Grace HUI, Head of Green and Sustainable Finance at Hong Kong Exchanges and Clearing (HKEX), outlines what it takes for Hong Kong to become a leading city for green investment.
Asia still has some way to go to catch up with Europe and the US when it comes to the green finance ecosystem. But even so, green finance is booming in the region.
According to Grace Hui, Managing Director and Head of Green and Sustainable Finance at Hong Kong Exchanges and Clearing Limited (HKEX), the city has all the right ingredients to lead the green change in the region. The only way to go is up, she says.
Hui believes that if the right set of regulatory standards is established, along with education, expertise, and a greater availability of ESG-related products, Hong Kong has what it takes to become the green finance hub of Asia.
Moreover, Hui says that HKEX has a key role to play. “We have many talented finance professionals in Hong Kong, and we are a super-connector to China and the rest of the world, this makes us an important sustainability influencer,” she says.
The first step is to set standards and ensure that there is sufficient disclosure, Hui says. Over the last seven years, HKEX has been working hard to provide an appropriate ESG reporting guide for listed companies. Because of the voluntary nature of the guide at first, companies did not actively participate.
Since 2015, ESG reporting and disclosure became mandatory and after an upgrade in July 2020, companies must now address ESG issues at the board level. Hui says this is a step forward because listed companies now have to treat ESG reporting as more than a ‘tick-the-box’ exercise. It encourages companies to incorporate ESG risks and opportunities into their overall corporate strategies.
“This is important because ESG is often a backward-looking process. The latest update has forced companies to think about what they are going to do in terms of environmental and social KPIs, targets, and so on,” she explains. “So the ESG Guide no longer contains ‘recommended disclosure’ – it only has two levels of disclosure obligations: mandatory disclosure requirements or ‘comply or explain’ provisions.”
A giant leap
Further to that, HKEX has taken a giant leap towards building Hong Kong’s sustainable and green finance ecosystem by introducing Asia’s first-of-its-kind Sustainable and Green Exchange (STAGE). The online portal is an information platform where investors can find sustainable, green, and social-investment products in one place.
STAGE has four purposes. Firstly, to get all the sustainable products on to one page so that investors can find them easily. Secondly, it allows issuers to showcase what they have achieved in terms of ESG. Issuers can outline the purpose of their issuance (e.g. green bond framework) and show how the proceeds of the issuance were used and any resultant impact on the environment, or on society (e.g. post-issuance report).
Thirdly, it allows investors to do due diligence and monitor their green investments. Fourthly, and perhaps most importantly, it is an education and advocacy platform for issuers and investors.
“This information platform is an important way for us to bring issuers and investors together. We want to bridge the information gap,” says Hui.
There is a huge knowledge gap that needs to be filled in Hong Kong. According to a recent Friends of the Earth survey, of 223 respondents surveyed, 82 percent were not knowledgeable about green finance, and 68 percent had never heard of ESG.
This is disappointing, says Hui, noting that the HKSAR Government has been active in areas such as promoting the issuance of green bonds. The Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC) have also worked hard to educate the public about green finance. The problem is that there is not a wide enough variety of green or sustainable investment products for, say retail investors to choose from. “We need more products to facilitate the knowledge in sustainable investing,” she says.
Private sector to play a part
Green finance is important to HKEX because it presents a business opportunity as well as a CSR opportunity. The large amount of financing that is needed to transition to a low-carbon economy means that funding from governments will not be enough, so the private sector will play a big part. Hui says the United Nations (UN) had suggested that US$5 trillion is needed annually just to meet the Sustainable Development Goals of the UN by 2030, and half of that must come from the private sector and donors.
“This means more business opportunities for us,” says Hui. “If you look at the 2018 data from the Global Sustainable Investment Alliance, about US$30 trillion is in sustainable investments globally and only 0.8 percent of that is in Asia. So you can imagine the growth potential for Hong Kong and other parts of Asia. It’s a huge business opportunity for Hong Kong as an international finance centre and also for an international stock exchange like HKEX.”
As for CSR, as a leading global exchange, and a member of the UN’s Sustainable Stock Exchange, HKEX wants to make a difference and play a role in managing climate change and making the world more sustainable. We want to do this by facilitating sustainable investments which involve accessibility and transparency.
“We need to facilitate information flow between issuers and investors. At the moment, there are said to be certain barriers to investing in ESG, primarily because of the lack of comparable and credible ESG data and possible risk of greenwashing,” she says. “We have to find ways to address this and let investors help support issuers’ transition to more sustainable business practices.”
Although it feels like there is still a long way to go, Hui says that Hong Kong is “getting there,” as more bodies like HKEX and the HKMA are making further moves towards more sustainable investing. Both HKEX and the HKMA are signatories to the UN Principles for Responsible Investment – commonly practiced responsible investment approaches in terms of objectives includes “do no harm”.
“The ‘do no harm’ would include not investing in tobacco companies, weapons or the coal industry. There are also other approaches such as positive screening, thematic or impact investing. I think we are heading towards mainstream sustainable investing. But we need more of a variety of investment products to help facilitate ESG integration activities,” she says.
The future is bright for green finance. Green bonds have exploded in Hong Kong, and that market raised HK$75 billion in 2019, up from HK$2.4 billion in 2015. With China’s commitment to carbon neutrality by 2060, coupled with the fact that China has been one of the largest issuing nations of green bonds, “the only way is up,” Hui says.
“The city [Hong Kong] has all the right ingredients to lead the green change in the region. The only way to go is up,” says Grace Hui, Head of Green and Sustainable Finance at HKEX.
HKEX STAGE Green Finance Initiatives
The Sustainable and Green Exchange (STAGE) - A sustainable finance platform, the first of its kind in Asia, that promotes visibility, transparency and accessibility to a range of sustainable and green financial products. The goal is to provide investors with access to a comprehensive database of green investment options that are available on Hong Kong’s securities markets. It will also act as a valuable education and advocacy platform that promotes knowledge sharing and stakeholder engagement in sustainable finance.
The Green Bond Endorsed Project Catalogue - HKEX strongly supports the joint efforts of the three Mainland regulators in preparing the Green Bond Endorsed Project Catalogue. The purpose of the catalogue is to harmonise the Mainland’s green definitions and to align it with international standards and practices by excluding the utilization of fossil fuel-based energy in the catalogue.