Hong Kong can take the lead to set disclosure example in sustainable financing, bankers say

Each of Hong Kong’s 2,500 listed companies must put numbers on potential impact from extreme climate events, according to draft rules due for final approval in 2023
Any fund manager with a portfolio larger than US$1 billion must disclose the emissions data of companies they invest in, starting this month, the SFC says

Hong Kong financial summit 2022

Enoch Yiu

Published: 6:31pm, 2 Nov 2022

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Hong Kong can take the lead in promoting sustainable finance in the Asia-Pacific, as the city is among the first to incorporate disclosures for environment, social and corporate governance (ESG) in its audit and listing rules, global bankers said.

Each of Hong Kong’s 2,500 listed companies must put numbers on potential impact from extreme climate events like severe typhoons and rising sea levels, according to draft rules due for final approval in 2023. Any fund manager with a portfolio larger than US$1 billion must disclose the emissions data of companies they invest in, starting this month, according to the Securities and Futures Commission (SFC).

“There is an opportunity for Hong Kong to take the lead in this area, [by] establishing international standards and set the regional best practices in disclosures,” said Anand Selvakesari, who leads personal banking and wealth management at Citigroup, during a panel discussion on sustainable finance at the Global Financial Leaders’ Investment Summit in Hong Kong.

“The availability and quality of ESG data has been an industry issue, as the current regulatory requirements are fragmented, while the disclosure requirements vary in different markets,” he said, adding that better disclosure standards can help the emerging markets to get more funding to finance their ESG projects.

Anand Selvakesari, Citigroup’s chief executive of personal banking and wealth management, at the Global Financial Leaders’ Investment Summit at the Four Seasons Hotel in Central, on 2 November 2022. Photo: Sam Tsang

Sustainable finance refers to the sale of green bonds or other forms of fundraising to promote ESG activities, the fight to avert climate change, reduce pollution and community activities. It is an area that Hong Kong’s government is focusing on, as it tries to develop the city as a regional hub for green financing on its way to carbon neutrality by 2050.

Up to US$56 billion of ESG bonds and loans had been arranged in Hong Kong as of 2021, putting the city at the very top of Asia’s green fundraising efforts, a fact that underscores how Hong Kong can “lead by example,” Financial Secretary Paul Chan Mo-po said during his pre-lunch keynote address at the summit.

Can Hong Kong help cut through the alphabet soup of global ESG rules?

The Asian Infrastructure Investment Bank (AIIB) also has ESG at the top of its agenda as it aims to allocate at least half its annual financing disbursements by 2025 towards projects that tackle climate change.

“A lot of people have put this bank under the microscope in this field, magnified exponentially, so we are very careful [because] our reputation is very important,” said the bank’s chairman and president Jin Liqun. “From day one, we [went] by international best practice.”

The number of country members of Beijing-based AIIB has almost doubled to 105, from 57, seven years into its operations, a growth that Jin credited to its high disclosure standards.

Jin Liqun, chairman and president of the Asian Infrastructure Investment Bank (AIIB), spoked at the Global Financial Leaders’ Investment Summit at the Four Seasons Hotel in Central on 2 November 2022. Photo: Sam Tsang

The International Organisation of Securities Commissions (Iosco) – currently chaired by Hong Kong’s securities regulator Ashley Alder – has given its endorsement to prototype climate and general disclosures. That will then be adopted by regulators such as the SFC and Hong Kong Exchanges and Clearing Limited (HKEX), whose chief executive Nicolas Aguzin moderated the panel on sustainable finance.

The HKEX last week launched a carbon-credit trading platform called Core Climate to bolster Hong Kong’s roles as an international carbon market. The new platform and the city’s role as a fundraising hub for China help Hong Kong to become a green financing hub, said Amundi Asset Management’s Greater China chairman Zhong Xiaofeng.

“Hong Kong’s capital market [involves] international investors, helping it to act as the super connector in raising green bonds or other financial products for the Chinese government and companies,” Zhong said. “Hong Kong can also be involved in the setting of global ESG standards to narrow the gap between the standards of China and the Western world.”

Zhong Xiaofeng, the Greater China chairman of Amundi Asset Management, speaking at the Global Financial Leaders’ Investment Summit at Four Seasons Hotel in Central on 2 November 2022. Photo: Sam Tsang.

China will need to raise about 140 trillion yuan (US$19.31 trillion) from green bonds and other environmentally friendly funding tools to become carbon neutral by 2060, but will fall short by 44 trillion yuan, according to a July report published by the World Economic Forum (WEF) and consulting company Oliver Wyman in July.

This means the country needs to fill a funding gap of 1.1 trillion yuan each year between 2020 and 2060, in the financing of green innovative technologies across all sectors including electricity, steel, transport and construction, said the report.

The astronomical sum puts many small countries at a disadvantage, as they lack the big capital markets to raise funds, said KKR’s co-chief executive Joseph Bae. Private equity firms and other investment banks can help raise funds in the international markets to support their sustainability financing needs in renewable energy, energy or other projects, he said.

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