[Sponsored Article] Hong Kong’s unique status as a comprehensive international financial center and its much-vaunted commercial strengths will be instrumental in helping the city develop as Asia’s green finance hub, says Christopher Hui, the Secretary for Financial Services and the Treasury of the Hong Kong Special Administrative Region Government. Due to its credible and full-fledged financial services, the city is uniquely poised to address two key pain points in the development of the green finance industry. These are quality assurance and standard setting, as well as awareness. “Greenwashing” is becoming a problem everywhere, but Hong Kong is in a good position to curb such behaviour by setting standards, by accreditation, and by developing a broad taxonomy. “This can be our strong point,” Hui says. Setting standards Major steps have been taken towards making this a reality over the past few years. The Hong Kong Quality Assurance Agency (HKQAA), for example, launched a Green Finance Certification Scheme in January 2018 to provide third-party conformity assessments for issuers on green debt instruments such as bonds and loans. It developed the scheme with reference to international and national standards on green finance, and later twice extended the coverage to include ESG and green funds. As of October 2020, 49 Pre-issuance Stage Certificates and 9 Post-issuance Stage Certificates were issued. Furthermore, the Green and Sustainable Finance Cross-Agency Steering Group was established in May 2020 to provide strategic direction on regulatory policy and market development with a view to elevating all ongoing cross-agency efforts. Hui says that this steering group is important for the development of standards and frameworks for green finance because there are no global standards. “Europe has its own framework, Asia has its own, the US has its own, so what’s Hong Kong’s?” he says. “If there was a global framework that everyone could use as a reference point, then we could improve upon it.” Establishing standards and a framework will promote the growth of the industry. “If you have a framework that allows for the comparison of different standards, that would be important,” he says. Along with government support, developing a green finance market also relies on input from the private sector and individuals. Setting examples As such, the HKSAR Government has been taking concrete steps to develop Hong Kong’s green finance industry through grant schemes and green bonds. In 2018, it launched the Green Bond Grant Scheme, and a year later rolled out the widely successful inaugural Government Green Bond issuance, which was four times over-subscribed. To continue to set an important benchmark for potential issuers in Hong Kong and in the region, the Government plans to issue green bonds totalling HKD$66 billion in the five years from 2020-2021, taking the market situation into account. It also signifies the Government’s support for sustainable development and its determination to combat climate change. “The primary objective of the Government Green Bond Programme (GGBP) is to promote the development of green finance in Hong Kong by encouraging entities to arrange financing of their green projects through our capital markets,” Hui says. Through the issuance of high-quality green bonds that are aligned with standards and guidelines which are widely accepted by investors worldwide, the program also seeks to develop a local green investor base. “GGBP would also be conducive to arousing the interest of the public and enhancing their knowledge and understanding of green bonds,” Hui says. This pain point needs a lot of addressing. “The issue to tackle is that many people think this is just a compliance issue, and that it’s simply about spending money. It’s regarded as a CSR activity that a company must be seen to address. But I think Hong Kong is suited to tackle this pain point,” Hui says. Firstly, because of Hong Kong’s status as a financial centre, its strong rule of law, and its ability to attract investment, many new companies are coming to the market offering green investments. Hui calls it a new dimension of financial services and green investors who specialize in buying green products. “Our ability to attract investors and our ability to expand and grow are generating a lot of interest and awareness in Hong Kong,” he says. “Through standard setting and the government’s sale of green bonds, we are adding to the momentum of Hong Kong’s move to becoming a green finance hub.” Building awareness Next, there is growing awareness that there are externalities, social impacts, and health impacts related to climate change, and the government can’t just keep footing the bill. The public needs to be incentivized to take ownership of their environment and health, and play their part, he says. Hui argues that the pandemic has really driven this point home. “I don’t think green finance is taking a back seat anymore. COVID-19 has helped to bring an awareness to health matters and environmental risks. People used to think these matters didn’t relate to them, but now they realize that the impact is real, and it has hit very close to home,” he says. Hui says that companies should consider ESG and green finance as value creation, and not just a requirement or a responsibility. In terms of a company’s bottom line, it is important to think like a new generation who have experienced a real shift in values from previous generations. The new generation wants to make a positive impact, and work towards the betterment of the Earth and society. They are looking for companies that are doing the same. “Imagine how productive your workforce will be if your values are aligned with those of your workers,” he says. This rings true for investors, too, he adds. Hui says that green finance is taking root in Hong Kong, but forward thinking is required to make it a success. “For it to have longevity, companies must do more than the bare minimum,” he says. “It requires commitment and long-term vision to bring results.” Steps to Set Examples and Build Awareness Government Green Bond Programme - The programme has a borrowing ceiling of HKD$100 billion. Its issuance proceeds will be credited to the Capital Works Reserve Fund to finance or refinance public work projects that provide environmental benefits and support the sustainable development of Hong Kong. The Green Bond Framework sets out how the green bond proceeds will be used to fund projects that will improve the environmental and facilitate the transition to a low carbon economy. Pilot Bond Grant Scheme - The three-year scheme was launched in May 2018 to encourage local, mainland, and overseas enterprises to issue bonds, including green bonds in Hong Kong. It will cover eligible enterprises issuing bonds in Hong Kong for the first time.