Sustainable Finance In Hong Kong: Establishment Of Cross-agency Steering Group And Upcoming Developments.

On 5 May 2020, five financial regulators and two government bureaux published a joint statement to announce the establishment of the Green and Sustainable Finance Cross-Agency Steering Group to drive green and sustainable finance policy in Hong Kong.

The last two years have seen a number of initiatives by financial regulators and the government to promote sustainable finance and tackle environmental and climate risks. The steering group is intended to ensure that Hong Kong has a cohesive and comprehensive strategy for the financial industry which is aligned with international and regional developments.

An overview of the developments in major APAC jurisdictions as well as the broader evolving international policy environment can be found in an industry paper published in early March 2020 and co-authored by the Asia Securities Industry & Financial Markets Association and Herbert Smith Freehills (and its Indonesian associate firm, Hiswara Bunjamin & Tandjung) – Sustainable Finance in Asia Pacific: Regulatory State of Play.

Cross-agency steering group

Initiators and members

The establishment of the Green and Sustainable Finance Cross-Agency Steering Group was initiated by the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA).

Other members of the steering group are the Environment Bureau, the Financial Services and the Treasury Bureau, Hong Kong Exchanges and Clearing Limited, the Insurance Authority and the Mandatory Provident Fund Schemes Authority.

Objectives and focus areas

The steering group aims to

• coordinate the management of climate and environmental risks affecting the financial sector;

• accelerate the growth of green and sustainable finance in Hong Kong; and

• support the government’s climate strategies.

It intends to do so by:

• examining policy and regulatory issues in green and sustainable finance, particularly those which may have a cross-sectoral impact;

• facilitating policy direction and coordination to ensure that Hong Kong has a cohesive and comprehensive green and sustainable finance strategy;

• addressing technical cross-sectoral issues by, for example, forming technical working groups and consulting with experts and stakeholders;

• tracking international and regional trends, issues and developments in green and sustainable finance, and considering how Hong Kong should better position itself and provide leadership in the region and globally; and

• identifying areas where Hong Kong can promote its strengths and thought leadership on green and sustainable finance regionally and globally.

Two work streams

Two work streams have been set up under the steering group – one to study and address cross-sectoral regulatory issues, and the other to coordinate cross-agency market development efforts.

Looking ahead

At its inaugural meeting on 5 May 2020, the steering group agreed to provide strategic direction for bolstering Hong Kong’s position as a leading green and sustainable finance centre in Asia and globally, with a focus on regulatory policy and market development. It will also facilitate regional cooperation, including in the Guangdong-Hong Kong-Macao Greater Bay Area.

Other developments to look forward to (which were recently announced or are part of ongoing initiatives by regulators) include:

• Green bonds – The Financial Secretary announced in his 2020-2021 budget speech in February 2020 that the government intends to issue HK$66 billion in green bonds within the next five years, having regard to the market situation.

• HKMA’s common assessment framework on green and sustainable banking – This is part of phase one of the HKMA’s measures to promote green and sustainable banking. The draft framework is expected to be finalised shortly, following feedback from the industry. The framework is a self-assessment to be conducted by authorised institutions, focusing on their readiness and preparedness in managing climate and environment-related risks. The HKMA intends to implement the framework on selected authorised institutions initially.

• SFC initiatives in respect of asset management – In the results of its survey on integrating environmental, social and governance (ESG) factors and climate risks in asset management (published in December 2019 and is one of the initiatives under the SFC’s Strategic Framework for Green Finance), the SFC indicated that it would take the following steps to better align its regulatory regime with global standards and to assist firms in stepping up their ESG efforts:

• Set expectations for asset management firms in areas such as governance and oversight, investment management, risk management and disclosure, which focuses on environmental risks with an emphasis on climate change;

• Provide practical guidance, best practices and training to assist asset management firms in meeting the SFC’s expectations; and

• Establish an industry group to exchange views amongst the SFC and experts in environmental and climate risks as well as sustainable finance