hong Kong the first Asian jurisdiction to make this commitment.
Green standards: Aim to adopt the Common Ground Taxonomy being developed by a working group co-led by China and the European Union, to ensure that Hong Kong's standards are largely aligned with those on the Mainland and internationally, enabling freer flow of green capital.
Capacity building: The Steering Group is taking steps to set up a joint public-private sector platform to act as a focal point for financial regulators, Government agencies, industry stakeholders and the academia. Through consolidating resources and information, and facilitating cross-sector interaction, the platform aims to enhance talent development, capacity building, and support climate risk analysis and academic research.
With the Government's active coordination, planning and policy support, implementation of the related strategic plan and initiatives, and collaboration with the industry to mobilise market's resources and power, I believe we can succeed in realising the decarbonisation of Hong Kong's economy and enhancing Hong Kong's status and competitiveness as the green finance hub in the Greater Bay Area.
Promoting a green future can facilitate Hong Kong's continuous economic growth and create more job opportunities. Last week, the Government Economist slightly revised upward the economic growth of Q1 to 7.9%, not only ending the contraction of six consecutive quarters, but also showing a robust rebounding force. The unemployment rate also receded from the record high of 7.2% to 6.8%. With the gradual improvement in the economy and the recent epidemic situation, it is expected that the to-be-announced unemployment rate and underemployment rate will show a further notable decrease. Nonetheless, whether the labour market could continue its improvement and lead to a rebound in overall wages, which is the most direct benefits that wage-earners can get from economic and employment improvement, still largely depends on how effective the epidemic situation is controlled. To facilitate the continuous improvement in the economy and the job market, I urge you all to support the vaccination programme and encourage your families and friends to get vaccinated. This is the most effective way to protect yourself and your families, and also a crucial step to support a gradual improvement for our economy and the job market.
May 16, 2021
