Building a World Top Green and Sustainable Bond Hub

22 Hong Kong’s Transition Towards a Green and Sustainable Finance Center: Building a World Top Green and Sustainable Bond Hub Prioritizing green and sustainable bonds as the key step towards Hong Kong’s sustainable financial transition can complement the imbalance in Hong Kong’s financial industry, and align with the growth of mainland and international green bonds. Hong Kong should grasp this opportunity to realize green transition. Through the joint investigation of 48 green finance institutes in the city, the Hong Kong Institute for Monetary and Financial Research (HKIMR) and Ernst and Young Global Limited have found that the high external review cost and standard incompatibility are issuers’ concerns in relation to issuing green bonds in Hong Kong. In addition, research looked into manpower and the financial infrastructure of Hong Kong. The HKIMR interviewed 129 Hong Kong green finance stakeholders and discovered that insufficient green bond issuance and the listing infrastructure, as well as the insufficient incentives are impeding issuers. The Global Green Finance Index (GGFI) has also indicated the significance of manpower and infrastructure. All these factors are reasons why Hong Kong is facing multiple challenges to becoming a leading green bond hub. This section will explore how the current green taxonomy, the green bond principles and other criteria may influence the growth of green bonds in Hong Kong. In addition, we will consider the development of manpower and infrastructure in Hong Kong. 3.1 The Regionally Diversified Green Taxonomy Green taxonomy is a system listing key economic activities and capital in conformity with environmental and sustainable purposes. This is done through setting technical measures and institutional arrangements. Under its pillar, countries and regions guide public and private funds to flow into the green economic activities that conform with the climate, environment and development goals. These activities involve financial institutes and regulators which collect data through green financial tools and supervise the green projects. Green bonds are issued and all or part of the proceeds are directed towards these projects. In such a system, green certified bonds can obtain a more advantageous issuance rate than traditional bonds. The government support further reduces the issuers’ financing costs. In an ideal scenario, green bond investors will no longer need to make subjective judgments or conduct expensive due diligence, as a transparent green market should boost their confidence. Through the process outlined above, green taxonomy is key in green bond exchange. At present, there are 47 taxonomies in effect or under development. Countries and regions establish their own approaches to such systems according to their local economic development and industrial characteristics. The EU Taxonomy is one such system that is widely used. In June 2021, the EU passed the Sustainable Finance Taxonomy Climate Empowerment Act . At this stage, the EU taxonomy gives priority to green economic activities that make “substantial contributions” to “climate change mitigation goals” and “climate change adaptation goals”, and comply with the “principle of no significant damage”. The green taxonomy in Mainland China has also developed rapidly. In 2015, the PBoC released the first domestic green bond standard, the Green Bonds Support Project Catalog (2015 Edition) , with detailed green standards for green financial bonds. The Guidance Catalog (2019 Edition) vigorously promoted the green standardization of green corporate bonds a few years later. In February 2021, the PBoC, NDRC and the China Securities Regulatory Commission (CSRC) issued the Green Bonds Support Project Catalog (2021 Edition) (referred as China Taxonomy). It includes three major goals of environmental improvement: climate change response, resource conservation and efficient